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Retail

Where have Japan's gamers gone?

Where have Japan's gamers gone?

Fri 11 Jul 2014 6:34am GMT / 2:34am EDT / 11:34pm PDT
Retail

The market may have slowed down - but rumours of decline in Japan are exaggerated and economically ill-founded

There's a popular narrative about Japan's game development industry: it's an industry in trouble, lagging behind the West and running out of ideas. If any Japanese developer wants to get themselves splashed into the headlines, all they need do is trot out a soundbite disparaging their own industry; in a world of click bait headlines, the fall of Japanese development is a sure-fire winner. The apparent decline of Japan's game developers is linked to a secondary narrative as well, namely the decline of Japan's internal market for videogames. Once the undisputed gaming capital of the world, Japan seems to be falling out of love with the pastime - at least on consoles, and at least according to some rather unusual readings of the data.

There's a nugget of truth to both of these stories; just enough to make them worth considering, yet certainly not enough to prevent the majority of reporting and discussion on them from being a torrent of absolute nonsense. Japanese game development is somewhat troubled, but it's troubled by exactly the same factors that are giving sleepless nights to Western game developers - skyrocketing AAA budgets, new business models, a diversification of platforms and the globalisation of the audience. Japanese development studios remain perfectly capable of making superb games that delight their fans; their problem, just as everywhere else, is figuring out how to make money from those games in a new world where profitability escapes everything but the million-selling megahit.

"Japanese development studios remain perfectly capable of making superb games that delight their fans"

That links back to the second narrative; Japan is falling out of love with games. On the surface, it's hard to see this alleged decline. The country's arcades may not be what they once were, but they're still far more numerous and spacious, not to mention well-attended, than any such establishments in the west. Dedicated videogame stores remain a fixture of shopping districts, while every large electronics store (and there are plenty of those, dominating most city centre areas) has a large videogames section - a stark contrast with, for example, central London, where actually going out and buying a videogame in a shop is an increasingly difficult task. Food courts and fast-food joints still play host to groups of children and teenagers engaged in the likes of Pokemon and Monster Hunter, and a trip outside in an urban area with a 3DS in your pocket will bag a full complement of Street Pass hits in no time flat.

Where's the decline, then? Well, as figures released earlier this week by Japanese magazine publisher and industry data agency Enterbrain confirm, it's not actually a decline so much as a stagnation. Enterbrain's report, widely reported online after being translated in part by Kantan Games' boss Serkan Toto on the company's blog, showed that combined hardware and software sales in the first half of 2014 were almost exactly the same as the first half of 2013 - showing growth of just 0.1%. Toto's entirely reasonable point was that this is much, much lower growth than Japan's booming smartphone game market, yet this seems to have been picked up by many outlets as further confirmation of a Japanese gaming decline and specifically of a failure to ignite interest in the PS4.

Let's be clear - the Japanese smartphone game market is in extraordinarily rude health. Revenues from mobile games, by some measures, surpassed packaged game revenue about three years ago and haven't looked back since. For every person you see playing a 3DS or a Vita (the latter, I note, becoming vastly more commonplace on trains in recent months), you see dozens engrossed in mobile games. Puzzle & Dragons remains the clear favourite, but a trip on a busy Tokyo commuter line will turn up any number of different games gracing the ubiquitous smartphones. The industry's revenues are clear to see, too; the vast majority of expensive marketing campaigns for games here are for mobile games, not console titles. Only last week I walked onto a train carriage on the phenomenally busy Yamanote loop line in central Tokyo to find that every advertising space in the carriage was full of Clash of Clans marketing; the huge billboard near my apartment, meanwhile, alternates fortnightly between ads for hopeful Puzzle & Dragons clones and ads for new singles by terrible boybands. There's a huge amount of cash flowing through mobile games in Japan right now, and from a business perspective, that makes it a more interesting (if vastly more challenging) space than the console market.

