Voltage 3639
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Summary
Voltage’s business centers on entertainment content, chiefly stories about love and the challenges associated with it. The company plans, produces, develops, sells, and manages this content. The core platform is smartphone apps that distribute romance stories for women.
Entertainment
Key dates
2021-03-01
Coverage initiation
Executive summary
Business overview
Voltage’s business centers on entertainment content, chiefly stories about love and the challenges associated with it. The company plans, produces, develops, sells, and manages this content. The core platform is smartphone apps that distribute romance stories for women. The company classifies its businesses by target audience. The majority of its revenue comes from the distribution of smartphone game apps for Japanese-speaking women. In FY06/21, this business generated revenue of JPY4.1bn (59.9% of total revenue).
Voltage’s romance apps for women are interactive. In the mainstay written story apps, the player herself is the heroine, and she chooses the storyline and character, building her own romance adventure. The company also provides avatar-based apps (game-like apps, the player dresses up her avatar) and card-based apps (players build up card collections and cultivate the characters). Some content is available for free, but the company charges for higher-end content and information services. Players purchase stories, gacha (lottery) prizes, and in-game items, then create virtual romances by choosing a side story and paying to move events along in a favorable way.
The company produces all its own content. Nearly 50% of revenue comes from three core titles: (1) 100 Love Scenes+ (written story, average monthly revenue of around JPY70mn, launched in 2017, with the underlying romance story app launched in 2006); (2) Tenka Touitsu Koi no Ran‒Love Ballad (avatar-based, around JPY80mn, launched in 2014); and (3) Roppongi Sadistic Night (card-based, around JPY90mn, launched in 2015). The company sustains readership of its main titles by offering daily, complete-in-one issues and longer, serial pieces.
In addition to its smartphone game apps offering content for Japanese-speaking women, the company distributes content for English-speaking and Asian women (revenue of JPY1.3bn in FY06/21), and content for men (JPY1.2bn). Voltage also concentrates on building up its intellectual property used in in-person events and merchandise (JPY156mn), as well as console games and videos. In 2019, the company moved into a new genre: e-books. The company runs its own e-comics label and stores (in FY06/21, JPY101mn in revenue from e-books, videos, and consumer operations).
The company’s billing model in Japan is to provide free-to-play mobile content, charging for in-game items mainly on a pay-as-you-go basis (mobile content is over 80% of revenue). The remainder (less than 20% of revenue) comes from unit billing, by the story. Voltage says more than 100,000 people download its apps each month, and on average 60,000 of these (in Japan) become paying users. Average revenue per paying user (ARPPU) amounts to JPY7,000 to JPY8,000 per month. Shared Research calculates the company’s average monthly revenue at over JPY550mn (mobile content revenue was JPY6.6bn in FY06/21), including content for English-speaking and Asian women.
Voltage’s target customers are women who enjoy fictional stories (aged 19–44, about 20mn people in Japan). The company estimates its potential market in Japan at around JPY100bn (around 2016–2017). The company breaks down this market into casual customers (market value of JPY10.0bn, monthly average ARPPU of several thousand JPY), casual core customers (JPY40.0bn, several thousand JPY to JPY10,000), and core customers (JPY50.0bn, JPY10,000 to tens of thousands of JPY). Including overseas customers, the company estimates that casual customers (players of written story apps) account for more than 30% of total revenue, casual core customers (avatar-based and card-based apps) for more than 40%, core customers (card-based and voice actor-type apps) for around 20%, and others (in-person events, e-books, consumer operations, and others) for less than 5%.
The company aims to generate sustainable growth by cycling earnings from existing titles back into recently released titles and new areas. By “existing titles,” the company refers to the story apps business (excluding content for Asian women). “Recently released titles” means content for Asian women. “New areas” are videos, consumer operations, e-books, and in-person events. The company generates average monthly revenue of around JPY500mn from existing titles. The corresponding figure for recently released titles and new areas is over JPY80mn (Q4 FY06/21).
As a percentage of FY06/20 revenue, cost of revenue was 35.9% and SG&A expenses amounted to 65.4%. Collectively, the company refers to advertising expenses (23.2% of FY06/20 revenue) and sales commissions (30.4%) as “platform & advertising” (P&A) expenses (53.6%). The company considers P&A expenses to be variable costs, as they fluctuate according to revenue. Conversely, Voltage defines labor costs (17.0% of FY06/20 revenue), outsourcing costs (11.8%), and other costs (18.9%) as fixed costs (47.7%). The company pays sales commissions to platform operators, mainly Apple and Google. Personnel expenses (labor costs, salaries and allowances) are around 20% of revenue. Of personnel expenses, 60% go toward production, 20% to programming, 10% to design, and 10% to admin.
