Major video-game makers wowed game fans at the Tokyo Game Show (TGS) on the weekend with products such as Sony’s 3-D games, Microsoft’s controller-free motion-sensor system Kinect and Capcom’s super popular “Monster Hunter” series.

But aside from the massive crowds at big game developers’ booths, this year’s TGS saw booths set up specifically for Apple’s iPhone and iPad games as well as Google Android games as part of a newly established “Mobile Area.”

The appearance of these booths is indicative of a current wave of change sweeping the Japanese video-game industry.

“There is a gap between what you see at the Tokyo Game Show and what’s happening in the industry,” said Makoto Asanuma, president of Namco Bandai Online Inc. “It’s rather interesting.”

What Asanuma was referring to was the rise of cell-phone games; social networking services such as Gree, Mixi and Facebook; and new types of hand-held devices, such as iPad — all of which have diversified video-game platforms and altered business models, creating new opportunities for smaller video-game developers.

In April, Taku Kato left gaming giant Square Enix Co., a place he had worked at for 8 1/2 years.

“The video-game industry has been changing,” said Kato, 32, who worked at the company as a mobile-game producer.

It used to be difficult to create and distribute games for small video-game makers, but “the infrastructure has changed and now enables individuals to directly distribute games,” he said.

Kato founded his own company, Miracle Positive, in May to develop so-called social games (think Facebook’s “Farmville”) for the cell-phone platform. He said he was satisfied with the working conditions at Square Enix, the company gave him a sizable budget to produce games he thought would be interesting. However, he thought it would be more exciting to be at a smaller company, because he could “excercise greater initiative.”

Miracle Positive is nowhere near as big as Square Enix, which provides international hits such as the “Final Fantasy” series, but Kato is still hoping to sell his games on the global market.

So far, Miracle Positive has created one role-playing game for cell phones titled “Katteni Quest,” in which users direct characters on monster-killing missions.

“In terms of sales, it is not making a profit yet, but the number of users is increasing more than I expected,” said Kato. “I think I can survive in the mid to long term.”

The Japanese game industry is paying close attention to cases like Kato’s and is starting to adjust to the changing market.

In the past, the industry had only one business model: Make package games, those sold in shops for game systems and PCs, and sell them at between roughly ¥5,000 and ¥8,000. Now, as Japan’s Internet infrastructure has improved, users are slowly shifting to mobile platforms.

“People may pay ¥100 or ¥200 for special items (in free games),” said Hirokazu Hamamura, president of Tokyo-based video-game market research firm Enterbrain Co. “There are also games for the iPad sold at around ¥500 to download. The ways to sell products, ways to pay, budgets for video-game production and users who play games have really broadened.”

According to Enterbrain, domestic online game sales jumped to ¥238.5 billion in 2009 from ¥128.2 billion in 2005.

Hamamura also said that although the proliferation of video-game platforms has intensified the competition among video-game makers, it has cultivated new gamers and thus increased the size of the market as a whole.

Asanuma said Namco Bandai has been producing games since the early stages of the trend. He agreed that there has been a rise in online-game distribution through cell phones, the iPad and social networking sites, but said that the effect on the package-game market has been subtle.

“In reality, we haven’t seen any big effects,” said Asanuma. ” ‘Taikono Tatsujin’ for the iPhone and iPad has been selling pretty well, but I don’t think it is taking away users from the packaged version.”

He added that the iPhone and iPad versions could also operate as a promotional tool for the package version. Users could play a free version on the iPhone or iPad first, pay ¥500 to play it a little more, and then buy a package at regular price if they want to play the game to its completion.

Despite the optimism, smaller developers still face hefty challenges in the Japanese game market. For instance, thousands of video-game applications can be found at Apple’s App Store, making getting noticed by users a difficult task.

Junji Seki, who runs the Tokyo-based mobile-game company Oneupgames Inc., decided to get some attention by displaying his goods at TGS this year.

The company has four employees and makes cell-phone games for three major carriers — DoCoMo, au and SoftBank — but Seki admits running a small firm has been a challenge.

He said people who play his company’s games enjoy them, but that it’s hard to advertise them effectively as promotion can be expensive. Seki figured TGS could be a great shot at exposure, since people there can actually play the games.

His games are sold as part of a ¥315 monthly rate or as one-time downloads of ¥315. The company currently has several thousand users. However, so far this is not enough. Seki has had difficulty generating capital. He said his company wants to provide games for social networking sites, but the games are offered free on those sites with sales dependent on special items sold to hardcore fans for a few hundred yen.

Another problem arises from the fact that few game providers can gain millions of users in the short term. Thus, companies with a small amount of capital do not have the luxury of riding out losses that come from things such as server maintenance expenses. Launching a new social game often eats up 90 percent of the initial budget for the project, according to Seki, which can be difficult to recover while waiting for customers to increase.

“We consist of just four employees on a tight budget,” said Seki. “If we start a game on a social networking site, (there is a high risk) we could go bankrupt.”

To attract users, Oneupgames produces niche games that major companies do not provide.

For instance, presently it provides a casual game (a simple game usually played on mobile platforms) titled “Untei” (“Monkey Bars”), in which users move a character along monkey bars by pushing a single button. Players can compete in races or just try to get as far as possible.

Still,”it’s quite difficult, or rather impossible to survive by just making cell-phone games,” said Seki, adding that he is considering launching another business to seek extra revenue.

When asked if the increasing competition in the industry is either a possible threat or a business opportunity for major video-game makers, Asanuma of Namco Bandai said: “We have to believe that an increase in platforms means more business opportunities. Better yet, I think we have to make efforts to widen those chances.

“In the past, platforms were provided by companies like Nintendo and Sony, and then we provided the games. It was like there were plates and cooked food (prepared by us). But the number of plates has gradually increased, and you can even make your own now. I think it’s great to have this variety.”

Fly on the wall: What the bigwigs said at TGS

Fumito Ueda, director, avoids spoiling his game “The Last Guardian”: “We never intended to connect the storyline of ‘Shadow of the Colossus’ to that of ‘Ico’; it just happened during development. So who knows, maybe ‘The Last Guardian’ will link in to the story too. We honestly don’t know yet.”

Shinji Mikami, producer, ponders the setting of “Shadows of the Damned”: “Hell seems like a pretty nasty place — there are loads of demons and weird creatures that punish you for your sins. So I try to be nice every day. Except at work, that is! My staff tell me I’m like a devil.”

Suda51, director and Grasshopper Manufacture CEO, considers a career in music: “I’m thinking of starting a band called The Temptations. Not like the 1960s Temptations — I love New Order’s song ‘Temptation,’ so I want to start a band that just covers that song over and over again in different styles.”

Masayoshi Kikuchi, producer, talks about a niche fan base for “Yakuza 4”: “No yakuza have ever contacted us directly to tell us whether they like it or not, but sometimes on release day we’ll notice guys who look like yakuza lining up to buy a copy. So we think they’re happy with it.”

Noriko Maruya, spokeswoman for developer Level-5, talks up “Ni No Kuni”: “The creative staff at Level-5 are all crazy about Studio Ghibli’s films, so to be able to work with them is just amazing for us. Players will be able to walk around a Ghibli world for the first time. It’s a thrilling project.” (Daniel Robson)

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