Video Games: the Once Sustainable Industry is in Need of Policy

Abstract

This chapter aims to provide an overview of Japan’s video game policy. The Japanese video game industry has expanded greatly and has gained popularity around the world in the last 40 years. However, it had been unclear what role the government had played to support this industry. This chapter concludes that there have been no radical policy measures that drive the industry, even though the government has recognized the magnitude of the industry’s economic ripple effects, video game’s importance as an export industry, and its cultural value. In fact, the industry had traditionally been centered on home video games and Nintendo and Sony, the market leaders, had continued to grow on their own, so there was little need for any policy aid. However, due to the recent emergence of online games, government policy is now needed. This chapter consists of information on the explanation of history, the characteristics, and the current situation of the industry; on how video games are treated within the policy framework; and on specific video game measures.

1 Introduction

This chapter provides an account of Japan’s policy on video games, with references to Japan’s policy on anime described in the Chapter “Anime’s Economic Value: the Govenment’s Response to a Changing Environment”. There are two commonalities between anime discussed in the previous chapter and video games dealt with in this chapter: both are forms of content and segments of the Cool Japan wave which are currently enjoying popularity overseas. As explained in the previous chapter, when the economic value of anime started getting noticed, Japan’s anime policy came together quickly. This happened after the year 2000 and was led primarily by the Ministry of Economy, Trade and Industry (hereinafter referred to as METI).  Nowadays, anime policy has been pursued aggressively within the frameworks of content and Cool Japan. The Agency for Cultural Affairs (hereinafter referred to as ACA) has led anime policy on the cultural side, around the beginning of  2000, within the framework of media arts. Video games and anime share a similar background to their respective policy implementations—their value as industries, the impact of IT progress and proliferation, and their popularity outside of Japan. It is interesting to examine here whether Japan has actually implemented video game policy measures within the same frameworks as anime: namely, content, Cool Japan, and media arts, and other distinctive policy measures for video games.

This chapter starts by explaining the history, characteristics, and current situation of Japan’s video game industry, which are closely related to the implementation of video game policy. It then describes specifically how video games are treated within the policy frameworks of anime—content, Cool Japan, and media arts. Finally, some specific video game measures taken in Japan as well as the future outlook for video game policy in Japan are presented.

2 Scope of Video Games Considered in This Chapter and the History of Video Games in Japan

Video games can be categorized by their platform configuration, as shown in Fig. 1. This chapter considers all types of video games other than arcade games, i.e., games where the player owns or possesses the platform. Arcade games that were located in amusement arcades, cafes and other locations gave birth to home video games. In Japan, companies dealing in jukeboxes began developing mechanical game machines in the mid-1960s (Fujita 1999), with two of the most well-known arcade games being Space Invaders (released by Taito Corporation in 1978) and Pac-Man (released by NAMCO Ltd. in 1980). Gaming technology grew more sophisticated through the 1980s, with home video games attempting to emulate arcade games. In the 1990s, however, in terms of image quality and the processing speed, the technological gap between the two types narrowed considerably, due to the progress in semiconductors and display technologies as well as greater data storage capacities, leading to the rapid development of home video game consoles (Koizumi 2016).

Fig. 1

Source Koizumi (2016), p. 18.

Video game types.

The release of the Nintendo Entertainment System home video game console (NES, colloquially called the Famicom) by Nintendo Co., Ltd. in 1983 initiated and drove the expansion of the Japanese home video game market. The first home video game consoles were tethered devices such as the NES and the PlayStation (PSX), released by Sony Computer Entertainment Inc. (SCE, currently Sony Interactive Entertainment Inc. (SIE)) in 1994. The consoles had to be connected to a television or other types of monitors to be used, but with the subsequent progress of compact, high-performance electronic components, handheld game devices with a built-in screen sold rapidly. The Game Boy (GB), released in 1989 by Nintendo, was the first handheld game device to find major success; this was followed by the release and immediate popularity of the Nintendo DS (DS) and the PlayStation Portable (PSP) in 2004. In 2016 SIE held 57.8% of Japan’s home video game console market by units sold, followed by Nintendo at 42.1% and Microsoft at 0.1%. Nintendo, backed by the success of the Nintendo Switch, dramatically increased its market share in 2017 to 70.7%, followed by SIE at 29.2% and Microsoft at 0.1%; Microsoft’s Xbox has made little headway in the Japanese market. The handheld game devices are distinctively popular in the Japanese market. Regarding home video game devices by type from 2015 to 2017 on the basis of units sold, tethered consoles accounted for 57.3% of the market versus 42.7% for handheld devices in Japan, compared with 83.2% and 16.8%, respectively, overseas (CESA 2018).

A huge number of software titles have been developed for home video game devices, with many categories of games including role-playing games (RPGs), action games, massively multiplayer online role-playing games (MMORPG), shooting games, real-time strategy games, business and educational simulation games, adventure games, sports games, puzzles and quizzes, racing games, and romance-simulation games. Video games that are particularly popular in Japan are RPGs with strong stories and characterization and action games. Japanese users tend to favor 2D computer graphics over 3D and do not necessarily seek high-resolution games: the titles selling more than five million units in 2013 were all 2D computer graphic games.

