At over $7 billion in annual revenue, Japan is the second-largest market for videogames after the U.S. However, Western companies often ignore trends in Japan. Primarily, this is because titles from non-Japanese publishers have historically not sold well in Japan. Nevertheless, DFC Intelligence has always thought it is extremely important to watch trends in the Japanese market and how they might eventually impact North America and Europe. Much has been written about the decline of Japanese publishers over the last decade. While much of this may be true, Japan remains a key driver of the global videogame business and its consumers tend to be at the forefront of major industry trends.

In recent years, one of the biggest harbingers of coming global industry trends was Nintendo’s growing success in Japan and the increasing emergence of “casual games” in that market. In 2005, sales of the Nintendo DS started to soar in Japan and much of this success was attributed to non-traditional products like the Brain Training and Nintendog titles. With over 22 million units sold in Japan, the Nintendo DS will end up as the best-selling system ever in that marketplace. However, back in 2005, Nintendo was still considered very much of an also-ran in Japan, a market dominated by Sony.

It was from looking at the success of the Nintendo DS in Japan that DFC Intelligence forecasted that the DS would outsell the PSP in markets like the U.S. and Europe. Furthermore, in 2006, after Sony announced firm launch plans for the PS3, DFC came out and stated that the Wii was likely to be the first-place system. Today that seems like a no-brainer assessment, but at the time this was a very contrarian point of view. It was also an unwelcome point of view because Sony dominated the market and it was automatically assumed they would continue to do so. Leading industry players like Electronic Arts had hitched their fortunes to the continued success of Sony and the last thing they wanted to hear was that Nintendo could once again become a force. However, when looking at the Japanese market, the signs were strong that Nintendo was onto something. Being the bearer of bad news is not always a role to relish, but ignorance is not always bliss.

Of course, the DS exploded on a global basis starting in 2006. Meanwhile, immediately out of the gate, the Wii became a global phenomenon that exceeded even our most optimistic estimates. These very Japanese products were proof positive that Japanese developers and engineers are still relevant on a global basis.

Much ink has been spilled about the success of Nintendo and the emergence of a new “casual” game consumer. In many ways that is old news. The important point is the need to closely monitor trends in markets like Japan, even for companies not active in that market. Looking at the first part of 2008 in Japan, there have been some indications that it actually may be Sony’s turn to experience an upturn in sales. In other words, we must closely analyze sales in Japan to see how they may impact our global forecasts.