In the previous two parts of “The Decline of SIFAS” series, I explained how Love Live! School Idol Festival ALL STARS (SIFAS) has become unpopular and why, in the face of its financial loss, KLab had to sell off SIFAS to MyNet Games. Now, we delve deeper into MyNet Games, and how its management and performance of previous games might have affected SIFAS’ future prospects. I did a lot of research into MyNet Games which included gathering and machine translating lots of Japanese documents, articles and websites and tracking the performance of MyNet Games’ currently operating and terminated games. From my research, I argue that SIFAS’ transfer to MyNet Games and Bushiroad does not bode well for its future. This post will provide background information on MyNet Games and game development before describing how the work of MyNet Games and Bushiroad, the developers and publishers of SIFAS respectively, might influence SIFAS’ prospects.

What is MyNet Games?

MyNet is a Japanese company that does a variety of things in the digital transformation (DX) sector. Its core business is in game services via its subsidiary MyNet Games. MyNet Games does not currently develop its own games. Rather, it acquires and manages existing mobile games from other developers, with the aim of having them last for a total of 10 years (in both the original developer and MyNet Games). MyNet Games is a main driver of MyNet’s diversification into other businesses which include: 

• An AI and marketing consulting firm to help businesses in DX;
• Management of two Japanese sports teams: the soccer team FC Ryukyu and the basketball team Shiga Lakestars via data analytics and DX; and
• Establishment of fantasy sports in Japanese professional basketball and baseball.

MyNet Games claims that they have a large number of operating professionals in their team, allowing them to accept any mobile game regardless of genre or platform. Consequently, as of January 2022, MyNet Games currently operates 21 games simultaneously, including SIFAS, plus other games that have not been disclosed publicly. There are two ways that MyNet Games acquires mobile games:

• Purchase: MyNet Games purchases an existing game from a game developer and wholly takes over the game’s operation, either with its own staff or with the original development staff. A developer may want to sell the game to MyNet Games to:
  • Sell the company to MyNet (For example, C&M Games sold its games to MyNet Games by placing them in its spin-off company Crooz which they subsequently sold);
  • Exit the mobile game sector to focus on other businesses; or
  • Raise funds or free up staff to develop new mobile games.
• Collaboration: MyNet Games operates the game with a publisher and shares the profits. This is the case with SIFAS, where Bushiroad has taken over publishing duties while MyNet Games takes over development and operating duties. 

After acquiring the game, there are three main ways that MyNet Games manages games to boost and maintain revenues. The first way is data analytics. By acquiring a total of 80 mobile games, MyNet Games claims that they have built a database and a range of indicators and parameters to optimise the user experience and raise the profit margin of games. The second way is increasing sales by redesigning how games are managed and applying sales knowledge to market the game. The last way is cost reduction, where they reduce costs as much as possible by sharing illustrations, assets and users; outsourcing work; automating processes and merging servers. 

The business practices and management of mobile games by MyNet Games does not bode well for the quality, profitability and survival of SIFAS. However, Bushiroad, as the publisher of SIFAS, may also contribute to SIFAS’ further decline, and has the final say on whether SIFAS gets terminated. To understand what can go wrong in how SIFAS is currently managed, we must first understand the difference between game developers and publishers, and how either (or both) of them can contribute to a bad game.

Differentiating game publishers and game developers

A game developer is a person, group or organisation that designs and creates video games. Game developers differ in size, ranging from one person who creates the whole game (for example, Stardew Valley) to teams or even companies of people that work on different parts of a video game. In contrast, a game publisher is a company that markets video games to consumers. They have the marketing and public relations expertise to promote the game to consumers and networks to distribute the game globally. Game publishers often provide funding to game developers in exchange for having a say on the game’s development. For example, they can provide input on what to include or exclude in a game, set sales targets to reach or propose timelines on when the game needs to be released. 

Often, problems with or negative reception towards a video game can be the main fault of the developer, the publisher or both. Here are some examples of how developers and/or publishers have contributed to some bad games in 2021:  

• Fault of developer: Balan Wonderworld, a platform game whose development was led by Sonic the Hedgehog creator Yuji Naka. The game did not sell well, with revenues falling well below expectations, and received unfavourable reviews from everyone. Criticisms of the game include clunky controls and gameplay, bloated, outdated graphics and an uninspiring, confusing story. The fault lies with the developers as they brought forward flawed ideas to a game that cannot be fixed by the publisher.
• Fault of publisher: Battlefield 2042, a first-person shooter that was negatively received by fans as the game was very buggy at launch and dropped a lot of features from previous Battlefield games. This is because DICE, the developers of the game, only had 15 months to develop the game, a very short timeframe for AAA game development. The fault lies with EA, the publishers of the game, as their actions adversely affected Battlefield 2042’s development. This included letting experienced Battlefield developers leave DICE, suddenly pivoting to an entirely different genre in the middle of the game’s development and not delaying the game long enough for DICE to get the game to a playable state. 
• Fault of developer and publisher: Grand Theft Auto: The Trilogy – The Definitive Edition, which has received backlash from both critics and fans for its numerous bugs, terrible character models, framerate issues and lazy rendering. The game is the fault of both the publisher Rockstar Games for rushing development of the game to make money and developer Grove Street Games for remastering the games from existing mobile ports instead of remaking them from scratch.

