Free-to-play Games Creating Opportunities in Traditional Toys in Japan
The mobile games market in Japan saw extremely strong growth in the 2010-2015 period, growing at a 56% CAGR, creating the second largest mobile games market in the world, behind only China. This strong growth has been propelled by the ease of play of free-to-play games and the on-the-go nature of Japanese consumers playing these games. However, as the market begins to plateau, manufacturers are finding other opportunities for their mobile content.
Have mobile games reached maturity in Japan?
In Japan, in-game purchases have grown substantially to account for 94% of mobile games sales in Japan in 2015, up from 47% in 2010. Games popular in Japan, such as Monster Strike by Mixi and Puzzle & Dragons by GungHo Entertainment, have been focused on the Japanese consumer instead of an international audience as the games tend to be shorter and geared towards consumers on busy Japanese commuting routes. Japanese gamers in general prefer collections of characters, and such successful games titles cater to this preference. Monster Strike and Puzzle & Dragons feature character numbers exceeding 2,000 and 3,000, respectively. However, software developers now see the market beginning to saturate, slowing down growth rates. With Japan’s well-known demographic issues giving rise to a dwindling youth population, competition for the remaining younger consumers has limited potential for sales.
With the limited gaming population growth in Japan, rapid growth of the gaming population is unlikely to be seen in Japan. Furthermore, gamers in Japan have become increasingly fickle and hop among mobile games every one or two years, which results in an unstable sales source for game developers.
From “analogue to digital” or “digital to analogue”, or both?
While Japan’s declining population creates more competition in the gaming and licensing world, even in a saturated market like free-to-play/mobile games, developers in Japan are realising that today’s popular game can now translate into tomorrow’s popular licensed characters, opening new avenues for revenue in traditional toys and, hopefully, in other entertainment industries like movies and anime. In the traditional toys category in Japan, integration with smartphones is the inevitable road, but in mobile games, most of which are played on smartphones, breaking into traditional toys is becoming the route to long-term success. In fact, despite the declining population, especially the young population, the Japanese licensed toy market generated sales of US$1.3 billion in 2015 , which is the second largest in Asia Pacific, offering lucrative opportunities. Japanese licensed characters are also popular overseas, especially in other Asian countries, as discussed by our Licensing Strategy Analyst Utku Tansel in “Asia Pacific Offers Good Opportunities in Apparel, Personal Accessories and Toys Licensing”. Additionally, in the free-to-play games market the game developers greatly depend on so-called “whale” players for revenues, but these players, after playing these games for a few years, tend to move on to other games. Licensed toys, on the other hand, tend to be a long-term revenue generator and beneficial for such game developers by getting non-spenders to shell out money. It is therefore important even for mobile game developers to look to ways to expand and diversify their businesses to other platforms.
Licensed opportunities from the gaming market
One benefit that software manufacturers have experienced from the popularity of their games is an explosion in the popularity of the characters created within the games. It comes as no surprise that popular and commercially successful mobile games have a healthy pool of fans as well as strong media exposure. Some mobile game manufacturers have found that they can capitalise on their popular mobile game characters, creating licensing opportunities for apparel and traditional toys.
Puzzle & Dragons is clearly one of the most successful free-to-play mobile games in Japan, with total downloads exceeding 40 million worldwide as of June 2016, mostly in Japan, according to the company. In terms of commercial performance, the game was the best-selling mobile game title in 2013 and 2014 in Japan. Exploiting its popularity in mobile games, the game was converted to console games in 2013, reaching the top five best-selling console games. However, as the competition in mobile games intensified, Puzzle & Dragons started to struggle and lost value share to other game developers.
In early 2016 GungHo Entertainment announced that the company would be partnering with Takara Tommy, the second largest traditional toy manufacturer in Japan, to launch Puzzle & Dragons’ dress-up toys. The Japanese anime and comics are due to start in mid-2016 as well. By investing in other platforms, the company is finding ways to remain popular, especially among young generations, which are not core spenders on the company’s free-to-play games.
Disney Tsum Tsum is a free-to-play fast-paced matching game featuring Disney characters. While some of the toys were available before the game, the mobile game served as an advertisement for the plush toys and accelerated the exposure of the toys, resulting in increased sales for the toy, which, in turn, grew the brand’s popularity and helped mobile game sales. More than 25 million units of the plush toys had been sold and the mobile game had been downloaded more than 60 million times worldwide, as of June 2016, according to a company source.
As the mobile game industry in Japan is forecast to record slower value growth in the future, the top game developers have already started to diversify their revenue sources, as seen in the case of GungHo Entertainment. Popular licensed characters act as a bridge to other toy product categories and even to other industries like apparel. Although mobile games, let alone other console games, serve as a touchpoint with consumers, a cross-platform strategy will need to be called upon should they want long-term success in Japan and beyond.