Where have Japan's gamers gone?

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.