Video Games in Japan, an industry that dominates the world
Updated: Oct 11, 2022
Video games have been present in the life of millions of people, as one form of entertainment that follows captivating your consumers; during these decades have formed an industry to have great importance to the world level. Therefore, it is important to define the concept of video games as it cannot be done to simply catalog a form of interactive entertainment.
By: Seleny Santamaria - CCJCI Research Assistant
Video games it is defined as everything form of entertainment based on the software on a computer that works in a platform of hardware can be a personal computer or a console, and in the one or more players they look involved in the same place.
According to Newzoo, the industry of video games had a value of USD $178.73 billion in 2021, this represents a rise of 14.4% with respect to 2020, and it expects this industry to have a value of USD $268 billion by 2025. the fact most confirmed is that the video game industry has contributed in high quantities to develop the economy of producer’s countries. One of the world leaders in the sector in Japan. For this reason, we will focus on how the industry has impacted the economy of this country, and have strengthened its sectors due to the large number of actors that intervene in this chain.
Video game industry in Japan
There are multiple factors that allowed this industry would become an economic motor for Japan. In the early 60s, during the economy of the "bubble" develops some of the most iconic games of the world. Later in the 1980s, investment in the development of technological products was encouraged, replacing other manufacturers with lower profitability. On the other hand, internal demand for these new products has grown exponentially, hence the supply has been met quickly.
Allowing not just growth the companies hardware producers, but also development studios, which established themselves as independent firms and prospered. The link between electronic entertainment and audiovisual entertainment also explains a further basic element of the Japanese industry, namely the scope of the internal market. According to JETRO's figures, total sales in the country amounted to nearly 760 billion yen in 1997, of which over 580 corresponded to software sales.
One of the most notorious facets of the video game industry in Japan is that it is impossible to establish a rigid model of inter-company relations (Keiretsu) similar to the one that exists in other manufacturing sectors (Aoyama and Izushi). This means for a group of companies to maintain a similar operational structure and to present similar industrial models which succeed in establishing lasting and reciprocal relationships. While allowing a transfer of resources between them, in addition to the creation of intellectual properties by a sector that contributes to being able to export to the other through the purchase and management of their licenses.
For example, the history of the Nintendo model is illustrated, the model of quality control and license management, since it suggests a vertical relationship, in which the producer of the physical support must be responsible for all the titles that are published on their hardware, (Aoyama and Izushi, 2003: 2-4). In the eighties, video games faced a crisis in the US due to an avalanche of poor-quality products, causing a sudden drop in demand that led to the so-called "video game crash of 1983".
Then for the US market, Nintendo remodeled the console to look more like a VCR and renamed it the Nintendo Entertainment System (NES) where the quality of the software did the rest, and the NES revived the US gaming industry. Since then, Nintendo has continued to maintain a very narrow hold on production schedules, agreeing in advance on how many games a company should release on their console.
Japan currently ranks third in the world for digital gaming revenues with $22.9 billion in sales (Chart 1) and 75.62 million players in this country.
Thus, from the viewpoint of domestic industry, Japan is reducing its market presence. But if you look at it from the perspective of the predominant companies, Nintendo, Sony, and other brands of Japanese origin continue to have market share, where more than 30 of the 50 most profitable franchises in history come from Japan.
According to the Ministry of Economy, Commerce and Industry show that in Japan the sector of Games Software Service (Tertiary Industry Activity Indexes). The sector increases its variation in certain periods, the last peak was in 2020 when changes in people's behavior during the coronavirus pandemic may explain the rebound in game sales (Chart 3). For example, Nintendo is breaking sales records for its new game, Animal Crossing, since its release on March 20, 2020. This made Animal Crossing the most sold Switch game ever in the country.
Furthermore, video game console exports in 2020 reached US$2,718 million (Chart 4). However, at the hardware level, static consoles reach a mature stage where consumers expect only new models of existing consoles. According to estimates, revenues from video game equipment will decrease significantly, while software sales will continue to grow.
Trends in Japan: Game market in the future
Mobile phones have become new hardware for gaming, and there are 92.99 million mobile Internet 2 and 5G users in Japan. Japanese mobile users can access even faster connection speeds, allowing for low-latency connectivity and faster data transmission for AR and VR. In the case of Esports, there has been a slow acceptance of competitive play in Japan compared with other countries. However, this is likely to change in the coming years with the help of the Japanese government due to the Ministry of Economy, Trade, and Industry having ambitious plans to expand the Japanese sports industry by supporting companies and legal experts in the development of major tournaments.
Finally, we can conclude that this industry has brought great development to Japan because it has had an internal demand that is always expecting new products and leadership in the sector. In addition to maintaining a group of businesses that have had a presence in the industry. However, the industry is also being modified due to advances in computer technology such as virtual worlds. As a result, this industry will change with the creation of specialized software and hardware to integrate this new facet where the user wants to be more immersed. The contribution that Japan has given to this industry is very valuable in terms of innovation, achieving a presence in the video game market and it is expected that this market will continue to grow in the coming years.
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