The Japanese game market is dying.

Here is why:

As can be seen from the graph below, game sales in Japan have dropped dramatically over the past 13 years since the peak of the gaming boom back in 1997. Despite a brief upturn in 2006 thanks to the Nintendo DS boom, total sales are almost half of what they used to be in the days of Final Fantasy 7.

Japan, long revered as the pioneer of video game technology, is quickly becoming a fossil in the global game rat race. Not only are total sales down, but the ratio of different types of games being made and sold has been changing drastically. Where once the home consoles games dominated the new releases list, handheld games like the Nintendo DS and the Sony PSP will now release anywhere between 2 to 4 games a week for every 1 game for the PS3, Xbox360 or the Wii. What happened to the technological titan that brought the world so many of the great games of our youth? The answers lie in the advances of technology and the differences in societies.

1. The island country

Japan’s population is decreasing. At present, the small California-sized island country (145 thousand square miles) houses over 127 million people. (By comparison, the California-sized state of California (163 thousand square miles) is home to roughly 37 million people.) The population is densest in the heart of Japan, Tokyo, where roughly 10% of the population is crammed into .5% of the land mass. (Roughly 13 million people in 844 square miles) The population growth that was slowing steadily over the years has recently reached a point where the birth rate has dipped below the death rate.

The above factors (Dense population and decreasing population) lead to 2 major changes in video game development.

Firstly, because of the dense population, privacy and personal space become reduced and are thus more important. As a result, the technology becomes focused on miniaturization. If you can get the same or a better result from a smaller product, the more free space you have left. And game consoles are no different. If you can get the same amount of enjoyment from a small hand-held device as a wall-plugged console, the more you will use the hand-held. It’s only natural that in a densely packed place like Japan, portable consoles like the Nintendo DS and Sony PSP have become increasingly popular while home console sales have suffered.

Secondly, a decline in population signifies something more important that a simple decrease in the number of total people. It means that there are fewer children and an aging general consumer base. It means that as people get older and stop buying as many games as they did when they were younger, there are fewer people to take up the slack.

2. The interwebs

Thank to the information age, we can now get a plethora of information on our entertainment before we even experience the actual products. Reviews and previews, production images and interviews paint our perception of movies, games and TV shows before the completed goods hit the theaters, enter our homes or line the shelves. This overflow of news has made us, the consumers, more critical and cautious of what we spend out money on. (That coupled with the economic downturn) Gone are the days when all people had to go on were the images on the game package. Most people will already have painted some kind of impression of a game before it is released.
Sure there will be the rare gems that come in under the radar, but they are far and few in between. Even heavy gamers will generally purchase only 1 to 2 of the 20 to 40 games released per month. The utilization has both benefited and created major hurdles for game creators. This is the same in Japan as well as most of the rest of the world. However, in Japan, it has made things even more difficult thanks to…

3. Next-gen consoles

… And next-gen technology. This is perhaps the greatest factor in the decline of the Japanese gaming industry. In a land often viewed and respected as a technological forefront, Japan is actually behind in the development of next-gen console games. Ironically, this is in part because of the immense popularity that Japanese gaming brought about in the late 90’s. By bringing video games into the mainstream, developing games to meet the mainstream needs became a necessity. Until then, Japanese gamers were viewed as quiet, socially under-developed and escapist-seeking and a minority. As video games gained popularity on a global scale, game developers learned (some, the hard way) that the real money to be made lay overseas and tried to change their style to match the general gamer tastes. Action games became more and more numerous while genres like JRPGs and text-based adventure games became a minority.

And then came the next generation of consoles. With massive processing power and high end graphics, better looking and more complex games that used to be restricted to high-powered computers came to the console arena. Game companies that were used to making low-spec games with modest production teams were forced to scramble to meet the new higher standards. Higher standards means more necessary production power and larger dev teams, which means bigger budget, which means a higher bar to reach in order to be profitable. Basically what it boils down to is that Japan is too small a market to realistically produce and sell a profitable big budget game. Daikatana, a legendary big budget flop in video game history sold 200,000 units. In 2009, only 50 of the 100 top selling video games in Japan crossed that mark. Only 7 games sold more than 1,000,000 units.

The only game companies that can hope to survive the Japanese game market are multi-national giants that have the man-power and financial strength to produce a big budget game or small DLC game developers. The middle ground where Japan’s once-famous JRPGs were produced has been all but completely obliterated. Look
at the top selling games for each console. (http://en.wikipedia.org/wiki/List_of_best-selling_video_games) For the PS3, Xbox 360 and Wii, only 1 game (Final Fantasy 13) is an RPG. And even that one is a big budget game.

Sadly, at present, the decline of the Japanese game market is a vicious circle. Software sales are in decline which makes developing international hits difficult which decreases the number of software titles focused on Japanese users which in turn decreases software sales. This isn’t to say that there is no hope for a rebound, but a rebound will not come without major change. Japanese developers are slowly trying to learn to utilize the internet and online services and the buyout of Eidos by Square Enix could be an attempt to mix up the pot by
incorporating the game making knowhow of an international developer. However, the likelihood of a ground-breaking megahit from Japan hitting the shelves any time soon is still slim at best.