I. Introduction
As the world's third largest game market, Japanese games are at the forefront of the world's game market and remain standing thanks to their mature and well-designed game content and game equipment technology, creative and highly loyal IP ecology, benign and efficient industrial chain (creation-production-release-peripheral), long-standing entertainment culture, and people who love games and have strong consumption power. From the 1980s to the present, the Japanese game industry has experienced a transition from the console era to the mobile game era. Nintendo and Sony, as representatives of the two major console platforms in the last century, once dominated the entire console game industry; the emergence of SNS social mobile game companies represented by GREE and DeNA made Japan the world's largest mobile game market. However, compared with Southeast Asia and South Korea's Sky Mavis, Wemade and other head studios that are fiercely focusing on the Gamefi market, Japan is particularly conservative in the field of blockchain games. Nintendo publicly stated that it has no plans to join the metaverse for the time being, and the vice president of the Japan E-sports Association also expressed concerns about the risks of blockchain games. As a leader in traditional games, how will Japan respond to the wave of blockchain games in the future? This report will sort out the status of traditional games and blockchain games in Japan, and analyze the advantages, disadvantages and trends of the future development of blockchain games in Japan.
2. Overview of Japanese game industry
1. Market Overview
(1) Market size: An important role in the global game industry, the world's third largest game market after China and the United States
From the overall market perspective, the Japanese game market is the third largest in the world, second only to China and the United States. According to the latest report data from Statista, the revenue of the Chinese game market is expected to reach US$56.92 billion in 2022, and the revenue of the US game market is expected to reach US$55.28 billion. The total revenue of the Japanese game market is expected to rank third after China and the United States, reaching US$39.7 billion. The fourth-ranked Korean game market has a total revenue of only US$11.4 billion. It is worth mentioning that the ARPPU value (average monthly user payment revenue) of Japanese games is the highest in the world.
The Japanese game market can be divided into three major markets: console games, mobile games, and PC games. In terms of the size of the market segments, in 2017, the size of Japan's mobile game market reached 945 billion yen (6.647 billion U.S. dollars), accounting for 62% of the country's game market, the console game market size was 344 billion yen (2.421 billion U.S. dollars), accounting for 22%, and the PC game market size was 242 billion yen (1.703 billion U.S. dollars), accounting for 16%. The market segments have formed the characteristics of the mobile game market being dominant, and the console and PC game markets being secondary.
From a global perspective, the Japanese game market is particularly unique in that it is centered on the mobile game market. Both China and South Korea are centered on PC games, and the size of each segmented game market in Europe and the United States is relatively small.
↓The size and proportion of Japan’s game market segments in 2017
↓Size of gaming market segments in major countries around the world
(2) Development trend: The console market is gradually weakening, and the mobile game market is becoming mature.
Judging from the data in recent years, with the popularization of smart phones, the mobile game market is gradually replacing the console market and becoming the core market of the Japanese game industry.
According to the "2020 Japanese Game Industry White Paper" released by the Japan Digital Content Association, the share of Japan's console market has been decreasing year by year, and the rapid growth of the online game market represented by mobile games has driven the continued expansion of the overall scale of the game market.
The Japanese console game software market in 2020 was 375.9 billion yen (US$2.645 billion), a decrease of 25.1% from 2011 ten years ago. The online game market size is expected to reach 1,192 billion yen (US$8.388 billion) in 2020, an increase of 28.86% from 2015, which is about three times the size of the console market.
(3) Industrial structure: the game manufacturing chain is complete
The Japanese game industry has a complete industrial chain from game hardware equipment to game research and development, distribution and circulation, and has formed a complementary relationship with other industries. From the perspective of game development and manufacturing:
Japan's console hardware industry is mainly dominated by Nintendo and Sony. While developing hardware, they also acquired or established console game software development departments. In addition to these two companies, Japan's console game software development companies include the "Six Gentlemen" represented by Sega Games, Bandai Namco, Konami, Square Enix, Koei Co., Ltd., and Capcom.
Japanese online game companies mainly focus on the operation and distribution of online games, including GungHo under SoftBank, GMO Gamepot under GMO Group, Gameon under NeoWiz, Gala Japan, a subsidiary of Gala Lab, Vector, and Aiming. Common distribution platforms for PC games include: Steam, Origin, DMM and other game distribution platforms.
Japan’s mobile game companies can be mainly divided into two factions: those focusing on social network services and those focusing on the development and provision of social software. Representative companies of social network services include Gree, DeNA, Cyber Agent, Mixi, and companies developing social software include COLOPL, Klab, A-team, Gumi, etc. The game distribution and circulation platforms of mobile game companies are mainly Google and Apple’s app stores or social platforms such as Mobage.
According to the latest Newzoo data, in the global entertainment and gaming company revenue rankings, Japanese companies Sony, Nintendo, and Bandai Namco ranked 2nd, 8th, and 11th respectively.
(4) Industry characteristics: IP monetization is an important factor for game success
As the backbone of Japan’s cultural media industry, the Japanese gaming industry is inseparable from its adjacent industries such as advertising and marketing, music, television, film and television, animation, comics, and writing, and they complement each other.
