Could Microsoft’s Xbox One Beat the PS4 in Japan?

Sony's (NYSE: SNE  )  PlayStation 4 recently pulled into the lead in the eighth generation console race, beating out Microsoft's (NASDAQ: MSFT  ) Xbox One and Nintendo's (NASDAQOTH: NTDOY  )  Wii U with 6 million PS4 units sold. A main contributor to that victory was the PS4's robust launch in Japan, a home-turf stronghold for Sony and Nintendo and one of Microsoft's weakest markets.

Despite a general notion that the golden age of Japanese gaming (the 1980s to 1990s) has passed, Japan remains one of the top gaming markets in Asia, and traditionally accounts for a substantial portion of global console and software sales. Simply take a look at how many gamers Microsoft missed out on in Japan during the seventh console generation (Xbox 360, PS3, Wii U):

Company

Console

Units sold in Japan

Percentage of total units sold

Sony

PlayStation 3

9.86 million

11.9%

Nintendo

Wii

12.76 million

12.6%

Microsoft

Xbox 360

1.66 million

2%

Source: Vgchartz.

Microsoft's lackluster performance in Japan was a continuation of its weak performance during the sixth generation, when it sold only 0.53 million original Xbox units in the country. Yet in terms of overall growth, Microsoft actually sold more than triple the number of Xbox 360s than original Xboxes.

Microsoft doesn't plan to launch the Xbox One in Asia until late 2014. It's clear that Microsoft wants to avoid locking horns with Sony until PS4 sales have cooled down. However, that delay could also allow Microsoft to refine its strategy for the Japanese gaming market, which is a very different beast from the Western one.

The unlikely heir to Sega's empire
One of Microsoft's most valuable strengths in Japan is that it is considered the heir to Sega's hardware empire, which ended when the Dreamcast was discontinued in 2001. Sega subsequently forged a partnership with Microsoft, releasing exclusive titles originally intended for the Dreamcast on the original Xbox, such as Shenmue III, Sega GT 2002, Jet Set Radio Future, and Panzer Dragoon Orta.

Sega's Panzer Dragoon Orta for the original Xbox. (Source: Gamespot)

Sega even wanted Microsoft to make the Xbox backwards compatible with Dreamcast titles, but the plan was ultimately scrapped. However, Microsoft inherited the Dreamcast controller, which was evolved into the original Xbox "Duke" controller. The connection between Microsoft and Sega has weakened over the past decade, but fragments of the legacy remain -- the Xbox One title Crimson Dragon, for example, is the spiritual successor of Sega's Panzer Dragoon series.

To build a Japanese fan base, Microsoft should reposition itself again as the heir to Sega's hardware empire by working with Sega to release new sequels or spiritual successors to older Dreamcast franchises, and heavily promoting its existing library of Sega titles on Xbox Live Arcade. Of course, Microsoft could buy Sega outright (which it considered prior to the launch of the original Xbox) and turn popular cross-platform franchises such as Sonic the Hedgehog into exclusive Xbox One titles.

This could help Microsoft tap into two defining qualities of the Japanese gaming market -- endless nostalgia (as seen with Nintendo) and a firm market preference of Japanese titles over Western ones.

Understanding the Japanese market
One of Nintendo's key weaknesses in North America is its lack of third-party support from triple A game makers. However, Microsoft suffers from the same problem in Japan -- its main support only comes from major Japanese publishers such as Square Enix, Capcom, and Konami (NYSE: KNM  ) . This means that big Japanese titles, such as Square Enix's Final Fantasy XV, will be released for both the Xbox One and the PS4.

Meanwhile, the PS4 has already received exclusive Japanese launch titles, such as Dream Club: Host Girls on Stage, Resogun, and Yakuza Restoration. When the Xbox One finally arrives in Japan, it needs to offer exclusive titles that will convince Japanese gamers that it isn't just a bulkier, more expensive clone of the PS4 with a smaller software library.

Dream Club: Host Girls on Stage, a typical example of the growing rift between Japanese and Western gamers. (Source: Gematsu)

To do that, Microsoft needs to court smaller Japanese developers who will be willing to develop exclusive Xbox One titles. Microsoft needs local developers that understand how little the average Japanese gamer cares about Western hits like Activision Blizzard's (NASDAQ: ATVI  ) Call of Duty: Ghosts, Take-Two's (NASDAQ: TTWO  ) GTA V, or Ubisoft's (NASDAQOTH: UBSFF  ) Assassin's Creed IV: Black Flag:

 

Units sold in Japan

Percentage of global sales

Call of Duty: Ghosts

0.41 million

2.1%

GTA V

0.74 million

2.4%

Assassin's Creed IV: Black Flag

0.12 million

1.6%

Source: Vgchartz.

In other words, if Microsoft thinks that Western triple-A titles will carry it through its Japanese launch, it will be in for a rude awakening. By comparison, the top seven selling games in Japan in 2013 were all Nintendo 3DS titles, with Pokemon X/Y, Monster Hunter 4, and Animal Crossing: New Leaf at the top of the heap.

