1. Further Research on
Game Market in Japan

2. Organization Members
Research and Consulting Division,
Japan Research Institute
2-18-1 Higashi-gotanda, Shinagawa-ku
Tokyo 141-0022 JAPAN
PHONE:+81-3-6833-0900
FAX:+81-3-6833-9480
Project Leader
Koji YAMAURA (Associate Senior Consultant)
yamaurakoji@jricojp +81-3-6833-5369
Adviser
Hideyuki ASAKAWA (Senior Consultant)
asakawahideyuki@jricojp+81-3-6833-2815
Project Members
Yohei KOTAKE (Consultant)
kotakeyohei@jricojp +81-3-6833-6333
Yuki KUWABARA (Consultant)
kuwabara.yuuki@jri.co.jp +81-3-6833-6587
Assistant
Takako IMAI (Assistant)
imai.takako@jri.co.jp +81-3-6833-1562
Contact information
Tekes – the Finnish Funding Agency for Innovation
Tekes is the main public funding organisation for research, development and innovation in Finland.
Tekes funds wide-ranging innovation activities in research communities, industry and service sectors
and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong
emphasis on growth seeking SMEs.

3. 2
Japanese
Gaming
Market
Overview
The gaming market size in Japan is
about € 5,712 M and accounts for 13 %
of the global market.
The personal expenditure for game in
Japan is about € 44.69, which is nearly
two times higher than the other regions
at least.
In Japan, the feature phone gaming
market accounts for about 45% of the
whole market, but there is a possibility
to shrink rapidly in the future due to the
spread of smartphone.
The smartphone gaming market is
growing rapidly and is expected to be
the largest market in Japanese gaming
market in the future.
[Figure] Market Overview
(Source) The Japan Research Institute summarized from public information
Positioning of Japanese gaming market
Japan,
€5,712M,
14%
North
America,
€13,623M,
33%
Europe,
€12,911M,
31%
China, India,
Korea,
€9,208M,
22%
Gaming market by region (2011)
Personal expenditure for game (2011)
44.69
25.77
17.47
3.49
0.00
10.00
20.00
30.00
40.00
50.00
Japan North
America
Europe China,
India, Korea
EUR
"Personal expenditure for game "= "Gaming market" / "Population"
2012 Market
Size (M€)
Composition
Ratio
1,937 27.8% -1.3%
Feature phone
game
3,108 44.5%
55.7%
(*)
Smartphone
game
918 13.2%
about
300%
1,014 14.5% 1.1%
Type of game Growth Rate
(y/y)
Home video game
Mobile
phone
game
PC online game
* There isa possibility to shrinkrapidly inthe future due tothe spread of smartphone.
GamingMarket by type of game in Japan

4. 3
Efforts of the
Japanese
Government
There are various problems to be
solved in the social gaming market and
smartphone gaming market, because
the major company and business model
of two gaming markets are very different
from ones of home video gaming
market.
Consumer Agency, METI ( Ministry of
Economy, Trade and Industry ), MIC
( Ministry of Internal Affairs and
Communications) have efforts for
environmental arrangement, industrial
promotion and consumer protection.
The common point of the efforts of
METI and MIC is that they try not to set
penalties for malicious company but to
construct environment where users can
select safe apps and games
themselves. There are many foreign
companies in smartphone and social
gaming market, and if the government
set penalties for malicious foreign
companies, it will be a little impact on
those companies, so they are forcusing
on to construct environment for users.
[Figure] Efforts of the Japanese Government
(Source) The Japan Research Institute summarized from public information
Smartphone game and social game are provided on the Internet. When user play
them, they are always connected to the Internet
There are various problems about environmental improvement, consumer
protection and industrial development
The major company and business model of the two gaming markets are very
different from ones of home video gaming market
Efforts of the Japanese government
Agency: Consumer Affairs Agency, Government of Japan
Overview efforts, Project name:
The Regulations Banning "Complete Gacha" (2012/07)
Purpose, Details:
In order to prevent high demand by social game, it banned "Complete
Gacha" which was the most popular billing system in social gaming
market
Agency：Ministry of Economy, Trade and Industry
Overview efforts, Project name:
Research study about development of Network-based gaming
environment
Purpose, Details:
Clarifying the problems of social game, Study about development of
environment where people can play the game safely
Agency: Ministry of Internal Affairs and Communications
Overview efforts, Project name:
Construction of database and validation system of smartphone apps
Purpose, Details:
Construction of mechanism to inform user the evaluation result of safety
of smartphone apps, Construction of the environment where users can
select safe apps themselves
Protection of
consumer
Business
environmental
arrangement,
Industrial
promotion
Efforts1
Problems of social game and smartphone game
Efforts2
Efforts3