"the Japanese smartphone game market is in extraordinarily rude health. Revenues from mobile games, by some measures, surpassed packaged game revenue about three years ago and haven't looked back since"

Yet that doesn't change the slowdown of Japan's console market into a "decline" or a "crisis". We all know that Japan has been ahead of the curve in terms of the adoption of videogames since the 1980s. 30 years down the line, is it surprising that it has hit a plateau? Gaming as a whole - including mobile, browser and online gaming - continues to grow at a massive rate, but in Japan at least, the console space has reached a point where there simply isn't much new market to conquer. That may change in future as new devices open up new audiences, but console games as they stand don't seem to have much further to go in Japan. That doesn't make them a bad business. It means that if you want to make huge bucks and impress shareholders with your growth figures, you probably want to place your investments elsewhere - but if you want to make great games and make money selling them, a mature, stable market is no worse a place to do that than a growing one.

Moreover, when you consider the underlying factors in Japan's economy, maintaining a steady market size is actually quite impressive. Japan's population peaked in 2008 and has slowly declined since then; the most rapid decline being the proportion of young people (the most avid consumers of videogames). So this is a market with less "core" consumers of videogames than before; moreover, a series of ill-targeted reforms and a few decades of economic slump have meant that a very large proportion of those young people are trapped in low-paying work with no job security. Furthermore, Japan's prices have been in slow but steady decline since the early 1990s. Yes, unlike most western economies, Japanese prices aren't slowly rising due to inflation - rather, they're falling due to deflation. This has supposedly been reversed in the past 12 months or so, with tiny inflation figures finally showing up, but most of the change so far has been down to a sharp rise in energy costs (a consequence of expensive imported fuels replacing Japan's still-offline nuclear power plants) and it generally hasn't been reflected in consumer goods.

"Japan has less consumers for games and it's charging less for things than it used to. Under those circumstances, a market which was performing precisely as well this year as it did last year would be expected to show a modest decline"

One other economic factor has been mentioned by a handful of writers this week. They pointed out that Japan's consumption tax went up from 5 per cent to 8 per cent in April, in the middle of this reporting period; if that 3 per cent hike were included in Enterbrain's figures, it would mean industry revenues actually fell. However, to my knowledge Enterbrain's numbers are based on pre-tax figures, much as US market data is, and thus the consumption tax rise isn't a factor - except in that it would have been expected to push videogame sales down, thus making the rise slightly more impressive.

In short - Japan has less consumers for games and it's charging less for things than it used to. Under those circumstances, a market which was performing precisely as well this year as it did last year would be expected to show a modest decline. Just staying still would mean you'd actually grown by a few percent in relative to offset the underlying audience decline and price deflation. Growing by 0.1% in Japan is comparable to growing by a couple of percent in the USA or much of Europe, where population is still generally growing and prices are being inflated, not deflated.

These factors don't combine to mean that Japan is magically showing strong growth in defiance of the figures, but they are important to understanding what the figures mean. Japan's "decline" is more like stagnation, and in the past year, even that stagnation has showed a positive trend. The market for consoles and games remains big and pretty healthy even as the market for smartphone games shoots through the roof; both of them clearly have an important place in the future of the country's games industry.

As for the supposedly "disappointing" impact of the PlayStation 4? There's no doubt that the performance of the console has slowed down significantly since a very strong launch, but it's worth noting that sales of hardware were actually up nearly 7% year-on-year, with the PS4 and the resurgent Vita picking up slack from slower sales of the 3DS. PS4's software line-up in Japan is still largely composed of western titles with limited appeal to the local audience, and the console probably won't pick up significantly until more local software is available later this year - it's notable that the PS Vita's success in the first half of 2014 is largely attributable to the sudden arrival of software titles that match local tastes, and not (as some commentators would have it) to an upsurge of interest in PS4 Remote Play functionality. Overall, PS4 in Japan continues to perform as you'd expect for a new console with limited software - a great launch, followed by slow but steady sales while it awaits new software to spark purchases from new audiences. It's done well, but it hasn't "rescued" the Japanese market; but then again, if you take the time to understand the figures, it should be pretty clear that the Japanese market doesn't actually need rescuing.