In the context of SIFAS, although their actions are being heavily scrutinised, it is not enough to focus solely on how MyNet Games will further fuel SIFAS’ decline. Although I will be explaining them at length in this post, we must also consider how Bushiroad, the game publisher, can exacerbate SIFAS’ problems. I will explain their role later in the post. 

How do games operated by MyNet Games fare? 

Reading comments from the SIFAS subreddit, some people believe that MyNet Games has garnered a bad reputation for being the graveyard of mobile games. Receiving games from other developers, MyNet Games can shut down unprofitable games. Seeing how SIFAS has been transferred to MyNet Games, I decided to investigate how long games transferred to MyNet Games last and measure the chances that a game gets shut down. 

I first compiled a list of all mobile games that MyNet Games has operated. For each game, I noted down the dates that the game was released under its original developer, was transferred to MyNet Games and, if applicable, shut down. I then used the dates to calculate the number of months that each game was operating in total and under its original developer and MyNet Games. The amount of time each game was operated by MyNet Games was tracked up to January 2022 (for a currently operating game) or its termination date (for a discontinued game). Afterwards, between currently operating and discontinued games, I compared the number of months that games operated in total and under the original developer and MyNet Games. I also tested whether differences in operation periods were statistically significant (at p < 0.05) via a Mann-Whitney U test. Statistical differences in operation periods mean that these differences did not arise through chance but usually for specific reasons. 

Looking at the number of months that each game was operating, I found the following results.

First, looking at the total amount of time that each game was operating, games that were discontinued operated for significantly less time (by a median of 30 months) compared to games that are still operating (p = 0.027). 

This was not due to the original developers, as the operation time under their original developers were similar between currently operating and discontinued games (p = 0.182). 

Rather, the lower operation time among discontinued games may most likely be due to MyNet Games. When looking at the periods of time that games were operated by MyNet Games, discontinued games spent less time in MyNet Games (by a median of 14 months) compared to currently operating games. Although the difference is not statistically significant (p = 0.094), the result seems to suggest that MyNet Games played some role in determining how long a mobile game lasts. 

I further investigated the operating periods of games by sorting currently operating and discontinued games into different categories. First, I sorted each game based on whether they lasted less or more than 2 years with MyNet Games. I chose 2 years as this is the benchmark set by MyNet in their financial presentations.

Looking at the contingency tables, the most striking result was when looking at the termination rates under different operating periods. Within the first two years of MyNet Games’ operation, the termination rate is 85% which is very high. This is reduced to 53% when the game is operated by MyNet Games for more than two years. This result indicates that even though there is a high chance of MyNet Games terminating a game, the risk is highest in the first two years of operation. This is particularly true for games that were unprofitable or not promising which may explain MyNet Games’ willingness to quickly shut them down.

Just as interesting is how long SIFAS would last under MyNet Games’ operation. To predict this, I sorted currently operating and discontinued games based on how long each game was run by its original developer. I chose 2 years 3 months as the benchmark as this was the amount of time that KLab managed SIFAS.

Out of all the games acquired by MyNet Games, games that have lasted as long as or shorter than SIFAS under its original developer had about a 16% higher chance of being shut down, compared to games that lasted longer with their original developer. This result shows that SIFAS has a slightly higher risk of being shut down while being operated by MyNet Games.

Taken together, the data suggests that MyNet Games may have an influence on which games continue for a long time, and which ones get shut down. These results fit with their objective of having games last for a total of 10 years. To sustainably achieve this objective, they need to shut down bad games quickly and use their resources to promote good games. This may explain how MyNet Games has garnered a bad reputation for being the graveyard of mobile games. This might be worrying for SIFAS as they have a slightly higher risk of being shut down, but that is only one part of the story. 

Tracking revenues of games managed by MyNet Games

Other people say that for each game acquired, MyNet Games tries to generate as much profit as possible by either reducing costs or making the games more grindy and pay-to-win, and terminates them as soon as they become unprofitable. To test these claims, I tracked the revenues of two games that were transferred to MyNet Games in 2019 and were still operating: 

• Flash God Ceremony: Come Light Live (Shinshiki issen kamuraitoraibu, 神式一閃 カムライトライブ), an action RPG; and
• Future Family Tree Tsugu-me (Mirai-ka keizu tsugu me, 未来家系図 つぐme), a farming simulator.

