Q&A: Japan by the numbers

Game industry analyst Hiroshi Kamide tells GameSpot why there's opportunity in casual gaming, how the DS sold out in Japan, and why the Xbox 360 continues to struggle.


As much excitement as there is in the gaming industry right now over emerging markets such as China and Korea, Japan remains a cornerstone of the global marketplace. And while the Western gaming press has no shortage of analyst input, most of those analysts only cover American companies.

For a perspective on what makes the Japanese market tick, GameSpot turned to analyst Hiroshi Kamide, a director at KBC Securities Japan. Read on for his thoughts on everything from the next-generation battle to MMO games in Japan.

GameSpot: First off, please tell us a little bit about your background. How did you get into your line of work?

Hiroshi Kamide: I was originally a business IT analyst in Japan, but with lots of overseas investor interest in Japanese game companies, I began to extend my coverage. I also liked visiting Nintendo in Kyoto!

GS: How would you call the next-gen console war? Who's going to win it in Japan?

HK: My call would be for Sony to maintain a dominant market share, but Nintendo making a comeback in terms of market share. For the Xbox 360, it still looks like an uphill struggle to me.

GS: The Xbox 360 has some real marquee titles in the pipeline: Sakaguchi's Blue Dragon and Lost Odyssey are on the way and Mizuguchi's Ninety-Nine Nights just went to market. Are these titles, in combination with the impending "relaunch," going to be enough to reverse the console's chilly Japanese reception?

HK: The relaunch has not exactly brought with it any particularly new incentives for gamers here to adopt it. I'm not hearing any buzz over the current lineup of games--essentially, switching costs are still too high for gamers here. People are happy to sit it out for the PlayStation 3 and are relatively enthusiastic about the Revolution.

GS: The PC-gaming market in Japan is taking off. Traditionally, of course, console gaming has ruled Japan--what has changed? How and why did PC games become so popular?

HK: Actually, I think online gaming still has a long way to go in Japan, especially compared with the rest of Asia and the US. I think that culturally, playing videogames with a console is [the expected thing]--a PC is for strategy and simulation games. A lot of Japanese developers never bothered to support the PC and make software, and as a result, gamers never needed to look elsewhere--a bit of a vicious cycle, really.

With Softbank and Korean publishers aiming to grow the online PC market, there has been more growth here of late--but again, the scale is much smaller than Korea and likely to remain there. As next-gen consoles go online, PC games I think will lose some meaning.

Although I think MMOGs are becoming more popular, the key growth area now is casual online games--minigames on portals with advertising as the earnings model. Also, free games with "item charge" models are gaining ground here--an import again from Korea. The trend by portals and online game operators is to buy content from overseas and operate the games via revenue sharing to negate development risks.

GS: What's your take on the size of the opportunity in the PC-gaming market in Japan? How do you expect the market value to change over the next few years? At the same time, how will the total audience and spending per person change?

HK: I think the online game market is around ¥150 billion ($1.3 billion) here, growing around 40 percent year-on-year. The growth should be fairly respectable double-digit stuff for the medium term. As for individual spending, I think annual spending per user is probably relatively constant--it's about user acquisition growth at the moment.

GS: Consumers have a finite amount of leisure time. Are PC games cannibalizing leisure time from other activities? Are gamers spending less time on console games?

HK: I think the reason why casual games are becoming so popular is because people don't have time to sit through Dragon Quest, and that there is also a mass-market audience that has been ignored for the last five years or so as the game industry became so polarized to cater to the 18 to 35 guy demographic. Competition for leisure time will continue--so more activities on the go will maintain demand, and consoles and PCs will remain under pressure.

GS: There's a lot of activity in cell phone gaming in Japan, but how important is it in the overall game market? Are there any developers or publishers that make significant income from cell phone gaming?

HK: In terms of value, it is relatively small--and is a saturated commodity business. There are a few key independent companies doing relatively well, although all the growth has flattened for the last year and a half. Companies such as G-mode, Taito, Hudson Soft, and Namco Bandai have maintained strong market share.

GS: Cell phone games in Japan seem to be characterized by ports of old arcade games and a few quickie original properties. Is there anything really innovative in Japanese cell phone gaming that might make US developers sit up and take notice?

HK: Not really, except for perhaps mobile pachislot [a combination of pachinko and slot machine]! The reason why the former arcade businesses do well here is because they are easy to play--again, the casual game theme for the mass market. Conversely, I think it would be a mistake to try and develop complex games for the mobiles.

GS: From what we hear, both the original Nintendo DS and the Nintendo DS Lite have been pretty much sold out since launch. Why is the DS so popular?

HK: I may sound a bit like a broken record, but again, targeting the casual/mass-market has paid dividends for Nintendo. The touch screen is easy to play games with--it's quite intuitive. As a result, customers are returning to the industry, and the DS is also attracting new users. The games are also fairly simple, but fun and very different from the usual fare that we have been used to. Who would have thought a brain-training game would see 4 million copies? Pricing is reasonable, and the message here I think is that everybody's invited to play.

GS: Finally, what's your outlook for the 2006 financial year? Do you see Japan's game market expanding or contracting, and are there any companies poised to win big--or lose their shirts?

HK: I am expecting harsh conditions in calendar year 2006. Most developers and publishers do not have an impressive pipeline of releases. Operating costs are increasing due to next generation development. Businesses are aiming to hedge their bets and expanding into online PC games, handhelds, mobile contents, publishing, gambling, because the outlook from the core game software business is not good. I think Nintendo is looking relatively impressive--they have dug their own path for their future, and are dealing with their own agenda. The others, the smaller players with limited resources such as Tecmo and Koei, do look vulnerable. The series of consolidations we saw last year was no accident--management realizes that industry attractiveness has fallen, and there is safety in numbers. However, I am still expecting tough conditions.

GS: Thank you Hiroshi.

Attendees at next month's Electronic Entertainment Expo can hear Hiroshi's insights in person. He'll be decrypting the Japanese market at the roundtable session titled "World view: Analysts take measure of the global marketplace," scheduled for Thursday, May 11 at 11:30 a.m.

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