Japanese game developer DeNA‘s efforts to diversify have gone awry as new ventures such as content curation and self-driving vehicles stumble, forcing the company to fall back on a mobile game business that is still flourishing thanks to a team-up with Nintendo.

Revenue for the nine months through December came in flat on the year at 108.7 billion yen (USD 972 million), even as operating profit jumped 27% to 18.6 billion yen, earnings released this week. Performance improved in the sports segment, reflecting the growing popularity of the Yokohama DeNA BayStars professional baseball team, while the mobile game segment was bolstered by “Super Mario Run,” DeNA’s hit collaboration with Nintendo. The company expects operating profit to grow 5% to 20.9 billion yen for the fiscal year ending March 31.

officer-img-02.jpg“Third quarter revenue was in line with expectations,” said Isao Moriyasu, President and CEO of DeNA. “As we announced at the beginning of the fiscal year, we expect to achieve a year-on-year profit increase for the fiscal year ending March 31, 2017. Super Mario Run was released towards the end of the quarter on the App Store to an overwhelming reception, and we are very excited about new titles from the Nintendo alliance.”

These solid results did not bring a smile to President Isao Moriyasu’s face at the earnings briefing, however. DeNA’s 10 content curation websites have been closed since December in the wake of a scandal involving false and plagiarized content. Moriyasu did not directly answer a question about whether DeNA would keep the business running, saying the company would decide after an independent committee set up to investigate the matter releases its report.

The curation business had been forecast to finally turn a profit in the October-December quarter. It instead went deeper into the red because of the scandal, reporting an operating loss of more than 800 million yen. DeNA booked a 3.8 billion yen impairment loss on the business and will earn no revenue from it this quarter. Full-year group revenue is likely to sink 3% to 140 billion yen, not including any contribution from another mobile title developed with Nintendo that was released this month.

That DeNA is back to relying on games dismays Moriyasu. Operating profit reached 76.8 billion yen in fiscal 2012 on the back of games for conventional phones, a business launched by Moriyasu himself. Profits languished with the shift to smartphones, falling to about a quarter of the peak in fiscal 2015. The field is also getting more crowded, with PlayStation maker Sony Interactive Entertainment set to enter the fray with games based on popular titles in its library.

Moriyasu, having learned a painful lesson about the vagaries of the mobile game industry, set out to build new businesses, declaring that DeNA would transform big industries with “the power of the internet.”

Over the last two or three years, the company has launched with much fanfare projects in genetic analysis, online content curation and self-driving vehicles — none of which can be said to be thriving now. DeNA is starting from scratch with its autonomous-driving business after the testing it poured so much time and money into failed to get results. The company recently ended the partnership it entered with ZMP in 2015, teaming up instead with Nissan Motor.

Moriyasu reiterated to reporters his intent to cultivate new profit sources, stressing that “DeNA is an internet company.” He said the company is trying to work out an operating structure and business model for the scandal-stricken content curation business that the public can accept. The profitability of mobile games often proves a double-edged sword for developers, leaving them dependent on the business for profits. Moriyasu’s DeNA is at a crucial stage for resolving this tricky situation.

Source: Asia Nikkei