Why the man behind Puzzle & Dragons sees potential in console games

At E3, I had a chance to talk to Kazuki Morishita, president and CEO of GungHo Online Entertainment -- creators of perennial champion of the App Store charts, Puzzle & Dragons. As of this writing, it's the number-three top-grossing game on Japan's iOS charts -- but check another day, and it's likely to be number one or two, but no lower.

The company hasn't produced any more massive mobile hits, but it has hit upon a sustainable formula. Morishita is an idiosyncratic CEOs for a mobile game companies, though: He was skeptical about free-to-play, prefers to play big-budget console games like Uncharted 4, and saved boutique developer Grasshopper Manufacture (No More Heroes, Lollipop Chainsaw) from ruin by acquiring it in 2013.

I've already posted a story on the studio's newly announced relationship with République developer Camouflaj, which is interesting in itself -- that the mobile titan is working with a studio that also embraces mobile as the future of games -- but instead of going match-3, is using the form to make console-style games.

That reflects Morishita's own tastes. The rest of our conversation, which took place at E3, covers topics such as working with Nintendo (and a little on that company's impending entrance into the mobile market), the locked top-grossing charts on mobile, and how the shrinking Japanese console market is more robust than it looks. 

A caricature of Morishita celebrating GameArts' 30th anniversary, taken from its website.
He still heads up the GungHo-owned studio. More on its legacy later on in the interview.

If you look at the U.S. App Store, Clash of Clans is stuck at number one. If you look at the Japanese App Store, it's a similar situation: Puzzle & Dragons, Monster Strike, and White Cat Project stay at the top. There's a lot of talk about whether these titles are locked. What do you think about the situation?

Kazuki Morishita: So I think it's the way you look at it -- which angle. Obviously, if you look at the rankings straight-on, then yeah, it's not changing.

The way GungHo looks at the ranking is not by downloads, or top-grossing, or anything; it's more [based on] active users. So among the top five that keeps switching around but stays in the top five, I think we probably have the highest active users, but our ARPU will probably be much, much lower than the others. We base it off of our active users and how many people are actually playing our game, rather than top revenue in terms of ARPU. Our policy is a wide audience with not too much depth.

When you consider the other titles we've released besides Puzzle & Dragons, we do have a very high active user base, but a low ARPU. But even then, we are making enough revenue. In terms of that, I think that's the angle we'd like to look at. Those other titles, do they go up to the top ranking? No. But other titles make sense. They're being played by lots of users.

Do you think that the top is going to stay locked on the stores, or that it's going to change?

KM: Probably nope. The top [titles] are probably going to stay there. When we launched Puzzle & Dragons in 2012, we had a core game loop that really made sense for all of the users; that's why it was downloaded so many times.

Nowadays it seems a lot of people are mimicking that concept. So there are a lot of titles out there sort of doing well, maybe in the top 10, top 30. But who knows? Maybe another new and innovative idea will come out of the box and completely change the landscape, so there's always the possibility. But short-term, probably not.

What it would take to the get the top is much more these days.

KM: Even a game that just monetizes well or just as a high ARPU, that's not what GungHo wants to publish. In terms of Puzzle & Dragons, it's been, what, three-plus years since we released it? So a lot of these users are veterans. These veterans have been playing the game for a long time, so there's investment inside the game. Whether it's friends, or their monsters, or just their ranks. By having these veteran players continue playing, they're just increasing their investment, so that's why they stay inside the game as well. So that's why we have pretty high active users.

I have the sense that you, as a CEO, you pick games and developers that just personally interest you. If you look at other companies that have done deals, they more worry about what will suck in the hugest number of users, or what category we're lacking in. Is that accurate?

Morishita speaking at GDC 2013 -- showcasing his trademark stoicism.

KM: [Morishita mimes an exaggerated serious expression.] No, no, I'm calculating. [He laughs.] Just kidding!

When I try to come up with a concept, the base concept of a game, I only have myself to reference whether it sounds interesting or not. So technically I guess I am just making games off my personal interest. So I guess you're accurate in that sense.