Video games have continually evolved to meet the demands of more people, driven by advances in semiconductors and image technology that gave video games a richer range of expressions. The Internet, however, has further disrupted the video game industry in recent years. Online games, a new game type, started to spread globally around 2000. Online games are usually played on smartphones or other general-purpose devices and differ greatly from dedicated game devices not only in the nature of the games themselves but also in their business structures and market players. This chapter generally follows the definition of online games from the Japan Online Game Association (established in 2004): “Games in which the same title is played by multiple players via the Internet.” Social games, namely games that are played on social media platforms, are grouped with online games (Digital Content Association of Japan 2014).

The first games with communication functions were often battle games, where a cable connected two video game devices to exchange game data. The first games that could be played by connecting to the internet were Diablo, released in the USA in 1996 by Blizzard Entertainment Inc., and Ultima Online, released in the USA in 1997 by Electronic Arts Inc. These titles were imported to Japan, but aside from a core of passionate fans, they never gained widespread acceptance. This was because, in addition to buying the package at a physical store, players had to pay a monthly fee to play the video games. Another reason was the underdeveloped communication infrastructure at the time; only about 30% of Japanese households had Internet access around 2000. Starting around 2001, however, a succession of online computer games with large fanbases in South Korea made thier way to Japan, including such titles as Lineage, Ragnarok Online, and MapleStory. These titles were structured differently in order to appeal to new users. The software could be downloaded for free and required a monthly fee to play. In 2003, services offering item purchases, which is the primary billing method for most games today, started in South Korea and were soon adopted in Japan. Item purchases enable the title developer to bill users: the games are provided for free and are free to play, but certain desirable tools or skills that help the player in the game can be bought. Thus, the Japan online game market was formed mainly through the import of South Korean computer games. Until this time, home video game consoles were the choice for gaming in Japan, rather than computers. In 2002, online games for home video game consoles started to be sold, such as Square’s development of Final Fantasy XI for PlayStation 2. Online games, however, took off in Japan beginning around 2005 (Koizumi 2016).

Social games started to become popular around 2007 in Japan. Approximately 70% of game software downloads have been dominated by free titles based on an item-purchase business model in 2012 (Koizumi 2016). Players who pay to play games spend an average of approximately 50 USD a month on game items. Players between 20 and 49 are most likely to pay to play, with between 20 and 30% of players in this age bracket paying to play games (Digital Content Association of Japan 2014). In addition to social games, native gaming apps, another form of online games, began to appear in significant numbers in 2012. With native gaming apps, which are ordinarily called smartphone games, the game processing is done directly on the device. Unlike social games, these apps do not rely on social media platforms and are sold on the iTunes Store, Google Play, and other online stores.

Online games, as interactive entertainment, let large numbers of players play the same game over the Internet. As the players form deeper connections through the video game, it becomes even more interactive, and the  Internet’s growth has produced a number of general-purpose communication devices that can be used as gaming platforms. Such developments have fundamentally transformed the video game industry. The next section describes the recent state of Japan’s home video game market and online game market, which have been affected by these disruptions.

3 Current State of Japan’s Video Game Industry

Regarding the home video game market in Japan, Fig. 2 illustrates the changing size of the market from 1990 to 2017,¹ with market size being defined as the total value of consumer purchase prices. The market grew steadily from 1990, reaching a peak of 6,893 million USD in 1997. After a period of decline, the market grew again around 2006, but has never recovered to its 1997 levels. The industry had a series of hits, with the NES, Super Nintendo Entertainment System (SNES), and PSX, leading up to 1997, but this momentum was lost due to growing disinterest in gaming. Nintendo responded by developing the Nintendo DS series and the Wii. These devices could be easily used and enjoyed by anyone and aimed to expand the gaming segment to middle-aged and older people and to women, and their popularity led to a comeback that peaked around 2006. The market has waned since 2007, apart from 2017, when the hit Nintendo Switch drove up the market’s value to 3,515 million USD. The home video game market is thus susceptible to large swings, depending on whether there is hit hardware product in any given year, making the video game industry cyclical and unstable in comparison with other leading industries.

Fig. 2

Source Data from Dentsu Institute for Human Studies (2001), p. 69, Digital Content Association of Japan (2014), p. 103, Computer Entertainment Supplier’s Association (CESA) (2015), pp. 58–59 and CESA (2018), pp. 54–55

Market scale of console/handheld games in Japan, 1990–2017.

Figure 3 plots the shipping value of Japanese home video game exports over time, defined as the total based on the manufacturers’ selling prices. Although exports have fluctuated greatly, they have grown substantially over 21 years, unlike the domestic market. Over the period 2004–2007, hardware exports surged by 5.4 times and software exports by 2.4 times. This was followed by a steep drop that lasted until 2012. Japan’s video game industry is known as having developed into a sizeable export industry, but at the same time, it is unstable, as the tremendous variations in shipping value highlight. The total export value of hardware and software combined in 2017 was 25,346 million USD, accounting for 3.6% of Japan’s total exports of 712 billion USD and making it a significant export industry (Yano Tsuneta Kinenkai 2018).

