Japan's Galapagos Syndrome shows signs of globalization

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The assumption of many is that the Japanese games industry, and indeed that of much of Asia, is a unique, indecipherable entity compared to the more easily understood and integrated dynamics of gaming in Western countries.

Mobile gaming has a foothold around the world, but the rise of gacha gaming in Japan in particular feels unparalleled to trends witnessed elsewhere, where many major franchises like Uma Musume: Pretty Derby, which developer CyGames announced had earned a cumulative revenue of $2 billion in less than two years following its 2021 launch, almost entirely a product of domestic spend bar a small launch in South Korea.

With headlines such as this dominating, it’s easy to assume that the industry in Japan exists in a unique state disconnected from the trends of the globe, embracing a Galapagos Syndrome symbolic to other domestic technological developments like the flip phone prior to the smartphone revolution or the insistent continued use of the fax machine.

While the perception of Japanese games development as a declining powerhouse has been disproven in the wake of high-quality releases from the likes of Capcom and From Software, plus the turnaround of Nintendo's fortunes following the launch of the Nintendo Switch, one assumption that perseveres is the reputation of the country as a mobile gaming capital that has otherwise relegated console gaming to the confines of history. It's understandable when headlines paint success stories of the country as one of the highest-grossing mobile gaming markets in the world, and not even necessarily inaccurate — it's only behind the US and China in terms of consumer spending.

"Most parents think that smartphone gaming is not that good compared to console gaming because with consoles they can check what games are being played"

Darang Candra, Niko Partners

Yet it obscures the truth of an industry in flux. As mobile revenues stall in an increasingly saturated industry, so do the priority of many of the companies working in the sector. CyGames has continued to branch many of its most popular franchises such as Granblue Fantasy to console, and the company is not the only example of this.

The signs of this shift within Japan are rippling across the industry, from the Switch’s success invigorating a revolution in hybrid gaming and beyond. Indeed, last year’s Tokyo Game Show was a particular example of this phenomenon in action. As the event roared into motion, it felt like a triumphant return in more ways than one. While this was the show's second post-COVID event, the 2022 rendition was notably smaller in scope, while Japanese government-imposed COVID immigration regulations all-but barred international participation. This felt not just like a true return for the beloved show, but a chance to showcase just how much the industry had evolved in the country since the world shut down.

Compared to previous years, the only major booths at TGS predominantly focused on mobile experiences were those for Limbus Company and Hoyoverse's portfolio of games. Even here, these titles are also available on PC and consoles and served more as photo opportunities, a chance to nab exclusive merchandise and try out the game for yourself (notably, primarily on console and PC).

Elsewhere, the only other notable mobile appearance at the event was a demo for Resident Evil's recent iOS port, hidden in a corner of the Capcom booth and dwarfed by Street Fighter 6 and Dragon's Dogma 2.

On the opposite end of the spectrum there was a notable increased prominence for PC gaming even compared to last year's toned-down event. This was apparent even before you entered the hall; for all Microsoft had no booth of their own and only participated in the form of an online showcase, large banners for Starfield, Elder Scrolls Online and Xbox Game Pass dominated the exterior of the monolithic Makuhari Messe. Inside, many notable titles proudly stated their intentions to come to either Game Pass or PC, a marked shift from the near-total absence of Japanese publishers and developers from Steam or brandishing the Xbox brand a decade ago.

"Japanese devs understand they can no longer only rely on [PC and console] for growth"

Darang Candra, Niko Partners

More indies than ever before made their presence felt at the event as the growth of mainstream commercial adoption of indie and doujin gaming continues to grow. Free booths offered to a Selected Indie 80 chosen by the event were joined by a slew of indie publishers. Kadokawa chose to center the very best titles collaboratively produced on their Game Creators Lab portal, while without a dedicated booth of its own Sony also had its own indie showcase area. Numerous EU-sponsored nation booths and Japanese indie publishers such as Playism also held a space at the event to showcase a huge slate of exciting indie titles, many from Japan and neighboring countries that hadn't found a place to shine at international events like Gamescom.

Developers I spoke to at the event noted the growth of the PC market in Japan as providing space for smaller projects to thrive, as well as providing an easier platform for international localization and publishing that has helped broaden the audience for Japanese gaming. Indeed, while Nintendo's heavy support for indie titles through its Indie World initiative has certainly helped expand the audience for indie games in Japan and make Switch a platform of choice, Steam is another major growth factor for Japanese indie gaming. PC gamers increased 6.4% in 2021 alone compared to the previous year with players exclusively playing on PC jumping 20%. On the whole, PC users have doubled since 2018, and continued to grow with the launch of Steam Deck, released by Valve in partnership with Komodo in the region.

With a growing embrace of PC and indie comes a growing embrace of non-domestic titles for international productions, and a slow renewed interest in Microsoft's own efforts in the region via Game Pass. Phil Spencer was proud to note the overall quadrupling of users across East Asia including Japan for the service during a digital showcase at TGS. While layoffs have dominated the conversation of recent months in the West, this hasn't been a trend replicated in Japan, and despite the concerns over inflation and the strength of the yen weakening the value of the Japanese games market, there's reason to be confident in the strength of the industry.

These sentiments on the shifts in the Japanese market were reaffirmed by Darang Candra of Niko Partners.

"In the early 2010s console was king, mobile was in its early infancy stage, and PC was basically non-existent," they explained. "Then over a decade, there was a shift to a mobile-first mentality in Japanese gamers and [mobile] became the biggest industry for Japan's market. PC is slowly getting there, but still behind consoles and mobile.