Female employees are central to content planning and development (66% of employees are women, as of June 30, 2020). The company outsources artwork, writing, and programming to creative talent working on a contract basis. To become profitable at the operating level, the company is working to hold down labor costs and other expenses, raise revenue per employee (JPY29.4mn in FY06/21, +JPY7.0mn YoY), and improve productivity and efficiency.
Earnings trends
In FY06/21, the company reported revenue of JPY6.9bn (+4.8% YoY), operating profit of JPY159mn (vs. loss of JPY86mn in FY06/20), recurring profit of JPY178mn (vs. loss of JPY88mn), and net income attributable to owners of the parent of JPY163mn (vs. loss of JPY161mn). Revenue from content for Japanese-speaking women was up 4.2% YoY, while revenue from content for English-speaking and Asian women fell 10.4% YoY. Content for men and in-person events saw a 16.1% and 89.6% YoY revenue growth, respectively. In E-books, videos, and consumer operations, revenue soared 147.9% YoY.
With the gross profit margin improving 1.5pp YoY to 65.6% and the SG&A ratio dropping 2.1pp YoY to 63.3%, the company returned to profitability in FY06/21 after posting an operating loss in FY06/20. Rent expenses fell thanks to reduced office space and leasing fees. However, sales commissions paid to platform operators increased in tandem with revenue growth, as did events-related expenses and outsourced labor costs (temporary staff and resources working on contract). SG&A expenses were up JPY64mn YoY as a result, but the SG&A ratio fell nonetheless due to higher revenue.
Resumption of dividends: The company will resume its dividend payouts for the first time in four fiscal years and pay a dividend of JPY8 per share in FY06/21, taking into account the fact that it returned to profitability and posted JPY163mn in net income attributable to owners of the parent.
Voltage has not disclosed its earnings forecast for FY06/22; the company says the operating environment is too volatile for it to predict performance with a high degree of confidence. The company also provides no medium-term management plan or numeric targets.
For the foreseeable future, the company aims to achieve underlying profitability and enter a new phase of growth centered on its current core business, story apps. Specifically, the company has outlined an app evolution strategy, a fandom strategy, and a diversification strategy. From Q1 FY06/22 onward, Voltage will leverage its strengths in multi-title, multi-category service offerings, and focus on bringing content for Japanese-speaking women back on a growth trajectory and investing more in new areas. The company aims to bring content for Japanese-speaking women back on a growth trajectory by fusing apps for Japanese-speaking women with fandom and offering events, goods, videos, comics, and other forms of entertainment to app users. In addition, it aims to foster fandom by providing the enjoyment that comes with accumulating points for exclusive items through the use of Vol Pass. As for investment in new areas, the company plans to boost investment in e-books and consumer operations. Since launching the service a year or two ago, the number of active users and downloads has steadily grown as the company has built up its track record and expertise.
Strengths and weaknesses
Strengths: 1)by serializing story games, has established a structure that allows customers to enjoy content over an extended period, 2)female employees leading the development of content for women, and 3) global development capabilities, with a local development hub in the massive US market
Weaknesses: 1) Has not moved away from a development system reliant on major titles (a legacy of past successes), 2) still feeling the aftereffects of a period when both the founding CEO and COO were absent (damage due to new market entrants and deterioration in the customer base), and 3)fixed costs to provide new stories every year (new in-app titles) accounting for a large percentage of revenue
Note: Please see the Terminology section at the end of the report.
Key financial data
Notes: Figures may differ from company materials due to differences in rounding methods.
Recent updates
Scheduled change in major shareholder
On November 10, 2021, Voltage Inc. announced a scheduled change in major shareholder.
The company received a notice from its shareholder Third Street Inc. of the latter's intention to purchase the company shares on November 10, 2021. If this transaction takes place, Third Street will be a major shareholder of the company as outlined below. The transaction (change in major shareholder) is scheduled to take place on November 10, 2021.
Overview of shareholder subject to change
Number of shares and share of voting rights held by major shareholder before and after change
Before change
After change
The change in major shareholder will have no impact on the company's earnings performance.
Decides to launch an original title for Nintendo Switch in 2022 worldwide
Voltage Inc. announced that it would launch an original title even if TEMPEST for Nintendo Switch in 2022
The company's Nintendo Switch business grew steadily as the company's strategy of providing titles in content for Japanese-speaking women from the past in a Nintendo Switch-compatible format at low cost succeeded, with the business achieving profitability within a year of implementing the strategy. With the aim of further expanding the business, the company decided to launch an original title.
The title even if TEMPEST is an alluring dark fantasy story game, where users can enjoy the title's theme songs recorded by an artist and characters played by voice actors. The title is available in Japanese and English. Sale price has not been decided, and the company will be the distributor.
Further, as with the company's other titles for Nintendo Switch, Voltage plans to offer even if TEMPEST worldwide, including in regions and countries such as the Americas, Asia, Europe, Australia, and Japan (excludes some regions).