Fig. 3

Source Data from CESA (1998), pp. 30–31, CESA (2001), pp. 45–46, CESA (2004), pp. 77–79, CESA (2007), pp. 107–109, CESA (2009), pp. 143–145, CESA (2012), pp. 123–125, CESA (2015), pp. 78–80, and CESA (2018), pp. 74–76

Console/handheld revenue shipped overseas by Japanese companies, 1996–2017.

Figure 4 shows the export ratios of the home video game industry over the same time period, revealing that the industry is heavily dependent on exports, especially hardware. Figure 5 ranks the 2017 home video game (hardware and software) market sizes in several countries, placing Japan second after the USA. The figures previously mentioned illustrate that the home video game industry is a large industry sector for Japan and that it is heavily dependent on exports. The industry has cycled through boom years and lean years because hardware companies develop new video game devices every few years, incorporating advances in technology, which are followed by popular software titles that run on the devices. A handful of hardware companies drive the video game industry, and numerous software companies have grown by supporting the lead taken by the hardware companies.

Fig. 4

Source Data from CESA (1998), pp. 27–31, CESA (2001), pp. 38–39, 45–46, CESA (2004), pp. 73, 75, 77, 79, CESA (2007), pp. 103, 105, 107, 109, CESA (2009), pp. 139, 141, 143, 145, CESA (2012), pp. 119, 121, 123, 125, CESA (2015), pp. 73, 75, 78, 80, and CESA (2018), pp. 69, 71, 74, 76. Note: Software data in 2011 and 2012 excludes overseas revenue shipped by overseas offices

Export ratio of console/handheld software and hardware from Japan, 1996–2017.

Fig. 5

Source Data from CESA (2018), pp. 147–148

Market scale of console/handheld game software and hardware by country, 2017.

Japan has essentially two hardware companies: Nintendo and SIE. Nintendo was founded in 1889 in Kyoto as a manufacturer of hanafuda playing cards; Ninten means “to leave luck to the heavens.” Nintendo later moved into the toy business to remain relevant in the changing times and started manufacturing toys using electronic technology, such as the Laser Clay Shooting System, a commercial entertainment system, in 1973. The company created an arcade game machine in 1978 and gradually entered businesses related to home game devices. In 1980, Nintendo released GAME&WATCH, its first handheld video game device. GAME&WATCH was an enormous success, selling over 40 million units worldwide. The palm-sized video game device with a liquid crystal display screen had its video game software embedded in ROM which could not be interchanged. The then-president Hiroshi Yamauchi was determined to create a company policy where Nintendo completely devotes itself to entertainment (Hatakeyama and Kubo 2000). Under this consistent policy, Yamauchi guided the company to constantly adapt to the times, irrespective of the form product development took. These moves enabled Yamauchi to turn Nintendo into a global company. The great-grandson of Nintendo’s founder, he joined the company in 1949 at the age of 22 and stayed with the company as president for over 50 years, before stepping down in 2002.

Nintendo’s sales reached a record high of 16,714 million USD in the fiscal year ending in March 2009. After a period without a hit product however, sales fell to 4,446 million USD in the fiscal year ending in March 2017. The company then made a remarkable recovery with the Nintendo Switch, reaching 9,597 million USD in the fiscal year ending in March 2018, and has maintained this momentum. In 2015, Nintendo partnered with DeNA Co., Ltd. (DeNA), a leading Japanese online game software company and entered the smartphone game sector in 2016. In fiscal 2017, with dedicated video game devices accounting for 96% of the company’s total sales and smart-device-related business making up 4%, Nintendo recorded sales of 9,597 million USD on operating profit of 1,614 million USD and had a consolidated workforce of 5,501 employees (Toyo Keizai Inc. 2018).

After Nintendo had created the home video game market and achieved great success with the NES and the SNES, released in 1990, several other companies entered the market, one of which was SCE. Sony Corporation and its subsidiary Sony Music Entertainment formed SCE as a joint venture to enter the video game device business. In December 1994, SCE released the 32-bit PlayStation. Sony had apparently had some previous experience in the video game industry, developing the sound-generation system for Nintendo’s SNES (Yanagawa and Kuwayama 1999). To counter the market-dominating Nintendo, Sony decided to make high-performance image processing its strength on the product side and to take a different software strategy from Nintendo on the sales side (Shintaku, Tanaka and Yanagawa 2003). PlayStation 2 (PS2), released in 2000, sold a total of 155 million units globally; PlayStation 4 (PS4) was released in 2013. In 2016, SCE consolidated all its planning, development, and sales operations for PlayStation-related hardware, software, content, and network services and renamed the organization SIE. Software sales totaled 4,180 million USD in fiscal 2014, but the figures since then have not been apparent. On the hardware side, the combined sales of all PlayStation models reached 525 million units as of July 2018 (SIE 2018).

