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| Livedoor CEO Molded New Breed of Investor |
| Takafumi Horie has followers waiting for outcome on fraud charges |
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Morley Robertson (internews)  |
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Published 2006-01-26 17:43 (KST) |
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Stock splitting and stock swapping were key instruments to Japanese Internet portal Livedoor's rapid success. So were window dressing strategies for book keeping, and tunneling funds through off-shore accounts, according to the Tokyo District Public Prosecutors Office.
Most people cannot immediately recollect what commodity Livedoor sold. Perhaps most of all, Livedoor sold its own image. Takafumi Horie, Livedoor CEO, was a phenomenon unto himself. His media exposure helped cut the firm's advertising budget, since he was the news.
The young tycoon and three other Livedoor executives were arrested Monday on suspicion of being involved in spreading false information about a corporate buyout, a violation of the Securities and Exchange Law. Horie has repeatedly denied wrongdoing.
A simplified way to visualize Livedoor's business model would be to think of a spiral of unending stock price increase. Horie's media exposure drove up Livedoor's stock price. When the stock price reached a certain level, then Livedoor would split that stock, making it easier to buy. Horie said he wanted to make his company's stock affordable by even school children. In fact, the price of Livedoor's stock, at 696 yen per share on Jan. 16, was comparable to a lottery ticket.
Every time Livedoor's stock split, shareholders had to wait 50 days to obtain newly issued shares. The feeling of scarcity then drove the stock price back up. It worked a bit like a "shepherd's horn," where a melody seems to keep ascending without end. Livedoor's stocks created a mirage of an infinitely ascending stairwell.
Between 2001 and 2004, Livedoor split its stock 30,000 to 1, printing stocks by the million. Right now, even after Horie's arrest, and under threat of delisting, there remain over 1 billion stocks, amounting to 45 percent of the Tokyo Stock Exchange by volume. The market is inundated with Livedoor stocks.
Livedoor's "net worth" - its stock price multiplied by the number of shares in circulation - increased to gargantuan levels for an Internet company that did not market much more than financial services. The inflated networth allowed Livedoor to rapidly acquire firms through stock swaps. Announcements of an M&A would once again propel Livedoor's share prices.
Horie shot into prominence in 2004, when Livedoor attempted to acquire a baseball team. Horie was outbidded by a rival, but many baseball fans rallied their support behind him. Then, in early 2005, he attempted a hostile take-over of the Fuji Sankei Communications Group, a media conglomerate deep in the heart of Japan's conservative establishment.
Although his take-over bid exploited a legal loop-hole (since then closed through legislation), his flamboyant and unflinching criticisms of Japan's old-guard won him stardom. People far from the tech or financial sector, even children, spoke of Horie-mon (Horie's nickname) with admiration.
 | |  Takafumi Horie | | | ©2006 REUTERS/Yonhap | | Politicians from both conservative and liberal camps praised Horie as a rising star of the new generation, someone who can bring Japan up to speed with the global economy. The Liberal Democratic Party indirectly endorsed Horie when he ran for office in support of Prime Minister Junichiro Koizumi, against an old school stalwart.
Even though Horie was defeated, he received disproportionate media coverage during the general elections, which again contributed to Livedoor's stock price. Now that Horie has been arrested, the LDP and the opposition Democratic Party are putting the blame on each other for having endorsed him.
Livedoor was somewhat of a religion. Even after the religion's main icon has fallen to the ground, there remains a sense of "after-glow" among believers. Some dedicated followers continue to leave encouraging comments on Horie's blog. There are now over 8,000 comments and over 400 trackback links attached to Horie's last blog entry before he was arrested.
What propelled Horie's believers? Maybe Livedoor fans were simply bored with Japan. In Horie, they saw a "destroyer" who could break up the stagnancy overshadowing Japan, someone with enough momentum to open up a new frontier.
