Konami dares a Jasdaq debut

By CNN's Kristie Lu Stout

TOKYO, Japan (CNN) -- It's a dreary season for tech stocks, especially in Japan. But one video game company is daring to make a debut on the Jasdaq.

Konami Computer Entertainment Japan, a game-making unit of Konami, is issuing 2 million shares in its initial public offering Wednesday.

It is also the publisher behind the mega hit "Metal Gear Solid 2," a virtual spy game that has sold over 2.5 million copies worldwide.

Konami Computer Entertainment Japan is Konami's third subsidiary to go public.

'Killer' market

Despite rumors of a delay, Konami has pushed forward with its IPO during a particularly unstable spell for stocks.

"Let's look at the market right now, everything is getting killed," said WestLB's Tokyo-based games analyst Zachary Littett. "It's hard timing for Konami."

Yet analysts are certain that small cap fund managers and retail investors will warm up to the new issue.

"Investor interest is fairly high," said Lisa Spicer, ING Barings games analyst. "It's seen as a growth area in Konami… and there's a lot of Metal Gear Solid fans out there."

Konami Computer Entertainment Japan is widely seen as a "focus play" with higher growth potential than its parent, Konami -- a diversified entertainment group with interests in toys, health clubs, pachinko and slot machines.

The listing is seen as a way for Konami to introduce financial incentives for its game developers who have share options in the game unit, as well as to enhance accountability.

"Perhaps in a bigger (game company) that keeps everyone in-house there may be some issues where the developers tend not to worry so much about the bottom line," said Liggett.

The listing forces the developers to produce the next top-selling game while keeping "focus on profitability at a more micro level," he said.

'Era of attrition'

Many video game makers in Japan have tapped the capital markets to cope with the escalating costs of software development.

The halcyon days of two gamers in a garage churning out the next hit is over. The garage shop has made way for major production studios that must spend millions of dollars to create titles that meet the needs of sophisticated machines like Microsoft's Xbox.

Signaling the change in the sector, Konami president Kagemasa Kozuki said last year, "The computer entertainment industry has entered the era of attrition."

Survival in the $20 billion sector requires both financial and creative capital to snap up market share and pump out the video game hits.

"All companies are looking for ways to bring in creative capital," said Spicer.

"There will be a lot of consolidation as garage shops with no financial resources can't compete. They will be swallowed up by the Microsofts, Sonys, and Konamis of the world."