The company plans to operate the Nintendo Switch business supported by the two pillars of existing titles (made compatible with Nintendo Switch) and original titles and further grow the business by continuing to introduce new titles, in efforts to move forward with its diversification strategy.
Trends and outlook
Quarterly trends and results
Notes: Figures may differ from company materials due to differences in rounding methods.
Notes: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Seasonality
Quarterly operating losses demonstrated seasonality in the past, with the company generating losses in Q1 since FY06/13. This seasonality was due to large-scale expenditure on TV commercials in Q1.
However, around 2019 the company began curtailing expenditures. The seasonality caused by TV commercials disappeared once the company suspended TV commercials in the aim of using its advertising expenses more efficiently. Results nonetheless continue to demonstrate seasonality, with Q2 being the company’s busy season as it includes the year-end and Christmas holidays. The following Q3 tends to show a decline due to the falloff of the year-end and Christmas holiday-related demand, fewer days in February, and a segment of the company’s targeted customer group having less time for entertainment in March as they prepare for changes in their lives, such as starting colleges or entering the workforce, in April.
The company generated losses for 12 consecutive quarters, from Q1 FY06/18. Breaking this trend in Q4 FY06/20, the company has remained solidly profitable in FY06/21. Although the company made an operating loss of JPY30mn in Q3 FY06/21, it returned to profit again in Q4.
Q1 FY06/22 results (out November 5, 2021)
Summary
In Q1 FY06/22, the company reported revenue of JPY1.4bn (no YoY comparative available), operating loss of JPY223mn (operating profit of JPY68mn in Q1 FY06/21), recurring loss of JPY218mn (recurring profit of JPY62mn), and net loss attributable to owners of the parent of JPY225mn (net income of JPY45mn).
Progress versus plan: The company has not disclosed an earnings forecast for FY06/22, citing the inability to rationally formulate earnings targets under the current operating environment.
Revenue was JPY1.4bn (no YoY comparative available; same for each business category): Revenue by business category** was as follows: revenue from content for Japanese-speaking women was JPY839mn, revenue from fandom was JPY28mn, revenue from content for English-speaking and Asian women was JPY225mn, revenue from content for men was JPY241mn, and revenue from e-comics and consumer operations was JPY29mn.
Operating loss of JPY223mn (JPY68mn profit in Q1 FY06/21): With the gross profit margin down 11.6pp YoY to 56.0% and the SG&A ratio up 8.3pp YoY to 72.0%, the company moved into loss after posting a profit in Q1 FY06/21. Although outsourcing expenses increased due to higher labor outsourcing and temporary staffing costs, overall expenses decreased YoY due to lower sales commissions on lower revenue and lower advertising expenses.
Strategy from Q2 FY06/22 onward: The company plans to concentrate management resources in accordance with business results and changes in the business environment, review unprofitable businesses, reduce platform fees, and explore other ways of reducing costs. The company will continue to focus on two key areas: "Renewed growth in content for Japanese-speaking women" and "investment in new areas." The current five business will be consolidated into three businesses: Storytelling apps, e-comics, and consumer operations. In-person events and videos will not be stand-alone businesses, but will be incorporated in the fandom category.
In terms of renewed growth in content for Japanese-speaking women, the company is focused on solutions for two of its app categories: written stories and avatars. The company is fusing apps for Japanese-speaking women with fandom, and in doing so is offering events, goods, videos, comics, and other forms of non-app entertainment to app users. In addition, it aims to foster fandom by providing the enjoyment that comes with accumulating points for exclusive items through the use of Vol Pass.
In terms of "investment in new areas," the company will continue to invest in the e-comics and consumer operations businesses. In the e-comics business, the company is preparing to distribute webtoon (vertical color comic strips that are primarily read online), which is expected to grow in the future, while continuing to expand the steadily growing number of titles and sales channels for its own e-comic store labels. In the consumer operations business, while expanding the sales of titles made compatible with Nintendo Switch, starting with 100 Love Scenes+, the company is working toward the production of its first original title for release in 2022.
Performance by business category
Content for Japanese-speaking women
Revenue was JPY839mn (no YoY comparative; same below).
In this category, the company classifies content as written story, avatar-based, card-based, and voice actor-type. Revenue from avatar-based content, in particular, declined .
Fandom
Revenue was JPY28mn.
Revenue from sales of event rights declined.
Content for English-speaking and Asian women
Revenue was JPY255mn.
Content for English-speaking and Asian women includes such titles as Love365 and Lovestruck. Revenue was down, mainly for Lovestruck.
Content for men
Revenue was JPY241mn.
Sales declined, mainly for Roppongi.
E-comics and consumer operations
Revenue was JPY29mn.
This segment includes e-comic titles (Vol-Com and OC Label) and consumer operations (content for Nintendo Switch).
