Japan, the West, and Videogames

For roughly 5 years now, the Japanese gaming industry has been experiencing a decline in its overall share of the video games industry worldwide. Numerous developers, creators, and directors have weighed in on this trend, including Tomonobu Itagaki who laid the blame on Japan's 'humorlessness.'

Bear in mind that the most iconic stars of the video game universe are still predominantly Japanese: Mario, Link, Sonic to name a few. But the last decade has seen a seismic shift in the buying patterns of consumers all over the globe. At the turn of the century, the pattern of demand was inverted, with Japanese games being highly demanded in the west, while western efforts, or gaika, went largely ignored in Japan. But much is being made today of Japan's shrinking presence in western consumption habits, even as the video game industry as a whole grows exponentially. And, while Mr. Itagaki is entitled to his opinion, it seems to me Japan has always been a niche market in the west.

This understanding fundamentally rests on the difference between absolute sales and market ownership. During the 1980's and 1990's, Japan laid claim to the majority of the video game industry worldwide. The dominant platforms were all Japanese (Nintendo, Sega, and Sony) and the heart of the creative industry was located in Tokyo and Osaka. In the west, video games were seen as a children's toy at best during these decades; a subculture for nerds and geeks at worst. And, certainly compared to the industry today, this stereotypes are not inaccurate, pejoratives notwithstanding.

The unique Japanese-ness of many video games of this period appealed to a minority of consumers who developed a passion for the culture, art, and humor that went into these games. As there were few competitors, Japanese developers and producers enjoyed the lion's share of the fledgling industry.

Microsoft's entrance into the industry was based on the assumption that there was an untapped market for video games in the west. In order to reach these consumers, Microsoft recognized that they could not simply develop westernized games for the existing structure. Despite Japan's dominance, many developers from the west had successfully found their own markets within the overall video game population. But Microsoft wanted to expand that population and to do that, they needed to erode the stereotypes that attended the existing video game industry. Stereotypes that were fueled by the quirky but culturally inaccessible Japanese games that had dominated for 20 years.

While the video game industry had started posting financial milestones suggesting its expansion as early as 1998 (when The Legend of Zelda: Ocarina of Time made more in its opening month than Hollywood's #1 movie, a Bug's Life), it was Microsoft's support of western development studios that exploded the industry in the west. By the dawn of the current console generation in 2005, Japan's market share of western audiences had shrunk considerably.

But unlike Mr. Itagaki and others, I don't seen this as an indication that Japanese development studios have been 'losing touch' with their former brilliance. In fact, Japanese games have continued to evolve apace, and often ahead of, their western genre-brethren. Nintendo's Wii console and first-party games being one obvious example of continuing Japanese innovation and creativity.

No, the declining market share enjoyed by Japanese games stems from the simple fact that the western video game market has expanded beyond the contours of the original consuming minority who enjoyed these uniquely Japanese titles. That audience is still there and, as evidenced by the increasing absolute dollar values of Japan's video game exports, is growing. But it is growing far slower than the explosion of video game penetration in the west overall. Consumers who, 20 years ago, were put off by the alienness of Japanese games, are now purchasing modern consoles and games. But they're not purchasing Japanese games for the same reasons they didn't consume any video games in 1990.

As with any CEO whose bonuses are tied to stock performance which, in turn, is tied to market indicators (one of which being market share), Japanese bosses are panicking. The Japanese games industry as a whole has become increasingly concerned with their declining share of the global video game market and is looking for ways to reclaim some of their lost ground. But, instead of accusing themselves of losing their creativity or being 'humorless', they should remind themselves that their fan base has not disappeared, it is merely now a drop in a much larger pool.