Making it big in Japan

Competitive pressure closer to home has several European-based operators turning their attention to Japan, a market which has, so far at least, been fairly accommodating to offshore operators looking for high-growth opportunities in Asia.

Several major European operators have made moves in Japan over recent months, including LeoVegas, which entered the market during Q3 2019.

Meanwhile, Gamesys’ 2019 full-year results showed that the Land of the Rising Sun had been a key growth driver for the previous 12 months; the market accounted for 26% of revenue in 2019, compared with just 14% in 2018. At the time, Regulus Partners noted that Gamesys was “clearly making Japan work extremely well operationally”.

Another operator new in Japan is Soft2Bet, which launched its AlfCasino brand in the market in December. “Japan was the logical country to enter into Asia with,” Boris Chaikin, CEO of Soft2Bet, tells EGR. “The people have a culture of gambling and a good player value, [which is a] great indicator for a good market.”

Soft2Bet, which operates several European-facing brands, selected its existing AlfCasino brand for Japan because it felt the focus on a gamified experience would resonate well with players in the country.

“Overall, the launch has gone really well. It is of course a challenging market as it is quite different from the European markets where we are pretty well established,” says Chaikin. “The primary challenges for us have been to properly understand the culture and the customer expectations.”

Player preferences

The operators that have enjoyed early success in the country have tended to be those that have identified the ways in which Japanese players differ from their European counterparts, and adapted product offerings accordingly.

Japan is home to a unique gambling culture, perhaps best captured by the huge popularity of pachinko, a type of pinball machine which circumvents the ban on conventional gambling by paying out tokens which can then be exchanged for cash or prizes.

The pachinko sector has shrunk in recent years, but its scale is still staggering. It generated estimated revenue in excess of ¥3.3trn (around £25bn) in 2018.

“The country’s pachinko/pachislot culture, as well as its many mahjong parlours, means there is a well-educated audience and huge potential for online casino, and it’s already proving to be a growing market,” says Ollie Castleman, head of marketing at games developer OneTouch.

Castleman says baccarat and blackjack are the best performing table games among players in Japan but adds that there is a growing opportunity for slots. “We know pachinko and pachislots are particularly popular game varieties in Japan and we are considering building versions of our own,” he adds.

As Castleman mentions, mahjong parlours remain particularly popular in the country, and the game is also enjoying success online.

Japanese senior citizens playing mahjong in a parlour

“Mahjong has a strong presence in Japan with more than eight million mahjong players and about 8,000 live mahjong parlours,” says Jonas Alm, founder of Isle of Man-licensed development studio Mahjong Logic. “Mahjong is the second most played game in Japan after pachinko, but the gap is narrowing.”

Mahjong Logic has spent the past decade fine-tuning its hyper-localised offering. “Alongside a definitive localised product, we provide local 24/7 support and know-how which delivers a key competitive edge in this market,” says Alm.

One operator using the Mahjong Logic product is Doramahjong.com, whose head of operations is Kenji Hatakeyama. “We’ve gained a strong foothold in the Japanese market, and online mahjong will continue to bolster our offering,” Hatakeyama says.

“I see many more online gaming operators turning to online mahjong now in a similar way to the digital poker boom of the early 2000s, particularly when considering their Asian players and expansion plans into the region.”

Affiliate focus

The primary way for new operators in Japan to reach potential customers is via affiliates. Chaikin at Soft2Bet notes that AlfCasino is “mainly affiliate-driven”.

“This has proven to be one of the best ways to reach a wide audience of potential customers and to take market share relatively fast. We have a well-established affiliate programme and have been able to break through this way,” she says.

One affiliate which has been active in Japan longer than most is Malta-based Game Lounge. “Game Lounge was the first European affiliate company to professionally enter the Japanese market in 2016,” says Shino Besson, Game Lounge’s operations manager for Japan.

“What makes our Japanese team so special is the fact that it’s made up of highly qualified Japanese marketers, designers and content writers, all of whom have extensive experience in the online casino industry. We are now one of the strongest egaming affiliates in the Japanese market and continue to strive towards greater heights by tailoring our design and content to a Japanese audience,” adds Besson.