With revenue data available from 2018 to 2021, we can see how monthly revenues have fared before and after the transfer to MyNet Games.

Looking at both games before the transfer, we can see that revenues fell from their peaks in 2018. This was particularly true for Future Family Tree which saw a precipitous decline in revenues throughout 2018. Consequently, both games were transferred to MyNet Games: Future Family Tree in April 2019 and Flash God Ceremony in June 2019. 

The transfer to MyNet Games affected the revenues of both games differently. Flash God Ceremony continued to show declines in revenue even after the transfer, reaching a low of 5.9 million Japanese yen in October 2021 before bouncing back to 38.9 million Japanese yen in December 2021. In contrast, Future Family Tree saw an increasing trend in revenues after the transfer. From a low of 3.6 million Japanese yen in April 2019, revenues increased to 33.2 million Japanese yen by December 2021. 

Let’s now look at a game where revenues have stagnated after MyNet Games took over operation duties: Yakuza Online (Ryū ga gotoku ONLINE, 龍が如く ONLINE). Yakuza Online is a card-collecting RPG that recounts the events of the Yakuza series, but starring Kasuga Ichiban, the main character of Yakuza: Like a Dragon. Sega initially developed and operated the game which was released on 21^st November 2018. However, the game was co-operated by Sega and MyNet Games from March 2021 due to Sega’s inexperience in operating mobile games for the Yakuza series.

Before the co-operation period, Yakuza Online showed unstable revenues. Not only is there a small decreasing trend in revenues, the game also did not experience a bump in revenues during its anniversary periods in November 2019 and 2020, a warning sign that the game is not doing well. Revenues stabilised after co-operation with MyNet Games but otherwise did not grow. In fact, the game experienced a dip in revenues to 54.9 million Japanese yen in October 2021, only recovering to 90.6 million Japanese yen by December 2021.

Collectively, these results show that the transfer to MyNet Games can have different effects on game revenue. While some games can experience increases in revenue after the transfer, other games can show stagnation or even declines in revenue. Most likely, SIFAS will follow Yakuza Online’s path, stagnating or even experiencing declines in revenue. This is because Yakuza Online and SIFAS are based on popular IPs, allowing them to maintain a player base. However, they did not perform well under their original developers, not generating an ‘anniversary bump’ in their revenues. This does not bode well for SIFAS which desperately needs to improve and innovate to stay afloat in a competitive mobile gaming industry. MyNet Games will not provide that platform for SIFAS to succeed. 

The implications of transferring SIFAS to MyNet Games

MyNet Games is, first and foremost, a game services company, not a game developer. It acquires as many games as possible to fuel MyNet’s growth, at the cost of maintaining the game’s quality. This does not bode well for SIFAS’ growth, quality and survival. Here are three key problems of MyNet Games’ game management and how they relate to SIFAS. 

More limited resources and staffing

MyNet employs less people than KLab, with only a subset of them working on mobile games. As of September 2021, MyNet only employed 387 staff in total, spread out across game services, sports management, fantasy sports and consulting. This is in contrast to KLab which had 654 employees in September 2021, with 526 of them working on mobile games. This means only a subset of MyNet Games’ employees are actually working on mobile games. Worse, these staff members are simultaneously working on at least 21 mobile games over various genres, with vastly different coding, gameplay and monetisation systems. In contrast, KLab operates a smaller number of games over set genres, each using similar systems. 

Even more concerning is that in its December 2020 financial presentation, in an effort to cut costs, MyNet announced that they will reduce the amount of work done by full-time employees and transfer their work to part-time and outsourced workers. This thinly spreads out game operations to many people, many of whom will have less stable jobs, have to work on multiple games and are less experienced in game management. 

All of these problems are detrimental to SIFAS. First, under MyNet Games, there are less resources and staff to operate and improve SIFAS, both in terms of fixing SIFAS’ problems and innovating to keep players stimulated. Second, as staff are working on multiple games, less time will be spent maintaining SIFAS. Any bugs or issues in SIFAS will take longer to identify and fix as staff will be preoccupied by other games. 

MyNet Games are less familiar with SIFAS 

Given the complex game mechanics of SIFAS, it is imperative that the new development team in MyNet Games are sufficiently briefed on how the game works. Although we do not know who is currently working on SIFAS (as the staff list was not updated after the transfer), it is likely that not many people have transferred from KLab to MyNet Games to keep working on SIFAS, leading to new staff being recruited to operate and manage the game. Despite claims that MyNet Games has a large number of operating personnel to accept any game regardless of genre or platform, the staff would be less familiar with SIFAS’ codebase and gameplay. This has resulted in two problems that cropped up in SIFAS. 

