Twenty-five years ago, Japan controlled 50%
of the global video game market. In the late 80s and 90s,
video games was Japan. It was Nintendo, and it was Sega. In the 2000s, that started to change. Today, its share is under 10%. Game development got kind of rigid, and that's where
Japan kind of got caught in this trap. What is the cause of this decline? And what is Japan's future
in this now US$135 billion industry? Tokyo, Japan. A city that before the pandemic started, was bringing in more than US$40 billion
for Japan's economy each year. For many of the travellers
who were coming to Tokyo, it has been the "soft power" that Japan started exporting to the world
decades earlier that ultimately led them on a path
to this mecca. And one of the biggest of
these cultural exports over the decades? Video games. The history of video games and consoles
goes back over five decades, and roughly played out something
like this. This is Pong, released by
America company Atari in 1972, back when arcade games
were very much an American sensation. That was until the beginning
of the 1980s, when Japanese arcade games, like Pac-Man,
became popular around the world. Video games lived
mostly in the arcades back in this era until Japanese company Nintendo
released their home console, the Famicom, in 1983, and changed video gaming forever. From the middle of the 1980s
until the middle of the 1990s, most people around the world
were playing games made by Nintendo, like Mario and Zelda, or they were playing games
by another Japanese company called Sega, who had a hedgehog called Sonic
as their mascot. In 1995, Sony threw their hat
in the ring with the PlayStation, and together, these Japanese consoles
ruled living rooms around the world. By this point,
Japan was controlling up to 80% of this now multi-billion US dollar
global console market. When I was a kid,
games were Nintendo for me, but I didn't make that association between Nintendo being from Japan
until a bit later on when I was like 12, 13, 14. Things like anime were becoming
more popular in the UK. And that's when
I really started making this connection, that most of the games
that I loved came from Japan, and so, I started getting
more interested in digging around to find interesting Japanese games
that were different from the kind of thing that I would play
from a Western developer. And so I spent a lot of time
learning katakana and hiragana, the Japanese alphabets, in order to be able to play
imported games that I would find. It really put me on a path
towards learning more about Japan. Native New Yorker John Ricciardi
loved Japanese video games so much that he eventually moved to Tokyo and became one of the industry's
most respected "localisers" - localising some of Japan's
most popular video games for the international market. The things about Japanese games
that really struck me growing up were largely aesthetic things, like the art, the visuals,
the graphics, the sounds. So much great music coming out
of Japanese games. Japan is also known
for like mechanics-based gameplay. And so, you would find a lot of games
that are just fun to play because it's just tightly designed. It's weird to say now because the playing field has levelled but definitely, back then, Japan was where most of the good games were coming from. It was when
I started playing PlayStation games that I started discovering more of the rest
of the Japanese games industry and more of the Japanese directors
that made a huge impact. I was very into music games,
so I adored Rez, which was a game directed
by Tetsuya Mizuguchi who's always been very interesting
in the synaesthetic quality of games and how the visuals and the music
and the play all kind of work together to create this incomparable
sensory experience. Tetsuya Mizuguchi is known for trippy,
brilliantly soundtracked video games that kind of look like something
from another planet. His most recent game, Tetris Effect,
somehow makes Tetris into a game about the transcendental beauty
of being alive on this planet. That's the power
that Mizuguchi brings to video games. Tetsuya Mizuguchi is one of the video game industry's
greatest auteurs. His constant utilisation
of cutting-edge technology to create new forms of "play"
and new experiences through video games, symbolises the very best
in Japanese creativity and ingenuity. Mizuguchi got his first taste
of video games in the 1980s, back when the gaming revolution was
happening in arcades around the world. And at that point in time, it was very much Japan
that was leading the industry. By far, the company with the biggest
presence in the arcades during this era was Sega, whose giant gaming cabinets promised
the very cutting edge of entertainment. When Mizuguchi joined Sega,
he arrived at a time when their arcade division was bringing
in billions of dollars for the company, and with almost limitless R&D budgets, Mizuguchi and his teams would
create some of the era's boldest visions and most successful arcade games. But by the 2000s,
the atmosphere at Sega had changed. With console gaming
reaching new heights globally, the arcade industry
began to nosedive. This combined with troubles
with their home console division saw Sega
on the verge of bankruptcy, and in 2003, they merged with
Japanese pachinko company Sammy. It was within
this now more austere environment that Mizuguchi made the decision
to leave Sega and start his own venture. But there were more challenges
on the horizon for Japan. Not only was the arcade industry