Today, Nintendo and SIE are the only Japanese hardware companies in the home video game industry, although there are many software companies. Leading software companies, as listed in Table 1, include Koei Tecmo Holdings Co., Ltd., Capcom Co., Ltd., Square Enix Holdings Co., Ltd., Konami Holdings Corporation, Sega Sammy Holdings Inc., and Bandai Namco Holdings Inc. Many of these major video game software companies started out developing and selling arcade game machines in the 1960s and 1970s and applied this knowledge to enter the home video game software market in the 1980s. Since 2000 there has been a succession of restructurings among software companies, due to skyrocketing development costs as video game devices have increased in performance, and due to the stagnant domestic market (Koizumi 2016). Video game development is sophisticated and uses state-of-the-art technology, and so companies are making enormous R&D investments to strengthen their technological capabilities (Mizuho Bank 2014). Notable smaller and mid-sized Japanese video game software companies include Nippon Ichi Software, Inc., Marvelous Inc., Nihon Falcom Corporation, Broccoli Co., Ltd., Level 5 Inc., Spike Chunsoft, Co., Ltd., MAGES. Inc., and FromSoftware, Inc.

Table 1 Large software companies in Japan

Japan’s online social game market, in which games are normally played on general-purpose devices, has become an important industry sector in recent years on par with the home game market. Figure 6 shows the market’s development, including its surging growth since 2010. In contrast to Fig. 2, this market was only 15% the size of the home video game software market in 2006, but it had expanded to 384% by 2016.

Fig. 6

Source Dentsu Media Innovation Lab. (2018), p.112

Transitions in sales of online/social games in Japan.

Figure 7 shows the transitions in sales over the past 18 years at leading Japanese online game software companies. Three of these companies—DeNA, mixi, Inc., and GREE, Inc.—are social game companies. None of these companies are home video game software companies; they are companies operating online sales and social media sites. As startups, they have grown briskly since 2009. Item purchases are streamlined in Japan because of a system in which mobile carriers collect payments for item purchases on behalf of online game software companies. Consequently, online game software companies earn revenue from item purchases, instead of relying solely on advertising revenue.

Fig. 7

Source Data from Nikkei Inc. (2005), pp. 252, 457, Nikkei Inc. (2009), 171, 263, 519, 541, Nikkei Inc. (2012), pp. 161, 243, 485, 515, Nikkei Inc. (2015), pp. 165, 244, 498, 513, 541, and Toyo Keizai Inc. (2018), pp. 175, 250, 518, 533, 560

Sales transition of Japanese major online game enterprises.

Japanese companies driving the market with native gaming apps include GungHo Online Entertainment, Inc., publisher of Puzzle & Dragons, and COLOPL, Inc. as well as large companies also involved in home video game software such as Konami Digital Entertainment Co., Ltd., Bandai Namco Entertainment Inc., Sega, and Square Enix. GungHo started out as an online auction company in 1998, but withdrew from the business in 2002 and shifted to the online game business, where it has enjoyed a string of hit products. COLOPL was founded in 2008 and, starting from a mobile-phone location data service, it successfully branched out into online games in 2011 and now online games are the main source of revenue (Koizumi 2016).

Table 2 lists the world’s top companies in 2017 by revenue from video games, which includes both home video games and online games. Three Japanese companies made the list—Sony in second, Nintendo in ninth, and Bandai Namco in the tenth spot. The list indicates that Japan has a leading presence in the global video game industry, alongside Tencent Holdings Ltd., China in first place followed by major US companies.

Table 2 Top 10 companies by game revenues, 2017, worldwide

4 Japan’s Video Game Policy

4.1 Video Game Policy in the Frameworks of Content, Cool Japan, and Media Arts

Around 2000, Japan quickly rolled out stimulus measures for the content industry and Cool Japan-related industries. Details on the background of this policy development are given in the Chapter “Anime’s Economic Value: the Government’s Response to a Changing Environment”. Video games, like anime, are a leading content industry. The popularity of Japanese video games outside of Japan has been outlined in the previous section and in the previous chapter which describes Cool Japan. Japanese video games held 20.0% of the global market in 2016 (Media and Content Industry Division, Commerce and Information Policy Bureau, METI 2017). Nye (2004) described the relevance of video games to Japan’s soft power and that cultural soft power increases a country’s economic growth. According to Nye, Japan’s revenue from sales and royalties of cultural products, such as TV games, anime, movies, and fashion, reached 12.5 billion USD in 2002 which was an increase of 300% for 10 years. It was further mentioned that Pokémon conveys a soft, friendly image of Japan to children around the world.

Pokémon was originally developed as a video game software title, and it has inevitably received mention for its enormous economic ripple effects in materials on measures to stimulate the content industry published since 2000 by METI (e.g. METI 2006). Pokémon was the brainchild of a single creator who had been a fan of video games in his youth. Game-device-maker Nintendo supported the Pokémon idea, which took six years to develop. Pokémon was eventually released as a video game title in 1996 (Hatakeyama and Kubo 2002). To let fans have multiple ways of enjoying Pokémon and to boost sales, the owners paired the video game software with manga magazines aimed at children and teens and sold them together, which proved to be highly successful. Manga magazines are a magazine format unique to Japan, publishing ten or more serial stories per issue on either a weekly or monthly schedule. Following this success, the Pokémon franchise expanded into TV anime series, card games, character goods, movies, and books on game tactics. The franchise was launched in the USA and other overseas markets and today is loved by children around the world. The cumulative market sales for Pokémon as of March 31, 2017 totaled over six billion USD, 35% of which has come from sales in Japan and 65% from sales abroad.