"While less than 20% of Japanese gamers are on PC compared to 90% on mobile and 60% console right now, Japanese developers have understood they can no longer only rely on these two markets for growth. And PC is growing, while the shift to Steam has helped both local and international markets for Japanese PC games."

Looking particularly at Microsoft's approach, this growing market for PC is in part why the company has focused more on the Japanese market in recent years despite mixed attempts at launching the Xbox brand in the region. An understanding of gaming subscription services like PlayStation Plus and the potential new market are a big factor in this, making up for the difficulties the company has had with broadening Game Pass' appeal in Asia in recent years.

As Candra noted, "Previously they were super focused on the Korean market, which is PC-first and has the culture of people playing PC games together in things like Internet cafes. However, in the past few years the Korean PC market has become saturated and gamers stopped playing as many traditional PC games so Microsoft started looking to Japan as a new frontier for PC in the region. With Korea saturated, China highly regulated despite having hundreds of millions of PC gamers, and the rest of Southeast Asia having low per-capita income despite a large PC player base, the only feasible option was to enter the Japanese market."

The determination on how far Japan will embrace PC gaming is something future growth will decide - although the launch of Steam Deck, the success of similar devices like the ROG Ally and growth of these services will assist in this expansion. This is just one part of a shift over the last five years within the Japanese market away from the primarily-mobile status quo building over much of the 2010s. As consumer trends have shifted and mobile spending has stalled, a greater focus on cross-play experiences as seen with titles such as Hoyoverse's portfolio, or mobile ports for the likes of Resident Evil Village, are examples of a shift in what players are looking for in mobile gaming.

Most notable is that these aren't necessarily mobile games in the traditional sense but games that can be as mobile as the person playing them, a trend partially fueled by the hybrid nature and popularity of Nintendo Switch. Playing the same game whether at home or on the move is a growing selling point, and more recent mobile success stories such as how the AR experiences of Dragon Quest Walk or Monster Hunter Now serve as compliments to a larger franchise enjoyed elsewhere are only examples of this.

It comes also from an understanding that as it becomes more difficult to grow an exclusively mobile experience in an ever-saturated market, relying on additional regional markets (Uma Musume has also leveraged this with an official release in South Korea release) or leveraging a seal of quality from a console release, as seen with the likes of the Resident Evil and Death Stranding ports, help these titles stand out in a crowded market. With parents also becoming skeptical of the safety of mobile games and particularly the economics of in-game purchases, this has further fueled considerations on the topic.

It's hard to discuss this shift in mobile gaming priorities and not comment on the impact of Nintendo Switch.

"Switch is interesting because it's both a console and a mobile device and small, and easy enough for children and young people to play compared to PlayStation or Xbox," notes Candra. "We interviewed parents as well as gamers in general, and all said the ability to play Switch anywhere, to share what they're playing, and importantly for parents to see what children are playing, are reasons they prefer Switch compared to other consoles.

"We found that most parents think that smartphone gaming is not that good compared to console gaming because with consoles they can check what games are being played, while CERO [the Japanese age ratings agency] is more detailed in their ratings of these games."

This was another trend that was apparent on the floor of Tokyo Game Show. As with other years there was a section dedicated to families with its own demo kiosks, stage events and activities separate from the main show. Mobile made no appearance in this area compared to prior years, and even for multiplatform titles the majority of demo kiosks were tailored to Nintendo Switch.

Perhaps most notable looking at the current state of the Japanese market, both on the show floor at Tokyo Game Show and beyond, is a more experiential and international gaming landscape. One of the most popular areas of the show was the esports area, where Street Fighter Capcom Cup and other events took place and stood as testament to the growing appeal of eSports in the region. Notably, it's a section fueled almost entirely by younger audiences — according to Candra, 46% of young gamers watch or participate in eSports compared to 12% generally, and through this and streaming, a growing number of non-players are engaging with games through eSports and VTubers without playing themselves, broadening the market.

"We now see more foreign games being embraced by Japanese gamers"

Darang Candra, Niko Partners

It should be no surprise that ways to bring the gaming experience into the real world and away from a controller are only thriving in recent years. Esports cafes can be found dotted around Japan broadcasting events to be watched with friends and strangers alike, while everything from Universal's Nintendo World and the upcoming Nintendo Museum to the esports franchise-focused pop-up shops for Apex Legends and Overwatch are examples not just of this, but a broader embrace of international trends in gaming within what is a traditionally-insular market.

"In 2010 or 2015 almost all of the top 100 games were Japan-made, but now we see more foreign games being embraced by Japanese gamers," Candra added.

To look at the Japanese market today is to look at a market in flux. A market commonly associated with having a Galapagos Syndrome for its popular culture is becoming ever-more international, and in doing so is embracing new experiences from more diverse platforms and developers.

Tokyo Game Show, too, is becoming a window into this shift with more international partnerships and developers present than ever before, and the biggest new reveals coming less from Japanese developers but Asian creators wishing to appeal to this unique market. NetEase used the show to reveal Rusty Rabbit in collaboration with Gen Urobuchi and Nitroplus, and they were far from alone in revealing all-new titles from international teams with a focus on capturing the attention of Japanese players.

Notably, the event remains strong. Despite the struggles that impacted other events by the pandemic such as E3, TGS has rebounded. After pandemic contraction that shuttered international events, the 243,238 person attendance was just 19,000 shy of the record set in 2019, an impressive return to pre-COVID numbers for the long-running Japanese gaming event. While much has changed as it adapts to the desires of modern players, there remains no better barometer for the strength and trends driving the Japanese games industry than this.

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