5. 4
Impact on
the Game
Industry in
Japan by
Smartphone
It was very difficult for feature phone
gaming makers to enter home video
gaming market and, on the contrary, it
was very difficult for home video gaming
makers to enter fearture phone gaming
market.
Due to the spread of smartphone,
structure of the game industry in Japan
changed as below.
[1] “Development environment” and
“Operating terminal” of mobile phone
game changed significantly. These two
elements come closer to ones of home
video game. “Development
environment” changed to have high
flexibility of development which means
the makers are allowed to use many
kinds of development languages and
functions of mobile phone.
The interface of mobile phone turned
into touch screen, this change enables
for users to play game which requires
complicated command.
[2] Due to the two changes, some game
makers can release full-fledged games
for smartphone and some of the games
can be released at a high price. "Users",
"User Needs" and "Business model"
come closer to ones of home video
game.
[3] So it become easier for smartphone
gaming makers to enter video gaming
market and, on the contrary, it become
easier for home video gaming makers to
enter smartphone gaming market.
[Figure] Change of business environment of mobile game by smartphone
(Source) The Japan Research Institute summarized from public information
Feature phone game Home video game
Development
Environment
Low flexibility of
development
Business
Model
Free-to-Play( item
charging ( micro
transaction ),
advertising
revenue)
Small screen, 12
keyboard for one-
handed operation,
Low spec terminal
Operating
Terminal
User Needs Killing time,
Enjoying easy
game
Very casual users
which want to play
game for free
Users
Development
Environment
High flexibility of
development
Business
Model
Package
Sales( High price)
Big screen,
Proprietary
controller, High
spec terminal
Operating
Terminal
User Needs Enjoying full-
fledged game
Casual users,
Heavy users
Users
×
[0]significant hurdle
to market entry
-> each markets
are independent
Smartphone game
Development
Environment
High flexibility of
development
Business
Model
Free-to-Play( item
charging(micro transaction),
advertising revenue),
Package Sales( middle price)
Middle screen, Touch screen,
High spec terminal
Operating
Terminal
User Needs Killing time, Enjoying full-
fledged game
Very casual users ,Casual
users, Heavy users
Users
[1]Development
environment and
Operating terminal
change significantly
[2]These changes
have impact on
"Users", "User
Needs" and
"Business model"
[3] It become easier
for the companies in
each market to
enter each market
"Big
Wall"

6. 5
“Galapagos
Phenomenon”
of Home
Video Gaming
Market
It is difficult for foreign gaming makers
to enter the home video gaming market
in Japan. And it is difficult for Japanese
gaming makers to enter the global
market too. These difficulties that called
“Galapagos Phenomenon” are
composed of the following factors.
1. Some popular games in Japan are
produced based on local cartoon films,
local comics and local TV programs.
2. The needs of users in Japan are very
different from those of foreign users.
3. In Japan, portable games are more
popular than stationary games.
"Galapagos Phenomenon” will continue
in the future, because factor-1 and 2
won't change.
[Figure] Three factors of “Galapagos Phenomenon”
(Source) The Japan Research Institute summarized from public information

7. 6
Action of
Smartphone
Game Maker
Gung Ho translated its popular
smartphone game called "Puzzle &
Dragons" into home video game called
"Pazudora Z". It was released on
December 12 and achieved one million
sales in three weeks.
Success factors of "Pazudora Z" are
that the company targeted children
which don't have a smartphone and
enabled user to play "Pazudora Z" for
unlimited hours without waiting time.
Other smartphone gaming makers
might enter home video gaming market
more aggressively because of the
success of "Pazudora Z".
JRI thinks that Gung Ho might release
the cartoon films, comics and goods of
"Puzzle & Dragons" such as “Pokemon”
and the series of "Puzzle & Dragons"
for home video game such as the series
of “Final Fantasy”.
[Figure] Unit sales and Success factors of “Pazudora Z”
(Source) The Japan Research Institute summarized from public information
No. Title Release date Unit sales
（'000）
1 Pokemon X · Y 2013/10/12 3,977
2 Monster Hunter 4 2013/9/14 3,293
3 Animal Crossing Tobidase 2012/11/8 1,739
4 Tomodachi Collection : New Life 2013/4/8 1,580
5 Dragon Quest VII - Warriors of Eden - 2013/2/7 1,205
6 Pazudora Z 2013/12/12 1,006
Total unit sales of "Pazudora Z"
The unit sales ranking 2013 of home video game in Japan
"Pazudora Z" achievedone millionsale in three weeks
"Pazudora Z" is locatedat the 6-position
eventhough it was released inDecember
535
807
1,006
1,158 1,197 1,228 1,250
0
200
400
600
800
1,000
1,200
1,400
12/09-
12/15
12/16-
12/22
12/23-
12/29
12/23-
1/5
1/6-
1/12
1/13-
1/19
1/20-
1/26
Thousand Unit
Success factor of "Pazudora Z"
The company targeted children which don't have a smartphone
-> Strengthening of RPG elements
-> Eliminating item billing function in order to enable parents to give
their children the game with ease
User can play "Pazudora Z" for unlimited hours without waiting time
-> Users who feel the stress to "Puzzle & Dragons" purchase the game
Smartphone gaming makers might enter the home video gaming
market more aggressively
Next step of Gung Ho (Consideration of JRI)
* Gung Ho might release the cartoon film, comic and goods of
"Puzzle & Dragons" such as "Pokemon"
* Gung Ho might release the series of "Puzzle & Dragons"
for home video game such as the series of "Dragon Quest" and "Final
Fantasy"

