Mobile Gaming Industry in Japan - Another Galapagos?
As one of the pillars of Japan's soft power, the Japanese video game industry once enjoyed splendid success and bred numerous classic megasellers that will long remain in the memory of game enthusiasts worldwide.
However, facing the present challenge from the multifunctional smartphones industry which is led by Apple's iPhone and followed by carriers that use Google's Android operating system, Japanese video game developers have proven to be slow to respond to the changing demands of the times.
According to a survey by Flurry, from 2008 to 2010, smartphone game sales reached 8% market share in the US, which is one of the major export destinations of Japanese video consoles and games. From 2009 to 2010, iOS and Android game sales nearly doubled, representing 34% of the portable video game market. Meanwhile, there was a shrinkage in sales for both Sony's PlayStation Portable (PSP) and Nintendo's DS. The Japanese game industry revenue fell 8% in 2011, primarily due to a lack of popular software, according to Japanese publisher Enterbrain.
Despite such headwinds, Japanese game developers have largely maintained a conservative attitude and appear to be in a state of denial.
During the 2011 Game Developers Conference, Nintendo's President Satoru Iwata remarked, “these (mobile game) platforms have no way of preserving the true value of gaming”.
Inaba Atsushi, Executive Director and Producer at Platinum Games, Tweeted,
Those who misuse the word 'social' and scrape up money in such an unscrupulous manner should not be regarded as members of the gaming industry!
At an interview with Dengeki Games, he elaborated that, "although 'social' is the catch phrase (for the emerging gaming industry), those very companies are all out to deceive gamers and should quit as soon as possible."
By making use of their networking services, providers such as Mobage and GREE extended their tentacles into the mobile gaming market. Given the absence of traditional game developers in this field, both companies quickly domineered domestic mobile gaming platforms. However, the situation at Apple's AppStore is baffling.
Represented above is the AppStore's Top Grossing Games chart in Japan, the US, the UK, Germany, South Korea and China respectively, as of 1 February, 2012.
In Japan's AppStore, Japanese game developers dominated. All but one title from the top 20 chart can be classified as Social Network Games (the "Osu! Banchō 2" ranked 8th is simulation software of Japanese Pachinko gambling arcades) and only two titles, "Majimon" (4th) and "Purare-ru" (18th) are offered by the South Korean game portal, Hangame.
However, among these Japanese titles, only "-KingdomConquest-" (2nd, developed by Sega) and "Snoopy Street" (7th, developed by Capcom) succeeded in leaving an impact on the overseas market. Even if one takes into consideration Capcom's "Smurfs' Village", which did not rank in the Top Grossing Chart in Japan, there were only three mobile games which made their way to the international market. Unsurprisingly, 13 out of 20 of the titles in Japan's AppStore are available in Japan only. One may wonder if this is yet another example of Japan's Galápagos syndrome.
In Japan, pride is said to be one of the reasons behind the lack of involvement of traditional game makers in the ever-growing smartphone market, according to several insiders. Developers of packaged games are proud of producing some of the most sophisticated, high quality products in their field, and their commitment to this philosophy is not likely to change, said Shin Kiyoshi, the International Game Developers Association's Vice Coordinator.
Inafune Keiji, the creator of "Mega Man", "Resident Evil" and the former head of Research and Development at Capcom, explained that, major game developers in Japan still attach great importance to the business of developing exclusive titles for home consoles like PlayStation 3, and capable developers who are proud of their feats of leading "game development projects worth 3 billion Yen", are apathetic to making "second-tier" social network games.
Another reason for this Galapagos Syndrome phenomenon are the bonds within the Japanese gaming industry, where a close-knit relationship is established between hardware developers and game makers.
Since the 1980s, hardware makers such as Nintendo and Sega housed software development studios, producing numerous bestsellers such as the "Super Mario" series and its franchise, "Zelda", as well as "Metroid Prime", the "Sonic" series, "House of the Dead", "Virtua Fighter", "After Burner" and many others.
For the newcomer Sony, even though its prowess and experience in software development cannot be compared to that of traditional giants like Nintendo, it maintains subsidiary software studios in a considerable scale, which released several hit titles such as "Gran Turismo", "Everybody's Golf" and so on.
Given the notable presence of hardware makers in the Japanese game development community, they were able to maintain considerable influence over the industry. This was particularly true for Nintendo. While encouraging collaboration from third party software developers in the '90s, Nintendo enforced strict licensing terms and imposed restrictions on game content. According to David Sheff, author of Game Over: How Nintendo Zapped an American Industry, Captured Your Dollars, and Enslaved Your Children, these were some of Nintendo's regulations:
- Licensees were not permitted to release the same game for a competing console until two years had passed.
- Nintendo would decide how many cartridges would be supplied to the licensee.
- Nintendo would decide how much space would be dedicated for articles, advertising, etc. in the Nintendo Power magazine.
- There was a minimum number of cartridges that had to be ordered by the licensee from Nintendo.
- There was a yearly limit of five games that a licensee may produce for a Nintendo console.
Although the annual quota of five games is to prevent market over-saturation, larger software companies were able to circumvent it by establishing numerous subsidiaries in order to obtain additional quotas. This effectively drove out smaller developers who did not have sufficient capital to set up another subsidiary. Furthermore, the increased cost of research and development resulting from the rise of 3D games led to a new wave of business integration, merger and acquisition among Japanese game makers.
Game developers in Japan became accustomed to such a work environment prior to the emergence of social and mobile games, and are thus incapable of coping with the recent turnover in market ecology.
As Shin Kiyoshi pointed out, in terms of management practices, business structures and human resources, game developers in Japan are indoctrinated with a packaged-game market mentality. It is no surprise, then, that such an environment leaves little creativity in handling the paradigm shift in social and mobile gaming.
He also argued that, the rise of mobile games is reminiscent of the boom in South Korean online games in 2004, when Japanese developers failed to utilized their technological upper-hand over South Korean makers, resulting in a loss of market share.
The Japan External Trade Organization (JETRO) stated in its Industrial Report 2006:
Regarding sales ranking there is a noticeable trend in recent years that, due to the overwhelming development costs game publishers tended to narrow down the number of titles in development and publishing sequel to the million-selling classic titles, from which a certain level of revenues can be expected, occupied the top positions of the ranking. In such way, there are less and less adventurous, innovative works available, resulting in customers' loss of interest in gaming.
This persistent sense of stagnation is widespread and bound to mottle the future of the video game industry as a whole.
In an interview with the Financial Times in 2009, Wada Yoichi, the President of SquareEnix, admitted that “In the last five to 10 years, the Japanese games industry has become a closed environment, with no new people coming in, no new ideas, almost xenophobic." Inafune Keiji also warned that if the current structure continues, the "collapse of major game publishers is to be expected".
The world has demonstrated an urgent need for social networks and media. Japan must learn to dispel its Galápagos syndrome and cannot remain indifferent to the evolutions occurring in other locations. In a business that sells fantasy and dreams, it will be increasingly difficult for Japanese game developers to survive in the nostalgia of bygone days and in self-deception that old methods remain vaild when tackling the newcoming monster of mobile gaming.