Game revenues, development costs both fall in Japan

A new report from the Computer Entertainment Supplier's Association in Japan has revealed that despite growth in the number of consumers of games, revenues in the market are falling - but so are development costs.

The association's annual white paper shows that in 2003, domestic software sales in Japan fell to 230 billion Yen (1.73 billion Euro) from 249 billion Yen (1.87 billion Euro) in the previous year.

A decline in hardware sales revenues was also seen, with a drop from 140 billion Yen (1 billion Euro) to 118 billion Yen (886 million Euro), although this was to be expected due to the continuing price cuts to console hardware as the cycle moves into its latter half.

What's surprising, however, is that this decline in value came despite a major jump in the number of Japanese consumers who describe themselves as being "in continuous contact with games" - up to 37.6 per cent from 25.6 per cent in the previous year.

This figure implies that Japan has over 34 million active videogame consumers, as compared with 23.6 million in the previous year - which raises questions over why that greatly increased number of consumers hasn't been matched by increases in videogame revenues.

One possible reason lies in the growth of the mobile and online sector in the country. CESA now estimates that around 8.97 million people in Japan play games on their mobile phones, which cost a fraction of the amount that is charged for home console titles, while around 3.43 consumers are playing online titles - which are time consuming and can, some market commentators believe, reduce the overall number of titles a game consumer buys.

What's more worrying for the Japanese publishers, arguably, is the fact that the country's overseas exports of videogames also dropped during 2003. Hardware sales fell from 648 billion Yen (4.85 billion Euro) to to 586 billion Yen (4.4 billion Euro), again largely as a result of console price cuts, while software exports dropped from 225 billion Yen (1.7 billion Euro) to 199 billion Yen (1.5 billion Euro) - an overall drop across the board of slightly over ten per cent.

However, there is some consolation for the Japanese industry. The cost of developing games also fell drastically during the twelve month period, with the average cost of creating a PS2 game falling from 59 million Yen (441,000 Euro) to 39 million Yen (292,000 Euro), and average GameCube costs dropping from 72 million Yen (538,000 Euro) to 38 million Yen (284,000 Euro).

While declining development costs on current generation hardware are certainly helping the industry, a major concern exists if the overall decline in console software sales continues in Japan through the launches of the fifth-generation console platforms in 2006, since this will bring with it a huge increase in software development costs.