As the Pokémon example illustrates, the video game business is closely linked to the anime business. Video game sales alone contribute a significant portion to the whole, although not to the same extent as that of anime. Extending a title across multiple media platforms greatly magnifies the scale of the business, and the Japanese government closely monitors the size of these ripple effects. The Pokémon franchise has expanded in many directions. The foundation of all Pokémon expansions however, regardless of size or characteristics, is the role-playing game, in which players catch and raise Pokémon and trade and battle with their friends. The total number of Pokémon-related software units shipped exceeds 300 million units worldwide (as of March 31, 2018). Pokémon anime, first broadcasted on Japanese TV in April 1997, are now broadcasted in 124 countries and regions. The first Pokémon movie was released in July 1998, and the total audience in Japan for the first movie through the 20th movie (released in 2017) was approximately 77.36 million, with box-office earnings of about 748 million USD. The Pokémon card game pioneered card games in Japan in October 1996 by recreating the video game’s gameplay with cards. Over 25.7 billion cards have been shipped worldwide, and they have been translated into eleven languages and sold in 74 countries and regions (as of March 31, 2018). There are now 550 companies licensed to sell Pokémon character goods, including candy, stationery, and apparel (The Pokémon Company 2018).

The METI (2009) formulated a basic policy on revitalizing the video game software industry in 2007 with the understanding that:

Video games are one of Japan’s leading content formats and a type of world-class entertainment. The current state of Japan’s video game software industry is, unfortunately, not encouraging. In global markets, international competition has increased in recent years, with US companies rapidly entering home video games and South Korean and Chinese companies entering online games. In Japan, the home video game market is seen as sluggish.

The METI organized the issues confronting Japan’s video game market from three perspectives.

• Changes in the domestic market: shrinking gamer population due to a declining birth rate; proliferation of online games

• Changes in overseas markets: Japan’s video game exports are flat, even though overseas video game markets are witnessing booming growth

• Increasing competition with overseas companies: the presence of Japanese video games has dwindled: seven of the top ten best-selling video game titles in the USA in 1998 were Japanese, compared to only two in 2005.

The METI also indicated that it believed aggressive policy formulations were necessary for the video game industry, given that video games are the largest export sector in the content industry, that global video game markets have high growth potential, and that the video game segment drives the content industry from the technological side.

These examples show that the METI recognizes the importance of the video game industry for the Japanese economy, as well as its issues and promise. Nevertheless, examining the actual measures taken since 2000 confirms that video games have received less attention than anime. For instance, the Cool Japan Fund—the prime investment vehicle within the Cool Japan Strategy discussed in the previous chapter—has not invested in a single project directly related to video games. Only two of the Fund’s projects are even marginally associated with video games: Japan content-related online sales to overseas (the fund subsidy amount: 13.6 million USD), and Creator development abroad (the fund subsidy amount: 4.1 million USD (total project cost: 9.1 million USD)) (Commerce and Service Industry Policy Group, METI 2018). Other assistance to the video game industry includes the J-LOP (Japan Localization and Promotion) project described in the previous chapter. The J-LOP project, which ran from fiscal 2013 to fiscal 2017, aided the export of Japan content by subsidizing the localization and promotion of content to match the culture and customs of overseas markets, and helped video game companies cover the costs of localizing video games and exhibiting at international exhibitions. In addition, the METI is a sponsor of the Tokyo Game Show, an international video game exhibition held every September that drew 300,000 visitors in 2018. Therefore, it is possible to identify some finely focused policy measures like these that have benefited the video game industry. However, no radical policy measures exist that explicitly address the industry, despite the METI extolling its importance.

Aside from economic aid to the industry, regarding cultural aid, the ACA² has treated video games as part of the media arts framework in the same way as anime. The ACA divides the media arts into four categories: art, entertainment, animation, and manga, with video games placed under the entertainment category. Since video games are not named as a category however, it is apparent that video games do not have the same central presence as anime and manga in the ACA’s media arts framework. An examination of the cultural stimulus measures directed at video games reveals the Media Art Database, a project that has a category for video games along with animation and manga. The Media Art Database is the result of five years of work by the ACA’s Media Art Digital Archive Initiative launched in 2010. The database collects information on past works of Japanese manga, animation, and video games, as well as past media art events, and makes this information available online. In the video game category, the database has information on video game titles compatible with home video game consoles sold as recently as December 2016, arcade games released from 1972 through 2016, and video game software compatible with the PC-8801 series of home computers. After the completion of the database, the ACA initiated the Media Art Archive Promotion Support Project. Three of the 19 accepted projects are related to video games: The Game Preservation Society’s Entry of information into a database of Japanese retro computer games (10.2 thousand USD); the Komaki Highway Kikaku’s Project to restore, preserve, and archive arcade games (59.1 thousand USD); and the Ritsumeikan Trust’s Survey project toward the creation and application of video game bibliographic records (63.6 thousand USD) (as of fiscal 2017). The Media Art Cooperation Promotion Program initiates research studies and the creation of new domains through the cooperation and collaboration of industry, academia, and government crossing fields and domains in the media arts. The program’s aim is to consistently apply and develop cultural assets in the media arts. Two of the eight projects accepted by the program in fiscal 2017 were related to video games: Hitotsubashi University’s Cross-discipline oral history project on innovation generated by the video game industry (approximately 49.5 thousand USD), and the Ritsumeikan Center for Game Studies’ fiscal 2017 survey project on coordination among collections of video game archives (approximately 165 thousand USD) (ACA n.d.). These programs show that the ACA provides assistance for several archive projects involving video games as a category of the media arts. However, the ACA has policy measures tailored for developing anime creators but no similar measures for video games, and any budgets are very small.