Animal Crossing: New Leaf. (Source: Edge Online)

Therefore, if Microsoft wants to make an impression in Japan, it needs to understand Japanese gaming -- which is populated with monster training games, linear RPGs, date sims, puzzle games, party games, and fast-paced arcade titles. It's a different type of market that requires Western game makers to abandon big-budget Hollywood theatrics in favor of smaller titles with flashier graphics and cuter characters.

A launchpad into Asia
In closing, the Japanese gaming market is a microcosm of Asian gaming, and if Microsoft can succeed there, it can effortlessly boost sales of the Xbox One across the region. However, simply copying and pasting its Western model over to the Japanese market is a guaranteed recipe for failure.

What do you think, fellow gamers? Will Microsoft ever have a chance in the saturated Japanese gaming market? Let me know in the comments section below!

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 07, 2014, at 12:47 PM, Rodya789 wrote:

    Maybe Microsoft can sell it to the old people in japan.

  • Report this Comment On March 07, 2014, at 5:15 PM, BIGFATSHADY wrote:

    So, MS is back in 2nd place? 83million vs 82.8.

    WOW. Nice job MS!

  • Report this Comment On March 07, 2014, at 8:42 PM, Dogmantis wrote:

    Two things really. Housemarque is from Finland. Two. Sega can barely save themselves let alone Microsoft. If MS really wants to take the Japanese market theyre gonna need to bring some serious heat. I just dont think Sega has the pull it used to.

  • Report this Comment On March 07, 2014, at 9:14 PM, Allend406 wrote:

    Partnership with sega sounds like a great idea didnt Microsoft help create the dreamcast anyway.

  • Report this Comment On March 07, 2014, at 9:48 PM, spinod wrote:

    Doubt it. Unlike America, Japan has a lot of pride in home country products. They really don't like Xbox, and to prove it the 360 only sold 300 units in the past quarter.... the PS3 sold over 9k....

    And on top of all of this, Japan is known to be a handheld market instead of a console market. Thats why Sony focused elsewhere, but pushes the vita constantly there.

  • Report this Comment On March 07, 2014, at 10:47 PM, mechanix544 wrote:

    If Nintendo, a beloved Japanese company through and through, is having a very hard time selling the wii u (at a much lower price point than the XB1 as well) with titles such as mario, 3D mario, zelda, monster hunter, pokemon, animal crossing, multiple kids franchises etc..........Why would this delusional writer think that Microsoft, who has NEVER done well in Japan and basically amounts to a running joke over there, would be able to make a serious dent in hardware sales with Sega (yes, this is not a joke, read the article above) franchises leading the way in order to make headway? Is this writer really expecting us to take this article seriously? I guarantee that the XB1 will sell less XB1's per capita than they sold 360's in japan. Japan does not want nor does it need a Microsoft system. It will do horribly in asia, more so this generation than last.

  • Report this Comment On March 08, 2014, at 12:18 AM, prayforwar wrote:

    Really? How much does Microsoft keep paying you to write pro XBOX1 articles. PS4 is kicking xbox1's ass in every demo. I can't find a single PS4 but everywhere i go I see piles of XBOX1's. And that single fact speaks for it's self.

  • Report this Comment On March 08, 2014, at 1:33 AM, vicam wrote:

    I noticed he said Shenmue III, hmmm that title was never even made. Both PS3 and 360 have Dreamcast games on them, its just the 360 had more shooters and those don't appeal to the Japanese gamers.

  • Report this Comment On March 08, 2014, at 4:31 AM, TMFSunLion wrote:

    My apologies, I meant Shenmue II. Got a bit ahead of myself there. Although Shenmue III could be an interesting title for Microsoft to pursue.

  • Report this Comment On March 08, 2014, at 9:45 AM, JJ82 wrote:

    This is an incredibly "fool"ish article. Microsoft has no chance of coming close to the PS4s sales in Japan and its more than just a matter of MS not making games targeting Japanese players, which would stop it on its own.

    They are NOT looked at as Sega's successor there, they are looked at as STEALING Sega's idea, backstabbing them and causing them to get out of the hardware business.

    MS was working with Sega to make the Dreamcast and quickly followed it by releasing the original Xbox and even going so far as copying the controller to a T.

    The MS name when it comes to video game consoles is besmirched in Japan and that is not an easy thing to overcome because in Japan, they hold your reputation to you and if it isn't good, they wont do business with you.

  • Report this Comment On March 08, 2014, at 10:27 AM, BIGFATSHADY wrote:

    MS should consider not even launching in Japan. They don't need them. If you subtract out Japanese 360 sales the 360 still is on par with PS3 sales worldwide. Japan is just a huge waste of time for MS imo

  • Report this Comment On March 10, 2014, at 11:34 AM, poczatekj wrote:

    BIGFATSHADY,

    Well PS3 has sold slightly more than X360, PS3 did it giving Xbox a full year headstart. Even still, though PS3 sold more I wouldn't call them the winner outright. Microsoft made great bounds with X360. Just look at how much more successful it was than Xbox vs PS2. No need to be butthurt either way. Having competing companies is good for the community.

    TMFSunLion,

    Unfortunately word is Microsoft is not interested in pursuing Shenmue III as they'd rather develop their own series. Sony has displayed interest in continuing the Shenmue legacy but at this point I won't hold my breath. Some expect or are hopeful that Shenmue III or Shenmue HD will be announced later this month. We'll see.

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