weakened by the mid-2000s, their grip on the console market, at the point in time,
worth US$10 billion a year, was starting to slip. In the late 80s and 90s,
video games was Japan. It was Nintendo, and it was Sega. Those were the dominant voices
in America, in Japan and to an extent, in Europe. In the 2000s, that started to change. Not only did the American
and European homegrown development scenes mature and become
more successful, more dominant, we also had Microsoft
launched the Xbox, which put a big Western technology company
in with Nintendo and Sony, and as a result, I think Japan's influence
in the gaming world dipped. The huge shift in the console gaming world came with the arrival of the Xbox in 2001. It was Windows-based, it was a piece of hardware
made by an American manufacturer, and there were a lot of designers
of computer games, who were already in the wings,
ready to produce content for consoles, once they had a way
that they could easily develop it in computer languages
that they understood and work with a manufacturer
who spoke their same language and was of their same culture,
which Microsoft was. So Microsoft's Xbox
really flipped the switch from Japan's dominance
of the global console gaming world, to Western and specifically,
American dominance of it. PS2 to PS3 era was the biggest shift where I think budgets in games
just started to get much bigger, like the cost that it required
to make a game shot up, and it became less flexible. Game development got kind of rigid. And that's where
Japan kind of got caught in this trap, because whereas in the West, you had the emergence
of game engines and just whatever we can do
to make the process of making games easier was a big focus in the West,
and it wasn't happening in Japan. Developers were doing
everything they could to streamline the boring process,
the tech process, so they could focus on the creativity. Japan got caught
with their pants down, basically. By the end of the 2000s,
games like Call Of Duty, Quake and Halo had become the standard
for AAA gaming, the term used in the industry for these now big budget
blockbuster titles. Young gamers from America,
Europe and beyond had moved away
from the fantasy of Japanese games and towards a more gritty,
hyper-realistic gaming experience. There was a time
when first-person shooters became the most popular genre
in the world. That's a genre that Japan just didn't do. And it felt a bit to me, like, Japan was sticking to
what it knew to its detriment, as Western developers
started really moving in with open-world games,
first-person shooters and other kinds of games
that then became very, very powerful. Around the end of, like,
close to 2010, I would say there was sort of this panic
that happened in Japan. Do we have to start making
first-person shooters, because that's what sells? And do we have to put all our money into these big budget
AAA realistic games? And that's where
I think the creative spark that Japan was known for
maybe took a little bit of a dip. But as Japan lost some of its confidence, a close regional competitor
was on the rise and unbeknownst to the world, was about to make a massive impact
on the way we play video games. Today, the global video game industry
is dominated not just by consoles, but new ways of playing games. And that shift began
over two decades ago, not in Japan,
but just 200 kilometres across the ocean. There was a technological change
that happened in the late 2000s, which, of course, was broadband. It was video games becoming more online. Online play, playing with your friends. All of that became the norm for video games at this point. A lot of Japanese developers
couldn't really keep up with that shift of video games
moving online and becoming a kind
of independently existing service. There wasn't that culture
of online gaming in Japan in the same way
as there was elsewhere. Whilst Japan dominated
the international market in the 80s and 90s
with its all conquering consoles, historical animosities
between the two nations meant that for Korean game players,
a different route was necessary. And that route would eventually lead
to a global explosion of Korean gaming culture. Here, in the UK, generally, you play games at home
on a console that you've bought. But in Asia,
and especially in Korea, you would go to a "PC bang" (PC room),
or a gaming cafe, where you would pay
for your time, and you would sit at a PC
for however long you've paid for. So, instead of owning the game,
and it being at home, you go to a cafe, and you play a game
for a certain number of hours. And that contributed
to a very different gaming culture. PC bangs were partly born out
of the Asian financial crisis, when workers laid off
by big Korean companies were looking to start up small businesses
that required relatively little capital. Thanks to the ubiquity
of high-speed internet and the communal nature
of PC bangs, multiplayer online RPGs,
such as World of Warcraft, and Battle Arena games,
like League of Legends became the titles of choice
for Korean players. Whilst the PC bang was a phenomenon
that started in South Korea, this culture of communal
online game playing spread throughout Asia
and the world and soon, gave way
to something much bigger. A multi-billion dollar industry
in its own right - eSports. The previously alien concept
of watching other people play video games suddenly hit the global mainstream
in a big way. eSports is a part
of formative gaming culture for pretty much everybody under 20 now. And a lot of teen boys and girls
