Unbranding the Sheep: Big Trouble in Little Japan

We consistently harp on how the American video game industry is affected by various forces within it. Most of the time, we only care about how specific releases are affected, if American jobs are affected, or if American release dates are affected. It’s not often we really look into the Japanese game industry unless it’s a release that specifically affects America, or unless we can see the direct correlation of their market forces upon our releases.

A few companies, and their financial trials and tribulations, could end up having major effects on American releases if one takes a look ahead and does the math. The results could be problematic for anyone who is a fan of Japanese IPs, especially the more obscure ones.

* In the most striking news, Namco Bandai took an absolute shit-kicking, reporting losses of Â¥11.7b ($129.5m USD) over the past nine months. Related to this, they have announced a “Group Restart Plan” that starts at cutting 10% of it’s workforce. These numbers are staggering, especially when considering the fact that the company made a profit at this time last year. Furthermore, Namco’s share price has taken a steady downturn over the past nine months, showing a high of Â¥1087 in June but falling precipitously, until crashing to Â¥859 per share as of this writing (11AM JST on Friday, February 5th). Namco Bandai has four divisions listed in their earnings statements (PDF), and in their fiscal report, it was the Game Contents section that underperformed the worst when compared with expectations. Namco Bandai stated that despite strong sales of Tekken 6, the division was harmed the worst by “weak market conditions”, particularly in the Americas (Translation: our economy still sucks.). A closer look at the list of their top selling games world-wide tells a clear story: their top selling games are in the Ben 10 and Afro Samurai franchises, with Tales of Vesperia also making an appearance at #3. For those that don’t want to open the PDF, Nintendo World Report has their top-10 list in bullet form.

What does this mean for us? Not only has Namco Bandai taken this financial hit, but Ratings & Industry Inc., the Japanese equivalent of Standard and Poor’s, has shifted Namco Bandai Holding’s financial outlook to negative, effectively putting a giant “SELL” sticker on the company. Therefore, it means that when the Group Restart Plan starts in April, we can expect Namco Bandai to focus even harder on their sure money making properties. For American gamers, the big names such as Tekken and Soul Calibur, as well as large franchises such as Ben 10 will be safe. However, we might see a scaling back of other Japanese IPs being released in America. While the strong sales of Tales of Vesperia indicate that localization efforts for the PSP title Tales of VS. will most likely go through, it could put Tales of the World: Radiant Mythology 2 at risk. Even more at risk is the future of obscure IPs such as Super Robot Wars. Although Atlus handled the localization of Super Robot Taisen OG Saga: Endless Frontier, news like this could cause Namco Bandai to stop developing for the franchise altogether. Further, will we continue to get new IPs such as Fragile Dreams: Farewell Ruins of the Moon after March? Even big names like Mobile Suit Gundam – a franchise that, from a gaming perspective, has performed poorly in America – aren’t exempt. Only time will tell, but no matter how you shake it, Namco Bandai has to do something to get themselves back on the good graces of Japanese stock holders, and if the American market is performing weakly, expect the American market to become an afterthought.

* Capcom’s latest big releases have been Bionic Commando and Dark Void, both of which have been commercial and critical flops. In response to this, they are taking their development in-house, essentially blaming these games’ respective failures on GRIN, a now-defunct Swedish company, and Airtight Games, an American company with a great record outside of Dark Void. The consequences for this are not quite as immediate as those of Namco, it definitely means less game development – and therefore, less jobs – in the Western markets. In addition to that, both of these failures that caused Capcom – a company that, by industry insider accounts, is notorious for being hard to work with for Western companies – to tighten things up were either long-dead IPs, or new ones (Dark Void Zero doesn’t count, having been unreleased). This doesn’t bode well for Capcom’s future efforts to push the envelope. It should be noted that the next two big-name releases coming out from Capcom are Super Street Fighter IV and Mega Man 10, the latter so retro that I think it comes with a box of Nintendo Cereal.

* Tecmo Koei was doing well enough last year to raise it’s mid-year consolidated revenue outlook (for the fiscal year ending March ’10) from Â¥14b to Â¥15b due to positive sales and reduced costs. This positive outlook caused shares to reach as high as Â¥807p/s on the Japanese stock market, their highest mark of the past year. In hindsight, that looks to be an EA-like screwup, as a combination of poorer than expected earnings and a couple of key delays have caused the company to drastically lower their end of FY outlook. Shares took a massive hit as a result, and are down even farther as of this writing, currently trading at Â¥599p/s. The fact that the two big releases that were delayed – Quantum Theory and Trinity: Souls of Zill O’ll – are now set to release on an indefinite date will surely not help the company’s finances anytime soon.

Though neither I, nor anyone else, have been able to fully translate their financial reports yet to get into the nitty-gritty, it’s important to know that the company blamed their losses primarily on the underperformance of Samurai Warriors 3. That’s right, they’re blaming their poor earnings on one game. This raises the question, how has a company the size of Tecmo Koei put all of it’s eggs into one basket, to the point where one poorly performing game throws it so far out of whack? Even worse, Samurai Warriors 3 is one game in the company’s marquee Musou line of games that includes Dynasty Warriors. What’s going to happen if Hokuto Musou (the new Fist of the North Star) doesn’t do well? Or Dynasy Warriors: Strikeforce for the next-gen systems? Dead or Alive Paradise has already had a spat of bad (or, if you’re a fan, good) PR, as it’s apparently so creepy that someone at the ESRB felt the need to specifically use that word. In the fickle world of selling video games to large groups of people, a company with as many properties as Tecmo Koei seems to be narrowing it’s focus to two properties: Musou, and Ninja Gaiden, with the corpse of the Dead or Alive franchise getting a kick in the boobs occasionally. It’s possible that gamers in both regions are becoming fatigued to these franchises, which wouldn’t be surprising considering their tendency to shove them down gamers’ throats. Considering the fact that Tecmo merged with Koei because it was in enough trouble to warrant a bid from Square-Enix in 2008, the fact that it’s in this kind of financial shape is troubling, especially if the company decides to follow the lead of other Japanese developers and treat the Americas as an afterthought.

These three companies are just a few of many that release worldwide, but their troubles are enough to notice a startling trend. So far, two of the three of them have decided that the west is a large source of their recent trouble, and one of them has decided to scale back in this region. If this continues, our options in terms of where we get our games could become much more limited than we’re accustomed to them being.

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Christopher Bowen is the Associate Editor at Diehard GameFAN, and was previously a columnist at Not A True Ending. Having worked in the IT industry as a network security engineer for over five years before coming to DHGF, Christopher brings a unique, pro-consumer perspective to his work. His thoughts on how the gaming industry works behind the scenes, and how it affects the everyday consumer, can be read every Saturday at Diehard GameFAN. In addition, he writes DHGF’s weekly Nintendo and Playstation Network download wrap-ups every Tuesday and Friday, respectively. Follow Chris on Twitter, or email him with questions and feedback.

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