Revenue rose mainly from Vol-Com and OC Label.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
Company forecast for FY06/22
Company forecast for FY06/22
Voltage does not disclose earnings forecasts; the company says the operating environment is too volatile for it to predict performance with a high degree of confidence.
Near-term growth strategies
For the foreseeable future, the company aims to achieve underlying profitability and enter a new phase of growth centered on its current core business, in story apps. In addition to the growth from fusing apps for Japanese-speaking women and fandom, the company will build on the growth of new areas such as e-books, consumer operations (Switch), and in-person events. Steady growth is also expected in content for men and content for English-speaking and Asian women.
Specifically, the company has outlined an app evolution strategy, a fandom strategy, and a diversification strategy.
From Q2 FY06/22 onward, Voltage will utilize its strengths in multi-title, multi-category service offerings, and focus on bringing content for Japanese-speaking women back on a growth trajectory and investing more in new areas.
The company aims to bring content for Japanese-speaking women back on a growth trajectory by fusing apps for Japanese-speaking women with fandom and offering events, goods, videos, comics, and other forms of entertainment to app users. In addition, it aims to foster fandom by providing the enjoyment that comes with accumulating points for exclusive items through the use of Vol Pass (in August 2021, four months after the full-scale start of the service, the total number of Vol Pass users exceeded 90,000). The company aims to increase users' enjoyment and enhance lifetime value. It plans to invest JPY250mn to develop fandom (total investment since February 2017; outsourcing costs related to events have been a major area of investment, but production costs for events and online goods sales and external platform fees for the e-commerce site are also expected to increase).
As for investment in new areas, the company plans to boost investment in e-books and consumer operations (cumulative investment is expected to amount to JPY300mn and JPY200mn, respectively). Since launching the service a year or two ago, the number of active users and downloads has steadily grown as the company worked to build up its track record and expertise.
Specifically, in the e-book business, the e-comic store, Vol-Com, acquired around 100,000 active users in August 2021, one year after the service started, and the number of titles published has reached 220,000. The electronic comic label, Otona Cinderella, has produced 27 works in its first year and is expanding its sales channels to large stores. The consumer operations business (Switch) has achieved a cumulative profit in May 2020. In the two years since launching software sales (in June 2019), the number of software downloads has exceeded 40,000.
Changes in Accounting Standards
Adoption of Accounting Standard for Revenue Recognition and others
The company began applying the Accounting Standard for Revenue Recognition and other standards starting FY06/22. As a result of the adoption of the new accounting standard, revenue will be recognized at the time of "consumption" (when users exchange in-app currency for items) rather than at the time of "billing" (when users purchase in-app currency). Any unused currency will be recorded as revenue after around 12 months.
The short-term impact is expected to be a reversal of recorded revenue (a few percentages of the total). The most significant impact (revenue decline) will be in Q1 FY06/22, and the impact will largely drop out after around 18 months. In terms of operating profit, platform commission will continue to be booked as before, (i.e. when billed), so there will be no reduction of costs in the short term despite the (lower) revenue impact. The pressure on profits will be particularly severe in Q1 FY06/22, but the impact will largely drop out after around 18 months.
Rules for bonus provision
In the past, a set amount of bonus provision was made every six months (mainly in the second half of the year), but from FY06/22, a fixed amount will be allocated for the full year. Due to this change, labor costs are expected to increase in 1H and decline in 2H.
New market segmentation of TSE
The company aims to be in the new Prime Market of the Tokyo Stock Exchange, when the market segment classifications are changed. Its plan for achieving the Prime Market standard for market capitalization (currently at approx. 25% of JPY10bn requirement) through increasing the value of its existing businesses and expanding the scale of its operations through aggressive investment in new areas. As of June 30, 2021, the company has already satisfied the criteria for the Prime Market in terms of number of shareholders, number of shares in issue, tradable share ratio, and trading value.
Medium-term management plan
Three-year strategy (FY06/17 to FY06/19: Announced August 1, 2016 and revised each year since)
The company does not disclose medium-term management plans or numeric targets.
However, after Yuzi Tsutani resumed the post of Voltage CEO in July 2016 (he stepped down as CEO in July 2013 and was appointed chairman in September of that year), the company established a three-year strategy (FY06/17 to FY06/19). Attributing the company’s stagnation to the aftereffects of its IPO, CEO Tsutani concluded that the company’s core earnings model (processes and manuals) was growing obsolete and being reduced to mere formality. As problem areas, he identified a lack of management system dedicated to new models, means to prevent losses from ballooning, and expertise in continuous creation. Anticipating a gradual decline of the company’s core model (existing operation), CEO Tsutani set targets for new development and new models.
The company revised its organization and introduced matrix management, plotting the technological development of businesses (vertical axis) against the customer base (horizontal axis). On this basis, the company proposed a three-year strategy comprising four reforms. The company has continued to revise its core strategies each year, collectively redefining them each time as a “three-year strategy.” The current “three-year strategy” refers to the outlook for FY06/21 and the management strategies outlined below.
