Disappointing hardware and software numbers have become the norm in the traditional Japanese gaming industry. The emergence of mobile platforms and a spectrum of a cultural conditions have combined to reshape interactive entertainment in the Land of the Rising Sun.
Nintendo's (NASDAQOTH: NTDOY ) last-generation DS handheld moved approximately 33 million units in the country, while its successor the 3DS has sold approximately 17.5 million units in over three years on the market, with momentum tailing off fast. Sony's (NYSE: SNE ) PlayStation Portable sold approximately 19.7 million units before its recent discontinuation in the territory. Japanese sales of follow-up system PS Vita stand at about 2.9 million units after roughly two and a half years on the market.
The grim picture presented by this week's sales data from Media Create becomes increasingly dark when viewed in conjunction with bubbling news from Google (NASDAQ: GOOG ) about its Play platform. The Internet and technology giant has seen substantial growth in Google Play revenue, with most of the gains coming from gaming applications and Japan accounting for a lion's share of money generated. What do these trends mean for Japan and the broader gaming industry?
Google sees great growth from Play
A recent report from mobile industry tracker App Annie shows that 90% of Google Play revenue comes from games. Perhaps even more interesting, 98% of that revenue comes from transactions made through free-to-play titles. Japan is also the number one country in terms of cash generated through the platform, despite having a population roughly 40% the size of that in the U.S.
First Quarter Japanese revenue from Google Play grew 2.4x compared to the previous year, with global revenue for the platform growing by a 2.5x multiplier. Relative to most other countries, Japan is racking up mobile spend at a rapid rate, having surpassed the U.S. in Google Play spend as of fall 2013. With such obvious growth in the mobile gaming sector, it's easy to see why the traditional Japanese gaming industry is floundering.
3DS leads dedicated hardware but still looks weak
This week's Media Create data lists Nintendo's 3DS as the best-selling hardware, with approximately 26,000 units sold in the period. The lackluster performance arrives in spite of a new Pokémon game landing at the top of the software charts. Granted, Pokémon Art Academy has a small fraction of the pull that a mainline entry in the series would, but the fact remains that year-to-date 3DS sales are down substantially compared to 2013. As of the most recent tally, the handheld has sold approximately 1.04 million units in 2014, while the same period across 2013 delivered approximately 1.88 million unit sales.
Home consoles are doing even worse
It's worth pointing out that handhelds represent are the bright spot in Japan's dedicated gaming market. Comparing sales of the Wii U against its predecessor the Wii would reveal an even more discouraging trend. Nintendo's newest console managed just over 10,000 sales in the last recorded week, far from impressive given the recent release of the system's biggest game Mario Kart 8.
PlayStation 4 isn't generating much interest
Nintendo isn't the only platform holder taking a beating from mobile in Japan. Sony's PlayStation 4 is off to a dismal start, and the small momentum enjoyed by PS Vita is mostly meaningless when stacked against the portable's broader performance. The PS4 managed just over 7,000 units sold for the week, while the Vita sold approximately 13,400 units. Sony's new home console is still performing dangerously close to the eight-year-old PlayStation 3, which sold roughly 6,300 units according to Media Create's numbers.
As with Nintendo's Wii U, only one PlayStation 4 game made the Top 30 software chart. The 3DS played host to eleven of the Top 30 best-selling games, while the PS Vita had just three titles on the list. The competition for the dedicated gaming market in Japan looks to be a battle for scraps. Nintendo may benefit from Sony deemphasizing the territory, but current trends suggest scant opportunities for future hardware releases unless they feature innovative and appealing feature sets.
Does the Japan situation signal the death of the traditional gaming industry?
The dominance of mobile in Japan isn't a surefire sign that consoles like PlayStation 4 or Microsoft's Xbox One will falter elsewhere, but it is a good indication of how quickly things can change and the pressures that will shape future hardware releases. Dedicated handhelds are facing dismal prospects the world over, and home consoles must continue to meaningfully outpace mobile devices and set-top boxes if they are to retain their relevance. That puts an uncomfortable amount of pressure on Sony and Nintendo, two companies heavily reliant on a strong gaming presence.
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