Besson also says that the biggest difference between Japanese online casino players and those in Europe is that Japanese players usually prefer live casino over slots.
Acquiring new players requires a local approach. Besson notes that discerning players in the market tend to like to try a casino before depositing; the casinos enjoying most success often offer a registration bonus. Although she cautions that this can attract bonus abusers.

Regulatory outlook

Most operators consider Japan a relatively safe grey market in which to operate. While gambling is prohibited under the Penal Code of Japan, there are a number of government-run exceptions, including limited horse, motorboat, bicycle and motorcycle racing offerings. However, as Masayuki Fukuda, a partner at Tokyo-headquartered law firm Nagashima Ohno & Tsunematsu, tells EGR, the government has not aggressively prosecuted users or offshore operators.

Most of the regulatory focus in recent years has centred on proposals to build Japan’s first integrated resort (IR) casinos. The controversial process continues to drag, delayed by a bribery scandal and Covid-19, but those close to it are still hopeful of the first casino opening as soon as 2025. But it seems unlikely that the introduction of land-based casinos to Japan will open the door to online gambling regulation any time soon.

Fukuda said that many Japanese people still remain skeptical towards the introduction of IRs, so the country’s government is unlikely to push the issue further by adding online to the mix. “There is no discussion of the liberalisation of online gambling as an alternative to the delayed IRs,” he says.

During an analyst call in November, Gamesys CEO Lee Fenton echoed the sentiment. “I would love to get a licence in Japan. It’s just not possible at this point in time,” he said.
When this will be possible is another question. According to Joe Pisano, CEO at leading supplier Jade Entertainment and Gaming, Japan has an opportunity to parlay its IR legislation into the online space.

“Regulating and licensing integrated resorts in Japan is undoubtedly a wise move – in Macau, Singapore and the Philippines they have proved to deliver a huge boost to the economy,” Pisano says. “In the Philippines, the government regulates both land and online casinos and the industry has enjoyed exponential growth since 2016. Japan needs to consider extending regulation to cover online gambling.

“The opportunity is not just to open another source of revenue for gambling operators and the government, but to also ensure that players are being properly protected. The online community can provide a framework for responsible gaming years before the land-based IRs open,” Pisano adds.

In the meantime, Japan is likely to remain an appealing market for operators, even if Fukuda warns that a government crackdown is still a possibility.

“If online gambling’s public presence becomes bigger than it is now due to whatever cause, Japanese law enforcement agencies might change their current modest stance against it and might start to prosecute online gaming users more aggressively,” he says.

Opportunities in Japan

For the time being, operators continue to flock to the market. Blockchain-based platform FunFair Technologies launched its CasinoFair brand in Japan in April, citing the market’s progressive approach to cryptocurrencies; only the US dollar is traded more heavily against bitcoin than the Japanese yen.

King Billy Casino, which launched in 2017, is another that has found success in the country. “The popularity of the Japanese market is soaring, not only due to sheer numbers, but also due to the exceptional value of the local player, which can reach almost three times the LTV of a European player,” says King Billy Casino CEO Volodymyr Harkusha.

Harkusha says that player loyalty is more tangible in Japan than most other markets, with players likely to remain active with a single casino for a longer period of time.

But the product must resonate with a local audience. As well as design tweaks, Harkusha says the most important feature is local language support. “Japanese live chat is the best investment King Billy Casino [has made]. I recommend it to any casino which would like to enter this market – it’s an absolute must. No Japanese live chat, no conversions,” he adds.

The success of King Billy Casino, and many others, is likely to draw new entrants to Japan’s online market. Besson at Game Lounge notes that the market “is getting crowded, and competition tougher”. Alm at Mahjong Logic also notes that while player activity was growing steadily even before the Covid-19 outbreak, it has surged in recent months, perhaps partly reflective of the lockdown situation.

And Chaikin at Soft2Bet says the company is already planning to expand its presence in the country. “Japan is definitely an important growth market for Soft2Bet and we are looking deeper into it. We are integrating more software suppliers that are popular locally [and] of course, we are preparing the launch of additional brands in Japan.”

With the IR process likely to rumble on for at least the first half of the decade, the road looks fairly clear for operators looking for new opportunities in one of Asia’s most inviting markets.