First is based on the staff’s unfamiliarity with SIFAS’ codebase. Given that MyNet Games staff were not the original developers of SIFAS, they may introduce bits of code that inadvertently alter the game or introduce new bugs. For instance, in one of the recent School Idol Channels, the song for the Voltage Rally changed from Torikoriko PLEASE!! to Mirai no Bokura wa Shitteruyo, the song from two weeks ago. What might have happened is that a MyNet Games staff member accidentally changed the code for the Voltage Rally song, shifting the Voltage Rally back by two weeks. This example not only shows how unfamiliar MyNet Game staff were with SIFAS’ codebase, but the reduced resources and staff time towards SIFAS meant that the bug was not fixed in time before the School Idol Channel ended. This highlights that it would take longer for MyNet Games staff to identify and fix SIFAS’ bugs and problems which would demotivate players from playing the game.

Second is based on the staff’s unfamiliarity with SIFAS’ gameplay. MyNet Games staff have little to no understanding of how the game works due to less staff time being dedicated to understanding the game. Hence, they would be less familiar with SIFAS’ gameplay (which is vastly different from other rhythm games) or its meta (i.e., which cards are powerful or not powerful).

For instance, in the Year of the Tiger Unit, Assemble! marathon event in January 2022, all three URs, including the event UR, had the exact same attribute, type and skill set as their respective UR cards in the Pure White event (March 2021 in Japan, April 2021 Worldwide). The only differences were in their stats and their art work. By copying UR cards from a previous event, it shows a lack of understanding from MyNet Games of SIFAS’ meta. This makes it likely that they will not keep the meta balanced, either introducing underpowered cards that have no impact on the meta or overpowered cards that can disrupt the meta (and making players pay to get them).  

Given the terrible working conditions in MyNet Games, it is not surprising that no KLab staff would want to transfer to MyNet Games to keep working on SIFAS. Even if KLab’s financial situation is dire, they would rather stay in KLab to work on a new game than move to MyNet Games to work on something whose future is uncertain. 

An analytics approach to game management cannot solve everything

A data-driven approach to game management cannot solve everything as it neglects the inherent flaws of SIFAS and the reasons why the game is failing. MyNet Games uses analytics and AI to manage its games, analysing different kinds of data such as user loyalty data and game costs based on the performance of past games. It then uses the results of these analyses to take different actions on various games, from marketing promising titles to reducing costs to boost profit margins or even terminating unprofitable games. This approach, based on past performance of previous games, forces MyNet Games to adopt the same strategies to manage different games which stifles innovation. It also ignores the unpredictable behaviour of humans and the unique gameplay elements of each game. This can be seen by the fact that after the transfer to MyNet Games, some games become tougher to play with more pay-to-win elements. These actions are in an effort to quickly milk as much revenue as possible before it falls, leading to their discontinuation. 

Combined with the reduced time budget to manage each game, MyNet Games will not have sufficient time to understand and fix the problems of each game to improve quality and restore profitability. In the case of SIFAS, this is aggravated by KLab being less invested towards SIFAS as they believe that it is on the decline. This will be worsened by MyNet Games as they will have less time to understand the problems of SIFAS and make meaningful improvements on the game. Hence, SIFAS is under the mercy of MyNet Games’ ruthless operation and management procedures which is not adapted to the unique elements of SIFAS.

Explaining Bushiroad’s role in SIFAS’ further decline

The saving grace of SIFAS is that it is being managed by Bushiroad. As the publishers of SIFAS, Bushiroad can direct MyNet Games to improve certain parts of SIFAS, set up promotional campaigns (such as allowing SIFAS players to enter a lottery for online viewing tickets of Niji’s 4^th live if they clear L!L!L! in chapter 30, hard mode), and has the final say on whether SIFAS continues or is terminated. However, Bushiroad has been laissez faire on SIFAS while KLab was still running the game. While Bushiroad was not the publisher at the time, it did recruit a producer to oversee SIFAS. As one of the gaming partners of SIFAS, it should at least intervene to get SIFAS back on track. This did not happen when season 2 of SIFAS’ story went out of control, where Bushiroad did not intervene in time to defuse the situation. If Bushiroad and Sunrise had foreseen this and forced the writers to rewrite the story, the fate of SIFAS might have been different. 

With publishing duties handed over to Bushiroad, they now have more power to decide where SIFAS should go, and how it should be promoted. It is unclear how responsible Bushiroad will be to keep SIFAS running smoothly. For instance, Bushiroad decided to speed up BanG Dream! Girls Band Party on the Global server to catch up to Japan. This has caused a lot of consternation among players as events are out-of-sync with their respective holidays and less time was available for staff to prepare and implement updates and fixes, ironically causing delays. This highlights how problems in games can be not just the fault of the developer but also the publisher.