19 Comments

Jeff Kleist Writer, Marketing, Licensing

357 214 0.6
It's nice to see a piece on the subject from people that know the market. I found it amusing when Tokio did Cbox 360 ads, and was kind of mystified when they also sponsored Dragon Ash's tours. (DA definitely not a terrible biy band :) ;)

Creative stagnation, along with the inability to raise the kind of budgets of the west I'd say is a big part of the problem. Too many Japanese developers think Japan forest and foremost, and they're starting to fall behind what the west is doing technologicall simply for lack of opportunity for the experience. They can't spend 4-5 years in a game like Bethesda or Rockstar can while keeping cash moving. It's certainly a conundrum. I just hope that we see the capital investment in something risky before they're all cranking cell phone games

Microsoft has made a huge mistake marketing the Xbox One without a DVR and Blu-ray burner in it. Selling it as a DCR that plays games with way way way better features than the solid state decks they sell in yodobashi camera and BIC might have actually got somewhere.

Posted:3 months ago

#1

Morville O'Driscoll Blogger & Critic

1,582 1,437 0.9
Showing my ignorance about gaming in Japan through a genuine question/observation:

Wherefore PC gaming in all this? I know that PC games in Japan have always lagged behind the West, but with Steam in full-flight, are Japanese devs looking at the possibilities of PC in their home country? There's more and more PC ports of Japanese developed console games, and Western translations of PC games, but it seems that what could cause a renewed interest in the mature demographic who have less time for gaming - Steam - doesn't seem to have been mentioned. Is this Valve's fault for not pushing into the Japanese market? Or other factors?

Posted:3 months ago

#2

Jim Burns Research Asisstant

48 85 1.8
The Western game industry is in just as much trouble in the big picture of things.

Edited 1 times. Last edit by Jim Burns on 11th July 2014 12:28pm

Posted:3 months ago

#3
There is no doubt that Japan's indigenous market has been undergoing a transition with mobile gaming now the dominant force. However, the indigenous market is not the primary reason why many, including myself, have talked of Japanese gaming suffering a crisis. As I argued in Develop a few months ago (http://bit.ly/1qqOJEB), it is the fact that Japan is no longer the force overseas it once was. Japanese games developers have tended to make games for Japanese audiences first and foremost and while maintaining a cultural identity is laudable, the problem is that western tastes have moved on. Japanese developers have simply been unwilling or unable to follow. As a result almost all of the major Japanese developed franchises have seen sales decline if not collapse in the West in recent years. The question is whether Japan's mobile games companies, so succesful domestically, will learn from this.

Posted:3 months ago

#4

Payton Liu Production Support Analyst, IBM China

16 23 1.4
@Morville

Well, Japan has a rather unique PC games market - the adult video games industry. Which currently making the leap forward to mobile gaming as well. I doubt any credible media would like to research this area and release their findings...

As why the "regular PC games" market failed to blossom in Japan, there are many factors. The major one - the dominance of console games in Japan for decades.

Just my 2 cents.

Edited 2 times. Last edit by Payton Liu on 11th July 2014 1:17pm

Posted:3 months ago

#5

Shehzaan Abdulla Translator

124 245 2.0
@Morville I don't know any Japanese person who has high-end PC hardware dedicated to playing games. And by "high-end" I'm simply talking about a discrete graphics card here. This is anecdotal, but every person I know (and most Japanese PC games I've seen) are designed to run on integrated graphics/low-end systems. That naturally limits the kinds of games popular on PC to low-spec games such as visual novels.

Though you do bring up a good point about Steam. You might find this Kotaku article quite enlightening:
http://kotaku.com/5977001/why-pc-gaming-is-still-niche-in-japan

Posted:3 months ago

#6

Shehzaan Abdulla Translator

124 245 2.0
@Nick I wonder how much of the declining Japanese presence in overseas market is down to western audiences moving on, and not related to western publishers/developers finally figuring out how to sell at home.

It seems that starting with the original Xbox, western developers/publishers started succesfully converting traditional PC games such as FPS/RPGs (Halo/KOTOR) for consoles, and were met with great success.

What I'm saying is, maybe Japanese games having a niche market in the west isn't what should be raising eyebrows, maybe we should be more puzzled as to why they were ever the majority to begin with?

Posted:3 months ago

#7

Todd Weidner Founder, Big Daddy Game Studio

412 981 2.4
Japans macro economic numbers are awful, dreadful. Abeonomics is a disaster..Looking at the fundamentals and real numbers, there is little doubt that of course products and service requiring disposable income are going to be hit, and continue to be hit hard.