Most Japanese have felt that Japan has to re-invent itself, by breaking out of its isolationist mold. In economic terms, this means abandoning Japan's post-WWII economic model of heavily regulated capitalism, dubbed the "convoy" (gosou sendan). Japan can no longer offer the promise of full-employment, but most firms are slow to transform their practices. Young adults seem the most alarmed; their education has conditioned them to become passive, while the challenges of a global economy require the exact opposite.
Prime Minister Koizumi's economic reform programs have been a series of forceful deregulations, aimed at introducing efficiency and vitalization through competition. The on-going steps toward the privatization of Japan Post has had a profound effect, symbolizing that Japan is changing at a fundamental level. But just how the Japanese are supposed to change has not been spelled out.
As if trying to fill this vacuum, the media has commodified a new series of stereo-types, such as the economic "winners" and "losers", "glamorous women" versus "loser women", or the "Roppongi Hills tribe" versus the NEETs and "freeters." A lot of propaganda is circulating, aimed at fanning anxiety. An appetite for quick, simple answers to complex questions has developed in recent years, especially in the media. Some ascribe the media's reductionistic tone to Westernizing business practices, emphasizing short-term profits over long-term stability.
The old-guard has tried to provide some pat answers to these anxieties. One of the answers was revived nationalism. For example, the publisher Fusou-sha, owned by the Fuji Sankei Communications Group, has been calling for a more assertive Japan that does not bow under diplomatic pressure from its neighbors, a Japan unafraid to reinterpret its wartime history. But perhaps the younger generation was not fully convinced, as the nationalist rhetoric usually came from the same direction as people with vested interests, people who would keep their jobs until the very end. The youth wanted a cooler role model, some one who could open the door beyond a "strong Japan," maybe someone beyond nationality itself. Horie presented himself as that cool hero, on their side.
One either believed his gospel or despised him, but nobody could ignore him. Horie made uncompromising statements against the establishment, and made his statements short and easy to understand. He did not present an ideology to counter nationalism or socialism. He just reiterated his wish to become the richest man on Earth; and to achieve that, he gave first priority to his shareholder's interests. There was no "good" or "bad" in his rhetoric, only the "strong" and "weak". When he gained momentum, he even published a book by the title "I am Immortal" or "Boku Wa Shina-nai." In here lay the rock and roll of Livedoor.
Horie did not pretend to be an intellectual. When interviewed, he would make only down-to-earth comments. He bragged about his wealth, ate at famous restaurants, documented and photographed what he ate, published it on his blog, dated celebrity women, appeared on television and seemed to enjoy it, bought a used jet plane, lived in a mansion inside the Roppongi Hills. There was no sense of mystery; Horie-mon was continuing his simple life of making money by the billions, so he could go to outer space and become immortal. Horie was as flat as a cartoon hero, but that lack of depth made him irresistible to some.
Livedoor became a model company of "fundamentalism" in the pursuit of wealth. Employees had to fill out a form seeking managerial approval to buy even one pencil; no business meals and entertainment receipts would be reimbursed; employees were encouraged to use subways instead of taxis; there were no fixed stations, and meeting rooms had to be "signed out" every time; employees had to buy their own computers and pay for maintenance; the firm's business was nearly paper-less, because all discussions took place in the form of electronic mailing lists; Horie claimed to go through 5,000 e-mails every day; starting salaries were unusually low, but promotions immediately followed successful deals; the average employee turnover period was 18 months; anybody, it was stated, could apply for employment for Livedoor, by filling out a form on-line; when Horie's secretary, a former stewardess, became a mini-celebrity in her own right, Livedoor immediately published a book of photographs in which she posed; the portal livedoor.com published news feeds from as many sources as possible, including the Communist Akahata (Red Flag) newspaper; Livedoor imitated the citizen journalism of Korea's "OhmyNews," and paid 500 yen for every published article; the list went on.
In the end, Livedoor was selling Horie as its main commodity. Every drastic thing he said and did seemed to generate a mystique, almost sublime. If someone criticized his practices, Horie would look at the critic in the eye and say, "What's wrong about making money? Don't you want to become rich?" Most people were too embarrassed to continue arguing along such lines. Everything around Horie was reduced to the bare bone. "Buy my stock, and get rich" - this simple message, comically simple, carried Livedoor's magic.
