What's next for Puzzle & Dragons and GungHo?

On one hand, GungHo Online Entertainment is in the same echelon as King and Supercell, which it purchased a major stake in: It's a world-beating mobile game company, with millions upon millions of installs of its biggest hit, Puzzle & Dragons, and the revenue that comes along with it.

But it's quite different from those companies, too. It's located in Japan, of course, which is a huge cultral difference. It also owns a number of formerly indepedent studios which are focused on developing console games (the jewel in that crown is Grasshopper Manufacture, best-known for cult classics Killer7 and No More Heroes, and its idiosyncratic auteur Goichi "SUDA51" Suda.)

But it's also different because its founder, Kazuki Morishita, still keeps his hand in the console space, designing titles for niche audiences on niche platforms. The Puzzle & Dragons team even developed the extensively reworked 3DS edition of the game, Puzzle & Dragons Z, itself, rather than farming it out. 

What does Morishita think about the scrutiny his company, so long never discussed in the West, is under? What is his philosophy toward free-to-play games, and what would he say to the skeptics who mistrust them? This meaty interview, conducted at GDC, gets to the heart of this company's philosophy toward business and game development. 

I noticed you'd been reporting a lot more the success of Puzzle & Dragons in the West. Is that something you're emphasizing for 2014?

In terms of our priorities, in terms of our global initiatives, right now Japan is number one, obviously. But outside of Japan, U.S. is number two. So yes, we're trying to focus a lot more on the U.S. side.

What do you think about the global social games market? Is there truly a global social games market, or are the hits going to be different from country to country? 

I used to think that way -- that it was segmented. Right now I'm trying not to think of it that way, obviously, because it closes all the doors.

There's no way for me to think with a Western mentality, because I'm Japanese. After reincarnation, maybe I'll be a Westerner, but that's the only way.

This goes for both the U.S. and Japan as a market, but I've never really created games based on the user base. It's more that, as a company, we create what we think is good at GungoHo. Internally, whatever we think is good, we always try to release that.

We're not trying to focus on the user base -- we're trying to create a game that's solely good based on quality, and what we think is good. If that sticks, then good. If not, we've got to go back to the table and rethink everything.

In terms of the service that we're providing, whether that's on the backend side, or customer support, that all has to be culturalized, so we have to base it off of the country that we're handling.

I think it's a layered, step-by-step process that we're trying to take. Obviously, that takes a bit of time. But I think that's our focus right now. We're taking it one step at a time, being able to have a presence in the U.S. that's as strong as it is in Japan.

In terms of gaming, we're not really focused on creating social games. That's not our thing. Obviously the business model is completely different, but in terms of how we create games, when we try to make a game, we put it on par with creating a console game -- whether it's mobile or console.

Even our mobile titles, we have a lot of experience on the console side as well. We have a lot of creators on the console side, and those are the people creating our mobile games right now in our company.

I really believe that the success that we're having is because we're creating games off of the console model and treating our games as seriously as the console games we've done.

Obviously, Puzzle & Dragons started off as a smartphone title, but it evolved into Puzzle & Dragons Z, which is the 3DS version. That's already gotten a million sales within the first month after release, so we believe that's our strength. And that's the same team. Smartphone, console, whatever -- it's the same team, the same members working on the title.

Puzzle & Dragons Z, for the Nintendo 3DS.

You say you have that strong console background which you're bringing to the mobile game sphere. Are there differences in the way you make these games, or do you really not see it that way? Do the knowledge and your approach transfer directly?

In terms of the business model, it comes after. Obviously, like I mentioned earlier, we focus on the good of the game. Whether the game is good or not is probably the most basic, core point we base our development off of. The business model itself comes later.

I'm deeply involved in the creative side of the games. I do a lot of game design as well. When I'm doing game design, I really don't think about the sales potential or the monetization.

We've released six mobile titles from 2012 till now. They all have been profitable. Four out of the six are making more than a million dollars a month. Obviously, Puzzle & Dragons is a huge hit for us, so everybody focuses on that. But we do have other titles that we're actually releasing and are doing great. Some of them, we're making multi-million dollars a month. We're not really thinking about sales when we're creating games, but obviously the sales are following the quality, is what we're thinking.

GungHo has been around for a long time. What's it like to suddenly have so many people outside of Japan following your company, and scrutinizing it?

In terms of scrutiny, for example, everybody's following our sales. So if it dips a little bit, everybody says, "Oh, Puzzle & Dragons is already done. They've got to find something new." We do have a dip in our sales, sometimes. They compared our third quarter 2013 sales to our second quarter. It did go down. I mentioned that our fourth quarter would be higher and nobody believed me, but that's how it turned out to be.