Edited 1 times. Last edit by Todd Weidner on 11th July 2014 3:55pm

Posted:3 months ago

#8

Morville O'Driscoll Blogger & Critic

1,582 1,437 0.9
@ Payton
Well, Japan has a rather unique PC games market - the adult video games industry. Which currently making the leap forward to mobile gaming as well. I doubt any credible media would like to research this area and release their findings...


@ Shehzaan

From what you say, then, it's a bit "chicken and egg", at least to an extent? Consumers don't have "high end" PCs, so pubs/devs don't produce games for them, which means consumers don't have a reason to buy a decently specced PC, which means... And so on. Interesting. And thanks for the link - will look at it later on. :)

Posted:3 months ago

#9

Shehzaan Abdulla Translator

124 245 2.0
@Morville TBH I get the impression that Japanese people don't even consider the PC an option to begin with.

They have consoles that do everything they want. Unlike the West where there are major markets for games that work much better on PC than console (RTS/FPS) most of the games that work well on PC for the Japanese audience, work just as well on handheld/console, if not better because the consoles will have higher fidelity output.

Posted:3 months ago

#10
@Shehzaan Yup, that was one of the suggestions in my article.

Posted:3 months ago

#11
Popular Comment
If we're talking about the Japanese market for gaming, it's healthier than ever - the appetite is there, and being sated mostly on mobile and tablets by the same kinds of games that used to be popular on console. Puzzle and Dragons, SD Gundam Generation Frontier, Drift Spirit, Puyo Puyo Quest, Dragon Guest VIII, etc. The mobile games market is not 50% of the overall games market in Japan.

The dominance of the F2P model on mobile has also hurt users' willingness to spend thousands of yen on console games. As mobile/tablets improve each year, while consoles (TV and handheld) only evolve every few years, I'd expect more and more users start wondering why they need a console, and why they need to make a large purchase decision before they understand what they're buying.

On the other side of the equation, Japanese gaming companies are trying to adjust to the new landscape, and the indie scene is still a little behind the West. Even the seemingly overnight stars like GungHo and Colopl are yet to see lightning strike twice. My hunch is that both the old guard developers and publishers (Namco Bandai, Capcom, Konami, Sega) and the new guys are trying to figure out what the domestic market is going to do next, how to master F2P with their IPs, and restructuring internally so that their teams can make games both for console and for mobile/tablet. It'll take a while as Japanese developers haven't really needed to innovate for years, but necessity being the mother of invention, it's sure to be happening. Then I'm sure we'll start to see Japanese developers fighting back in the West.

Posted:3 months ago

#12

Nick Wofford Hobbyist

180 190 1.1
A few comments from me:
"...but it's troubled by exactly the same factors that are giving sleepless nights to Western game developers - skyrocketing AAA budgets, new business models, a diversification of platforms and the globalisation of the audience. "

This last part isn't really hitting the West that much, since west of Japan is the entire world. The audience is globalizing, but they're gravitating towards Western titles, which only hurts traditional Japanese games.

"Moreover, when you consider the underlying factors in Japan's economy,..."

This paragraph feels like a cop out. I could make this paragraph's argument about almost every nation on the planet. "When you consider the economy in Syria, gaming sales actually aren't that bad." The main point of any article or commentary on Japan's declining relevance on gaming is about just that: relevance. If Japan can only manage an eighth of the total sales of a Japanese console (PS3), then it doesn't seem logical to continue referring to Japan in the same breath as Europe and North America. It's just not even close.

So my main point of contention with your article (very well-written, by the way) is that while I agree that Japan doesn't need rescuing, I disagree about its place in the industry. Personally, I wouldn't be surprised to see another region (we're hearing about South America doing pretty well now, but I can't say I know any stats) surpass Japan.

Posted:3 months ago

#13

Greg Wilcox Creator, Destroy All Fanboys!

