Interview

Mobile games dominate in Japan but where next for gacha monetisation?

Mobile games dominate in Japan but where next for gacha monetisation?

In PocketGamer.biz's round-up of 5 important things we learned at Reboot Develop 2016, one of the issues raised concerns the Japanese games industry and the unique struggles it is currently facing.

This was thanks to a panel of Japanese experts hosted at the conference, which discussed a number of social, cultural, and legal factors affecting the state current of play in the country.

The insights of Sho Sato, Chief Analyst at Japanese game marketing firm Media Create, particularly stood out.

As such, PocketGamer.biz was keen to further pick his brains about the mobile games market in Japan and beyond.

Mobile for life

A particularly striking fact to emerge from the panel was that the Japanese mobile gaming market has outgrown its console counterpart, and that Japan - traditionally a heartland for Sony and Nintendo - may be losing interest in consoles.

Sato explains that it was in 2014 that the mobile market share first eclipsed that of console and PC, so not a new development by any means.

But what were the reasons behind this?

“A few years ago, the smartphone game market was limited to adults and high-school children,” says Sato. “But as for the younger children, their parents [didn't] allow them to own smartphones.”

“This was a very important market for the 3DS,” he goes on. “I think the accumulative sales of the 3DS [in Japan] is around 20 million, which is a very big number, but most of the big hit titles are for children.”

It's no longer easy for the Nintendo handheld to be competitive in this market.
Sho Sato

“Recently, this condition has been changed. Even the children in junior high school and elementary school have smartphones now, so the average age of the smartphone user is lowering and lowering… it's no longer easy for the Nintendo handheld to be competitive in this market.”

Of course, this has repercussions down the line. Sato describes that demographic of 30 to 40-year-old gamers, who “played their first game in the elementary school era,” as still being incredibly important for the Japanese console games industry.

Now children are playing smartphone games from a younger age, it inevitably impacts their lifelong gaming habits.

Barely legal

However, things aren't all rosy for Japanese mobile game publishers either.

The legality of Gacha - the dominant monetisation mechanic, which involves the exchange of purchasable hard currency and randomised virtual rewards - has been a subject of much dispute.

The issue, Sato explains, is that navigating the Japanese legal stance on the issue is a nigh-impossible task.

An example of a gacha system

“I cannot say, it's a very, very complicated situation,” he says. “Even the Japanese professionals cannot say what will happen.”

The closest parallel he can find is the Pachinko industry, which boasts yearly revenues of ¥20 billion ($200 million). This is regulated by the Japanese government, which means gamblers have to jump through some very specific hoops to collect their winnings legally.

Communication error

It's what Sato calls, for want of a better translation, “the three-shop system.”

It involves taking the balls you've won in one Pachinko parlour, swapping them for tokens at another, before finally exchanging for cash at a third.

Nobody in the industry really knows where they stand on gacha.

“The Pachinko industry has good communication with the government,” adds Sato, which goes some way to explaining this legal compromise. “As for the games industry, it's never easy to unify.”

By this, he means that there are a number of video game industry associations in the country, but no coherent voice to have dialogue with the government.

As such, nobody in the industry really knows where they stand on gacha.

“Randomness is not the exact problem,” expands Sato, attempting to isolate the nub of the issue. “The problem is that [developers] don't describe the probability of each item.”

Although, he admits, even if developers were to be more transparent, he doesn't know whether or not the government would be fully appeased.

Far from legal

From the fringes of illegality to right in amongst it, Sato speaks to PocketGamer.biz before embarking on his next research assignment - an exploration of the illegal game market in Southeast Asia.

“Southeast Asia has a very big illegal market,” he says, adding that countries such as The Philippines, Indonesia, and Thailand experience particularly high rates of mobile game piracy.

Unexpectedly, much of this is done through physical retail stores, where less-than-legal vendors exchange cracked apps for a small fee.

“You can get something like 100 apps for $5. Many are cracked apps from Western and Japanese companies,” he explains.

“Why do people use physical distribution instead of download? Because most people use pre-paid cards.”

Furthermore, the cost of mobile networking is prohibitive and the wifi speed is “very, very low,” which also impacts upon the sorts of games people are able to play.

Southeast Asia has a very big illegal market.
Sho Sato

It makes online-only free-to-play games less accessible - particularly those with frequent updates. Sato reports that premium games - the majority ill-gotten - remain dominant in these territories.

“If you see the App Store in the Southeast Asian market, there are a lot of free-to-play games on the top-grossing charts,” he concludes. “But if you do an offline survey, the results are completely different.”

Since its establishment in 1994, Sato's firm Media Create has seen the console market fluctuate in size, the rise and fall of key companies, and - arguably most importantly - the explosion of mobile gaming.

However, based on the breadth and depth of Sato's research, which he relays so enthusiastically, you'd be hard-pressed to think of a more fascinating, complicated, and unpredictable time for the worldwide industry than right now.

Here's hoping for some more interesting insights upon his return.

For more informtion on Media Create, you can visit its website.

Features Editor

Matt is really bad at playing games, but hopefully a little better at writing about them. He's a Staff Writer for PocketGamer.biz, a regular reviewer for PocketGamer.co.uk, and has also written for lesser publications such as IGN, VICE, and Paste Magazine.

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