Additionally, SIFAS is at the mercy of Bushiroad who can decide whether to continue the game or terminate it. This is not helped by the announcement and release of Love Live! School idol festival 2 MIRACLE LIVE! (SIF2) which introduced a lot of uncertainty on whether SIFAS can keep running in the future. As soon as the game was announced, Bushiroad poured all their efforts in promoting the game while neglecting SIFAS. Consequently, SIFAS’ popularity and player base dropped as players eagerly await for the new Love Live game, putting it in a further downward spiral that may lead to its termination. 

Hence, just as much as SIFAS’ further decline can be driven by MyNet Games’ actions, we must also consider how Bushiroad may contribute to the decline.

Conclusion

The transfer of SIFAS from KLab to MyNet Games is regrettable given that KLab had given up on SIFAS towards the end of them operating the game (and the fact they have resorted to NFTs to recoup their losses instead of fixing how they develop and operate their games). It is reasonable that, with more time and effort poured into it, SIFAS would bounce back. It is also reasonable that, should it be transferred, SIFAS can be given to a developer that is passionate about Love Live and is willing to improve the game to restore its growth and reputation.

Instead, KLab have handed it off to MyNet Games, a game services company that has less resources to operate or improve SIFAS. As highlighted in the post, SIFAS was at the mercy of MyNet Games’ management which is known for spreading its staff thinly across many games and for ruthlessly terminating games it does not see as profitable. Bushiroad might also aggravate SIFAS’ decline, given how unpredictable they will be to keep the game operating smoothly or promote the game in the face of a new Love Live game. Hence, at best, SIFAS would survive, albeit with no prospects for future growth. At worst, SIFAS would be shut down, to make way for new games that are more faithful to Love Live or have better gameplay than SIFAS. That is when the final nail in SIFAS’ coffin will be hammered. 

References

• MyNet. (2021). Financial Results Briefing Materials: 3^rd quarter of the fiscal year ending December 2021. MyNet Co. Ltd., Tokyo. https://pdf.irpocket.com/C3928/gK0G/VKkO/O6Xm.pdf. 
• https://gamebiz.jp and https://www.4gamer.net were used as the main Japanese websites for collecting dates on the launch, transfer to MyNet Games and termination of games operated by MyNet Games.

In the last post, I presented data that described Love Live! School Idol Festival ALL STARS’ (SIFAS’) decline in revenue and player numbers and explained why SIFAS is in decline. These declines have happened in the backdrop of KLab’s precarious financial situation which have recorded losses throughout 2021. To recoup these losses, KLab has launched a recovery plan that involves releasing new games, restructuring costs and reviewing its existing games. In reviewing their existing games, KLab has viewed SIFAS as a game that will neither be popular nor profitable in the future, motivating its sell-off to MyNet Games. In this post, I will provide more background on KLab’s financial situation, how KLab has resolved financial losses in the past, and how both are linked to KLab’s decision to move on from SIFAS. 

KLab’s financial situation in 2020-21

Since the 4^th quarter of 2020, KLab suffered losses in each quarter of 2021. Compared to their respective quarters in 2020, quarters in 2021 had lower revenues and expenses. However, revenues declined more quickly than expenses, resulting in KLab recording a loss in each quarter of 2021. Consequently, as of the end of the 3^rd quarter of 2021, KLab has recorded a loss of 1.767 billion Japanese yen in 2021, and was projected to lose around 2.3 billion Japanese yen by the end of 2021.

The big losses incurred by KLab in 2021 are a consequence of two things. The first is declines in revenue from KLab’s existing titles (games released up to 2017) such as Love Live! School Idol Festival (SIF). These declines in revenue are fuelled by reduced promotion towards existing games and increased competition in the mobile gaming market. In particular, the release of big-title games domestically and internationally such as Uma Musume Pretty Derby and Genshin Impact have directed mobile gamers away from KLab’s existing titles. The release of these new games have resulted in reduced revenue towards KLab’s existing games.

The second is new games released by KLab after 2017 not performing as well as expected, not contributing much to KLab’s revenue or profit. This is due to issues in the quality of these new games which have not been improved in a timely manner, leading to low player retention rates. In particular, SIFAS and Tales of Crestoria have come under intense scrutiny, being singled out in KLab’s financial reports for their weak financial performance with their revenues falling well below expectations. The lower-than-expected revenues have led to KLab recording a 1.5 billion Japanese yen impairment loss in the first quarter of 2021 for both games. The impairment losses represent KLab seeing these games as less financially valuable than what was advertised. This indicates that KLab have written off both games, resulting in a loss of confidence and low expectations towards both games even at the start of 2021. 