Why are fewer policy measures directed at video games than anime? One major reason is that the anime industry has developed primarily for a domestic audience in close alliance with the TV and film industries, whereas the video game industry has moved forward independently targeting overseas markets. The Economic Analysis Office of the METI (2017) performed a comparative study of video game software production companies versus animation production companies (surveying companies with a capitalization of at least 272 thousand USD). The industries were compared on the average sales per company, the number of employees, their capitalization, the number of content titles produced, the percentage of full-time employees, the copyright retention and the orientation toward markets outside Japan. The survey found both industries had multiple layers of subcontractors, relying on very small subcontractors at the bottom. Video game software production companies, however, tended to be about twice the size of the animation production companies on a lot of comparison indices, suggesting a greater degree of autonomy among video game companies. The size of the video game’s revenue shipped domestically and internationally, counting both hardware and software, was 28,861 million USD (in 2017, CESA (2018)), compared to 19,576 million USD for the anime-related market domestic and overseas (in 2017, the Association of Japanese Animations (2018)), suggesting that the diferences are not big in size. However, after subtracting multimedia development, character goods, and other related merchandise, the market for anime films alone totaled only 2,428 million USD, and thus is significantly smaller than the video game industry.

Another major difference between the two is copyright retention by production companies and their orientation toward markets outside Japan. In fiscal 2015, 90% of video game software production companies retained 100% of the primary usage rights to their software, whereas the same was true for only around 5% of anime production companies. Furthermore, about 80% of video game software production companies held 100% of the secondary usage rights of their titles, while a similarly low percentage of anime production companies retained secondary usage rights as those that had held onto primary usage rights. Thus, retention of copyrights among video game software production companies is dramatically higher than among anime production companies. In a survey of attitudes on overseas expansion, almost 80% of video game companies had plans to expand overseas and over 50% were considering outsourcing production overseas. In contrast, less than 40% of anime companies were considering selling their titles in overseas markets (The Economic Analysis office of the METI 2017).

This section has shown that video games are treated in the same frameworks as anime—content, Cool Japan, and media arts—in terms of industry stimulus measures and cultural stimulus measures. Video game production companies, however, tend to have more solid business platforms in place, which is one reason that actual policy measures for the video game industry are less prominent than those for the anime industry.

4.2 Specific Policy Measures on Video Games

This section examines what specific policy measures for video games have been developed outside of the frameworks of content, Cool Japan, and media arts. One area of the video game industry that has drawn considerable attention in recent years is e-sports.³ E-sports are organized competitions in which multiple players or teams compete on a specific video game using computers, home video game consoles, or mobile devices. The term e-sports arose due to the sports-like nature of the competitions, where players battle using their keyboard, video game controller, and tapping skills. E-sports have become a worldwide phenomenon, and even the International Olympic Committee (IOC) announced at the October 2017 Olympic Summit that it would study the inclusion of e-sports as an Olympic event. The global e-sports market was estimated to be worth 493 million USD in 2016 and 906 million USD in 2018, and is expected to expand rapidly to 1.65 billion USD by 2021 (Kaneda 2018). E-sports, however, have been slow to take off in Japan, which the Japan video game industry and the government see as a problem. This is evidenced by e-sports’ low public awareness, just 14.4% as of August 2017, and its near invisibility, apart from news reporting, on leading broadcasting media platforms (Ministry of Internal Affairs and Communications 2018). Competitive e-sports events in Japan have gradually increased in number since 2015, delayed in part by the slow establishment of the online game market itself. Structures to promote e-sports have been put in place, first with a succession of new e-sports organizations, such as the Japan eSports Association (JeSPA) in April 2015, the e-sports Promotion Organization in October 2015, and the Japan eSports Federation (JeSF) in March 2016. In 2017, these three organizations collaborated with the Computer Entertainment Supplier’s Association (CESA) and the Japan Online Game Association (JOGA) to launch a new organization to tackle the development of e-sports together. In February 2018, the three e-sports organizations were dissolved and the Japan esports Union (JeSU) was formed. JeSU has since been involved in aiding the Japanese e-sports industry and sending professional gamers from Japan to international competitions (Digital Content Association of Japan 2018), and a number of TV broadcasters and newspapers have announced they will enter e-sports following JeSU’s founding. Furthermore, more competitions are being held and are beginning to show signs of success. In February 2018, tournaments were held in Tokyo for such video game titles as Winning Eleven 2018 (Konami Digital Entertainment), Street Fighter V Arcade Edition (Capcom), Puzzle & Dragons (GungHo), and Monster Strike (mixi) (Digital Content Association of Japan 2018).  In 2019, an e-sports competition was held at the 2019 National Sports Festival in Ibaraki Prefecture as a cultural program. E-sports are finally gaining traction in Japan, but the gap with other countries remains large, both in terms of popularity and the scale of competitions. Nobuyuki Umezaki—president of Sun-Gence Inc, a company that manages pro e-sports teams in Japan—described the state of e-sports in Japan: “Japan has few competitions, the prize money is small, and the gap is huge in terms of social recognition of pro gamers with that of the USA and other countries” (Watanabe 2018).

