No gambling on social networks, say Japanese authorities

Japan’s Consumer Affairs Agency has warned social gaming websites that it will clamp down on offerings that include elements of gambling, Reuters reports, quoting from the Yomiuri newspaper.

The warning was enough to send the shares prices of prominent social gaming companies like Gree, Mixi shed, CyberAgent and DeNA into a more than 20 percent decline in some cases.

The Yomiuri report over the weekend claimed that the mobile gaming industry is likely to face scrutiny from the government’s Consumer Affairs Agency over practices in which users pay extra fees for the chance to win special items, in a practice dubbed “complete gacha.”

This is a system that encourages gamers to spend a few hundred yen at a time for a chance to win virtual “rare” cards. Completing a set of the cards lets gamers win additional prizes.

Social gaming is big business in Japan, with Gree reportedly boasting a market cap of $6.2 billion. Its founder and CEO, Yoshikazu Tanaka, holds 49 percent of the stock and is worth $1.3 billion – one of only three billionaires in the region under the age of 35.

The Consumer Affairs Agency will first contact companies that it feels are offering gambling-related products with a warning. If they do not comply, the agency would then send a cease and desist order.

“We are investigating the ‘complete gacha’ case and whether it violates the law. And we are currently still reviewing in this direction,” said Kazuyuki Katagiri, an official at the consumer bureau.

Spokesmen for Gree and DeNA said they had not yet received notices from the government agency.

Yuki Nakayasu, a research analyst at Credit Suisse in Tokyo, told the Japanese newspaper that average revenue per paying user of domestic social networking games totals around 20,000 yen ($250).

“The key point is that we do not know how much of a share the additional charges or ‘gacha’ contribute to revenue per user, but we do not think it is a small amount,” said Nakayasu.

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