Japanese gaming is at a crossroads.
For decades, Japan was the primary or at least secondary distribution territory for all consoles but now new consoles launch weeks or even months later in Japan than in the West. Japanese-developed games used to represent five of the top ten best-selling US video games in 2003; in 2013 there was not a single one.
Japanese console games sales have suffered six straight years of diminishing sales.
In contrast, Japan’s mobile games market has boomed, more than doubling in size last year to over $5bn, overtaking console games sales in the process. So why is the sun setting on Japan’s console game industry and can mobile really save Japanese gaming?
Japanese video games are not the only culturally Japanese products that have been sliding internationally. Anime sales domestically and in the West have plummeted over the last five years, contributing to the closure and downsizing of many major anime companies and a wide-scale retreat from international operations. This strongly suggests that international cultural tastes have moved on.
Japan appears to be increasingly losing out to other pop cultures, whether it is Chinese, Korean or Western culture that has adopted some of Japan’s cultural memes. The wider malaise of Japan’s crisis-hit economy and ageing, shrinking population may also be playing a role.
The Japanese game industry has its own unique problems. Their developers have historically designed games for Japanese audiences. In the 1990s, this resulted in huge but, in part, incidental international success since Japanese and Western tastes happened to be aligned strongly, helped by a lack of competition from Western game publishers.
But in the 2000s, as Western and Japanese game and platform preferences steadily diverged, Japan’s developers were increasingly faced with the quandary of whether to develop for international or domestic audiences. The vast majority of them chose the latter, cutting their potential in an already declining global market.
While Western developers increasingly concentrated on blockbuster releases with ever-growing budgets, Japanese console developers started to lose the skills, financial backing and ambition to compete in the modern international console games market.
There are now no blockbuster releases from Japan to compare with the likes of CoD, FIFA and GTA. Sales of many of Japan’s biggest franchises have collapsed in recent years with few significant new franchises being born, and certainly none that can compete in the top tier. A regular stream of leading studio closures such as Neverland, EA Japan and Game Republic complete a grim console gaming picture.
One of the causes of Japan’s console games decline is mobile gaming. Where the impact of mobile gaming on core console gaming in the West is debatable, the substantially higher average spend on mobile gaming by Japanese consumers has undoubtedly impacted console games spending.
Despite its smaller population, Japan now vies with the USA for the title of largest app store territory as a result. Japan’s modern mobile game industry may have been founded by non-games entrepreneurs, but it is increasingly being driven forward by console and PC game developers.
Mobile gaming incumbents GREE and DeNA have hired relentlessly from distressed console and anime studios, many of the latest blockbuster mobile game studios, such as GungHo, have their roots firmly in core game development and numerous Japanese console game development stars have now transitioned to mobile.
Although the prospects for Japan’s mobile gaming companies look good, is it destined to repeat the mistakes of its console gaming peers? There are striking similarities.
The leading Japanese mobile developers are making titles primarily for Japanese gamers, with international success incidental rather than planned. Huge Japanese mobile social game networks like GREE and DeNA struggle to cope with an internationally-led platform transition from feature phones to smartphones and have enjoyed comparatively limited success outside of Japan.
With surprisingly few major hits from Japanese developers in the West and the Western app store charts now increasingly dominated by games with big production values from established Western developers, several have resorted to expensive overseas acquisitions to generate international sales. Few have borne fruit so far.
Japan’s booming mobile sector may be compensating for the collapse of its console game industry, but its leading companies know they have to prevent their success remaining insular and becoming cyclical.
The sun always rises again, but it may be dimmer and cooler for Japanese game companies that fail to bridge the cultural gap, cater to the larger international audience, compete effectively with an increasingly sophisticated and well-resourced Western development scene and prevent history repeating itself.
Nick Gibson is a director at Games Investor Consulting, which provides commercial check-ups, strategy and data to games, media and finance companies.