Addicted to Growth - Video game market Fall & Beyond(part 2)
In the first part of the article I examined reasons why this year is set to break records in Western Markets - contributing factors outside of mobile gaming is the rise of Battle Royale, strong fall line-up, classic consoles, new subscription services.
In Part 2 I will be examining - Japan, China and other factors that will have long term effect on the market in the upcoming years.
Strong growth in Japan driven by Nintendo
Japan is in a particular situation, prior to the Switch's launch - Dedicated Video Game market continued to decline - with the PlayStation 3 & 4 unable to surpass 10 million units, Nintendo Wii U and PlayStation Vita outright bombing.
The only stable platform in the last two generations has been Nintendo 3DS, which unfortunately was not especially popular for 3rd parties and majority of its 24 million user base in Japan was build on foundation of Nintendo's own efforts with Animal Crossing, Pokemon, Super Mario etc. Due to being light years in terms of technology compared to Sony and Microsoft, 3DS failed to receive too much Western 3rd Party support and Japanese 3rd parties only brought kid focused exclusives to the system. This is rapidly changing with the Switch which supports some of the most widely used developer tools and is increasingly easy for 3rd parties to publish both in Japan and abroad.
Fall sales in Japan are strongly linked with the biggest franchises hitting Nintendo platforms. In 2017 there were only two titles that fit this bill - one was launched on the Switch and the other on the 3DS. Switch sold 1.5 million in the last three months of the year, while the 3DS managed around 450,000. This was on the back of only two titles that broke 1 million sales - Pokemon Ultra Sun / Ultra Moon which managed 1.4 million and Super Mario Odyssey which sold 1.39 million. This year all major titles are launching on the Switch, you have Smash Ultimate, Pokemon Lets Go and Super Mario Party from Nintendo but more importantly you have major Japanese 3rd Party publishers and studios also getting in on the action. In 2017 3rd Party's were unable to capitalize on Switch success, a lot of them underestimated the device prior to launch and weren't able to reshuffle resources fast enough for the holiday season.
We could very well see 50-75% growth year-over-year for the Switch in Japan. Landing total sales for the fall quarter between 2.25 & 2.85 million. The main driver behind this is a blockbuster line-up from Nintendo and some of the biggest 3rd party Japanese franchises hitting the system.
Level 5 readies it's biggest franchise for the Switch
Yo-Kai Watch has had a meteoric rise since first releasing in 2013. Level 5 have released three main games on the 3DS and two major spin-offs. The first game launched with a paltry 52,000 sales but went on to sale 1.3 million by the time the sequel was released. Since than Level-5 has released a game each year. And although the popularity of the franchise has started to falter due to over saturation - Yo-Kai Watch 4 is likely to buck the trend. Making the transition from the 3DS to the Switch might be a much needed upgrade, that could allow the franchise to once again find growth. Yo-Kai Watch 3 sold around 2.2 million across it's three versions which was a major decline compared to Yo-Kai Watch 2 which sold in excess of 5.9 million.
Square Enix's combines one of Japan's biggest franchises with Minecraft
?Minecraft's popularity in Japan is showing no signs of slowing down, the game is the best selling Western Game in Japan of all time and continues it's strong performance on the Nintendo Switch since releasing. Square Enix is set to release the follow up to Dragon Quest Builders, a mash-up of Japan's favorite JRPG and Minecraft right in time for Christmas. Coming to both the PS4 and Switch this holiday - Dragon Quest Builders 2 is looking like it will build upon the foundation Square build with the original.
Steady stream of mid-tier & indie titles
From September to December this year outside of the mega hits I've outlined - there is a steady stream of titles that will benefit from Switch's rapidly expanding audience. One major benefit of the Switch is bringing console games to a handheld audience.
Nintendo has also focused a lot of marketing and PR efforts in Japan, popularizing Indie titles. With constant updates via the Switch News Feed, strong messaging across Social Media channels and providing a spotlight for indie titles on their World Wide Directs - over the last year a stream of indie titles have found success on the system and filled the void left by Japanese 3rd Parties. Titles like Stardew Valley, Overcooked, Hallow Knight have been able to top the Japanese eShop chart and found a new audience in Japan. These efforts are on going and will continue to drive digital growth for Nintendo across the World and especially in Japan.
