Japanese Playing a New Video Game: Catch-Up

CHIBA, Japan — A supersonic hedgehog and a plumber named Mario may have been unlikely heroes, but they once dominated video games. Only the Japanese could make innovative games like those, developers here used to boast. The West just didn’t get it.

Keiji Inafune, head of global research and development at Capcom, says, “Japan is at least five years behind” and “Capcom is barely keeping up.”

Warp ahead 20 years, though, and much of Japan’s game industry is in a rut.

Sonic the Hedgehog and Mario still sell games. But more recent Japanese attempts to establish franchises, like White Knight Chronicles from Sony or Monster Hunter from Capcom, have not made a mark in the United States and Europe. Instead, the blockbuster hits now come from the West: Call of Duty and Guitar Hero from Activision Blizzard, for example, and Grand Theft Auto from Take-Two Interactive.

That is why a growing group of Japanese game developers are asking a once-unthinkable question: can they learn from the West to get back on top of the $60 billion global video game business?

“I look around Tokyo Games Show, and everyone’s making awful games; Japan is at least five years behind,” said Keiji Inafune, 45, head of global research and development at Capcom and one of Japan’s most prominent game designers.

“Capcom is barely keeping up,” he said in an interview at the show, which ended Sunday. “I want to study how Westerners live, and make games that appeal to them.”

From the mid-1980s through the 1990s, most big console-game franchises were born in Japan, including Nintendo’s Mario and Pokémon, Sonic the Hedgehog from Sega and Gran Turismo from Sony.

But the biggest new game franchises of the last decade have been from outside Japan, including Halo by Microsoft, and the hits from Activision Blizzard and Take-Two Interactive.

Last year, the world’s best-selling game by far was Call of Duty: Modern Warfare 2, which sold 11.86 million copies in the United States, Japan and Britain, according to NPD Group, the market research company.

Global sales numbers for the entire industry are hard to come by. But Japan’s share of the world’s video game market, both hardware and software, has fallen to slightly more than 10 percent in 2009, from estimates as high as 50 percent in 2002, based on figures from the Entertainment Software Association, the Japan External Trade Organization, and the research companies DFC Intelligence and Enterbrain.

The West’s dominance was evident here at the Tokyo Game Show, which has lost much of its global clout in recent years. Despite excitement at the 2010 show over coming titles from Japanese publishers, like Ni no Kuni from Level 5 and The Last Guardian from Sony, Japan’s game developers were mainly wringing their hands.

Nintendo has been the major exception, a Japanese game company that has remained dominant. The company, based in Kyoto, reinvented the industry with its Wii home console and wandlike remote, which was introduced in 2006, luring new casual players into the market while setting an industry standard in motion control.

The Wii Sports Resort game was the world’s second-biggest game in 2009, selling 7.57 million copies. Its soon-to-be-released Nintendo 3DS, a portable console with a 3-D display that does not require special glasses, is the industry’s most anticipated hardware release in years.

But because the best-selling games on Nintendo consoles are largely made by Nintendo, the rest of the Japanese game industry has been excluded from that action.

Meanwhile, Japan’s domestic game market is shrinking, down by 20 percent since 2007, to 549 billion yen ($6.4 billion) in 2009, according to Enterbrain.

During that time, the market in the United States surged to a record $21.4 billion in 2008 before a recession-driven decline to $19.7 billion in 2009. But that was still a total increase of 10 percent over two years for the American market, according to NPD.

As Japanese development studios struggle with declining sales, analysts say they are falling behind their American rivals in sheer investment power. A budget for a blockbuster game in the United States can approach $50 million, a figure few Japanese developers can now match.

“Japan used to define gaming,” said Jake Kazdal, a longtime developer who has worked at Sega in Tokyo and the American game publisher Electronic Arts. “But now many developers just do the same thing over and over again.”

Part of Japan’s problem, Mr. Kazdal said, is a growing gap in tastes between players there and overseas. The most popular games in Japan are linear, with little leeway for players to wander off a defined path. In the United States, he said, video games have become more open, virtual experiences.

“Smarter developers in Japan are trying to reach out to the West,” Mr. Kazdal said. “They’re collaborating and trying to make games that have more global appeal.”

But Japanese developers have sometimes hit snags trying to tailor games to Westerners. Take Shadow of Rome, the 2005 action game Capcom made for European and American markets.