8. 7
Action of
Hone Video
Gaming
Maker
SQUARE ENIX has done various efforts
to enter smartphone gaming market
earnestly since 2013.
The most notable point of their efforts is
that the company is trying to establish
"Package Sales" model, which is
popular business model in the market of
home video game. Although in
smartphone gaming market, the most
popular business model is “Free-to-
Play”.
If this "Package Sales" model will be
established, other home video gaming
makers will enter smartphone gaming
market more aggressively.
Other efforts are the release of portal
application and a new title of “Dragon
Quest” series for smartphone and the
cooperation with NTT DoCoMo in
smartphone game.
NTT DoCoMo has focused on
developping services of smartphone
since 2012. SoftBank also acquired two
famous smartphone game makers,
GungHo and SUPERCELL. Japanese
mobile phone operators might have a
big impact on the market.
[Figure] Action of SQUARE ENIX
(Source) The Japan Research Institute summarized from public information
Release of the past titles of "Dragon Quest" series in
smartphone gaming market
- Release of "Dragon Quest 7" and "Dragon Quest 1" for smartphone
- Although the price of "Dragon Quest 7" was 28€ which was very high price
in smartphone gaming market, the sales was strong.
-> The company want to establish "Package Sales"
Release of portal application and a new title of "Dragon
Quest" series for smartphone
- Release of portal app where the company will sell new title of "Dragon
Quest" series for smartphone .
-The company announced a plan to release a new title of "Dragon Quest"
series for smartphone
The cooperation with NTT DoCoMo in smartphone game
-"Dragon Quest X" are sold at NTT DoCoMo 's game platform called
"d game"
Free-to-play
current
business model
Free-to-play
Package Sales
Future
business model

9. 8
Impact on
Game
Terminal
Maker by
Smartphone
In January 2014, Nintendo has
announced operating profit for the fiscal
year ending March will become a deficit
of 250M€ from a surplus of 714M€ .
The cause of the downturn was sluggish
sales of Nintendo’s terminal at the year-
end shopping season.
The cause of the sluggish sales was
that some of light users which are
primary customers of Nintendo’s
terminal were changing to the
smartphone users.
In January 2014, Nintendo revealed a
plans to develop smartphone apps for
the first time by the end of the year. But
Nintendo also announced that the
company will continue to develop new
home video game terminal and they are
not only focusing on smartphone game
market.
[Figure] Performance and Failure factor of Nintendo
(Source) The Japan Research Institute summarized from public information
714
-250-400
-200
0
200
400
600
800
Past earnings forecasts(2013/04) Updated earnings forecasts(2014/01)
Operating profit forecast for the fiscal year ending March, 2014
Million EUR
Significant downward revision
The cause is sluggish sales of the terminal
9,000
18,000
2,800
13,500
0
5,000
10,000
15,000
20,000
Wii U(Hard) 3DS(Hard)
Past earnings forecasts Updated earnings forecasts(2014/01)
Billion Unit Game terminal unit sales forecast
One third of
conventional
prediction
Change of using terminal by three types of user
Before the spread of smartphone
Very casual users
Casual users
Heavy users
Feature phone
Nintendo's terminal
Sony and Microsoft's
Very casual users
Casual users
Heavy users
Smartphone
Nintendo's terminal
Sony and Microsoft's
terminal（PS4, Xbox One）
Terminal
SpecUsers
Low
Middle
- High
->Differentiated
High
Middle
Middle
- High
->Halfway
Very
High
Terminal
After the spread of smartphone

10. 9
Implications
to enter
Gaming
Market in
Japan
At first, foreign companies enter
smartphone gaming market with a
coalition of Japanese mobile phone
operators or home video game makers
because this coalition can be lower the
entry barrier for them. They want to
enter this market earlier as soon as
possible, bcause the market is growing
rapidly.
Next, taking advantage of the
experience which are developed in the
smartphone gaming market, they enter
the home video gaming marke.
Finally, they release the next series of
the game for home video game. They
also release cartoon films, comics and
goods of the game ( “Media Mix” ).
“Media Mix” has a possibility to enable
companies to earn a huge profit for
example, the total sales of the “Media
Mix” of Pokémon in Japan is € 12.1
billion.
[Figure] Japanese game market entry step
(Source) The Japan Research Institute summarized from public information
Smartphone game market
* Market size :1,927M€
* Growth Rate :about 300%
* Entry barrier :low
* Business model
- Free-to-Play( item charging(micro transaction),
advertising revenue),Package Sales(Not mainstream)
* Other features
- There are various new entrants such as venture
companies, overseas companies and home video
gaming makers . Therefore, the market is very
competitive.
Home video game market
* Market size :918M€
* Growth Rate :-1.3%
* Entry barrier :High
* Business model :Package Sales
Foreign
company
Step 1
Entry into the smartphone
game market with a
coalition of Japanese
mobile phone operators or
home video gaming makers
× Step2
Entry into the home video game market by
taking advantage of the experience which are
developed in the smartphone gaming market
Other content market
* comics, cartoon films, goods
Step3
* Release of the series of the game
* Media mix