China halts new game licensing
The only blemish on market growth this year remains China's recent decision, to halt issuing new video game licenses. The Ministry of Culture and Tourism who command the game approval process, haven't approved a single digital game for sale in the nation since March 28th this year. The broad explanation for what is occurring is a massive reorganization of China's government institutions that occurred in March.
One theory is that Chinese Government has significant concerns over the past year or two about video game monetization; the authorities have sharply criticized the business model of specific games, with the state-run People's Daily notably lashing out at Tencent's Honor of Kings mobile game last June dubbing the game "poison" and calling for Tencent to abandon short-term profits, in favor of doing more good in the world..
China is the world's largest games market, with more than 37.9 billion game revenue and more than 619.5 million players, majority of whom are also consume gaming media on a regular basis. Many of the largest companies are trying to break into this lucrative market with the help of giants like Tencent. thus regulator's final decision will shape business practices across the World. Tencent for example has invested in companies across the world - Epic(Fortnite), Activision/Blizzard(Call of Duty, Overwatch, World of Warcraft), Riot(League of Legends), Ubisoft(Assassin's Creed) and outright bought others like Supercell(Clash of Clans). So whatever decision regulators make can change video gaming industry radically.
China leads the way in research of Video Game Addiction
Video Game addiction is still under-researched and there is limited research on the long term effects of how it might shape the lives of kids. According to the World Health Organization's official criteria concerning video game addiction, if a person plays video games for four hours a day over the course of five days or more per week, he/she is likely to become addicted.
Recent research by China's Ministry of Education found that around 18% of Chinese Teenagers are at risk of developing video game addiction and play over 4 hours every day. There is also a correlation between left-behind children - those who remain in rural regions of China while their parents leave to work in urban areas - spend more time playing video games. 18.8% of left-behind children play for more than six hours each day.
There is also another factor that is extremely concerning. Video games are conditioning users with in-game gambling and are specifically designed to exploit and manipulate the addictive nature of human psychology. Through loot boxes and other in-game monetization methods - kids are conditioned into this predatory environment.
Self-Policing is not an option when you are Addicted to Profits
For profit companies are unable to police themselves and thus in the last two years governments have started to act. Ever since Star Wars Battlefront's monetization practices made headline news - several governments have studied in game monetization. Earlier this month 15 countries and one US state teamed up and announced their intention to fight in-game gambling signing a joint declaration about their concerns "with the risks being posed by the blurring of lines between gambling and other forms of digital entertainment such as video gaming."
"with the risks being posed by the blurring of lines between gambling and other forms of digital entertainment such as video gaming."
The regulators hope to "enable an informed dialogue with the video games and social gaming industries," and say they "anticipate that it will be in the interest of these companies whose platforms or games are prompting concern, to engage with [gambling] regulatory authorities to develop possible solutions."
There is a large number of unregulated gambling sites connected to games, current international regulatory practices are fragmented and ineffectual with dealing with this. It is also apparent that some game developers appear unable, or unwilling, to address the issue. What we can see from this is that some developers are purposefully developing virtual economies as a way to increase the monetization of consumers without regard to the potentially harmful long-term effects on vulnerable groups, such as adolescents. To the degree that there is sometimes hundreds of engineers & analysis's working on identifying & hooking "whales"
"You know how you get people younger to gamble? Hand them a fucking telephone."
This quote is from a great article posted by the Verge from 2015 by Andrew Thompson called "Engineers of Addiction". I would highly recommend anyone interested about learning more about this topic read.
Future of uncertainties
As the industry awaits China's decision - video game makers need to self reflect and address the need for ethical engineering of monetization methods, lowering risk factors, ensuring there is adequate help & support for those that show signs of addiction. d.
There is a ton of research by gaming companies that look into "turning players into payers", "profiling players to keep them hooked" but precious little about the long term negative effects of gaming for both psychological and physical well-being. If game companies fail to act it would be up to regulators to address this and the solution might be worse for everyone.
In the end making sustainable games, through ethical engineering should be a long term goal for anyone in the gaming business. Going down the current path might only lead to draconian laws being passed that won't address the underlining issue. It's in our psychology to be addicted - but it's the moral imperative there is sufficient research into how to best tackle such risks.
So even with strong growth project for this year - there is still an underlying uncertainty about what the future holds and China's decision might pave the way. As someone who loves gaming - to me it's important to support developers & publishers who are tackling this issues instead of trying to actively ignore, deny or even worse encourage them. In the end sustainable growth that is founded by enriching user experience, rather than exploiting it - can help us avoid another crash.