Can Sony's PlayStation 4 Save the Japanese Gaming Industry?

Console gaming faces a steep decline in Japan. Can Sony's latest system rejuvenate this ailing market?

Mar 1, 2014 at 11:00AM

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The PlayStation 4 has debuted to an explosive start in North America and Europe. Sony's (NYSE:SNE) latest home console had reached 5.3 million units sold as of February 8 and it looks like all of the units allocated for the device's February 22 Japanese launch have already been spoken for. Selling out at launch does not mean that the platform will ultimately be a success in Sony's home territory, however. The collapse of mid-tier console games and the rise of mobile have effected Japan more than any other territory. Dedicated gaming hardware faces danger in the land of the rising sun.

The year of 2013 saw sales of the PlayStation 3 contract and the Wii U fail to find an audience. To make matters worse, the Japanese dedicated-handheld market is also in decline. Much of this has to do with the lackluster performance of Sony's PS Vita, but sales of the Nintendo (NASDAQOTH:NTDOY) 3DS were also down on the year. Can the PS4 deliver some much-needed fire to the Japanese gaming industry?

Capcom knows the score
If you need proof that Japan's traditional gaming industry is in trouble, just take a look at Capcom (NASDAQOTH:CCOEF). If that name isn't familiar to you, this is the company behind series like "Street Fighter," "Mega Man," and "Resident Evil." Capcom's Monster Hunter 4 for the Nintendo 3DS was Japan's best-selling game in 2013. What will the company do with the substantial returns from this record-breaking handheld title? Open a new studio for mobile development, of course.

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Winner by default
While the future of the dedicated handheld market looks grim, consoles have been faring even worse in Japan. Sales of last-gen hardware have mostly petered out. The Wii U is a flop, and Microsoft's Xbox One stands very little chance of improving on the Xbox 360's meager presence in the territory. That leaves only the PlayStation 4 with a chance of making a significant splash and saving Japan's console market.

Getting a late start
Unfortunately for Sony, the response from Japanese developers to the PlayStation 4 has been tepid. Sony Computer Entertainment Japan and Asia President Hiroshi Kawano recently stated that the success of the PS4 in the West is causing Japanese developers to want to release games on the device. His otherwise optimistic comments highlight a problem that will substantially limit the system's success in Japan. There's just not much in the way of Japanese software in development for Sony's console.

Game development is a lengthy process, with most sizable releases taking at least two years to complete. If Japanese developers are just now considering the PlayStation 4 as a viable platform, it's going to be a long time before any recently started projects come to fruition. A lack of steady content that appeals to the territory will limit a console's momentum, as the Wii U has recently proved. Ports may be quick and easy, but they don't give most consumers a reason to rush out and purchase new hardware.

A stolen spotlight
To give you an idea of just how much the console gaming picture has changed in Japan, Grand Theft Auto 5 from Take-Two was the best-selling console game in 2013. This shows both the impressive crossover appeal of that series and the fact that Japanese developers have abandoned the console space. The PlayStation 4 will need to see impressive exclusive content if console gaming is to be revived in Japan.

Now and later
PlayStation 4 is launching later in Japan for two main reasons: First, Sony would have been unable to meet demand across three regions and second, there was a lack of shippable software that appealed to Japanese audiences. Sega has readied a PS4 version of the latest game in the popular "Yakuza" series and Capcom has rebooted "Strider". Other than these two titles, the launch lacks major games that have a Japanese bent.

Sony's PlayStation 4 will sell every unit manufactured for its launch window, but the right content will be needed to maintain healthy demand. Better-looking versions of games already available on the PlayStation 3 will be enough to court a portion of the hardcore-gaming crowd. As for the more mainstream audience, Sony has yet to reveal software that shows that the device is a must-have. The appeal of next-gen could be made more apparent with the release of Capcom's free to play adventure Deep Down, but, for now, most Japanese gamers will be playing the waiting game.



The makings of a small victory
Sony's console competitors don't look like they're going to mount serious challenges in Japan. It's a foregone conclusion that the PS4 will be the region's best-selling new hardware, but that's not how Sony will measure its success. The PlayStation 4 has fixed many of the problems inherent to its predecessor, but a questionable lineup and lack of support from Japanese developers are obstacles to surpassing the last gen's sales and keeping the console market healthy.

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Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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