This Company Had Most Lucrative Mobile Game Ever. Now It Needs a New Hit

(Bloomberg) -- Five years ago, Koki Kimura pulled off an unthinkable turnaround to save his company. Now, he’s trying to do it again.

The 42-year-old runs a tech company called Mixi Inc. with one of the most tumultuous corporate histories in Japan. It operated the country’s most popular social network for years -- until Facebook showed up. Then Kimura led the games business to develop Monster Strike, which became the most lucrative mobile game in history. Now profits are slowing and a scandal over concert tickets claiming the job of his predecessor as president, Mixi needs reinvention again.

Four months into his new role, Kimura thinks he has the answer: a new digital product that combines the entertainment of watching traditional sports with the interactivity of video games. The unveiling is months away, but Kimura suggests it could be like watching LeBron’s Lakers with friends while competing to predict specific outcomes -- like how many points a player will get or how many fouls.

"We’re preparing a new way for you to get involved in sports together with your friends,” Kimura said during an interview at his office in Tokyo’s Shibuya district, the heart of Japan’s tech scene.

He predicts the new service will eventually be more important to Mixi than games, which generated 98 percent of operating profit last fiscal year. He estimates the product, plus another new health-related venture, will account for two-thirds of earnings in about five to ten years.

Investors aren’t giving him much credit. Through Thursday, shares were down 61 percent since peaking in June 2017, wiping out about $3 billion from Mixi’s value. Monster Strike, the main earnings driver, has seen profits shrink for three straight quarters and the scandal at its ticket resale site hasn’t helped. In June, investigators concluded the site resold tickets without authorization, sometimes at high mark-ups, including for Japan’s most popular boy bands. The backlash tarnished Mixi’s image, forcing closure of the site and the resignation of the previous president.

"They’ve gone through so many dramatic management changes, there’s a lack of confidence among investors," said Takao Suzuki, an analyst at Daiwa Securities Group Inc. who has a neutral rating on the stock.

Shares declined 3 percent on Friday in Tokyo.

Mixi launched a Japanese social network at almost the exact time Mark Zuckerberg created his own at Harvard in early 2004. Its platform became used by a tenth of Japan’s population before Facebook eventually overtook it, sending Mixi’s market valuation down 96 percent from a 2007 peak through 2013. With prospects dwindling, the company placed bets on a few long-shot projects: One of them was Monster Strike.

He teamed-up with games producer Yoshiki Okamoto to design the puzzle-action title around interactions between players. Released in late 2013, Monster Strike became an instant hit in Japan and to date has generated $7.1 billion in revenue globally, according to Sensor Tower. That’s more than any other smartphone game ever, surpassing even Activision Blizzard Inc.’s Candy Crush Saga and Tencent Holdings Ltd.’s Honour of Kings, according to the researcher.

“It’s incredibly rare to hit the mark so perfectly the first time out,” said Alex Malafeev, co-founder of Sensor Tower.

Monster Strike’s popularity fueled a profit surge for Mixi, sending shares up by almost 3,000 percent through last year’s peak. But after five years, the game is starting to show its age and the company has been unable to replicate its success with newer titles.

Kimura says the new plan is to combine social networking, mobile games and traditional sports viewing through smartphones. Work began last year when Mixi started taking stakes in professional soccer and basketball teams around Tokyo. An ardent fan of the Yomiuri Giants, Kimura said he’s also pursuing stakes in professional Japanese baseball teams. Those partnerships are the building blocks for the new product, which he expects to be unveiled in the first half of 2019.

“Within mobile games, we created a profit engine by getting people excited to play together. I believe we can do the same in sports entertainment,” Kimura said.

Besides the sports service, Kimura is developing a venture called Smart Health that aims to help the elderly stay more fit and socially connected. It will include building gyms and manufacturing a new device to measure body signals, he said. Kimura declined to provide more details, but said collecting data on an individual’s health and sharing it within a trusted social group is part of the service.

Mixi isn’t giving up on mobile games and has budgeted 11 billion yen ($96 million) this fiscal year to developing new titles. But Kimura says the unpredictability of the games business led him to try investing something new, this time at the intersection of sports, games and social networking.

"It’s not about just watching sports,” he says. “It’s about offering a service that drives interaction with your friends."

To contact the reporters on this story: Yuji Nakamura in Tokyo at ynakamura56@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Peter Elstrom

©2018 Bloomberg L.P.