TGS: Japanese Publishers Discuss State Of Post-Recession Game Biz

Discussing the state of the game market at Tokyo Game Show, a panel of high-level Japanese executives concluded that the global recession has had little effect on their businesses, but that new business models are the key to understanding future growth. The panel of notable execs comprised Haruhiro Tsujimoto - President of Capcom; Kazumi Kitaue - CEO of Konami; Shuhei Yoshida - President of SCE Worldwide Studios; Yoichi Wada - President of Square Enix; and Shin Unozawa - President of Namco Bandai. Starting out by commenting on trends, Capcom's Tsujimoto suggested that "game lifestyles of users" have changed significantly in Japan, with the portable market (on PSP and DS) are particularly strong through the recession. Konami's Kitaue added that he felt that the recession was not that relevant to the market in Japan, and Square's Wada agreed, saying "people rarely borrow money to buy games", unlike buying houses. However, Japanese game retailers are more conservative, and from Wada's perspective, "they want something that they are sure the customers will want". Nonetheless, Dragon Quest IX has been a major DS hit for Square Enix in the territory, and Wada said "on the whole, things have not changed that greatly". Wada, ever a shrewd commentator, noted: "What's going to be important for the next 5 years is not the innovation in the specifications of the hardware or software, but rather the billing or the revenue model" for games, and how this can be "firmly rooted amongst the users". Taking a cue from this, Shu Yoshida, head of Sony's Worldwide Studios, discussed a couple of key Western trends, noted that the rise of the iPhone App Store in the West was a major thing to watch out for. For these smaller games that people may not play for a long period of time, but that "people want to show their friends", iPhone is a vital trend. Similarly, Yoshida referenced Facebook and MySpace social network games, commenting that although "very simple games are played there", they are becoming more sophisticated, and a "source of conversation amongst friends". Since "connections between people are being advanced by entertainment", this is an area to keep a close eye on. The executives did recognize that the market for mainstream Japanese game publishers could be in danger of becoming stagnant, after the big expansion created by Nintendo's DS and Wii. Konami's Kitaue commented: "Everyone gets tired of playing the same thing... a new proposition has to happen every year." As for Square Enix's Wada, he noted that it's important that games be seen as "an entertainment market for adults as well" as children. He commented that in the West, people "think it's cool to play games", even adults. But in Japan, many people tend to think that it's something that only children will do. But Wada again concentrated on the business model changes, questioning how "profit distribution is going to come out" under digital distribution. With many cheaper digital games already available, this may significantly shift the profits for the bigger publishers. He said: "If this downward pressure on price continues, in some way we have to change this revenue model", and even if the current model works in the short-term, it may not in the longer-term. Namco's Unozawa discussed digital distribution further, looking at AAA 'premium' priced $59 or 7000 yen retail games, and asking an open question -- are people in Japan going to download a game for 7000 yen? He commented: "that's inconceivable, in my opinion." He then referenced Pac-Man on iPhone, which he said had 200,000 downloads at around $5 - decent money, but just not that significantly compared to the $59 games. Unozawa admitted: "There is a sense of fear there", in terms of changing how the big operators work. He added: "it's quite frightening to think about changing business models" -- but nonetheless it must be addressed. The collected executives then discussed how they might expand their games using variable payment schemes. Capcom's Tsujimoto noted "if we have more diversified billing mechanisms, we can look at different ways" of providing games to users. Wada added, along these lines, that even for larger games: "it doesn't have to be one title, one price". From the same content, a lot of different revenue models can be created. Some people might want to spend a lot less to play a fraction of the title, and some might want to spend a lot more to get many extras. On the other hand, SCE's Yoshida concluded by referencing the small-scale indie development teams creating games that can sell well on PSN, Xbox Live or WiiWare. In this way, smaller developers "can assume their own risks on digital download sites", and the successful titles will allow indies to make a good profit. (As a platform holder, this model works well for Sony, but less so for the other publishers on the stage who require higher revenues and profits from wholly owned games.)