EXPLORE OPPORTUNITIES IN JAPAN S GAME MARKET INTRODUCTION TO THE JAPANESE GAME INDUSTRY BUSINESS SWEDEN, JANUARY 2019 INTRODUCTION TO THE JAPANESE GAME INDUSTRY BUSINESS SWEDEN 1
Billion USD THE JAPANESE GAME INDUSTRY The Japanese game industry represents about 12% of the global game market. Led by big publishers and developers, of which some are global leaders, the market and its features are quite unique with frequently changing trends. Mobile games already have a unique footprint in the market while a recovery of console games also can be seen both for hardware and software. Japanese game publishers are increasingly paying attention to the work of Nordic game developers and studios. THE JAPANESE GAME INDUSTRY IS A 16 BN USD MARKET & HOME TO GAME GIANTS The size of the Japanese game industry was estimated to 16 billion USD in 2017, an increase of 30% since 2015. The Japanese game industry has experienced strong growth in recent years, in line with the growing global market. The Japanese market accounts for approximately 12% of the worldwide game market. Online platforms account for 72%, consumer software 15% and consumer hardware 13% of the total Japanese market. Each sub-segment is experiencing positive growth. Figure 1 Market Size of the Game Industry in Japan 20 15 10 5 0 12 14 16 2015 2016 2017 Nintendo, Sega and Sony dominated the global video game market for several generations of home video games consoles in the 80 s and 90 s. Nintendo and Sony are still very much at the forefront of the industry, while Sega together with many other Japanese game publishers and developers of considerable size are less wellknown outside of Japan and gaming communities. Figure 2 Major Game Industry Players in Japan Company Sales 2017 (billion JPY) Sony 1 943 Nintendo 1 056 Bandai Namco 678 Square Enix 250 Konami 240 Sega 208 Capcom 95 GungHo 92 Source: Weekly Diamond & Annual Reports 2 BUSINESS SWEDEN INTRODUCTION TO THE JAPANESE GAME INDUSTRY
Figure 3 Major Japanese Game Industry Players by Origin and Evolution Company Coverage Origin and Evolution Nintendo HW & SW Flower Playing Cards Board Games Console Games Sony HW & SW Electric Appliance Entertainment including Console Games Konami SW Arcade Games Console Games Consumer Games Square Enix SW Consumer Games Arcade Games Capcom SW Arcade Games, Consumer Games Bandai Namco SW Arcade Games, Consumer Games Sega SW (& HW) Arcade Games Console Games Consumer Games, Social Network Games Koei Tecmo SW Consumer Games (Battle Games) DeNA SW Social Network Games GungHo SW Social Network Games Gree SW Social Network Games Colopl SW Positioning Games Akatsuki SW Consumer Games Source: Annual Reports INNOVATION HAS ALWAYS BEEN & STILL IS A CORE FEATURE OF THE GAME INDUSTRY Japanese game companies have different origins and line of business. Companies can currently be classified into the following categories: 1) companies developing both hardware and software for consoles, 2) companies developing console games, and 3) companies developing mobile games (including social network games). Companies business portfolio has changed over time as companies have tried, and sometimes successfully been able to, diversify into new and lucrative product areas. The recent surge of mobile games has had disruptive effects on the whole industry, similarly to other technological shifts in the past. This has created room for new market entrants and has also pushed previously reluctant players out into the mobile market (most notably Nintendo through collaboration with Niantic and DeNA). has in recent years been the most significant trend in the Japanese market, in addition to the newfound success for Nintendo through the portable hybrid console Switch, while Sony s Playstation 4 continues to be the preferred choice for hardcore gamers. Even as the console software market is expected to face continued growth, the current mainstream trend will continue to be mobile games. Game applications for smartphones and tablets now stand for about four times the market size compared to software for console games. Many of the large Japanese game publishers, such as Square Enix, have a larger business revenue related to mobile games than software for console games. The shift to mobile games has been more dramatic in Japan than for the global market, relative to the size of other market segments. Figure 4 Market Segmentation in Japan 2017 CHANGING INDUSTRY TRENDS & MARKETS Worldwide 9,5% 27,7% 43,1% 19,7% The Japanese game industry has overall been growing continuously, while the internal structure and market segments are frequently changing. Social Network Games reached wide popularity in the first half of the 2010 s but has since somewhat stagnated. Instead, the surge of mobile gaming 0,9% Japan 3,2% 74,1% 21,7% Console Digital PC Digital Mobile Retail HW+SW INTRODUCTION TO THE JAPANESE GAME INDUSTRY BUSINESS SWEDEN 3