Creating 15 autonomous organizations
The company believes the cultivation of numerous young leaders is essential to autonomous and sustainable growth. To foster this leadership, the company is creating 15 autonomous organizations, each overseen by a leader with a defined operational scope. In this way, the company will develop leaders who have experience in launching businesses and creating earning power.
Creating organizations that generate new developments and models
The company will respond to increasingly severe market environments by adopting a simultaneous big-picture/small-picture focus in developing multiple new series. Specifically, the company will revamp its proposal-making committees, develop ideas using groupware, create inexpensive prototypes, quickly apply market responses, and swiftly make go/no-go decisions at each business phase.
Creating organizations that cultivate businesses and earnings
The company will cultivate businesses by setting clear targets and implementing a trial-and-selection scheme. The company will set a clear pass/fail line for new models. Aiming to cultivate businesses with values of around JPY10.0bn, the company will confirm business feasibility and conduct regular cost management, making small course corrections as necessary.
Reinforcing the group structure
Voltage will pursue a group structure, based on the concept of “small, autonomous organizations that are loosely connected.” By establishing multiple strategic subsidiaries corresponding to different target categories and areas of content expertise, the company aims to optimize its target approaches and increase scale.
Shifting from a priority on profit to investment mode (from FY06/20)
In December 2019, the company raised money in the stock market for the first time since listing. The company raised JPY616mn through a third-party placement of stock acquisition rights (to Milestone Capital Management, Ltd.). The company identified three areas for the use of funds, with JPY200mn going to each category: strengthening the promotion of existing titles, cultivating and developing new titles, and developing new areas (e-books, etc.).
The company returned to profitability in Q4 FY06/20 for the first time in 12 quarters, and this profitability has continued through Q2 FY06/21. In FY06/21, the company is transitioning from a priority on profit to investment mode.
Management strategy
The company’s management strategy is outlined below.
Fundamental philosophy
Contribute to society in areas where art meets business
The “art” in Voltage’s corporate philosophy of “art meets business” refers to the desire to create content that inspires customers. As these efforts lead to business success, the company will direct earnings toward the development of new works. The company aims to form an organization capable of creating a wealth of innovative ideas that it turns into reality, thereby generating a steady stream of hits. The company also plans to cultivate its own unique style of content.
Share a unique style with the world: “stories about love and the challenges associated with it”
When he was studying at UCLA’s film school, company founder and CEO Yuzi Tsutani concluded that heroes and heroines ultimately pursue “love and battles” as they work to overcome their own weaknesses. “Love” does not always refer to the love between men and women; it can also indicate the relationship between people accepting and supporting each other. “Battle” includes competitions between rivals, but also struggling to overcome one’s own weaknesses and challenging conventional social paradigms. As they read these stories, audiences feel empathy and cheer on the characters. Audiences are also encouraged to know they are not the only ones experiencing difficulty.
Foster individuals and an organization that grows organically
To foster growth among its employees, the company first works to ascertain individual capabilities and environmental circumstances, and then to set goals that are slightly beyond their reach. Meeting these stretch goals requires employees to adopt strategies and set plans. In the process, they must compete and cooperate with others, becoming companions as they do so.
Management policy: Create an organization capable of becoming a niche market leader and producing successive hits
In accordance with the corporate philosophy of “art meets business,” the company’s management policy is to provide inspiring content themed on “stories about love and the challenges associated with it.” The company defines “art” as the planning and creating of highly original content and “business” as the creation of organizations to deliver this content as successive hits to be enjoyed by many people.
“Art” content is diverse. In game genres alone, it spans such popular lines as story games/adventures, first-person shooter games, strategy games, role-playing games (RPGs), horizontal scrolling, falling block puzzles/music- or rhythm-based games, and ball games. After trying a variety of genres, the company decided to concentrate on story games targeting young women and themed on “love and conflicts.” The company explains that this genre took advantage of its expertise in film production. At the same time, the genre had few competitors, as the large game companies were not active there. The company also saw an unmet need among the numerous female smartphone users who enjoyed stories. It therefore determined it had an opportunity to succeed in this niche market.
At the same time, the company worked to develop an organization capable of producing a series of consecutive hits. CEO Tsutani refers back to an instructive comment by Bob Rosen, one of his professors at UCLA: “for films, think about format and content separately.” Theatrical film content is diverse, spanning interpersonal drama, action, science fiction, and horror. Formats are stylized: protagonist/villain, three-act structure, two-hour duration, and designed to fit a 1:1.75 screen (height to width). Game content is also diverse, containing characters, dungeons, and so forth, but formats are unstylized and might include RPGs, strategy games, horizontal scrolling, or shooting.