The spread of e-sports is also hampered by several legal issues. The Ministry of Internal Affairs and Communications (2018) pointed out that, unlike soccer matches or shogi tournaments, hosting a video game competition is complicated by the need to obtain consent from the rights holder to the video game title used in the competition. Japan also has a number of laws that limit the activities of businesses in the interest of consumer protection, most of which were enacted prior to the existence of online games, so it is not clear how to interpret and apply these laws to e-sports and whether legal amendments are necessary. The three laws problematic for e-sports competitions in Japan are the Penal Code, the Act against Unjustifiable Premiums and Misleading Representations, and the Act on Control and Improvement of Amusement and Entertainment Business (Ministry of Internal Affairs and Communications 2018).

• Penal Code (administered by the Ministry of Justice)

  The Penal Code restricts gambling, and under Article 185, it may be illegal for players who pay an entry fee to then collect prize money if this act is characterized as gambling. It is legal, however, for a player to collect prize money when entry is free.

• Act against Unjustifiable Premiums and Misleading Representations (administered by the Consumer Affairs Agency)

  This law restricts the provision of excess giveaways with products and services to allow for the fair choice of products by consumers. It may be illegal for video game publishers or developers to provide prize money at e-sports competitions if the provision of prize money is interpreted as a means to entice customers and as ancillary to their product or service transactions. It is legal, however, for a business other than companies benefiting from the competition to provide prize money. If the value of the transaction is less than 46 USD, the prize value is limited to 20 times the transaction value, and if the transaction value is 46 USD or more, the prize value is capped at 909 USD. Under the current law, it is impossible to host competitions that offer prize money exceeding one million dollars like those outside of Japan.

• Act on Control and Improvement of Amusement Business, etc. (administered by the National Police Agency).

  This law regulates the running of amusement centers, darts bars, and similar establishments. Article 23–4 of the Act states: “A person operating a mahjong parlor as provided for in Article 2–1(IV) or a business as provided for in Article 2–1(V) shall neither offer nor provide, in relation to said business, prizes accompanying the results of games under the provisions in the previous Article” (e-gov 2019). When a promoter holds a competition in a non-permanent venue, the venue may be viewed as a permanent establishment if the competition lasts two days or longer. As most e-sports offline championship competitions last two days or longer, they will likely be subject to the Act on Control and Improvement of Amusement Business, etc.

It is illegal in Japan to hold competitions offering the large prizes widely found overseas. The total prize money at some overseas e-sports competitions can be enormous. For example, in August 2017, The International 2017 offered 24.78 million USD, the 2017 League of Legends World Championship offered 2.25 million USD, and the 2017 Call of Duty World League Championship had a total of 1.52 million USD. In contrast, September 2017′s RAGE Vol. 5 offered 91 thousand USD and the All Campus Series offered 182 thousand USD in prizes, not cash (Hamamura 2018). Since it is nearly impossible to hold large e-sports competitions in Japan with significant prize money, it is difficult both to develop gamers and to build a following among ordinary viewers.

Considering how the Japanese government is addressing e-sports, the government has regarded e-sports as an important growth segment of the nation’s video game industry and recognizes that the laws discussed earlier are an issue for e-sports, but actual concrete policy measures have not yet been developed. As described in the previous chapter, the Intellectual Property Strategy Headquarters, which resides within the Cabinet Office, has released an Intellectual Property Strategic Program paper each year since 2004. The Intellectual Property Strategy Headquarters (2018) was the first to consider the topic of e-sports:

E-sports is gaining attention as a new growth domain in the content field and is a business development born out of digital communications, which is today the prime form of communications. The government quickly recognized this new trend and will seek to address, as necessary, the arrangement of proper conditions to ensure the sound development of e-sports.

There are other elements connected with video games in which policy moves are hoped to be achieved. These include adjustments to the copyright system to meet the changing times, prevention of the adverse effects of gaming on youths, and assistance for technology development. First, there are two means of accomplishing copyright protection for video game software: technical means and legal means. The course of legal protection is summarized with reference to the Association of Copyright for Computer Software (2015). Legal protection was first applied to computer programs, including video game software, in 1985 when copyrighted works gained protection under the Copyright Act. This was a major step forward, since prior to the Copyright Act, owners of computer programs could only retain protective rights by filing for a patent. In 1997, public transmission rights were first instituted. Public transmission rights are a part of copyrights and allow copyrighted works to be transmitted for the purpose of direct reception of the works by the public. These rights govern acts of public transmissions by entities other than the copyright holders.