The Japanese media loved Horie. Prior to his arrest, Horie was appearing on television so frequently that some speculated that he was no longer running Livedoor, leaving the business end to his subordinates. Then when the Prosecutor's Office raided Livedoor on suspicion of fraud, the media really loved him. All television stations were broadcasting news updates on the Livedoor affair, and live coverage of Horie's arrest rated at 17 percent on TV Asahi.
For a full week, the mega-bulletin "2 channel" was in a frenzy, what users call a "festival" (matsuri). Tens of thousands of postings were entered. Most postings were filled with epithets or base humor, but there were occasional gems of background information that could not be obtained through mainstream media. Certain obscure blogs and PDF documents discussing esoteric techniques of fraudulent accounting received "prime time" coverage within the discussion threads.
Most celebrities would not welcome attention from this mega-bulletin because of its slanderous nature. But Livedoor had entered a kind of symbiosis with the 2 channel users. Many on 2 channel would criticize Masayoshi Song of Softbank, Inc. for being a "non Japanese" (zainichi Korean), while a surprising number of "2 channel" posts about Livedoor seemed sympathetic. In fact, Livedoor's portal leased the bulletin architecture from "2 channel," so that bulletins within Livedoor resembled "2 channel" threads. Perhaps Horie-mon was a "2 channel" icon. Even as he fell, he was taking the Tokyo Stock Exchange with him.
The sheer volume of 2 channel postings about Livedoor was noticed by mainstream news media. When television or newspapers covered 2 channel, this would speed up the rate of postings. The rapidly growing threads reminded one of Livedoor's growth model, where stock prices and media coverage fanned each other. This festival reached its climax at the moment of Horie's arrest. "2 channelers" seemed overjoyed that their hero had gone up in flames. Innumerous "ASCII art" postings expressed a sense of elation, as if witnessing a historic moment.
In the days after Horie's arrest, excitement in both the media and Internet waned. Sankei Shimbun, a Fuji Sankei newspaper, gave somber and objective reports on Livedoor's wrong-doings, but its sister tabloid, Yuukan Fuji, could not contain its joy. "Horie is Completely Banished" blared the front page in big yellow letters. On the same day, another tabloid published a photograph of a jail cell at the Tokyo Detention House similar to where Horie would be staying. The Fuji Sankei Group announced that it will no longer be bound by a compromise pact it signed last year, after Livedoor's take-over bid.
The business-oriented Nikkei News, following Mr. Horie's arrest, suggested that business is coming back to normal, now that the "scum" has been removed. The LDP and Democratic parties are trading accusations about past endorsements of Mr. Horie. All of this is playing out as a ceremony to put Livedoor in the past.
So although Horie-mon provided excitement to the young and a shudder to the Tokyo Stock Exchange, his legacy is being digested and absorbed through the familiar channels. Livedoor, the actual company, quickly replaced its president with a 60-year old former Sony manager. In Horie's absence, even his archenemies, like Watanabe Tsuneo of the Yomiuri Shimbun Group, are applauding Livedoor's "turn-around".
The portal, Livedoor.com, has kept with Mr. Horie's fundamentalism throughout this "festival". On the heels of the Prosecutors raid, Live Door News announced that it will objectively report on this matter from all sides. It kept its promise. On the portal's top page, there are news headlines announcing that now the company has become the target of a speculative "money game." Livedoor's primary commodity continues to be itself.
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Nikkei news report: http://headlines.yahoo.co.jp/hl?a=20060124-00000017-rtp-brf
Mr. Horie's blog in Japanese: http://blog.livedoor.jp/takapon_ceo/
Livedoor's portal page: http://www.livedoor.com/
The Tabloid Yuukan Fuji: http://www.yukan-fuji.com/
Morley Robertson hosts the podcast "i-morley" and a radio news program "Early Morley Bird" on J-WAVE (81.3 FM). He has given extensive coverage to East Asian issues on the Japanese airwaves. |
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©2006 OhmyNews
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