Japan’s online gaming industry is the largest in the world, worth more than 1 trillion yen (US$9 billion) and dominated by free-to-play (F2P) games. The sector grew 13 per cent in 2014, but that growth is slowing, putting more pressure on companies to differentiate themselves as brands.
Key player GungHo Online Entertainment, for one, is losing momentum. Its Puzzles & Dragons, which has enjoyed phenomenal success with 40 million downloads in Japan, seems to have hit the ceiling. Due to declining revenue from in-app purchases, its income has fallen for three consecutive quarters since its peak in early 2015.
There is also concern that runaway successes will be harder to come by. Puzzles & Dragons benefitted partly from novelty, but mostly from its gameplay and effects.
“You have to come up with groundbreaking ideas that surpass Puzzles & Dragons and Monster Strike to produce a blockbuster,” says Koichi Wakui, leader of ADK’s apps and gaming project division.
Curse of the Galapagos
In a saturated market, export is the only way to grow. Those two titles have gained a global following, but they are exceptions. Most do not travel well and suffer from Japan’s infamous ‘Galapagos syndrome’, Wakui points out.
When it comes to role-playing games (RPG), while realism and anything-goes freedom are popular outside Japan, Japanese RPGs tend to be driven by fantasy story. Square Enix’s Dragon Quest and Final Fantasy, as well as Bandai Namco Entertainment’s Tales series exemplify this. Another genre, moe, romance simulation games, have transcended otaku culture in Japan, but still have limited appeal elsewhere.
There is cause for hope, though. Wakui points to manga hits such as One Piece and Naruto as content that game developers should harness more than they have already to exploit the strength of ‘made in Japan’.
As one would expect, marketing efforts for user acquisition are intensifying. Domestic players are not just fighting each other but also international companies such as King and Supercell, which have invested significantly in large-scale campaigns, says Marco Koeder, digital business director of JWT Japan.
Online advertising leads. In exchange for downloading another app, users receive an in-game reward. This method is viewed as the most effective, but the industry is moving to restrict it to minimise ranking manipulation. TVCs and even out-of-home ads are increasingly used to attract new gamers.
But the effectiveness of all tried-and-tested tactics is declining as the market matures, and brands are looking for ways to break the stalemate. Wakui says the industry is shifting its attention to existing fans, rather than concentrating on acquiring new ones, with a view to maximising ‘lifetime value’. This has led to the spread of more fan events and programmes.
Koeder says events both online and offline around F2P games are key drivers for monetisation when combined with the right mechanics.
Moving forward, all eyes are on Nintendo’s entrance to the game apps market in March, which is expected to help re-energise the sector. Of note is its membership programme, Nintendo Account, which links to the rest of its Nintendo ID Network.
Western gaming companies must invest in universe-building to succeed in Japan
Marco Koeder, digital business director, JWT Japan
Japanese mobile game firms have a long history of brand building, storytelling and building an ecosystem that includes anime, manga and merchandise and partnership business. A more recent example is Line, which successfully developed its own mobile brand ecosystem including brand characters and character storytelling.
In contrast, many Western mobile free-to-play developers have typically focused on producing as many different titles as possible, putting them in different markets, seeing which ones work out and then launching them on a broader scale, while spending huge amounts of money on advertising the specific games.
Nearly none of these games were connected through a shared story, a shared set of characters or a real brand-building strategy. They were released based on popular game concepts and then shelved when they stopped performing well. Some mobile games from companies like EA and Gameloft have used licensed IP from Lego and The Simpsons in the hope of driving awareness.
We will see a shift towards a stronger ‘owned’ brand strategy among Western mobile game makers. Rovio’s Angry Birds is a great example of how successful such a strategy can be — IP and licensing accounted for 45 per cent of its overall revenue in 2012. Supercell, a Western game maker in Japan, has recently released Clash Royale, in which they used elements from Clash of Clans to establish their characters as a living brand identity. This will help them thrive in Japan.