Currently, KLab is not in immediate financial trouble, as they had 16.6 billion Japanese yen in equities that they can use to absorb their losses in 2021. However, if KLab’s financial situation did not improve soon, KLab would be in deep financial trouble, to the point where they could become insolvent (i.e., unable to meet their financial obligations of readily paying their debts and expenses). Nevertheless, KLab has encountered massive financial losses twice in the past, and in both times they were able to resolve them. Let’s look at KLab’s past financial trends, and how they have resolved their financial losses.

KLab’s actions in resolving past financial losses

KLab has experienced stable net income in most years. However, there were two years where KLab recorded huge financial losses. In 2013, KLab lost a total of 2.6 billion Japanese yen, while in 2016 they lost 814 million Japanese yen. These losses arose from KLab’s preceding actions. Before 2013, KLab released many mobile games that were unpopular and unprofitable, contributing to KLab’s losses. Similarly, in 2016, KLab incurred losses as a result of declining revenues from existing games and the unpopularity of games based on overseas IPs such as Age of Empires: World Domination and Glee Forever!

In both years where they had financial losses, KLab had to take drastic action. In response to the 2013 financial loss, KLab implemented a two-part recovery plan. First, KLab lowered costs by reducing the number of staff and reviewing their game development policies. Second, KLab released two games in Japan (JP) which became popular: Love Live! School Idol Festival, released in April 2013 at the height of μ’s popularity (and a month after the first Love Live! anime season ended), and BLEACH: Brave Souls, released in July 2015 while the manga was still running. These games generated a lot of revenue which restored KLab’s profits.

Similarly, in response to the 2016 financial loss, KLab also underwent a recovery plan. First, KLab restructured their company by shutting down their overseas bases in the Philippines, US and Singapore, concentrating most of their operations in Japan and China. Second, KLab revised its game development processes, pivoting away from global IPs (such as Glee!) and focusing on developing games based on Japanese IPs (such as Love Live!). Lastly, they released BLEACH: Brave Souls globally in 2016 and Captain Tsubasa: Dream Team in Japan and worldwide in 2017. Together, the recovery plan restored and diversified KLab’s income sources. 

From what KLab has done in the past, we learn that two things are required for KLab to bounce back from financial losses:

1. Some form of company restructuring: in order to reduce costs, KLab had to undergo some company restructuring (such as closing its overseas businesses and laying off its workers) and revise their game development processes (such as pivoting away from global IPs towards Japanese IPs).
2. A killer game: in order to restore profits, KLab also needs to release a mobile game that is based on a popular Japanese IP and is appealing enough to attract and retain players. With some players paying for the mobile game, the killer game can contribute a lot to KLab’s revenues, restoring the company’s profits. 

What is KLab’s recovery plan from its 2021 financial loss?

Similar to what has happened in the past, in response to the huge financial loss in 2021, KLab has launched a recovery plan. The aim of the recovery plan is to generate 50 billion yen of revenue, resulting in an operating income of 10 billion yen, by the end of 2023. The recovery plan consists of two parts:

New title hits

KLab will develop and release three new games in the near future: 

• Lapis Re:Lights, an action RPG based on a mixed media franchise; 
• A sports simulation game based on the EA Sports brand; and 
• A game based on DanMachi (I s It Wrong to Try to Pick Up Girls in a Dungeon?). 

These new games are being developed based on KLab’s desire to work on specific genres where they have a lot of knowledge and experience (action RPG, sports simulation and rhythm action), using game systems that are proven to work. 

KLab is also distributing new mobile games by collaborating with other companies. KLab will collaborate with overseas developers to develop games based on Japanese IPs such as Kumamon, JoJo’s Bizarre Adventure and Touhou Project. KLab will project manage and supervise these games, while the overseas developers will develop and distribute the games. KLab will also release casual games in Japan and worldwide in collaboration with GlobalGear Co. Ltd., a company that KLab acquired in April 2021.

These different games will gradually contribute to the restoration and increase in KLab’s revenues and income. It should be noted that in the above visual, Lapis Re:Lights is positioned as KLab’s killer game that will drive most of the initial increases in KLab’s revenues. This explains why KLab is dedicating a lot of resources behind the game. 

Additionally, it should be noted that KLab is reviewing its game development system. In collaboration with other companies, KLab will tighten the selection criteria on games that will proceed to development and improve game development and maintenance systems for new games.

Cost reductions

Similar to what has happened in the past, KLab is also restructuring the company and reviewing its existing games to reduce costs. Actions taken in KLab’s company restructure include: 

• Reviewing and rearranging their operational and personnel structures (for example,  reallocating managers and employees to new games); 
• Reducing outsourcing and subcontracting costs; 
• Selling off office space; and 
• Postponing or suspending measures that do not directly contribute to KLab’s revenues. 

