Japan gaming: Capcom brings street fighting spirit to mobile games

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In Japan’s gaming sector, Nintendo and Sony’s PlayStation are seen as the typical combatants. But what of stalwart local rival Capcom? Its successful Street Fighter franchise, a martial arts tournament game launched in 1987, means it merits more attention.

Capcom has something new in its arsenal. It will combine monster fighting action from its top-selling Monster Hunter games with the location-based gameplay of the worldwide sensation Pokémon Go. Capcom has developed its mobile game Monster Hunter Now with Niantic, the maker of the Pokémon Go. More of its popular titles will follow for mobile gamers.

It is off to a good start. Monster Hunter Now has been downloaded 5mn times since its launch less than two weeks ago. Already it is the top grossing app on Apple’s app store in Japan.

Its mobile strategy makes a lot of sense. Mobile games account for the largest segment of Japan’s gaming sector, more than 40 per cent. These are also the most profitable platform for games, with gross margins as high as 90 per cent for the most popular titles.

The big difference is that mobile game makers can avoid lower retail margins for hardware and accessories. In-app spending by mobile gamers account for almost three-quarters of the total spending in all apps.

Capcom’s share price is up 45 per cent in the past year. It trades at 26 times forward earnings, a premium to local peers including Nintendo and Square Enix. This reflects expectations of a sales boost from mobile offerings.

That gap has also widened as repeated takeover speculation encourages accumulation of its shares. Amid industry consolidation, Capcom’s relatively smaller size, with a market value of $9.8bn, makes it a reasonably affordable target despite denials from the company.

In the meantime, Capcom’s home market for mobile games should grow at an annualised growth rate of 10 per cent for the next five years. Assuming Capcom continues to defend its position, there are more gains to come.