FINANCE POKEMON GO CATCHES INVESTORS STEVE BLIZARD
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eleased during July in Australia and other selected countries, Pokémon Go is a free-to-play augmented reality smartphone game developed in collaboration by Niantic, Nintendo and The Pokémon Company. In the game players use the smartphone’s GPS capacity to locate, capture, battle and train virtual Pokémon creatures, who appear on the screen as if they were in the same realworld location as the player. My son grew up with Pokémon cards at school, so was instantly hooked on the game when it was launched in Australia. Intrigued to see how the game works, we drove around Kings Park, an increasingly popular Pokémon Go Perth hotspot. It was astounding to see hundreds of young adults walking around the gardens with battery backup cords for their phones hanging from their pockets. A Kings Park Botanic Gardens and Parks Authority spokesman said that while welcoming new visitors, the sheer numbers has meant certain sections of the lawns were now roped-off. WHY IS POKÉMON GO SO ADDICTIVE? According to Elan Barenholtz Ph.D., associate professor at the Center for Complex Systems and Brain Sciences at Florida Atlantic University, Pokémon Go is hijacking the brain’s reward systems. The brain contains small groups of neurons that help us experience pleasure and positive reinforcement - the reason drugs are so addictive and why junk food is so popular. They’re also the reason that over the past month or so some Pokémon Go players have quit their jobs, broken into homes, fallen off cliffs, wandered into restricted army bases and onto mine fields, all while attempting to catch the game’s elusive animated creatures. While the new augmented reality technology has practical education benefits, Barenholtz says he worries about the impact Pokémon Go and other
augmented reality games can have on the brain by messing with its neurological reward systems. But unlike old-school Nintendo and X-box games, with Pokémon Go millions of players go in search of physical locations that have been
transformed into virtual landscapes teeming with fictional creatures, so it’s not difficult to see why the potential for stimulation and addiction can be vastly intensified. “When you’re going out and running around in an environment and you’re getting the video game feedback at the same time, you’re now recruiting a much richer representation, your brain is now sort of falling for it in a much deeper way, even though you know cognitively it’s fake,” Barenholtz explains. “Just like illusions, you know they’re wrong, but there’s a good chunk of your brain that buys them. “I think you’re going to buy them more deeply now, so that should make the reward that much more compelling and that much more addictive.” And while Pokémon Go most likely won’t signal the fall of society any time soon, one thing is certain; never has an online game seen so many people out in the open-air, in an excuse to walk the family dog. INVESTMENT MARKETS CAUGHT OUT
The global surge in popularity of Pokémon Go has also caught out financial analysts who cover Nintendo for the world’s biggest investment banks. Emerging from seemingly nowhere, Pokémon Go’s debut took virtually everyone by surprise, due to the little communication emanating from Nintendo. The Kyoto-based company stood by for more than a fortnight while their new game’s release added $20 billion to its market value. From the July 6th launch day, Nintendo shares jumped 119 percent over that fortnight. By July 15, Nintendo had set the record for the most traded equity in a single day (by value of shares, not volume) on Tokyo’s exchange. Then, in a stunning announcement after 7pm, on Friday in Tokyo, it announced that the earnings impact from the game will be limited. When the shares traded on the following Monday, they fell the most in twenty-six years, down a sizeable thirty percent. This is thought to be the first time an augmented reality product has so strongly impacted a public company’s stock, apart from when Facebook acquired VR headset maker Oculus Rift. A source of frustration for fund managers and investors is the lack of disclosure about Nintendo’s financial interest in Pokémon Go. Nintendo doesn’t own the game outright, as investors may have believed. Rather, the game was jointly developed by Pokémon Company and Niantic. Nintendo owns about a third of Pokémon and said it made an investment in Niantic last year, but did not disclose the size of that stake. Nintendo’s lack of disclosure means analysts are mostly flying blind about a revenue stream that’s potentially worth billions of dollars. Macquarie Securities’, David Gibson, estimates it to be 13 percent, while in a note to clients, Jefferies Group’s Atul Goyal, projects revenue could be as high as 40 to 50 percent. Bank of America’s Hiroyasu Eguchi sees the potential for profits to nearly triple during 2017 as Nintendo taps its intellectual property for new products including mobile games with Pokémon Go-like augmented reality. In his report Eguchi writes: “A game changer, Pokémon Go not only refreshes the company’s suite of well-loved characters in the consumer consciousness, but also clearly indicates the company’s embrace of open platforms, unlocking its IP potential across untapped brand extensions, from movies and theme parks to branded merchandise and in-app advertising.” Yet while other analysts remain skeptical about the company’s ability to produce hits for smartphones, the Pokémon Go phenomenon remains a hot target for canny investors to hunt down. Courtesy of Roxburgh Securities 31