Japanese Show Waning Interest in Video Games

Times Staff Writer

Kenji Suzuki, a 19-year-old restaurant worker, used to play video games five or six hours a day. Starting in elementary school, he developed a passion, acquired four different hardware systems -- PlayStation 2, Famicon, Super Famicon and Game Boy Advance -- and spent a small fortune on software titles.

Now he's lucky if he plays an hour a week. A demanding job, a newfound interest in playing soccer -- the real kind -- and learning new songs on his guitar are all part of the change.

"I'm not as interested anymore," he said astride a mountain bike in front of a video game promotional display in the Akihabara neighborhood, Tokyo's electronics district.

Suzuki and thousands like him are creating a huge short-circuit in the video game industry here, which at its peak accounted for one-third of total world sales and provided what was widely considered among the hippest activities for young Japanese.

Though the Japanese video game market is hardly in danger of totally drying up -- and there's still enough momentum to ensure that the industry can make money when a new generation of consoles comes out -- growth has slowed so sharply that leading analysts speculate it may have permanently downshifted.

Preliminary industry figures show that combined hardware and software sales fell for the second consecutive year in 2002 to $4 billion, down 2.4%.

"Of course the market won't shrink to zero," said Shunji Yamashina, analyst with Morgan Stanley Securities in Tokyo. "But video games just aren't cutting edge anymore. Kids have a lot more options now."

Arguably, the biggest factor contributing to the industry's slump in Japan is a demographic transformation that is creating one of the most rapidly aging populations on the planet. In other words, there is a steady decline in the number of young people here.

But more alarming to some is that even young Japanese don't seem to have the passion for games that their age groups did even a few years ago.

A survey by Bandai, one of Japan's largest toy firms, found that video games slipped from fifth place in 1995 to ninth place in 2000 in a survey of favorite activities among children up to age 12 -- with play-acting as action heroes, mini-cars, bicycles, balls and blocks ranking higher.

And the trend has only intensified, analysts say. Japanese in their mid- to late 20s continue to enjoy games, having acquired the habit in their early years. This in part explains the large number of video game sequels as software firms try to hold the attention of this group with new versions of familiar titles.

But people in this age bracket also have more responsibility and new interests competing for their time and dollars.

A commercial recently aired in Japan tries to hang on to their loyalty. The ad shows a tired salaryman in his late 20s eating a bowl of noodles in a restaurant by himself, exhausted after a long day of slogging at the office.

"Let's remember the dream of those days," it says, cutting to a shot of young people queued up to buy the latest game.

The ad hasn't worked on Manabu Mitsumura, a 23-year-old cook in a Chinese restaurant.

"I go to work at 8 in the morning and get home as late as 11," Mitsumura said. "I guess when you get into your 20s, you become much more interested in a girlfriend than staying at home with your game set."

Some blame such attitudes on the lack of innovative blockbusters in recent years. "There really haven't been any exciting games coming out for a while," said game analyst Masashi Morita of Okasan Securities. "It's just been sequels and sequels."

The tougher times and industry dynamics have sparked consolidation among Japanese game publishers. Two of the biggest players, Square Co. and Enix Corp., recently merged in a bid to become more cost-efficient. Smaller companies are under even greater pressure with production expenses rising and prices falling. Rumors crop up daily on the latest merger possibilities.

Analysts say that more and more, only the No. 1 seller in each gaming category -- role-playing, auto racing, sports and so forth -- can expect to prosper, with lesser lights falling by the wayside.

"The weak will be weeded out," said Yamashina of Morgan Stanley.

Sega Corp., another major player in Japan, does well in the U.S. market but faces fierce competitive pressure from Electronic Arts Inc., the dominant maker of sports titles. Sega's failure to mount a significant challenge to Redwood City, Calif.-based EA led it to revise its earnings forecast downward in November.

In Japan, Sega also has fared poorly against Nintendo Co. and Sony Corp., although Sega's strength in video parlors has helped counteract its weakness.

Nintendo, the oldest and most widely recognized game firm in Japan, is having problems too. The company has 2.04 million consumers who bought its GameCube console, compared with 11.36 million who purchased Sony's PlayStation 2.

Nintendo has held its own by concentrating on the market for elementary school children. But its hope of expanding beyond this niche to challenge Sony in the teen and young adult sectors hasn't panned out.

Its hand-held Game Boy Advance console has done well with children as a platform for playing the popular "Pokemon" titles. Parents, however, haven't sprung for other games.

"It's really become a one-time present for kids," Morita said. "Nintendo failed to attract adults, so it's going to be a tough battle ahead. Their growth is limited."

Meanwhile, Microsoft Corp., the only non-Japanese console maker, has made little traction despite its enormous buildup and brash publicity. A distant third in the console market, it sold just 340,000 Xbox consoles in Japan in 2002. The Redmond, Wash., company last week tried to stir up interest among Japanese buyers by launching Xbox Live, its online game network.

On a recent day, Akira Nagai, a 21-year-old college student, glanced at a promotion for Xbox Live in front of one of the electronics stores at Akihabara.

"I'm not interested in Xbox. It just doesn't have any games I want to play," he said. "I'll stick with PlayStation 2, which has sequels of the games I've been playing a long time."

Yet even Sony is starting to see a drop in console sales. In November and December, PlayStation 2 sales fell 27% from a year earlier, to 940,000 units.

Kenji Suzuki, the restaurant worker, suggests why. "It's not that cool staying at home playing by yourself," said Suzuki, who now devotes more of his money to his mobile phone. "I'd rather spend more time with my friends."

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Hisako Ueno in The Times' Tokyo Bureau and Times staff writer Alex Pham in Los Angeles contributed to this report.

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