now want to be pro gamers who play on these eSports teams. Korea was at the start of that change. It's a phenomenon
that really started there. And that's now spread everywhere. And now eSports is huge in America. It's huge in Europe,
it's huge everywhere. Huge everywhere it seems, apart from the former king
of the video game industry, Japan. But why is this? The CEO of a recently opened
eSports gym in Tokyo has an answer. It wasn't just differences
in gaming culture that held back Japan
from being an eSports force. Long-standing laws
designed to restrict gambling, impacted eSports too. And tournaments
were faced with prize caps, severely limiting the amount
players could earn. However, in Tokyo today, former president of Sega
Hideki Okamura is leading the Japan eSports Union
to change all of that. With eSports now the fastest growing
sector of the global gaming industry, games companies
from around the world have had incredible success
with hit titles that they have specifically produced
with eSports in mind. Something Okamura believes Japan will be doing a lot more of
in the near future. Japan, as a nation,
is both blessed and cursed with a market that is large enough
to sustain domestic products without having to consider
the outside world at all. And this is good in the sense that you can be a domestic
video game maker who's making products
that only appeal to the Japanese audience, and still have a huge success. That isn't possible in smaller countries, for instance, like Korea, where if you want to make
a huge amount of money, you definitely have to consider
the outside audience. These are the offices of Krafton,
a Korean gaming company with an estimated US$4 billion IPO
set for the end of 2021. Krafton's biggest success has come from a game
called PlayerUnknown's Battlegrounds, also known as PUBG, a Battle Royale-style game
that is an international collaboration with Irish game developer
Brendan Greene. The seventh highest selling game
of all time, PUBG is a runaway global success. For Krafton's CEO, Kim Chang Han, the creation of the game
was a make-or-break moment for him at a time of desperation. It was soon decided
that PUBG should be developed with real-time feedback
and data from fans, known in the industry
as an "early access" style of development. The early access style of development
has revolutionised the gaming industry, so why is it scarcely used in Japan? This highly collaborative,
globalised style of game development and business management has reaped massive rewards
for Krafton and PUBG. The story of Korea's
rise and rise in video games is born out of
its relatively small population, and therefore a need to go global. But there's one Japanese neighbour
that has no such concern, and the rapid expansion
of its domestic consumer market has upended Japan's position
as top dog in Asia's video game industry. The global video game industry's
meteoric rise over the past decade, has been down to one country, China, where more than half
of its 1.4 billion population now play games every day
on their smartphones. China travelled its own very unique path to become the biggest video game market
in the world. And much like Korea, it was government policy
banning Japanese consoles that helped shape
a powerful domestic industry. Back in the year 2000, the Chinese government banned consoles, and the ban ultimately lasted 14 years. Now, the reason for the ban
was ostensibly to protect Chinese youth, because there was worry among parents
and teachers and the government itself, that they would be sucked
into these foreign games and that the games
would be like "digital heroin", and that the gamers
would never stop playing them. After the console ban
was put into place, online gaming emerged,
seemingly out of nowhere. And online gaming
allowed for a business model where the game was free to play, but you had to pay for the service
to do anything inside the game. And these so-called "free games"
wound up making a lot of money. A big shift that's happened
in video games since about 2010 is in the business model. So previously, you would buy a console, you would buy games, and that would be the investment that you would make. Nowadays, it is much more globally common
for you to play a game for free, but to buy extra items, or to buy a hat,
or to buy extra time with the game. And that's what's known
as the free-to-play model. And that's very much dominant now
in the world. So, free-to-play games
are basically the attempt to get as many people
into the game as possible, and then, monetise
a small percentage of the users who are okay with paying
a certain amount of money, mostly microtransactions, $2, $3, $4. And basically, that monetisation model
kick-started an entire new segment of the gaming industry
that is worth around $80 billion now. Since 2010, a number of Chinese gaming companies
have come from seemingly nowhere and become some of the nation's
leading tech firms. And Shanghai-based company XD is one of the industry's
biggest success stories - listed as one of the top 100
online companies in China with a value north of US$4 billion. CEO Huang Yimeng
saw the future potential in the smartphone and its unique power to revolutionise
the domestic gaming industry. From the various cosmetic items
and so-called "skins" now commonplace
in a number of big Western games to the randomised
loot box mechanics that see some players drop a lot of money
to get certain advantages, there's no doubt
that these in-game monetisation models have been increasingly lucrative