GungHo acquired Grasshopper awhile ago. You see companies like Tri-Ace getting bought. So do acquisitions interest you? Because you must have the cash.

KM: Again, I think it goes back to the personal part. In terms of Grasshopper, I just hit it off with [founder Goichi "SUDA51"] Suda, initially, and became friends with him. So that was one of the biggest reasons why I decided to jump into this acquisition. I think that's a lot of what has to do with it. And it has to be beneficial to both sides, so as long as there's that, I'm definitely interested. And with Grasshopper, we're actually making titles together as GungHo and Grasshopper -- Let it Die was announced last year.

Puzzle & Dragons: Super Mario Bros. Edition

You partnered with Nintendo for a couple of Puzzle & Dragons games now. Was that an interesting experience? What did you think of that experience?

KM: Working with Nintendo, this was not our first time. We did work with them on a cooperative development thing. [Ed. note: GungHo studio GameArts, which Morishita also leads, co-developed Super Smash Bros. Brawl with Nintendo.]

It's not our first time working with Nintendo, so there is a pretty good connection. We've got a good relationship with them. We're cooperative with a lot of things, even development. We've worked together, as well.

Initially the idea for the Super Mario Bros. Edition popped up when we sort of went rogue and created a Super Mario version. We played around with it a little bit and it was good, so we decided to show it to Nintendo, and they were like, "Wow. This is pretty good." So that's sort of how our deal came through.

In Japan, GungHo was the publisher for the title; in North America and Europe, NOA and NOE are the publishers. It's been a great experience with them. It's a very cooperative team over there.

And now Nintendo's going to make mobile games. As someone who's in both the mobile and console space, what are your thoughts on this?

KM: Maybe that's a question for Nintendo. But it's an opportunity for them, right? If they decide it's an opportunity, internally at Nintendo, that's fine. Does that do anything for us? We just do what we do, and we just go our way and they have their own style of doing things. I think it's fine.

Do you think it's going to work well?

KM: Maybe that's a question for Nintendo.

You saw the E3 press conferences. Have you been able to walk around the show at all? What's your impression?

KM: A lot of exciting titles, especially compared to last year. Compared to last year, too, VR games. Personally, I'm looking forward to Uncharted 4.

The Japanese console market has really decreased. But using E3 as a metric, it seems robust in the West. Do you think that the American and European console markets will continue to keep strong in a way that the Japanese market has not?

KM: From the outside, it probably looks like console is shrinking. But analogy-wise, I'd say, when you jump you bend down and get smaller once, and then you just jump back up. So maybe consoles are going to go back up again.

It's definitely a challenging market, especially if you're releasing stuff physically. But if you look at the mobile market right now, it's already gone past a red ocean to a black ocean. You throw a rock in, and it immediately disappears.

As the market shrinks, that means less people are making it for that market, but that means that there less competitors, so that means that if you make a game it might be a big hit. In terms of Japan's market, [Nintendo 3DS titles] Puzzle & Dragons Z and Puzzle & Dragons Mario did well. I'm not completely agreeing with the "decreasing market" in Japan.

With your company, would you consider making a large investment in a console game? On a scale of Puzzle & Dragons Z to Uncharted, what kind of investment would you consider making in a console game?

KM: Yes. We are.

Kenji Hosoi: Bigger than Puzzle & Dragons Z, probably smaller than Uncharted 4. Definitely we have plans. [Ed. note: Hosoi is a staffer at GungHo America and interpreted this interview.]

I suggest Grandia IV.

KM: With the Grandia and Lunar IPs, there are high expectations, so that's kind of a scary route to go to. It's always hard when you're making a numbered sequel.

Grandia II

GungHo recently did a poll for what game to re-release, and it ended up being Grandia II. I think a lot of companies that had found huge success in the mobile space would not be worrying about putting 15-year-old Dreamcast games on Steam. It's interesting to see you still care about the culture of your old games, too.

KM: GameArts, Grandia? That's part of GungHo as a whole. That's part of our DNA as well. So that's something we want to hold dear to and continue providing to our user-base.