Japan has nearly 40 years of IP accumulation and reserves, and a complete IP realization system and cycle has been formed among various cultural industries, so that the derivative value of IP can be maximized. From the perspective of the Japanese game industry, game companies can obtain game production rights licenses from the original authors of comics and novels, or obtain licenses from both the animation production committee and the original author, and make secondary use of IP. The original author can obtain copyright income from it, thereby promoting the development of the IP source market (comics, novels). Game companies can further promote the source IP creation market by commercializing and realizing IP through authorization in in-game transactions and peripheral toy markets.
2. Characteristics of Japanese game users
(1) Number and distribution of users: large base of game players and high penetration rate
The game penetration rate in Japan is extremely high, and the player base is huge. It can be said that it is a game for all the people. Among the total sample of 77.3 million people aged 5-59 selected for the 2020 survey, the total number of fixed game players is approximately 52.73 million, accounting for 68.2% of the total sample, and the number of non-fixed game players is 17.2 million. If all game players are added together, the game penetration rate in Japan is as high as 90.47%. It is estimated that there are 110 million fixed and non-fixed game players in the country.
Japanese gamers are mainly distributed in mobile phones and console games, and the number of PC game players is relatively small. Specifically, the number of mobile game players is 39.76 million, accounting for 76.3%, the number of console players is 27.07 million, accounting for 52.2%, and the number of PC game players is only 15.27 million, accounting for 25.3%. In terms of overlapping users, the number of players who play console and mobile games at the same time is the largest, followed by the number of players who play console, mobile games, and PC.
(2) Japanese players’ preferences
a. Device Preferences
For adult players in Japan, casual players prefer social mobile games on smartphones, while core players prefer PS, Xbox consoles and PC blockbuster games. For child players in Japan, casual players prefer Nintendo and Wii console somatosensory games, while core players prefer PS and WiiU console games and rarely choose Nintendo.
b. Genre preference: RPG dominates
Compared to other countries such as China, South Korea, and the United States, Japanese players are more interested in RPG, ACT, and unique ADV (text adventure) games.
(3) Payment level and activity: Traditional game payment ranks first in the world, while blockchain game player activity is dismal
According to Statista’s 2020 survey, 27.9% of Japanese people participating in the survey play games every day. Due to epidemic isolation factors, the average annual game expenditure per household is 2,876 yen (202.43 US dollars), an increase of 53% compared to 2012. According to Newzoo statistics, Japan’s ARPPU in 2021 was 288 US dollars, ranking first among global game players. In contrast, there are far fewer Japanese blockchain game players. According to metamask statistics, there are only 80,000 wallets in Japan, and the number of wallets with NFTs is less than 10,000.
3. Inventory of Japanese game manufacturers and Web3 progress
1. Console game manufacturers
2. Mobile game manufacturers
3. Web3 development characteristics of traditional game manufacturers
(1) Traditional console manufacturers are cautious and slow in entering the blockchain game market, with detailed layouts, and most of them enter the market by selling NFT collections
(2) Mobile game manufacturers are developing rapidly in the web3 field, and game content is mainly short, flat and fast original and chain-modified.
(3) RPG games will be the priority for traditional Japanese game manufacturers when entering the blockchain game market.
(4) Japan’s overall web3 development progress is relatively slow
4. Japanese blockchain games and ecosystem
Blockchain Games
Chain Game Ecosystem
5. Summary of the characteristics, advantages and disadvantages of Japanese blockchain games
Features of Japanese blockchain games
(1) Most blockchain games rely on existing IP.
(2) Not as innovative as traditional games: From a traditional perspective, Japan focuses on game innovation. Whether it is small and medium-sized game manufacturers in Japan or long-established game entertainment giants, most of them have relied on game creativity to create top works under limited resources and unfavorable environments. However, for the current Japanese blockchain games, most of them are mainly mobile games and web games, and some original blockchain games are still in the short, flat and fast stage of Gamefi 1.0.
(3) It is still in its early stages and lacks representative blockchain games. In the early blockchain game field, My Crypto Heroes, produced by Japan's Double Jump, had a brief period of glory on the Ethereum chain. It quickly entered the top three Dapp list shortly after its launch, and its transaction volume once exceeded Crypto Kitties. However, compared with Sky Mavis in Southeast Asia and Wemade in South Korea, Japanese game manufacturers were obviously absent from the first wave of blockchain games.
Advantages and disadvantages of blockchain games in Japan
a. Advantages:
(1) There are many well-known IPs, a large audience base, and IP monetization is relatively easy. Japanese manufacturers already have many world-renowned top IPs, such as One Piece, Naruto, God of War, Mario, etc., and manufacturers such as Shonen Jump and Bandai Namco are willing to rent IPs for other game manufacturers to develop. At present, we have seen a trend among the primary market project parties to develop blockchain games with the help of the above-mentioned top IPs.
(2) Leading game technology, excellent game reputation, and frequent release of blockbusters. With decades of hard work and accumulation, Japan's traditional game giants have captured a considerable number of players in the world. If the game giants plan to launch blockchain games, they will have an inherent advantage in the number of players.
