Market Overview

Domestic smartphone game market in FY2018 is estimated as 1,085 billion yen (based on the sales of manufacturers). The market has been expanding due to the stable popularity of game titles with acclaimed IP (Intellectual Property) that consistently ranks high in app stores, and also to the full-scale market entry by overseas manufacturers and domestic makers like Nintendo, which used to compete mainly in home video games.
On the other hand, fiercer competition has increased the difficulty for producing new hot-selling games and toughened market environment for new entries; even the most popular game titles are experiencing a downturn in profitability.
As smartphone platform becomes advanced, adoption of cutting-edge technologies equivalent to those used in video games are demanded for smartphone games as well. While enhancing market recognition by the IP, makers are facing an urgent need to attract users with technical novelty. Since there is a tendency among users to continue playing the mega-hit titles developed in early days of the market and other games also released many years ago, a challenge for the developer is to find ways to inspire users to block their limited playing time for new games. Unless the makers use IP that garners higher reputation than current titles or develop totally innovative games to attract attention, situation is severe to acquire new users. 

Noteworthy Topics

eSports Comes Under Spotlight Although Impact on Smartphone Games Market is Limited

Since the establishment of Japan eSports Union (JeSU) in 2018 to promote domestic eSports in Japan, eSports is getting domestic acknowledgment gradually. Now that the licensed games include not only common arcade games and video games but also smartphone games including “Puzzle & Dragons” and “Monster Strike”, the base for eSports is spreading to entire game industry.
One of the reasons for eSports drawing attention is the large prize pool at the competition. At overseas, prize-awarding tournaments has been promoted for years, some of which granting more than 100 million yen. In Japan, too, money-prized contests began as JeSU issued professional license to gamers and certified official events; in January 2019, “International Challenge Cup: Japan elite vs Asian elite” was joint-hosted by Asia eSports Federation (AeSF) and JeSU. On the other hand, attempts are made also to promote eSports as pure sports; for example, in fall 2019, “Prefecture-Team Trophy eSports Match” was held as a part of “The Ibaraki Prefecture 74th National Sports Festival” to publicize eSports as a form of sport competition. 
In spite of many attempts taken, at present the impact of eSports on smartphone games market in Japan seems limited. Factors that hinder global rise of eSports in smartphone game market may be the limited operability of smartphones, the paucity of smartphone games entitled for eSports, and the low profile of smartphone as a platform for eSports compared to other devices. To expand the market, a simple, comprehensive, and lucrative ecosystem must be established, and some efforts must be made to improve awareness of eSports as the professional sports. 

Future Outlook

The domestic smartphone game market in FY2019 is projected to reach 1,138 billion yen, 4.9% growth from the previous fiscal year (based on the sales at manufactures). While the smartphone games market continue to rise, the rate of increase is likely to slow down to intensify competition among the game makers for the market share. 
Nevertheless, despite the services provided to wide range of users, profit of the market today is generated by approximately 20 percent of the paid user. For the market to grow further, establishment of lucrative ecosystem is needed to ensure profits “shallowly but widely” from non-paid users that consist of 80 percent of the market, while enhancing profits “narrowly but deeply” from the paid user.

Research Outline