Three Years On, Xbox 360 Slowly Gaining in Japan

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Three years ago Wednesday Microsoft completed the initial worldwide launch of its Xbox 360 game console by putting it on sale in Japan. It had previously debuted to frenetic scenes in the U.S. and Europe but in Japan reception for the new console was lukewarm. Three-years-on the console is finally beginning to gain some traction but hurdles still face Microsoft in this most-picky of consumer markets.

The first Xbox had done badly in Japan and Microsoft faced a difficult task -- taking on a strong domestic competitor in Sony's PlayStation franchise.

"We knew this before we launched the 360, but we did have a branding issue," said Takashi Sensui, general manager of Microsoft Japan's home and entertainment division, in an interview of the first-generation console. "It put the brand in a sort of black-list in consumer's minds. Anything related to that brand was not relevant to them, so first we had to come out of that black-list and then become relevant to the people, interesting to the people and then, of course, attractive to the people."

"We've come a long way, we've definitely turned around the brand image," he said.

Like all foreign companies in the gaming or electronics market in Japan, Microsoft faces a tough challenge. Brands that are market leaders in other countries, like Samsung, LG and Philips, are rarely seen in Japan. Most recently Nokia, the world's biggest cell-phone maker, pulled out of Japan because of poor sales.

So it wasn't a surprise that Japanese gamers didn't initially take to Microsoft. One of the biggest complaints was a lack of the type of role playing games that are popular in Japan so Microsoft enlisted some of the country's best-known developers to write games for the Xbox 360.

A series of Xbox 360-exclusive games have followed and gamers have begun to take note. The launch of "Tales of Vesperia" in August saw a couple of hundred people queuing up for the 8 a.m. launch of sales and they weren't just buying the game but a pack that also included the console. The platform got another kick in September when "Infinite Undiscovery" was launched and sales for the month beat those of the PlayStation 3 for the first time, according to market-watcher Media Create.

Several more high-profile game launches are planned in the coming months, including "Star Ocean 4" and "Bio Hazard 5" (called Resident Evil 5 in most markets), and sales have also been helped by a price cut that puts the Xbox 360's cheapest version, the arcade system, at half the price of the PlayStation 3 and cheaper than Nintendo's Wii.

"It's taken 3 years for us to get here, whereas the initial expectation was to get here much earlier in terms of the market positioning and consumer acceptance and momentum," said Sensui. But Microsoft isn't the only one to see things take longer than anticipated.

When the Xbox 360 launched in Japan, many gamers were still waiting for the PlayStation 3. It was due in early 2006 but didn't actually turn up until 11 months later and then, despite an initial surge in sales, sold poorly because consumers viewed it as too expensive. At the same time much of the attention in the gaming market was being directed towards the Wii, which sold better than many had anticipated.

But things are changing. Sales of the Wii are starting to slow and the focus is returning to the so-called "core gamer," a customer who has owned a console before and has yet to upgrade.

"The biggest challenge for this industry is to attract people back into gaming," said Sensui. He says a lot of people have stopped playing games or not made the jump to new consoles in the last few years in part because of the vastly greater range of leisure activities available.

A trip to Yodobashi Camera in Japan's Akihabara, the country's single largest electronics store, bears this out. The sales space for PlayStation 2 games is greater than that for any of the current-generation consoles.

"Core games are coming back to the fore as a lot of companies realize core gaming is resilient and casual gaming is seeing a slow down in Japan," said Hiroshi Kamide, an analyst at KBC Securities in Tokyo. "You can't expect casual gamers to be repeat buyers like core gamers can so a lot of focus is coming back to what we would call traditional electronic entertainment."

Looking ahead Sensui is targeting such core gamers.

"With the value we offer I believe these are our primary target," he said.

Sensui said he believes the key to getting these people to buy a new console is not games alone but through offerings like the "1 vs 100" gaming program and video downloads. Microsoft hopes to launch a video service in Japan in 2009.

As for the recession, Sensui said he doesn't think it will have too much of an effect on sales in the coming year. In part that's because gaming and entertainment are typically impacted less during downturns than other markets but also because Microsoft's market share is still small so any impact would be relatively limited.

"I'm feeling very confident for our business," he said.

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