for games companies, in particular, in China, which has been far more accepting
than the West to these ideas of "paying-to-win". There can be no doubt that
free-to-play is taking over the world. So, for the longest time,
console gamers and PC gamers, they were looking down on mobile games
as these free-to-play vehicles that are not really games,
but more like experiences that are designed to take as much money
out of your pocket as possible. But if you look at the console market, and if you look
at the PC gaming market today, you can see a clear trend that the big studios are embracing
free-to-play more than ever. And I personally believe
that in a few years, you will see free-to-play in a lot more blockbuster titles
than today. One of the industry's
biggest stories of 2021 has been the success
of a game called Genshin Impact, a Chinese title
by a little-known company called miHoYo. Taking influences
from Japanese video games and applying the monetisation models
so popular in Chinese gaming culture, they created a product
that took in US$1 billion in its first six months alone. In 2021, you have the situation where one of the world's biggest games
on the planet is Genshin Impact. It's like an open-world RPG
that is multi-platform, and that is heavily inspired,
so to speak, by Breath of the Wild, which is a 2017
Nintendo Switch game. So, they were very, very clever
in taking the general idea of the game, seeing the potential
of Breath of the Wild as a free-to-play experience
on multiple platforms, and just monetise and monetise
and monetise the game. And this is what miHoYo did, and it just worked brilliantly
for that company. And it's a beautiful example of how a Chinese game company
goes into a market space where a Japanese game company
did not go. Genshin Impact came out of nowhere. I did not know about miHoYo at all
until that appeared on the scene. The cool thing about Genshin Impact, it's almost a mobile game
disguised as a console game, and I say that in a good way. And that's why it's gotten so big
on consoles as well. These guys played Breath of the Wild,
saw how awesome it was, and decided, what if we took
what we know about mobile games and what we loved about Breath of the Wild
and kind of made this... awesome sandwich of a game. And that's kind of
what Genshin Impact turned into. The success of Genshin Impact
has proven that Chinese games can not only
be accepted around the world, but also compete with the biggest of them. However, it's a difficult road
for a foreign game to be published in China with the government
maintaining tight restrictions on the number of official licences
that are approved each year. The Chinese games market represents at least 25%
of the global market by itself. It's highly desirable for game companies to want to access
those Chinese gamers. The number one barrier
is the regulatory system. There are a lot of regulations in place
in China's games industry, and one needs to follow those
in order to be welcome there. So you really have to have tenacity,
you have to have a great game, and your game has to adhere
to all the content rules, and foreign companies
have to partner with domestic companies because only domestic companies
in China are allowed to access
the telecom infrastructure, and that is really
where the rubber meets the road. However, there is hope
for Japanese games and consoles in the largest video game market
in the world. After the console ban
was lifted in China in 2015, Japan started making plans
to move in. Nintendo partnered
with Chinese tech giant Tencent and expanded their presence, especially with the launch in 2019
of the popular console, the Switch. Sony also launched their PlayStation 5
in May of 2021, which was sold out across the Mainland,
showing the potential for Japanese consoles
in the Chinese market. If we look at the Chinese gaming market, the market share of consoles
is around 2% or 3%, depending on who you ask. So, it's a very, very small slice
of the overall gaming market, which is absolutely dominated
by PC and mobile. So, the hope by the big console makers,
Nintendo, Sony and Microsoft, is that over time, you can cultivate a certain audience
to embrace consoles. The pre-sales of PS5
sold out in record time, and it was to much acclaim. The Chinese gamers are eager for PS5, and they are eager for Switch,
and they are eager for Xbox. Not all Chinese gamers
want to play consoles, but those who do
are very excited about it. I think as cloud gaming emerges, and console games are able to be played
on any device from the cloud, that will open up
a world of opportunity in China. With young, dynamic companies like XD
and tech behemoths like Tencent, leading China's charge
and dominating the regional market share, what does the near future
hold in store for Japan as its industry adjusts to a totally
different international gaming scene, compared to the one
it dominated in the 80s and 90s? From the online gaming
played in the PC rooms of South Korea, to the mobile gaming revolution that has swept through China
and the world, not forgetting the consoles still popular
in Japan and in the West, the culture of playing video games
is certainly big business now. In 2021, the global video game market
is worth US$135 billion, which is triple what it was worth in 2010,
and growing exponentially. It's one of the only entertainment mediums that is just growing
and growing and growing year on year. And in terms of
how many people play games, something like 95% of everybody
under 30 plays games now. Games live everywhere.
