25 listed top game companies listed on Tokyo Stock Exchange have total market cap of US$ 30 billion
Japan game market report (398 pages, pdf-file):
Japan is the cradle of many global games
Japan created much of today’s global game market with icon’s such as Nintendo. However, today the moment has been taken over by new online game companies. Their combined income now exceeds the traditional icons.
Top Japanese game companies: disruption by newcomers making mobile apps
Japan is No. 1 globally in terms of iOS AppStore + Google Play revenues, bigger and faster growing than USA
10 out of 25 top grossing apps in Japan are of foreign origin
Japan game market report (398 pages, pdf-file)
AppAnnie showed that in terms of combined iOS AppStore + Google Play revenues, Japan is No. 1 globally, spending more than the USA. Therefore Japan is naturally the No. 1 target globally for many mobile game companies, and 10 out of 25 top grossing apps in Japan are of foreign origin!
Many foreign game companies have failed and given up. Foreign game companies that have recently given up in Japan include Zynga and Habbo Hotel. EA has given up twice, and is now undertaking the third entry to Japan. To understand some of the key mistakes foreign companies make in Japan, read our blog about why Vodafone failed in Japan.
Lets have a look at the list of top grossing games in the Apple iOS AppStore today. Out of the 25 top grossing games in the AppStore, 10 are by foreign originating companies. Can you guess which these are by reading the list below?
So Japan is certainly not a “closed market”. Actually, it is obvious that Apple does not discriminate in any way against foreign companies in Japan.
Interestingly, neither Nintendo, nor Rovio’s games, such as Angry Birds appear among the 200 “top grossing games” in Apple’s iOS Japan AppStore.
Apple iOS AppStore-Japan “Top Grossing” games ranking – 10 out of the 25 top grossing apps in Japan are by companies of foreign origin
Can you guess which 10 are by companies of foreign origin?
Since last financial year (ended March 31, 2013), three newcomers (GungHo, DeNA, and GREE) combined achieved higher operating income and higher net income than all 9 iconic Japanese game companies (Nintendo + SONY-Games + SegaSammy + BandaiNamco + Konami + TakaraTomy + SquareEnix + Capcom + TecmoKoei) combined.
While the newcomer’s revenues are increasing (except for GREE), the traditional 9 game companies’ revenues peaked in 2008, and have been falling rapidly ever since.
Clearly Japan’s the 2003-2005 mergers in Japan’s game sector did not make the sector “future proof” – more dramatic changes will be either initiated by the iconic incumbents, or imposed on them from newcomers such as GungHo.
Note that the position of foreign entrants remain weak in Japan’s game market overall.
Japan game market disruption: online and smartphone came company GungHo with Puzzle and Dragons
GungHo started as OnSale KK, a joint-venture between SoftBank and the US company OnSale Inc., the purpose of this JV was Japan market entry for this US company, an ecommerce company. OnSale KK pivoted from ecommerce to games and started to distribute the Korean game Ragnarok and others, and changed its name to GungHo. GungHo’s breakthrough came with “Puzzle and Dragons” – Jan-June 2013 operating profits increased 4050.1% (four thousand fifty percent) compared to the same period one year ago. GungHo is part of the SoftBank group. More in our report on “Japan’s game makers and markets”
Japan game market disruption: GREE
GREE on the other hand – although a successful new venture in Japan’s game sector – is not doing so well currently: reported revenues and income have both been falling. Essentially, GREE has difficulties to implement the plan to build a global business based on their Japanese methods and business models. The factors are both “hard” and “soft”, i.e. business models, and human factors. Details on GREE’s performance, and reasons for GREE’s current issues in our report:
Japan’s iconic game companies (Nintendo, Sony, Sega-Sammy, Bandai-Namco, Konami, Takara-Tomy, Square-Enix, Capcom, Tecmo-Koei) see brutal disruption by smart phone games
Japan game sector disruption: Three newcomers (GREE, DeNA and GungHo) achieve higher operating income than all top 9 incumbent game companies combined
Japan’s top 9 iconic game companies, Nintendo, Sony, Sega-Sammy, Bandai-Namco, Konami, Takara-Tomy, Square-Enix, Capcom, Tecmo-Koei created much of the world’s games markets, and many of the world’s most loved game characters.
They are now seeing brutal disruption.
Japan game sector disruption
With the Financial Year ending March 31, 2013, for the first time, just three Japanese newcomers (GREE, DeNA and GungHo) achieved higher operating income than all top 9 Japanese iconic incumbent game makers:
In FY2012 combined operating income of all 9 incumbent game companies was YEN 67.6 billion (US$ 700 million), combined operating income of the 3 newcomers was YEN 174 billion (US$ 1.8 billion) – even though for GungHo only the first 6 months of 2013 are included in the calculation.
Because of its size, Nintendo has the greatest weight in the overall performance of Japan’s traditional game sector. Nintendo has been dramatically affected by the shift from traditional game consoles to smartphones. Still, Nintendo (as all other Japanese iconic game companies) has tremendous resources, tremendous creativity, globally loved characters and brands, and huge cash reserves. I don’t think that Nintendo (and other Japanese game companies) risk as much to follow Nokia and RIM/BlackBerry’s fate, but may be more resilient. However, there has been substantial consolidation in Japan’s games sector of recent years, and the current challenges could lead to more M&A in Japan’s games sector.
We have only picked three important new market entrants – there are many more in Japan’s vibrant mobile game venture scene.
DeNA initially started as a mobile auction group, and sees continuous strong growth and high margins.
Of these three, GREE is currently suffering some set-backs originating from GREE’s business model. GREE started as a SNS and social game platform on Japan’s “galake” (Galapagos Keitai) relying on Japan’s mobile internet services i-Mode, EZweb and Yahoo-Mobile, where operators traditionally take 9% commissions. Initially GREE tried to transfer this “platform on platform” business model to other countries, but this does not seem to work out. So GREE is now pivoting to original games, and has seen setbacks.
GungHo started as a joint-venture with a US company, the purpose of this JV was Japan market entry for this US company. GungHo then pivoted away from this joint-venture to become a games company, and produced a series of games, which all did well, but not extraordinarily well. That is, until GungHo created “Puzzle and Dragons”, which is growing spectacularly well: Jan-June 2013 operating profits increased 4050.1% (four thousand fifty percent) compared to the same period one year ago, and net profits increased 2507.8% (two thousand seven percent) compared to Jan-June one year ago.
The shift to smartphones is hitting Japanese traditional iconic game makers from all sides:
the shift from TV to tablets and mobile phones
the shift from dedicated game consoles to smart phones and tablets
the shift from Japan’s “galake” feature phones to smart phones
the shift in business model from traditional US$ 40-60 game cassettes-type to free game downloads with in-game purchases and advertising
Japan’s game sector report
Learn more: read our report on Japan’s game makers and markets (approx. 400 pages, pdf file)