In 2002, the Provider Liability Limitation Act was established. This legal system permits providers to take down or delete information in cases where information distributed over the Internet violates the rights of other people, while carefully balancing relief for victims versus the freedom of expression for information posters. Under the law, a victim can demand that the provider, which is a third party to the distribution of information, disclose to the victim information on the poster of the information that was purported to violate the victim’s rights. Such disclosures enable the victim to identify the perpetrator and file a claim for damages as a means of recouping losses or damages caused by the distribution of rights-violating information. Information on posters must ordinarily be protected to maintain the privacy of posters, the freedom of anonymous expression, and the secrecy of communications, and so providers and other businesses are not permitted to disclose such information without a lawful reason. The Provider Liability Limitation Act, however, makes it possible for providers or other businesses to disclose information on posters legally, provided that certain strict conditions are met, and also defines the conditions under which providers and other business are exempt from legal liability.

The government set up the Intellectual Property High Court in 2005 specifically to hear patent cases and intellectual property cases, which has supported the handling of legal cases related to intellectual property. Later, the Copyright Act was amended in 2012 to impose criminal penalties on illegal downloads. Through these moves, the government has addressed the changing times by enacting and revising legislation that aims to protect video game software.

In regard to the adverse effects of gaming on society and youths, a rating system, which indicates the appropriate age range for individual home video game titles, was instituted, since such a broad range of people play home video games. To avoid direct involvement of the government in rating video games, the Computer Entertainment Rating Organization (CERO), a neutral, voluntary organization launched in 2002, rates video games sold on the Japanese market. The ratings consist of five age classifications: A (all ages), B (aged 12 and older), C (aged 15 and older), D (aged 17 and older), and Z (aged 18 and older). The Z classification was added in 2006, and video games with a Z rating are prohibited from being sold or distributed to people under the age of 18 (Watanabe 2010). CERO had rated 8,200 titles by April 2010, covering nearly 100% of the video games on the market—an astonishingly high percentage. CERO, since its inception, has worked to improve its rating methodology in keeping with the times, but the video game industry has undergone immense changes and new challenges have emerged, particularly with the sharp rise of online games. Online games are played on smartphones and other devices that differ substantially from home video game consoles, making it much harder to manage online games, as multiple businesses are involved. Other key issues that have emerged are the nature of managing games and the way services are provided, such as charging high prices for adding features to games or tactics that entice players to gamble (Fujiwara 2017).

5 Conclusion

This chapter has analyzed the last 35 years of Japan’s video game industry, during which it has grown enormously, from a scale so small it could not be called an industry to today, when it contributes 3.6% of Japan’s total exports by value. Nintendo and SIE, along with Microsoft, have constructed a triumvirate that dominates the global market for home video game consoles. An examination of the current state of affairs, however, reveals many salient problems. The biggest is the emergence of online games. Numerous new firms with no connection to the companies that pioneered home video games have entered the video game industry, increasing international competition. Since home video games and online games differ in content, playing methods, and player demographics, they do not occupy the same territory. Nevertheless, since the rapid ascent of China, South Korea, and other countries in online games, the strong position that Japan had built up is on the decline across the entire video game industry. Government policy is needed urgently to halt this decline and revitalize the video game industry.

In the days when the video game industry was centered on home video games, there was little need for policy aid because Nintendo and SIE continued to grow under their own power due to their scale advantages, financial strength, and technical capacity. Even though many video game software companies had weak financial footings, hardware companies backed their development. Today the video game industry is in an increasingly tough environment. Despite this, many new business opportunities have opened up due to the continued move to online platforms and quickly advancing technological innovations in VR and AR, for example. The video game business of the future will require more than just sales of video game devices and video game software; companies will need integrated competitiveness across different industries, such as communication equipment, communication devices, VR and other imaging devices, and electronic components. Fostering such competitiveness will benefit not only just the video game industry but also the advancement of many other related industries. Individual industries acting alone, however, are unlikely to enable these related industries to develop through mutual synergy. Instead, integrated support on the policy side is likely to be effective.

This chapter has looked at the video game policy measures implemented by the Japanese government to date. Although the government partly recognizes the magnitude of the video game industry’s economic ripple effects, its importance as an export industry, and its cultural value, there have been no radical policy measures that aim strongly to drive the video game industry. This chapter outlined Japan’s video game industry and considered what can be accomplished and what needs to be done in terms of government policy to further advance video games as an industry and as a culture. To play video games, platforms that pool technological knowledge will be necessary. The current rapid pace of technological innovation is expected to increase and the conditions surrounding the video game industry will evolve even faster. In this so-called fourth industrial revolution, in which science and technology progress at an accelerated rate and the economic landscape undergoes tremendous disruptions, the video game industry requires prompt and strategic assistance.