2,193 1,170 0.5
@Shehzaan:
It seems that starting with the original Xbox, western developers/publishers started successfully converting traditional PC games such as FPS/RPGs (Halo/KOTOR) for consoles, and were met with great success.
I'd lightly argue (with a cup of coffee or tea in one hand) that there were numerous successful (albeit scaled back) PC to console ports before the Xbox existed (to the Famicom/NES and other consoles up to the original PlayStation), but I do see the point you were making there.

Posted:3 months ago

#14

Shane Sweeney Academic

396 407 1.0
I think to take your point further, we can use Japan as a template for how other countries will trend in decline. Japan for the longest time consumed three times as many video games per capita compared to the United States. Just simply, everyone played games. Now that almost everyone in the west under 35 is a gamer the size of the western markets dwarfs Japan.

The west mostly still benefits from population growth as well, but we have hit world wide peak child (Rosling). We won't have any more children in the world then we do right now. So the gaming sector hoping to double and triple in size will only happen for a little longer in growing countries like Australia and the USA, and in developing nations as they gain disposable wealth for entertainment. As for the rest of the countries (Europe is almost there) the markets will plateau. We can learn much from Japan as they in many ways are like looking at our future.

Edited 1 times. Last edit by Shane Sweeney on 12th July 2014 4:53am

Posted:3 months ago

#15

Roberto Bruno Curious Person

104 69 0.7
@Morville: There are few Japanese developers who are attempting a timid approach toward Steam and digital distribution, some of them even with encouraging results, but from what I gather an overwhelming majority of them, for how absurd it may sound, aren't even aware of what a big potential market is, if not even completely unaware Steam exists at all.

I've been told by people working for small translation companies/importers that it still is very common for them to approach a company (Japanese studio or publisher) suggesting a Steam release and to receive a puzzled "What is a Steam?" as an answer.
Usually a that point there is some back and forth received with some scepticism until they cut it short with a "Just trust us, we are going to need Steam".

Posted:3 months ago

#16
Personally, I think there are 3 main reasons for slow sales:
1/ Mobiles/tablets: Obvious

2/ Digital and second-hand sales: Its becoming harder and harder to work out real software sales figures from the charts

3/ Old devices are "good enough": there are millions of active PSPs, DS's, Wiis, PS3s, 360s and so on in Japan. We are getting to the point where the new consoles and handhelds don't offer that much more over the previous ones - so the "need" to upgrade is much lower. At least a 3DS will play games from a DS - this isn't true for either a PSV or PS4. So they really have to wait until there is a big, new library of games.

This is only going to get worse, which is why all companies have to move away from selling "new hardware" to other models. The best things about Android & iOS, is that the hardware is separate from the apps: buy a newer device, and you can still use ALL your software - and most of them will run better. Both Sony & Nintendo need to move to a similiar model.

Posted:3 months ago

#17

Jeff Kleist Writer, Marketing, Licensing

357 214 0.6
@morville

PC gaming is extremely niche in my experience. Home grown Japanese games on PC can run hundreds of dollars at retail. The PC ports of Japanese games are pointed at Korea, Russia, and Eastern European markets where it's certainly a far bigger platform for gaming.

Valve hasn't pushed into the Japanese market, and in fact licensed their games to Japanese developers for the arcades, because there's really no money in it for the. The cost of finding a partner company (without which they are likely doomed, because it's more who vouches for you than anything), combined with regulatory issues, the small consumer base, and a dozen other factors likely make it unprofitable to do so. To be succinct: a foreign company coming in and bypassing the traditional chain of distribution chains, which are extremely hordes, and can cover areas measured in a dozen or so blocks, is only one area that not only invites reprisals to Valve, but one who choose to sell there. If they were to partner with say, Yodobashi camera or another large retailer, , things may go better. For example,a tower Records lives in Jaoan because a Japanese company licensed the name, and 7-11 is again, a license, not the same as the US. AND DOING SO, ESPECIALLY WITH steam sales, would likely make such a partnership so razor thin on profits, it's just not worth it. Better to allow a Japanese distributor to take care of the massive political headaches and kick back to Valve than domit themselves.

Posted:3 months ago

#18
"alternates fortnightly between ads for hopeful Puzzle & Dragons clones and ads for new singles by terrible boybands. "

That's because Puzzle and Dragons clones are the game equivalent of terrible boybands.

Posted:3 months ago

#19

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