Looking further at the online platform market, downloadable games for smartphones and tablets account for 95% while PC stands for only 4%. The ios market was valued at 800 billion JPY in 2017 compared to 530 billion JPY for the Android market. In 2018 Battle Royal -type games was expected to continue to grow in popularity, backed up by improved performance with up to 100 participants playing together at the same time. Industry sources forecast that this trend will remain for several years. THE MARKET FOR CONSOLE GAMES As many as 52 million people in Japan have some kind of game console, out of which 32 million are active users. This group represents over one forth of Japan s total population of 127 million. Nintendo Switch accounted for 38% of the total console market (HW & SW) in 2017, 33% for Playstation 4. Nintendo managed to sell more than 3.3 million units of Switch during the first launch year in 2017. That is more than half of the 6 million Playstation 4 that Sony sold during 4 years. Sony sold 1.7 million Playstation 4 in 2017. Microsoft s Xbox One only has a fraction of their market shares. Figure 5 Sold copies in Japan 2017 (console SW) Nintendo Switch 23% Other 9% Sony PS4 30% Nintendo 3DS 38% Total = 33 million copies The Nintendo 3DS portable console, successor to the Game Boy, is still a widely popular console in Japan. This can be seen in large sales of games. The console market has been somewhat overshadowed by the growth of mobile games in recent years but, as can be seen in Figure 6, the console market (so far) continues to provide the most widely sold games. Console games also come at a higher retail price. CHANGING PLAYER PROFILE The growth in popularity of mobile games has been pivotal to reach a mass market of casual gamers that perhaps otherwise would not play games at all or at least not as often. Daily commuting times of more than one hour are common, which has made mobile games into a favorite pasttime of Japanese commuters. As many as 40% of the Japanese population indicate that they play games regularily, which amounts to an astounishing number of 50 million players. Figure 7 Gaming habits in Japan 2017 Have tried 1-2 times 22% Used to play often, seldom nowadays 23% Have never played 15% Play regularly 40% The purchasing behavior of mobile game users is different from that of console users. Even though free to play games with in-game purchases have become widely popular, and despite a growing acceptance and utilization rate of in-game purchases, most mobile game users are not willing to pay for games. 35% of users say that they purchased in-game content in 2017, up from 25% in 2015. The increased utilization rate suggests that in-game purchases will continue to expand among mobile game users. Figure 8 Types of Mobile Games Played in 2017 (%) Figure 6 Top 3 Sold Games in Japan in 2017 Free to play + in-game purchases 72 Title Sold Units Pokémon Ultra Sun/Moon (3DS) 2 003 678 Splatoon 2 (Switch) 1 752 090 Dragon Quest XI (Multi) 1 744 090 Free to play 47,7 Paid games 5,3 Monthly payment 0,4 0 20 40 60 80 4 BUSINESS SWEDEN INTRODUCTION TO THE JAPANESE GAME INDUSTRY
EARLY STAGE FOR ESPORTS IN JAPAN Although Japan has a leading game industry, Japan lacks a mature esports (electronic sports) market. League of Legends in the MOBAcategory (Multiplayer Online Battle Arena) has no more than approximately 30 000 players. Moreover, only approximately 10 000 copies of StarCraft II has been sold. There is an exclusive esports facility called e-sports SQUARE in Tokyo, but the total price pools of some events are 1-2 million JPY, which is about 1% of the events in the US and Europe. One reason why Japan is lagging with regards to esports is that Japanese gamers generally prefer solitary games, such as puzzle and role-playing games, in contrast to the contest-style games that are usually associated with esports. Moreover, the understanding of esports is quite limited among Japanese people in general, and the attitude towards esport is quite sceptical where no sweat, no sports is a common argument. An industry organization called Japan esports Union was established through a merger of three organizations in February 2018, namely Japan esports association, Japan esports promotion council and Japan esports alliance. The mission is not only to promote esports but also to issue professional licenses, organize events, initiate relationships with international counterparts etc. EDUCATION OF GAME DEVELOPERS In contrast to European countries where game education is provided in colleges/universities, professional schools play the core role in Japan. Professional schools have two- to four-year curriculum to educate game designers, planners, producers, etc., and graduated students move to game developers and publishers. Compared with colleges/universities, professional schools are very business-oriented and tend to have facilities to meet the professional education. HAL, one of the leading professional schools located in Tokyo, Osaka and Nagoya, has about 6 000 students per year in various fields such as game, software & IT. JAPANESE LINKS TO NORDIC STUDIOS The Japanese game industry respects the quality of games developed by Nordic game studios and Japanese game publishers are increasingly paying attention to the work of Nordic studios. Tarsier Studios has a partnership with Bandai Namco regarding Little Nightmares since 2016, and a deal with Sony Interactive Entertainment (SIE) for Play Station 3, 4 and VR since 2008 not least regarding the hugely popular Little Big Planet series. Coffee Stain Studios succeeded to enter a mobile application deal with Softbank, one of the leading telecom carriers in Japan, with the game Goat Simulator in 2015. Softbank, as well as GungHo, has also invested significantly in Finnish Supercell in 2013 and 2015. INTRODUCTION TO THE JAPANESE GAME INDUSTRY BUSINESS SWEDEN 5
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