Japan officially declares lucractive kompu gacha practice illegal in social games

By Kathleen De Vere Comment

As widely anticipated, Japan’s Consumer Affairs Agency has officially declared kompu gacha illegal. According to a report in the Yomiuri Shimbun, any developers using the controversial monetization mechanic in their games after July 1 will be subject to fines.

Kompu gacha, or “complete gacha” is a monetization mechanic in social games that heavily incentivizes the practice of gacha — paying a small amount of money to get an item at random, similar to purchasing toys from a vending machine.

Games that use kompu gacha typically promise rare “grand-prize” items to players who can manage to amass a set of specific items, which encourages players to spend more money on randomized gacha draws in order to complete their collections. Although extremely lucrative for Japan’s social game companies — some developers see half their sales coming from gacha — the kompu gacha system had come under fire recently for encouraging gambling, particularly in children. According to industry watcher Serkan Toto, the ban does not affect gacha, just kompu gacha.

The Yomiuri Shimbun’s explanation of kompu gacha.

As predicted, the ban is covered under Japan’s Act against Unjustifiable Premiums and Misleading Representations and the Law for Preventing Unjustifiable Extra or Unexpected Benefit and Misleading Representation. During a press conference announcing the ban, Jin Matsubara, Japan’s minister of state for consumer affairs and food safety said “significantly increasing the passion for gambling is not appropriate to the education of children.”

Although not technically illegal until July 1, most companies are not waiting until the government deadline to remove the practice from their games. After the Yomiuri Shimbun broke the news that the Consumer Affairs Agency was considering banning the practice, GREE, DeNA, Mixi, CyberAgency, Dwango and NHN Japan all announced they would phase out the mechanic from their games and games on their platforms by the end of May. Affected developers include Konami, Bandai Namco, Sega, Zynga and Klab.

It remains to be seen what impact the ban will have on the earnings of Japan’s social gaming companies, but with analysts predicting the companies will see net sales decrease by at least 6 to 18 percent, both companies stand to lose millions of dollars.

During their most recent quarters, GREE and DeNA both posted record earnings results. GREE’s net sales hit 46.2 billion yen ($578.1 million) while net income climbed 186 percent year-over-year to 13.4 billion yen ($167.6 million). Rival DeNA saw its net sales hit 42.2 billion yen ($529 million) and net income of 10.7 billion yen ($134.5 million).

Both GREE and DeNA’s stocks declined on the news. GREE’s stocks fell 5.93 percent to close at 1,365 yen ($17.20) while DeNA’s dropped 2.46 percent to 1,945 yen ($24.51)

For more information on kompu gacha and how the ban might affect U.S. companies, read our feature report on the issue here.