The company’s format focuses on story games, serializing diverse story content. Large game companies similarly may have a single hit series, but they invest large amounts in engine development. The company locks in users by allowing them to continue enjoying genres they like, successfully attracting customers by serializing diverse stories within story games. The company’s major stories include 100 Love Scenes+ (“100 Koi+;” Japan, US, Nintendo Switch), with 2mn customers; Tenka Touitsu Koi no Ran‒Love Ballad (“Koiran;” Japan, US), 1.5mn; Doubt: Usotsuki Otoko wa Dare? (“Doubt;” Japan, US, China), 1mn; and Roppongi Sadistic Night (“Roppongi”), 200,000. The company also provides four categories aimed at guiding users to become casual, casual core, and core customers: written story (33 titles), avatar-based (six titles), card-based (four titles), and voice actor-type.
Management targets
The company uses revenue and OPM as key management indicators. Voltage targets OPM above a certain level (around 10%). CEO Tsutani explains, however, that companies should focus on “creating customers, and creating value to satisfy them,” and that revenue and profits follow on from success in creating customers. In this comment, Mr. Tsutani references Peter Drucker’s comments (The Changing World of the Executive) that “A company’s objective is not profits. Profits are merely one standard for verifying the validity of a business. There is only one way to define the validity of a business: its creation of customers.” He explains that “customer creation” is “creating a market, an aggregation of customers.” In being a company that continues to “create customers” Mr. Tsutani aims to “meet customer needs,” while at the same time becoming a “good company” that “creates value” in keeping with its phase of growth and the changing times. He emphasizes qualitative growth rather than corporate scale.
Management strategies
The company’s three management strategies (app evolution strategy, fandom strategy, and diversification strategy) aim to realize “underlying profitability and the next growth phase” by incorporating growth elements in its current core business, story apps.
App evolution strategy
The company plans to refine its apps in the written story, avatar-based, and card-based content categories. Beginning with Japanese-speaking women, the company intends to roll out these categories to other target audiences including English-speaking and Asian women, and men. Specifically, this management strategy targets diversification; the company aims to expand story apps in two directions: technology (more refined format) and customer base (languages, genders).
100 Love Scenes+, the company’s written story app targeting Japanese-speaking women, has gained a wide audience among Japanese women who had little previous involvement with games. Whereas content for men tends to attract core customers among mainstream gamers, the company has cultivated a new market among female casual customers. When creating story content, the company combines the movie-director perspective Mr. Tsutani acquired during his study at UCLA’s film school with the female employees’ understanding of how to induce butterflies-in-the-stomach feelings among their audience. The company seeks to set the story from a variety of angles, similar to the way camera work is used in films, so the reader becomes the heroine and has a very real sense of personal involvement.
Evoking beyond-real-life settings and scenarios, the production team works to create stories that entice the reader and elicit a sense of in-app reality, along with heart-pounding romance. The company’s aim is to add a 15-minute dash of spice to the routine lives of female students and office workers while commuting or just before going to sleep at night.
The company explains that initially the core target was women in their teens to early 30s, but this range has shifted to women aged 19–44 as much of the core readership has remained loyal over the years or returned to the fold after a break. Although content has usually assumed readers were young, single women, the company is considering the addition of content designed to attract women who are married or in the 45–50 age range. The company has run television commercials with the tag line “Fall in love with your ‘other boyfriend,’” cultivating the desire for a lighthearted side relationship.
The company commenced its global expansion effort with the distribution of English-language smartphone apps in July 2011, actively following up this move by establishing Voltage Entertainment USA, Inc. as a subsidiary in May 2012. Leveraging the local familiarity he gained while studying in the US, CEO Tsutani spent three years at the US subsidiary. The company says this subsidiary benefits from the growing global popularity of Japanese anime and games and other elements of Japanese popular culture in the US and Europe (cosplay and otaku culture).
The company explains that adaptation of Japanese-language games is relatively smooth in China, Taiwan, and other parts of Asia, but the same is not the case in Europe and the US. Except for some pockets of Japanese cultural aficionados, preferences for heterosexual partners generally differ from those in Asia. According to the company, young women in Japan and other parts of Asia are attracted by exaggerated characters and fanciful countries and settings, whereas young US/European women prefer more realistic, manly characters and settings in real-life cities. Voltage says it leaves content creation for the US in the hands of employees at its subsidiary there.
The company explains that in games for men, market competition is fierce, and becoming profitable has involved repeated trial and error. Voltage’s ARPPU among male users is around JPY15,000, nearly double the amount for women, but paying user rate (PUR) is low (less than 10%), and billing durations are relatively short. The company explains that rapidly collecting the cards of numerous female characters provides a sense of satisfaction for men, who also tend to be more easily drawn away to other games. The company’s male user base is relatively small (at around 200,000 people), but Voltage believes potential demand is substantial among so-called “herbivore” men (young men who express little interest in getting married or being assertive in relationships with women), which it says are numerous in Japan.