They live on your phone. They live in your living room,
they live online, but we're looking
at two billion plus people who play video games
in the world now. Consoles remain a major part
of this global gaming landscape bringing in more than US$45 billion
in the past year. But where does Japan fit
into this contemporary picture? A decade earlier,
Japan was at a low point. The success of Microsoft's Xbox and the rise of game genres
more popular in the West had left Japan
second-guessing itself. Instead, it was these unique Japanese expressions,
ideas and fantasies that gamers around the world wanted. The only thing standing in Japan's way
was to get on top of the tech challenges that had previously given
Western game studios an advantage in game development. Once that hurdle was overcome, creators could get back
to making the world-conquering games Japan was renowned for. 2015, 2016, 2017,
around that era, I think it was just a matter
of catching up. In that PS3 era,
it was hard to make stuff, but I think as we shifted
to the next generation, the hardware makers were breaking down
the barriers to development and at the same time, the game creators were, I think,
starting to adopt the western sense of, "Hey, why are we spending all this time making our own unique engine
for every single game when there's stuff like Unity,
there's stuff like Unreal, and kind of make
the development process easier. And once that happened,
I think the fear, I guess, of being able to make
"next-gen games" started to slip away. And with that knowledge, I think Japanese developers were just able
to compete on a more even playing field. By the time Sony released the PS4 in 2013, Japan had re-asserted its position
in living rooms around the world. But it wasn't just Sony
that was finding success with its new console. Nintendo had taken note
of the way the games industry was evolving and came up with a unique strategy
for their next console that would make them
more relevant than ever. So, the Nintendo Switch
is the most popular Nintendo console for a very long time,
probably since the Wii. It is a handheld console
that you can play like this. You can also dock at your TV,
and sit down on your couch and play it like you would an Xbox
or a PlayStation. So, it's games that you can take with you
and play at home that's been really, really popular,
especially among families because it's not necessarily a console
that your kids can play by themselves. It's a console
that everybody can play together, and that's one of the reasons
it's been so successful. Switch has absolutely
put Nintendo back at the forefront. It's crazy how well it's sold. Part of it is clearly the strategy
they took with combining their console
and handheld lines into one, and part of it
is circumstance too, right? I mean, the last year, video game sales
have been up across the board, because people are looking
for distractions and ways to spend their time
when they're at home. The games industry was,
in some ways, really well positioned to benefit from the pandemic
because everybody was stuck inside. Nobody had any safe way
to socialise in person. Everybody was really bored. So there were tons of opportunities for people to play games at home
or play games with their friends. I think we can safely say
an awful lot of people have discovered video games
in lockdown. And a lot of people have returned
to video games in lockdown. To no one's surprise, it was a Japanese game
that was the smash hit of the pandemic. Animal Crossing, did that not launch
at the perfect, perfect time? It could not have come
like a day earlier, or later, it was like it was sent
from the heavens or something. It was the perfect timing,
for a game like that to help distract people
from what was going on in the world, Animal Crossing was the game of lockdown
all over the world. It sold 30 million copies
in under a year. That's three times what a giant
best-selling game would normally sell in that period of time. I think that Animal Crossing
was the right game for that time. Because it is a very gentle,
very soothing, very zen game where nothing bad ever happens. And crucially, it also lets you
hang out with your friends, so you can have friends
round to your island and have a chat and hang out. Like we all couldn't in real life. I really think that Animal Crossing
is going to be remembered as a real cultural artifact
of lockdown. From the plethora of Japanese anime
available to fans globally via giant streamers like Netflix, to the cute and colourful characters
on Nintendo's Switch games, there has never been a greater demand
for Japanese content. Japan's companies have taken note and are increasingly licensing out
their intellectual properties to foreign gaming companies, in the process,
creating international gaming megahits. What I think you're going to see
in the future is a lot less "Made In Japan", and more made everywhere else
with Japanese sensibilities. The perfect example of this
is Pokemon Go. It might well be that in the future, Japan's legacy
is going to be as the secret sauce that makes all sorts
of other technologies so much more palatable
to consumers, whether it's the incorporation
of Japanese characters, or Japanese tropes, or Japanese sensibilities into them. It's just a fact. Japanese characters are hugely popular
all over the world. Since its entry
into the video game industry, Japan's strength has always been
its ability to innovate, and this is the beginning
of a new era when new technologies like AR and XR
will take centre stage. The future of digital entertainment will be found
in these all-new frontiers, and it's auteurs like Tetsuya Mizuguchi,
who are leading the way and keeping Japan
at the very bleeding edge of technology, shaping the future
of the global video game industry. The video game industry has certainly come a long way
since the 80s, when Japanese design, aesthetics and charm
revolutionised the way the world played. And whilst Japan
doesn't command the same position it once had decades earlier, perhaps it all boils down
to how industry success should be defined in this modern era. Captions: CaptionCube