KLab is also reviewing each game based on their profitability. Games that are not expected to improve in profitability will either have their operations reduced, transferred or terminated. Conversely, games that are profitable will be closely reviewed to come up with ways to improve profitability. It is under this backdrop that every existing KLab game was reviewed. 

So, why did KLab sell off SIFAS?

With a lot of background information provided on KLab’s situation, we can start to piece together why KLab had to sell off SIFAS to another developer. Unlike Tales of Crestoria which was shut down on 7^th February 2022 due to the game’s low quality and its persistent low revenues, the reasons for KLab selling off SIFAS to MyNet Games are more complicated. Nevertheless, I believe there were four key reasons why KLab had to sell off SIFAS to another developer. 

1) No prospects for future growth

As I explained in the previous post, revenues and player numbers in SIFAS have generally decreased, with no prospects for either of them increasing. These have been driven by KLab’s actions that have harmed the game, including the controversial season 2 story, stagnant gameplay and no action taken to attract new players to the game or help them. Compared with some of KLab’s other games, SIFAS’ decline in revenue has been alarming. 

In the graph above, SIFAS (in red), a rhythm action RPG, experienced a gradual decline in revenues. In contrast, Captain Tsubasa: Dream Team (gold), a sport simulation game, experienced stable revenues in Japan, with huge bumps in the middle of 2020 and 2021 due to anniversary celebrations. Additionally, SIF (green), a rhythm game, and BLEACH: Brave Souls (grey), an action RPG game, experienced slight declines in revenue throughout 2020-2021, though not as steeply as SIFAS. This graph informs us on some of the thinking behind KLab’s decisions when they were reviewing existing games in their game lineup in 2021:

1. First, KLab would keep Captain Tsubasa: Dream Team as it is able to generate consistent revenue throughout the year, with big bumps in revenue during anniversary periods. This game would provide a steady stream of income for KLab which would help prop up the company while it implements its recovery plan.
2. KLab would also keep SIF and BLEACH: Brave Souls as it would like to maintain its links with popular Japanese IPs, both of which are getting anime adaptations this year. This would allow KLab to run anime-related promotional events in both games which would most likely generate further revenue.
3. Keeping the above three games would allow KLab to maintain its presence across the sport simulation, rhythm action and action RPG genres, something that it desires in its recovery plan. 
4. In contrast, KLab would sell off SIFAS to MyNet Games due to its rapid decline in revenues for a new game. This decision would be reinforced by the absence of a bump in revenue during SIFAS’ 2^nd year anniversary, unlike other KLab-developed games. This would have informed KLab of the futility of continuing on with SIFAS and motivated its sell-off to another developer.

2) Intense competition and overlap in SIFAS’ genres

This is something I have touched on in the previous post, so I will only summarise what I have said in that post. To summarise, SIFAS does not excel in either the rhythm game or RPG genres. Consequently, other games such as Uma Musume Pretty Master and the Idolm@ster mobile games which excel in one genre are able to outcompete SIFAS in either the rhythm game or RPG genres. This contributes to SIFAS’ low market share. Combined with declining revenues which indicate low growth, SIFAS is positioned as a ‘pet’ in KLab’s growth share matrix, motivating KLab to sell the game off to another developer.

Furthermore, SIFAS overlaps too much with other KLab-developed games. In the rhythm game front, SIFAS already competes with KLab’s other rhythm games such as SIF and Uta no Prince-sama Shining Live. In the RPG front, SIFAS overlaps with BLEACH: Brave Souls and Lapis Re:Lights. The failure of SIFAS to excel in either genre would indicate to KLab that mixing the two genres together is a bad approach and that it should develop games that only focus on a single genre. Hence, KLab sold off SIFAS in favour of other games that focus on either the rhythm game or RPG genres.

3) Cost inefficiency

Although we do not have exact figures of producing or maintaining each KLab-developed game, some information is available to infer why it was inefficient for KLab to keep SIFAS. 

Before the transfer, KLab was responsible for developing, publishing and operating SIFAS. KLab took two years to develop SIFAS in-house, at a cost of 2 billion Japanese yen. This cost is higher than other KLab-developed games due to the implementation of 3D graphics. KLab also had to bear responsibility for keeping the content updated which included adding new 3D assets, implementing character and story events, maintaining servers and fixing any game bugs or issues. These tasks would involve many KLab staff to keep SIFAS running, resulting in high monthly operating costs. This meant that KLab needed to generate a high monthly revenue to pay off SIFAS’ initial development and monthly operating costs. In contrast, KLab’s 2D games such as SIF are well-established, having paid off their initial development costs, and simpler to maintain due to less work being required to create content and update the game. Hence, less staff and resources are required to maintain these 2D games, lowering the costs. This increases the threshold of revenue that KLab is willing to accept to keep these games running.