Note the dip for 3Q and the jump for 4Q. Deliberate, says Morishita. 

The fourth quarter was probably the highest sales we've ever had. The reasoning is pretty much easy to explain. During the holiday season our MAU does increase. And special events -- if we have a good event that is successful, our ARPU goes up. But we don't really want to max out the ARPU. From our standpoint, we don't want it to be too high.

It's on purpose. If ARPU goes up one quarter, for the next quarter we want it to go down a little bit. The higher the ARPU goes up, it's sort of similar to starting to a bonfire. If you keep feeding it kindling, it starts burning faster and stronger, and sooner or later you'll run out of kindling. That's what we're trying to avoid.

We do have our own business logic that we're basing it off of. Scrutiny is great, but we do have our own business strategy. People can scrutinize us, but we have to do our own thing, our own business model. It's not that we ignore it, but we don't take it too seriously.

I'm sure that some people will like us; some people will be anti-GungHo. It's bound to happen. Our continued focus will be to focus on creating good games. That's where we want to stay.

I think a lot of people in the mobile game space would look at your company and say: "Why are you making games for the PlayStation Vita, still? Why did you bother to buy Grasshopper Manufacture?" 

I don't know why people are negative about us doing this stuff.

Smartphone, or PlayStation 4, or Vita, they're all just platforms. It is our initiative. We get to decide which platform to release a title on based on the ideas we have, as a game concept.

Definitely when you compare them, obviously the smartphone market is growing, and that's obvious from the outside as well. But there's no reason to focus only on smartphone because of that.

I still play console games. I'm more of a console gamer. They may be similar, smartphone games and console games -- but they're different as well, completely different beasts.

The whole approach of creating games for both consoles and smartphones is completely different. With console games, you have more of a loyal following and you're catering to hardcore users. With smartphones, it's less hardcore, more casual, and obviously it's more how to kill your time instead of how to spend your time.

It's the difference between TV and movies. It's the difference between eating potato chips and a full-on, four-course meal. Just because McDonald's opened up their stores doesn't mean that we stopped eating steak and lobster, right?

Last year, the Japanese market because the number one spender on mobile apps, which has gained it a lot of attention. What do you think about that happening, and also the increased attention on Japan? 

I'm not very interested. I don't really think of it as a difference in countries. As I mentioned earlier, I just want to make good games. Whoever plays it, as long as they're enjoying it, I'm just fine with it.

Because of this, a lot of Western mobile studios are starting to aggressively target Japan. It sounds like you aren't concerned from a business perspective, but what do you think about it? 

In terms of other companies jumping into the Japanese market, I think that's great. Obviously it's not something that will change anything in our business model, but coming from the console side, I do play a lot of Western games. A majority of the games I play are Western.

I hope more Western companies joining the Japanese market would be good for the users, as they will have a better chance of understanding Western games. I'd like to see Japanese players playing Western games as well.

It goes both ways. An American car company comes to Japan? That's good. A Japanese car company comes to the U.S.? Nobody's going to scrutinize that. I'm sure they'd talk about it, but it's not that big of a deal, I think.

Morishita's laptop: Rockstar and Puzzle & Dragons.

GungHo owns 20 percent of Supercell now. How would you characterize the relationship between Supercell and GungHo these days? 

In terms of synergy in development, we really don't think that's going to happen anytime soon -- because we want them to make their own games, and we want to make our games. But it's more of an initiative to have a bigger global reach as GungHo, and I think working with Supercell is definitely a good thing to do.

Definitely, with Supercell, we'd like to utilize them more on a promotional basis. Obviously, they have a lot of countries that they're serving, and they have their experience as well as the promotional ideas they have. That's something we'd like to learn from them, and gather data from them, as well, and work together.

The global market is all about your 24-hour engagement, and as a media outlet, we feel they're great, because they do have that 24-hour media reach as well. That's the sort of the way we'd like to utilize them and work with them.

Except for maybe the 3DS, the console market in Japan seems to have declined pretty far compared to the heights of the PlayStation 2 era. Do you think it'll be possible to increase the audience for the next generation?

Obviously the past is the past, so I don't think it's going to go back to what it used to be, because it's always changing. In terms of the smartphone market, obviously the smartphone became a very easy entrance for non-gamers to start playing games.

Those non-gamers, some of them will move on to become real, actual gamers, like we are today. That will open up a new era that's completely different to what we had in the PS2, PS1 eras. Obviously that's a good thing. Whatever was in the past is in the past and something new is born -- that's the way it should be, and I think that's a good thing.

Nintendo, you know, is sort of the other way around. Obviously they struggled with the Gamecube and the N64, but then they did well with the Wii and the DS. I'm sure they'll have great ideas that they'll bring to the table as well. It's something that we look forward to. They obviously have enough money to do that.