Fandom strategy
The company aims to benefit from synergies between story apps and in-person events. For the time being, it will concentrate on building up expertise in 2.5 dimensional stage shows (theater production based on anime/games, etc.), online events, collaborative cafes, and e-commerce. The fandom strategy has two objectives. The first aim is to encourage interaction among users and make the experience more enjoyable for them by going beyond in-app interaction and holding physical events and developing merchandise. The second aim is to strengthen fans’ attachment to in-app characters by providing more ways to interact with them. This fandom strategy uses classical augmented reality techniques, layering experiences in the physical world atop story-world realities.
With the progress of digital transformation (DX) and advent of the so-called XR phenomenon—a catch-all for virtual reality (VR), augmented reality (AR), and mixed reality (MR)—along with digital twins and the mirror world, many companies are exploring the potential of technology that takes audiences further into virtual territory. To date, they have sought to replicate reality in the virtual world. Going forward, the focus will be on “offering new experiences that surpass reality,” which requires a shift in the mindset, namely an approach that begins from the virtual world and looking onto the real world. In the post-COVID-19 era, airline companies and the travel industry will begin using VR to cultivate customers for real experiences. Some synergies between VR and the physical are already in evidence, such as the emergence of e-sports, the use of AI by professional Go players, and cockpit simulations for aircraft, trains, and race cars. The success of Pokemon Go has also made general audiences aware of AR.
The company has rolled out AR and VR strategies in the past. For instance, Intimate VR, a VR experience that drew attention at Tokyo Game Show 2016, featured the popular egotistical billionaire character Eisuke Ichinomiya who appears in the smartphone app Kissed by the Baddest Bidder. Audience members could don a head-mounted display (HTC Vive) and headphones to experience Eisuke appearing in the room, whispering sweet words, approaching near enough to touch the member’s face, and drawing close to the member sitting in a chair. The company followed Intimate VR by introducing other content, such as Wedding VR and Pocket Kareshi AR, but these offerings were not commercially successful. The company thinks this is because the female customers it targets remain unfamiliar with VR and AR story games. Although they may be able to enjoy one-time experiences during events, the company recognizes that few members of its female audience are dedicated enough to don head-mounted displays and headphones for casual enjoyment.
Diversification strategy
The company aims to enter the rapidly growing markets for e-comics, web videos, and console games. The e-comics market is valued at JPY298.0bn (FY2019, source: Impress Corporation) and continues to grow. In this market, consumption levels are low (average monthly ARPPU of less than JPY3,000), but the company sees it as a promising market where it can solicit potential casual core customers to its written story apps. To date, the company has grown organically through original content; in e-comics Voltage is considering M&A and other forms of inorganic growth. Sensitive to the potential for rushed diversification efforts to generate losses (operating loss of JPY1.0bn in FY06/18), the company plans to monitor these initiatives closely, evaluating them every six months and withdrawing promptly from unsuccessful areas.
Management structure
To accelerate diversification, the company is trialing a “virtual holding company” system. Although not a holding company under Japan’s Commercial Code, Voltage seeks to reap some of a holding company’s benefits by mimicking the organizational structure. Under the Board of Directors, the company has established the “VH Board” as an executive committee, comprising the company CEO, COO, the presidents of virtual operating companies (V1 to V6), and the heads of individual departments (marketing, development, and design). The VH Board is responsible for determining groupwide policies. The presidents of virtual operating companies also lead executive committees of their respective companies to formulate their own individual policies.
Voltage’s goals in adopting this virtual holding company system were to raise awareness of each business’s profitability, improve growth and profitability among currently profitable operations (V1 to V4), and accelerate the move to profitability among new operations (V5 and V6). The various virtual operating companies, the V’s, are V1 (written story content for Japanese-speaking women), V2 (avatar-based content for Japanese-speaking women), V3 (content for English-speaking women), V4 (card-based content for men), V5 (in-person events), and V6 (e-books).
Business
Business model
Company profile
Voltage’s business centers on entertainment content, chiefly stories about love and the challenges associated with it. The company plans, produces, develops, sells, and manages this content.
Smartphone apps featuring romance stories for women are the company’s main business driver.
The company also distributes content for English-speaking and Asian women overseas, and aggressively leverages its intellectual property through in-person events and character merchandise, console games, and films.
In addition, the company has a suspense drama app, providing content for men. In 2019, Voltage entered the business of e-books, operating its own e-comics label and store.
The company has five business categories: content for Japanese-speaking women; content for English-speaking and Asian women; content for men; in-person events; and e-books, videos, and consumer operations. The commentary below describes the content for Japanese-speaking women, content for English-speaking and Asian women, and content for men collectively as the “mobile content business.”
Notes: Figures may differ from company materials due to differences in rounding methods.
Notes: Figures may differ from company materials due to differences in rounding methods.
