Get Those Stun Guns Ready: Here Comes Masayoshi Son

Softbank is launching an assault on the online-game market

For a guy who spent the late 1990s buying a piece of just about any company that struck his fancy, Masayoshi Son sure has been doing a lot of selling lately. Over the past year, Son's Tokyo-based Softbank Corp. has unloaded parts of its holdings in Yahoo!, Yahoo Japan, and telecom gear-maker UTStarcom for a total of $1.4 billion. In August, Softbank expects to sell its 49% stake in Japan's Aozora Bank for $865 million. Why the sell-off? Broadband. In the past two years, Softbank has emerged as a leading provider of high-speed Internet access in Japan. Now, Son wants to dominate the market for entertainment delivered over the Net. The asset sales "will give me more ammunition to keep fighting," says Son, Softbank's founder and president.

Get your stun guns ready: Son's first assault will aim at Japan's online-game market. On July 25 he plans to open a Web portal called BB Games featuring about 50 titles. Players will pay a monthly fee of $8.50 to $13 per title to square off against others across the country. By yearend 2004, Softbank plans to offer as many as 300 games and hopes the site to bring in revenues of at least $400 million per year by 2006. Of that, BB Games will keep 20%, with the remainder going to game developers. "There's no doubt that the killer application for broadband is online games," says Taizo Son, Son's younger brother and a partner in the venture.

Having bet some $1.5 billion on Softbank's Yahoo BB broadband service in the past two years, Son could use a killer app. Today, Yahoo BB has 2.8 million subscribers and holds 25% of Japan's broadband market, just behind leader Nippon Telegraph & Telephone Corp. Problem is, Softbank has spent more than $1 billion to build Yahoo BB's network and at least an additional $500 million on marketing. And it pays NTT some $40 million a month to use the lines linking Yahoo BB to customers' homes. Yahoo BB is now generating $95 million in revenue a month, but Softbank continues to bleed cash. In the fiscal year ended in March, it lost $855 million on revenues of $3.5 billion, compared with a $760 million loss on $3.5 billion in sales in 2001.

Son is hoping to turbocharge revenues by getting his broadband subscribers hooked on services such as games that bring in extra cash. Already, Yahoo BB has attracted 2.5 million users to an Internet phone service, and it's now experimenting with pay-TV over its network. Down the line, Son plans to expand into e-learning and corporate services such as videoconferencing. Japan's broadband content market could be worth $6.4 billion by 2005, a sharp jump from $1.5 billion last year, according to Mitsubishi Research Institute Inc.

Some wonder, though, whether people are ever going to pay for services delivered over the Internet. "It's a bet that I don't think is going to make a lot of money" for Softbank, says Ben Wedmore, an industry analyst with HSBC Securities (Japan) Ltd. Softbank's track record isn't all that great. In March, Son launched BB television, which offers Tokyo customers 14 TV channels over Internet lines as well as access to more than 400 movies for as little as $2.50 each. So far, only 1,000 subscribers have signed up for the $21-per-month service -- though Son says that's because Softbank hasn't really begun marketing yet.

Few, however, doubt that online interactive games will be profitable for Softbank. In Korea, games have emerged as a major driver of traffic on that country's ultrafast Internet connections. Softbank has already attracted 265,000 customers willing to pay $13 per month to play Ragnarok, a community-building game in which players assume the identity of a cartoon character.

Son isn't the only one who sees the potential for black ink in the blood-and-pixels of online games. NTT, Softbank's biggest rival in broadband services, is considering a game portal of its own, and Sony offers a similar service to owners of its game machines. Still, Son is wagering almost everything he owns. For the father of the Japanese Net, this is a thriller not even BB Games can top.

By Irene M. Kunii in Tokyo

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