Shortly after DeNA (2432) and GREE (3632) pioneered the concept of mobile gaming as the world knows it today (free-to-play business model, bite-sized content embedded in social networks to increase stickiness, data analysis to improve monetization, etc.) in 2006/2007 on feature phones, a flood of new developers entered the Japanese market.
The acceptance of local users to consume and pay for games on their mobile devices, a gaming culture deeply rooted in Japanese society, and other specific factors led to the birth of a whole new industry about nine years ago.
Today, Japan’s mobile gaming market is not only the biggest globally by revenue but also the oldest, most mature – and extremely competitive (the largest number of listed mobile game developers worldwide, hundreds of private ones, increased influx of foreign game makers, focus on the limited local demand side, etc.).
Gone are the days when developers could make millions of dollars off a feature phone card battler developed in 5 months with 5 people.
Sega Networks COO Minoru Iwaki estimates publicly that today the costs for developing a mobile game, operating it for a year and marketing it properly amount to about US$13 million. He says that adding TV promotion (which is very common in Japan for mobile apps) can cost another US$4 million.
Add to this the aforementioned competition on the supply side and a demand side that is shrinking and aging (25% of Japan’s population is 65 or older, falling out of the typical demographic for mobile gaming), and the result is: consolidation.
To my surprise, and this may be due to the fact that the extremely high spending ratio in Japan can keep games with relatively low user numbers afloat, consolidation has been relatively mild in this country’s mobile game sector so far. Sure, the bubble popped for companies like GREE, DeNA, gumi (3903), or GungHo (3765), but the industry hasn’t imploded.
It is next to impossible to “prove” and quantify such a claim, but there are signs that consolidation is picking up steam in recent months.
Here are just a few examples of what has been going on just recently:
Apart from these concrete, “operational” indicators (the list could go on), there is also a range of strategic ones that all point to a further consolidating Japanese mobile game industry.
First and foremost, the number of new startups founded in this space in the last 2-3 years can be counted with two hands – which is no surprise, given that VCs in Japan, too, don’t invest in such companies anymore.
Secondly, Japan’s big developers have all been trimming down their international operations in recent years. Powerhouse CyberAgent (4751), for example, completely shut down its office in San Francisco and is only present through subsidiary CyberZ in the US now.
GREE made headlines last year when it laid off 1/3 of its American workforce in one swoop. Multiple other Japanese companies silently closed offices in Asia and other places to refocus on the local market and cut costs. There are counter-examples, such as Mixi (2121) or Colopl (3668, a relatively new contender in the US), but the overall trend is clear.
As a third “strategic” indicator, my personal observation is that Japanese developers don’t refrain from simply shutting down games whose KPI don’t work anymore. While sunsetting non-performing titles is standard procedure since the start of the industry, such cases are getting more frequent.
This month alone, major companies such as Bandai Namco (7832), Sony subsidiary Aniplex, Koei Tecmo (3635), Sega (6460), Mobcast (3664), Taito, CyberAgent, or Marvelous (7844) said they will stop supporting one or even several apps in the next few weeks.
And as one final such indicator, it has has become common in the last 1-3 years to reduce the number of prototypes that are turned into actual games. The move away from a “shotgun” approach to focus isn’t surprising, given the competitive landscape, increasingly demanding users, and the aforementioned increase in production, operational and marketing costs for mobile games in Japan.
There can be no doubt that the industry will see even more consolidation in the months and years to come.
dotGEARS, the Vietnam-based studio behind global mega hit Flappy Bird, signed a deal with OBOKAIDEM, a game brand operated by Tokyo-based Media Kobo (3815). The announcement was made public last Friday (but has flown under the radar of English-language game media so far). Launched just last year, OBOKAIDEM has released several apps aimed at the Japanese and global…
US-based Niantic Labs, the Google spin-off that Nintendo (7974), The Pokemon Company and Google itself invested US$20 million in back in October, now has a presence in Japan. The company made it into the headlines in the gaming world in September as Nintendo’s chosen partner for the co-development of Pokemon Go, a GPS-based mobile game using augmented…
LINE Corp. and Sega Games (6460) announced a marketing partnership for mobile games in Japan during a joint press conference yesterday. Not too surprisingly, Sega will act as the developer and publisher under the deal, while LINE Corp. will offer its messenger app as a platform for mass marketing and distribution. The reason LINE gave for choosing this…
While Japan does barely produce any new smartphone game developers nowadays, the number of those going public continues to rise. The latest such company to get listed at the Tokyo Stock Exchange (at the Mothers market for high-growth and emerging stocks, to be more exact) is Mynet, a developer headquartered in Tokyo. While Mynet does have an office…
The Casual Games Association gave me the opportunity to speak at its Casual Connect 2015 event, one of the biggest of its kind worldwide, in San Francisco about the topic “Cracking Japan: How Foreign Developers Can Enter The World’s Most Lucrative Mobile Games Market”. Please find embedded below the entire presentation in the form of a YouTube video: The…
It’s been five days since Nintendo (7974) surprised the world with further details on its smartphone plans. The news made the rounds on October 29 and shares of both Nintendo and partner DeNA (2432) have been falling in recent days, but the dust is slowly beginning to settle now. This is a good opportunity to have a quick…
Next week Wednesday, the 14th “Insert Coin” is scheduled to take place in Tokyo, an event series aimed at professionals working in the Japanese game industry. The topic this time is a post mortem of this year’s Tokyo Game Show – or in other words, a (bilingual) discussion on the status quo of the Japanese video and mobile gaming…