Comparing the costs of maintaining SIFAS against KLab’s other games can inform us of why KLab have decided to sell off SIFAS. Selling off an old KLab game such as SIF does not free up much staff and resources to reallocate to new games. In contrast, selling off SIFAS would free up a lot of staff and resources which can then be reallocated to new games such as Lapis Re:lights. Combined with the negative reception towards SIFAS for a range of reasons, KLab would have seen the futility of keeping SIFAS, motivating its sell-off to another developer. This would then free up a lot of staff that KLab can reallocate to other games.

4) Uncertainty of SIFAS’ future

KLab has decided to sell off SIFAS to another developer. Yet, there is a KLab-developed game that is generating even less revenue than all the games I have mentioned, yet has received neither a game termination nor relocation notice. That game is Yu Yu Hakusho: 100% Maji Battle. 

Yu Yu Hakusho: 100% Maji Battle is a 2D auto-battler that was released by KLab in August 2018. In this game, players collect cards and use their abilities to defeat waves of enemies. The gameplay is very basic, and uses animated 2D sprites. The main feature of the game; though, is that it re-enacts scenes from the Yu Yu Hakusho anime series by showing stills from anime episodes. This attracts existing Yu Yu Hakusho fans who want to relive the story told in the anime as well as new fans who want to learn more about Yu Yu Hakusho.

In contrast to SIFAS which is currently earning upwards of 100 million Japanese yen per month, Yu Yu Hakusho: 100% Maji Battle does not generate much revenue, falling below 50 million Japanese yen throughout all of 2021. These low revenues would have compelled KLab to terminate the game in an effort to reallocate resources to other games. Yet, as of 6^th January 2022, the game has not received a game termination or relocation notice, and KLab is still keeping the game running. Why had KLab decided to keep Yu Yu Hakusho: 100% Maji Battle, but not SIFAS?

In addition to the game being based on a popular shonen IP with a cult following and not much resources required to maintain the game, I believe that KLab saw a future for Yu Yu Hakusho: 100% Maji Battle that was absent in SIFAS. KLab was pursuing a policy of their games being multi-platform, where games are not only available on mobile but also on console, PCs and cloud. This enables seamless play across devices which improves playing experience and increases game revenues. For example, KLab already released BLEACH: Brave Souls on PC in August 2020, and were in the process of preparing the game for distribution on PS4.  

As of the end of August 2021, the developers of the Yu Yu Hakusho game have finished adding all the content from the anime series and movies in the game, and were in the process of adding original content. This indicates that the game is nearing the end of its lifespan. However, I think that, with all the content being added in the game, KLab was developing a PC and console release of Yu Yu Hakusho: 100% Maji Battle. By releasing a non-live version of the game in mobile, PC and console, KLab are able to continue profiting from the game even after the live version of the mobile game is terminated. Hence, there was a future for Yu Yu Hakusho: 100% Maji Battle.

In contrast, a lot of new content is still being added to SIFAS, so the game is not ready for a permanent PC and console game. Hence, there is no future direction for SIFAS to take, and bleak prospects of its future growth. Hence, KLab decided to not take a risk to release SIFAS through multiple platforms, instead selling it off to another mobile game developer to recoup costs. 

Conclusion

The precarious financial situation of KLab motivated them to initiate its recovery plan to recoup their losses and restore its income. KLab had to make a range of decisions and actions to reduce costs and generate new income sources. SIFAS has fallen victim to KLab’s recovery plan, being sold off to MyNet Games as KLab did not see SIFAS’ potential to restore its profitability and its reputation. This would not be too bad if SIFAS was being transferred to a developer that was passionate and knowledgeable about Love Live and would do their utmost best to make SIFAS great again. Instead, SIFAS was sold off to a developer that was burdened with a lot of mobile games and would most likely not have the time or resources to maintain or improve SIFAS. How the move to MyNet Games affected SIFAS will be explained in the next post.  

References

• KLab. (2021). FY2021 3Q Presentation Material. KLab Inc., Tokyo. https://ssl4.eir-parts.net/doc/3656/ir_material_for_fiscal_ym4/108412/00.pdf.
• Shared Research Inc. (2021). KLab / 3656: Shared Research Coverage Report. Last updated 16 June 2021. Shared Research Inc., Tokyo. https://ssl4.eir-parts.net/doc/3656/ir_material_for_fiscal_ym9/100696/00.pdf.
• Shared Research Inc. (2021). KLab / 3656: Shared Research Flash Report. Last updated 10 November 2021. Shared Research Inc., Tokyo. https://ssl4.eir-parts.net/doc/3656/ir_material_for_fiscal_ym9/108501/00.pdf.