“All you’ve done is waste 100 billion yen” Japanese gacha game giant put on blast by shareholders for milking same hit for 13 years while releasing failures 

Japanese game company GungHo Online Entertainment has been criticized for its stagnating performance, lack of transparency, and inability to create another hit that comes close to their long-running, successful smartphone game Puzzle & Dragons. Investment advisor Strategic Capital has submitted a lengthy proposal on behalf of the company’s shareholders. It highlights numerous issues, calling on GungHo to “up its game” and implement reforms to win back shareholder trust. 

Although they have developed other titles over the years, Japanese game company GungHo is currently best known as the operator of Ragnarok Online in Japan and the developer of 2012 gacha mobile title Puzzle & Dragons.  

However, Strategic Capital’s report highlights that GungHo is still very dependent on this 13-year-old enduring hit. The company estimates that GungHo has spent upwards of 100 billion yen on developing around 20 other games over the past decade or so, none of which have come anywhere near Puzzle & Dragons’ profitability. The report shows that since 2012, titles other than Puzzle & Dragons have only produced around 10 billion in revenue, despite the 100+ billion yen invested in their development. This includes titles relating to well-known IPs like Disney and Level-5’s Yo-kai Watch franchise.  

This lack of a hit to match Puzzle & Dragons’ success is far from GungHo’s only issue. The report highlights that GungHo has seen its operating profit and market capitalization decline significantly over the last 10 years. However, the pay of its CEO Kazuki Morishita has increased from 120 million yen to 340 million yen over that period.  

For context, this puts Morishita’s total annual salary for 2023 (340 million yen) nearly on the same level as that of Nintendo’s CEO (360 million yen). It goes without saying that Nintendo is a far bigger and more profitable company than GungHo. According to the report, GungHo makes less than a tenth of Nintendo’s profits. These disparities are clearly indicated in the diagrams comparing GungHo’s profits and CEO renumeration to those of major Japanese game companies. 

As the report rather scathingly puts it, “In his message, president Morishita talks about ‘Challenge and Creation’ and ‘aiming to become the world’s No. 1 entertainment company.’ Over the past 10 years, only Morishita’s salary has continued to Challenge and Create, to the point it is now on par with one of the world’s leading video game companies, Nintendo.” 

Strategic Capital proposed a detailed Financial Stability Plan to GungHo. Overall, they suggest that entering a private partnership with another company “is the best option for GungHo” as it would allow them to diversify and expand their reach, instead of relying heavily on Ragnarok Online and Puzzle & Dragons. Other proposed actions include a fundamental review of GungHo’s renumeration system and far more transparency. 

As an aside, the report noted that GungHo has comparatively large cash reserves, which it terms “excessive.” On the surface, having large cash reserves may seem like a good thing. However, with all this money essentially sitting there for a rainy day, this is also being viewed negatively by shareholders. Strategic Capital argues that GungHo should be making better use of this money to drive the development of potential hit games.