Japan’s video game world was rocked recently by news that Yuji Naka, one of the creators of the iconic Sonic the Hedgehog series, was arrested on allegations of insider trading.
The potential downfall of a storied 1990s name might have more symbolic meaning: Just as shocking for some in the industry will have been a commentary in China’s People’s Daily the same week, calling on the country to strengthen its strategic planning in the video game sector.
The medium can play an important role “promoting Chinese culture” and enhancing the country’s influence in the world, it said.
Illustration: Kevin Sheu
Japan should take that as a warning: China is rightly envious of its smaller neighbor’s soft power. Despite a significant language barrier, Japan punches well above its weight in pop-culture sectors such as video gaming and animation — something that has proved to be an important tool for winning friends and maintaining international status as its economic might has declined.
Like with many other industries, that is another one China would like to dominate. It is no longer such an outlandish goal. Consider the likes of Genshin Impact, a fantasy role-playing game that looks and feels so Japanese it triggered protests from some corners when it was first announced. Yet it was conceived and developed in China, claimed the Best Mobile Game award at a prestigious industry event and generated US$1.3 billion in revenue last year.
That is considerably more than any Japanese mobile game makes. Of the eight mobile properties that grossed more than US$1 billion last year, none are Japanese (Pokemon Go uses a Japanese IP but is made by the San Francisco-based Niantic). Despite initial skepticism, Genshin Impact has also become a hit in Japan.
China is not the only place looking to use gaming to promote its goals — the EU has similar designs. Legislation recently passed by the European Parliament calls for a video game strategy for the bloc to promote “European values.” It aims to encourage incentives and calls for a pan-EU strategy to develop intellectual property.
In the midst of this, Japan is standing still. Among a certain age group, the country is synonymous with video games, with names like Nintendo, PlayStation and Sega etched in the memories of middle-aged adults. That might be one reason the country does not seem to think it needs to take proactive steps to protect and promote its industry.
It is wrong. Japan’s one-time dominance in these sectors was more of a happy accident than any grand design, but its influence has been gradually waning since near-global supremacy in the 1990s. A potential wave of mega-mergers in the sector overseas threatens to create even bigger rivals.
Japanese publishers still prevail in the lucrative domestic mobile gaming market, but international hits are in short supply. Its global ambitions are largely dependent on the console fortunes of Nintendo Co and Sony Group Corp.
The actions of the EU and China must be a wake-up call for the country to develop a strategy that will support and grow the industry by boosting grants, offering tax breaks, incentivizing teaching skills the domestic industry lacks and encouraging new participants.
Japan’s notoriously low wages are another problem. The average video game worker — in their mid-30s with about a decade of industry experience — makes just ￥5.5 million (US$40,947) a year, data from the Computer Entertainment Supplier’s Association showed.
It is not a problem that is unique to the games industry, but combined with that sector’s notoriously long working hours and tough conditions, it makes it more of a vocation than a career.
A similar affliction exists in the country’s animation industry, where even the prestigious Studio Ghibli has faced criticism of its pay. Some in that sector are also starting to express concern over the growing number of “Japanese-style anime” offerings created by studios based in Shanghai or Seoul.
Kakao Piccoma Corp, owned by South Korea’s Kakao Corp, is also looking to dominate Japan’s manga app sector and might seek a valuation of US$6 billion or more in a mooted listing next year in Tokyo, Bloomberg News has reported.
The salary gap is also seen in the increasing number of Japanese game developers being poached by Chinese studios, which have little issue with offering higher salaries. Toshihiro Nagoshi, the famed producer of Sega’s Yakuza series, recently teamed with NetEase Inc. He is far from the only one.
It is a familiar tale in Japan, which pioneered industry after industry — think mobile phones or memory chips — only to lose that first-mover advantage to nimbler, hungrier rivals. After the global financial crisis, Chinese and South Korean makers of televisions snapped up Japanese engineers by dangling higher salaries than they could hope to make even if they reached board level at their firms. The result: Although Sony produced the world’s first OLED TV in 2007, it must now buy panels from South Korea’s LG Electronics Inc to put in its high-end Bravia TVs.
The Japanese government is happy to reap the benefits of soft power in the millions of tourists and fans who have been touched by its culture — think of the former Japanese prime minister Shinzo Abe’s appearance dressed as Mario at the Rio Olympics — but seems reluctant to spend on them. Japanese Prime Minister Fumio Kishida’s “Grand Design” for New Capitalism mentions buzzy industries like Web3 and NFTs, but makes no reference to video games. Unless that changes, the local industry could find itself rapidly running out of lives.
Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. He previously led the breaking news team in North Asia, and was the Tokyo deputy bureau chief. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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