Have you seen smartphone players come over to the 3DS version of Puzzle & Dragons? Do you have any way of seeing that? Are you seeing the trend of them becoming "gamers"? 

In terms of the route from casual to core user, I don't think it's been created yet. With Puzzle & Dragons to Puzzle & Dragons Z, I'm sure there are people who have taken that path, but we don't have any data and haven't seen any numbers that support it.

When we created PDZ, that was more of a focus on people who don't have smartphones -- that equals kids. That was more of our focus, and our marketing supported that as well. I think there probably are people who went from smartphone to console, but it's just that we haven't seen that route yet.

We believe that in terms of grade school kids, the younger generation, they definitely know the brand name Puzzle & Dragons and a lot of them have already played it. I think we've covered that area, and our share there has been pretty much maxed out.

Speaking of game design and types of games and how they fit, would you like to see free-to-play become more prevalent on consoles, or does it not matter to you?

Definitely we would like to keep doing free-to-play, even on consoles. That's a good focus to go on with. We really think there is pretty big potential for free-to-play on consoles. But we also feel that it's not a thing to do just because it's a thing to do.

It has to be done in a way that core users are able to understand and agree with, because a lot of people don't agree with the free-to-play model. If you do it just because it's a trend, or just because everybody else is doing it, they're going to point that out.

Many of our readers, who are game developers, are skeptical of the free-to-play trend, because they have a background in traditional games. You see it with the players as well.  What do you say to the skeptics, now that you've been on both sides of it?

As a company it's not that we're totally fixed on free-to-play. It's definitely a viable business format. But, for example, Puzzle & Dragons Z is completely retail.

The biggest difference between retail and the free-to-play model is that retail is about having an endgame, whereas free-to-play does not. What the company provides in place of that would be the service. And I think that once you understand the service part, people will more understand the free-to-play model -- how that works with the game and service combining together. It becomes a completely different product. Around 2005, 2006, on the personal level, I was against the free-to-play model.

In terms of Puzzle & Dragons there are still a lot of people who haven't monetized at all yet. They've been playing completely free. If you calculate it, we are giving out one magic stone pretty much every day to users for free, which is the equivalent of 99 cents. There are a lot of people who just hoard that, they keep it and they put it to the side, and they just use it once in a while when they need to. So there are a lot of people who use the premium currency in the game -- yet they haven't monetized.

A game becomes a product the moment I provide it to someone; once they begin playing it, it becomes an actual product. To the people who don't play the game, it's just my ego taking form on a phone, for example.

From a creator's standpoint, the more people who play and enjoy it -- actually enjoy it -- that's the end goal for me as the creator. Until someone plays the game, the product itself doesn't exist. Obviously we want people to play and enjoy the game, but unless they play it, it's just smoke and mirrors; it doesn't exist as a product.

Morishita's paths from start to goal: Free players on the left, and paying players on the right. 

Monetization is sort of like a tutoring service. Basically to go to college, for example, some kids need tutors and some don't. They're both trying their best at what they do: Studying. Some people have to pay to get to a certain level; some people don't. We believe that's sort of similar to the monetization model.

I believe that gaming is all about the goal and how you get there, how much work you actually do to get there. The reason people feel like completing something is fun or enjoyable is because you've worked hard to get there. It's the journey.

The word in the center is "努力" or doryoku, defined here as "great effort."

That's a very Japanese concept, but it means something like "working hard." That's the core in the middle that both free and paying people have to go through.

Let's say the goal is to get into college. Some people do it by just working hard and studying hard by themselves. Some people take the route of hiring a tutor and paying. Either way, free people and paying people, they all have these levels of where they're learning grammar or doing calculations. They need to take those steps. It's the same steps that they have to take -- it's just that one person is paying and one is not. The end goal is pretty much the same.

I keep on saying that we're a tutoring service, model-wise. We don't want them to just pay and have fun, we want them to work hard and practice themselves. If you need to pay once in awhile, you pay. If that's how you enjoy the game, then that's how you enjoy the game.

I believe it's always about the starting point, and also the goal, and how you get there -- it's the journey there. That's what I think about when I create a game. If that's fun, that's our job -- to create something that makes the journey there fun.

You might not believe it, even though I keep saying it, but I do not think about the sales when creating a game, because that would get in the way of making the game fun. It's about blocking certain stuff so that users will pay, right? That always ends up into a not-so-fun game, pretty much. So that's what I try to avoid, and why I really do not think about sales when I am making a game.

That's my philosophy I came up with when making free-to-play games, and I feel that's the base model that we should continue doing as GungHo.