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Japan’s Mobile Game Industry Is Poised For Consolidation

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BEACON REPORTS

 

In May 2013 a Vietnamese game developer named Dong Nguyen shot to fame when a simple app he produced on a shoestring budget called ‘Flappy Bird’ became the most downloaded gaming app in the Apple App Store. The app took only a few days to produce and reportedly earned Nguyen $50,000 a day.


According to Kantan Games K.K. CEO Dr. Serkan Toto who tracks Japan’s 50 listed mobile gaming firms, outlier success stories like ‘Flappy Bird’ continue to fuel the imagination of entrepreneurs but are not representative of the Japanese market. While the games business remains ‘hit’ oriented (far less than 1% of new games ever make any money), gone are the days when 5 to 10 developers toiling for a year on a 150,000 – $200,000 budget can produce a #1 game in Japan. “That ship has sailed,” says Dr. Toto.


As competition to secure a slice of the world’s largest and most lucrative mobile games market heats up, the costs to produce them have increased dramatically. Teams of 40 – 50 developers spend 4 – $5 million over 1 – 1.5 years to create and market a potential ‘hit’. Budgets exceeding $10 million are sometimes needed to dethrone top mobile games like ‘Puzzle and Dragons’ or ‘Monster Strike’ which are sold as endless services that some users never tire of.


Before mobile gaming took off in 2007-2008, games were bought in stores and played on consoles. Users would eventually tire of these onetime ‘boxed experiences’ and move on. Today, mobile games are sold as continuing services rather than as one-off products. Smart developers continuously update, tweak and improve their top mobile games to prevent customer churn and maximize customer lifetime value. “The two top games command such a high market and mind share that developers have a difficult time dethroning them,” says Dr. Toto.


Competition is intensifying as new content floods into the Japanese market. It is created by hundreds of developers looking to produce the next blockbuster. Competition also comes from foreign developers who make their gaming apps available through the Apple App Store and Google Play. They need only translate them into Japanese. The potential reward is a slice of Japan’s $6.2 billion mobile games market which exceeds that of China ($5.2bn) or the US ($3.1bn).


The number of mobile developers listed on the Tokyo Stock Exchange is also rising.


An industry shakeout looms as the market rapidly matures. Sales growth is linked to Smartphone penetration that is already at high levels — More than 75% of Japanese own a Smartphone. The mobile games market will therefore likely grow only slowly through 2017.


After that industry consolidation is likely. Increased competition, lengthening development cycles and expanding budgets each contribute to the portending malaise. “I think there will be a sharp consolidation over the next 5 – 10 years,” says Dr. Toto. “There is no doubt about it.”
 

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