Mobile content business
Business model
Voltage plans, produces, develops, and manages mobile content, which it provides to customers on apps via platform operators (operating system platforms, social media platforms, and carriers). The company plans and develops content itself, outsourcing artwork, writing, and programming to creative talent working on a contract basis. Upon receipt of outsourced elements, the company pays production fees to outsourced providers. It then edits and polishes the content and conducts a final check. The company says the production cycle averages 1–1.5 years.
Voltage provides mobile content in three categories: for Japanese-speaking women, for English-speaking and Asian women, and for men. The company began offering content for Japanese-speaking women in 2006, content for English-speaking women in 2011, and content for men in 2017. Altogether, it distributes more than 100 titles (end-FY06/21). All mobile content is original, and the company produces more than 10 new and in-app titles each year.
Some content is available for free, but the company charges for higher-end content and information services. Players pay fees to platform operators to purchase stories, gacha (lottery) prizes, and in-game items, then create virtual romances by choosing a side story and paying to move events along in a favorable way.
Principal costs are personnel expenses (labor costs, salaries and allowances), outsourcing costs, advertising expenses, sales commissions (collection fees paid to platform operators: 30% of the information charges collected), and rent expenses. The company recognizes advertising expenses and sales commissions as variable costs, as they fluctuate in line with revenue. Fixed costs, which exclude these, amount to nearly 50% of revenue. Personnel expenses are around 20%. Of personnel expenses, 60% go toward production, 20% to programming, 10% to design, and 10% to admin. The company plans and develops content itself, outsourcing artwork, writing, and programming to creative talent working on a contract basis.
Content for Japanese-speaking women: revenue of JPY4.1bn (59.9% of FY06/21 revenue)
Overview
The player herself becomes the heroine, selecting a situation and characters (“ikemen,” a Japanese term for attractive, good-looking men) she likes, and creating an idealized romance story. In 2006, the company began offering this content, its largest category, under which it distributes more than 100 titles.
The company classifies this content as written story, avatar-based, card-based, and voice actor-type app content.
In written story apps, typically the player herself becomes the heroine, choosing situations and characters she likes, and enjoying the story. A core title in this category is 100 Love Scenes+ (“100 Koi+”) . Average monthly ARPPU (average revenue per paying user) is JPY4,000–5,000, and the title generates average monthly revenue of JPY70mn. This equates to between 14,000 and 17,500 paying users per month.
The avatar-based app category also centers on enjoying the story, but it incorporates avatars to impart a game-like atmosphere. The main title in this category is Tenka Touitsu Koi no Ran‒Love Ballad (“Koiran”). Average monthly ARPPU is JPY10,000, and the title generates average monthly revenue of around JPY80mn (8,000 paying users per month). This title is top in the category in terms of revenue and KPIs. The other five avatar-based titles each generate average monthly ARPPU of JPY5,000–6,000, producing tens of millions of JPY in average monthly revenue. Altogether, the six titles produce average monthly revenue of JPY200–300mn.
Card-based apps center on collecting character cards and developing these characters. Revenue from the main title, Ayakashi Koimeguri (“Ayakoi”), is relatively low, but average ARPPU is higher than for avatar-based apps, and the paying user rate (PUR; ratio of paying users to all active users) is about the same as for avatar-based apps.
The voice actor-type app actively incorporates the physical world, with real-life events and web media exposure that feature the voice actors appearing in the app. The only app, Anidol Colors (“Anidol”), is small in terms of revenue, but the company uses the app to multiply the value of its IP and revenue generation through in-person events that utilize voice actors.
Major game titles
100 Love Scenes+ (“100 Koi+”; launched in 2017, with the underlying romance story app launched in 2006)
This major app title is a popular long seller, providing written stories designed to induce a “pounding-heart” sensation among the female players. The title consolidates Voltage’s popular romance stories, with a steady stream of new characters and stories.
Tenka Touitsu Koi no Ran‒Love Ballad (“Koiran”; launched in 2014)
A major title for Voltage, this story is set in Japan’s Warring States period (1467 to 1615), and allows players to enjoy life-risking virtual romances with the period’s warlords. The title has popular characters that the company leverages through merchandise, events, and other out-of-app offerings.
Ayakashi Koimeguri (“Ayakoi”; launched in 2018)
This is a card-based romance story app incorporating a new game play. The story is set in Japan’s vibrant Meiji era (1868 to 1912) and portrays 1,000-year romances involving the heroine, characters with supernatural powers, and events spanning their previous lives. According to the company, the title stands out for its cast of 15 unique characters played by popular voice actors.
Anidol Colors (“Anidol”; launched in 2017)
Voltage’s first voice actor-type app for female players, Anidol is a school drama in which rising young talents with animal powers seek to achieve anidol (portmanteau of animal and idol) stardom. In addition to the release of a sequel to the main story, the company also provides stage shows, merchandise, and other out-of-app offerings.