Finland Tempts Japan Games Firm; Low Corporate Tax Rates Appeal to SoftBank’s GungHo Online Entertainment

November 15, 2013 Leave a comment

Finland Tempts Japan Games Firm

Low Corporate Tax Rates Appeal to SoftBank’s GungHo Online Entertainment

SVEN GRUNDBERG And JUHANA ROSSI

Nov. 14, 2013 12:08 p.m. ET

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Finnish game developer Supercell’s CEO Ilkka Paananen smiles next to a character of Supercell’s top-selling game “Clash of Clans” in Helsinki. European Pressphoto Agency

HELSINKI— GungHo Online Entertainment Inc., 3765.TO +0.16% the mobile-game arm of Japanese telecom giant SoftBank Corp. 9984.TO +1.18% , is considering moving its headquarters to Finland, lured by the European country’s low corporate taxes and its vibrant startup scene, the chairman and founder said on Thursday.Taizo Son, the younger brother of SoftBank Chief Executive Masayoshi Son, said the company is studying the possibility of using Finland as its world base.

“We’d like to move our headquarters,” Mr. Son said in an interview at a startup conference in Helsinki. “We are researching this option, and we are conducting a feasibility study.”

SoftBank has looked to Finland to tighten its grip on the gaming industry. Last month, the Japanese telecom paid $1.5 billion for control of Supercell Oy, the Finnish developer of mobile-game hits “Clash of Clans” and “Hay Day.” and the top grossing mobile-game company in the world at the time—at least on Apple Inc. AAPL +1.45% ‘s iPhones and iPads.

GungHo, Japan’s largest mobile-game developer, is best known for “Puzzle & Dragons,” the world’s best-selling game for iPhones and smartphones using Google Inc.GOOG +0.27% ‘s Android operating system.

Mr. Son cited Finland’s low corporate tax rate as a big draw for GungHo. Starting next year, the rate will drop to 20% from 24.5%. “Japanese corporate taxes are 40%,” he said.

A possible relocation of GungHo’s headquarters to Finland would be a welcome boost to Finland, which has seen its tax base hurt by the decline of Nokia Corp. NOK1V.HE +1.20%, which has posted billions in losses in the past two years. After 15 years of strong economic growth, Finland’s economy shrank 8.5% in 2009 and is still far below its peak before the 2008 financial crisis.

The growth of mobile-game companies is important for Finland, which faceseconomic challenges as it grapples with the decline of its two former mainstay industries: paper and telecommunications.

GungHo and Helsinki-based Supercell have been collaborating since the summer, cross-promoting their respective games. In the process, Mr. Son and Supercell’s co-founder and chief executive, Ilkka Paananen, have developed a close relationship.

Mr. Son said GungHo will continue to be listed on the Japanese stock market. “We can move the headquarters anywhere,” he said, adding that he wouldn’t mind living in Finland, but only in the summer. “Winter, not so much,” he said. Finland lies roughly at the same latitude as Siberia and in the winter the days shorten and the temperature remains firmly below freezing on average.

A potential move isn’t completely unexpected. When SoftBank announced it was acquiring a majority stake in Supercell, Masayoshi Son said in an interview that he wanted Supercell to be the core company of their game business and said Mr. Paananen would be CEO of SoftBank’s mobile games.

GungHo’s Puzzle & Dragons and Supercell’s games are based on the so-called freemium model, in which players download a game free of charge and pay for in-app purchases that typically speed up play. Over the past year, the freemium pricing strategy has emerged as one of the most popular models for game companies.

Finland is also home to Rovio Entertainment Ltd., creator of “Angry Birds,” and Seriously, a startup game developer founded in August by two former Rovio executives. Seriously raised $2.4 million in seed financing from two venture-capital firms, Los Angeles-based Upfront Ventures and Scandinavian-based Sunstone Capital.

But the mobile-game market is volatile, and many companies’ successes are short-lived. Rovio hasn’t created a hit franchise since “Angry Birds.”

GungHo said in October that its operating profit in the latest quarter declined 12% from the previous quarter as downloads of “Puzzle & Dragons” fell.

U.S. game developer Zynga Inc., ZNGA +2.62% in which SoftBank invested $150 million, is struggling to adapt its hit “Farmville” to smartphones.

Filed under TMT Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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