(3) The strong regulation of the Japanese government makes Japanese crypto projects inherently more compliant. The Japanese government currently has strict regulation on cryptocurrency assets, but under a compliant system, coupled with the fact that traditional large companies represented by Sony and Bandai have begun exploring blockchain games and Web3 in the past two years, more secure and widely applicable blockchain game projects are just around the corner.
b. Disadvantages:
(1) A strong brand is a double-edged sword. Traditional large companies care about their brand and the reputation of their existing IP, which may cause them to slow down their pace of exploring web3. For example, Nintendo has been reluctant to take the first step in Web 3.
(2) It is difficult for non-headline works to go overseas, and the internationalization process is limited. Japan's cultural industry has received unanimous high praise from overseas, and the Japanese government has also launched the "Cool Japan" policy for the dissemination of Japanese culture to the world. But in fact, the development of Japanese game manufacturers with high-quality IP and works in overseas markets is not smooth sailing. More than 90% of the revenue of the Japanese mobile game market comes from the domestic market, and the contribution of overseas markets is not very significant. At the same time, the current big market for games in the Japanese market is still mobile games and console games. This is different from the current narrative direction of GameFi in the world, which is mainly PC-based. Can traditional Japanese manufacturers produce products that meet the appetite of the markets in East Asia, Southeast Asia and North America? The client games and chain games still need to be observed by users.
(3) Currently, most Japanese Gamefis involving well-known IPs are mainly rented and sold, and the quality cannot be effectively guaranteed. At present, most Japanese manufacturers, such as Square Enix, Sega, Drecom, GUMI, etc., choose to rent and sell IP copyrights when entering web3 or producing Gamefi products. Although this approach can save costs and make up for the lack of experience in gamefiization, the overall planning and operation of gamefi are handed over to third parties, and the quality of the project is difficult to guarantee.
(4) The Japanese government’s strong regulation and high taxes have caused Japanese game manufacturers to be extremely cautious, or even to leave the country.
At present, Japan is the first country in the world to bring crypto asset business under legal supervision. From the initial establishment of a special regulatory law, the "Payment Services Act", to the later revised "Financial Instruments Trading Amendment Act" and "Financial Instruments Sales Amendment Act" and other relevant provisions of the bill, as well as some regulations on specific financial transactions of financial institutions, detailed legal provisions have been made for the trading entities, business types, intermediary institutions, etc. of crypto assets at different levels.
In addition to strong regulatory agencies, Japan is the first country in the world to make clear legal provisions on the taxation of crypto asset transactions, and includes the income from crypto asset exchanges in the "other income" column of the National Tax Bureau. According to the regulations of the National Tax Agency of Japan, the tax rate is progressive, ranging from 15% to 55%. If the annual income of investors in cryptocurrency investments exceeds 40 million yen (about 365,000 US dollars), the excess will be subject to the highest tax rate of 55%. This makes some countries outside Japan more attractive to Japanese domestic projects.
VI. Future Outlook
(1) Stronger compliance and regulatory adaptability. Japan is at the forefront of the world in regulating the crypto market, and has also established stricter operating standards for the development and operation of Japanese blockchain game projects.
(2) IP support to produce works that are more attractive to traditional web2 players. Although most traditional manufacturers holding well-known IPs still mainly rent and sell IPs to third parties, with the development of the web3 industry and the maturity of the blockchain game industry, future IP transformation may gradually move towards co-construction or original creation. The blockchain games transformed by IP will be more authentic and in line with the preferences of traditional web2 players.
(3) Top game manufacturers set up web3 studios to enter Gamefi. At present, GUMI, the developer of the mobile game "Final Fantasy: Brave Exvius", GREE, the developer of the social mobile game "Fishing Star", and Cybird, the developer of the mobile game series IKEMAN, have all established their own crypto labs or blockchain game studios to develop blockchain games; Bandai Namco disclosed its five-year strategic long-term plan for "creation of super game" in its 2021 annual report, planning to explore new fields such as game cloud technology and NFT, and jointly launched the game-specific blockchain project Oasys with Sega; Sony proposed at the 2022 business policy briefing that it will invest heavily in the "metaverse" as a new growth area, providing services that allow users to gather online to play games. At the same time, its music company established a joint venture company in Greater China for RCA Records to explore NFT and metaverse opportunities... It is not difficult to imagine that in the future, more top game manufacturers will definitely make bold moves into the Gamefi and metaverse fields.
(4) More Japanese funds invest in incubating their own projects. Currently, there are more and more funds that work closely with various Japanese blockchain game projects, such as double jump.tokyo, Infinity ventures crypto, Z venture capital, EMOOTE, etc. In the future, as Japan's web3 and blockchain games grow and develop, more traditional Japanese funds will begin to invest in crypto projects.
(5) There are more and more projects with local creativity but born overseas. Influenced by tax policies, more and more Japanese blockchain game founders choose to establish more international development teams, focus their projects overseas, and pay attention to international development.
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