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Microsoft Probably Cheering for PS4 to Hit Home Run in Japan, Could Pull Out of Market

February 24, 2014 Written by Heath Hindman

batsu-ichi

I could be nuts. But I also could be onto something. Upon examining the Japanese market and reflecting upon my interviews with Microsoft Japan, I got to thinking about the Xbox One and what chance it realistically stands in this country. This article, I should note, is purely my own analysis; I want to talk about why I think there’s a good chance Microsoft might not even release the Xbox One in Japan. Moreover, I suspect Microsoft might be cheering for Sony and Nintendo to lead the way.

It’s no secret that Microsoft has struggled to carve out a niche audience in Japan’s console market. The Xbox 360 has sold less than 1.7 million consoles nationwide since its 2006 release, due mostly to its unappealing software lineup and features that didn’t cater to the local audience. (The PS3 sold about 9.7 million and the Wii sold around 12 million. Microsoft landed in a very distant third place.)

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Nonetheless, Microsoft Japan took up a hell of a lot of floor space at last year’s Tokyo Game Show, and two of its marketing directors told me how excited and optimistic they were about the system’s Japanese launch.

But PR is always optimistic. Rare, if ever, are the times you’ll hear a company say, “Yeah we’re gonna release this thing but… I mean… good gawd, I’ll be shocked if we can sell it. We’re probably gonna get our butts kicked. Look for a price drop within the first year.”
The only exceptions seem to be the token apologies that emerge when low sales numbers are undeniable public information; we then see the head honchos making apologies and revised predictions, but always still with heads up and eyes forward for the future. These have happened recently regarding Nintendo’s Wii-U and Sony’s PSVita, as both have sold well below even the most modest corporate predictions. So it makes sense that Microsoft, despite comparatively terrible sales figures, would posture up and put on a strong face for the media and fans. If the makers look and act defeated, potential customers will not feel as good about putting money towards their product.

The PlayStation 4 dropped on Japan this past Saturday, and while we’ll no doubt see high sales figures, we’re not seeing widespread sellouts that have accompanied new hardware in the past. The console gaming market in Japan is not what it was 15, 10, or even five years ago. You’ve probably heard about how handhelds have surpassed them, and even the staunchest deniers of cellphone gaming relevance have to admit that the mobile market does lop some amount off the market size — it’s debatable how big or small, but this column isn’t about that. Point is, the market is smaller.

I dont believe you

Nintendo is watching the Wii-U flip, flop, and flounder worldwide, including its native territory; the machine has sold less than 10 thousand units in each of the last three weeks in Japan. A lackluster holiday performance capped off 2013 for Nintendo’s latest console, a year in which it just barely managed to outsell the almost-8-year-old PS3.

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All of this makes it clear why there is not yet a Japanese release date announced for the Xbox One: Microsoft is waiting to see how the other guys do. While we all realize that there might not be much mass market overlap between the target demographic of Wii-U and Xbox One, Microsoft still gains valuable insight into the potential of a modern console by watching the performance of Nintendo’s newest. That machine is drowning, even in Japan, despite its low price and despite being powered Mario, Donkey Kong, and Link.

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Microsoft is paying even closer attention to Sony’s PS4. If the fourth PlayStation’s sales are over the moon, Microsoft can be confident that, at the very least, there are people out there willing to buy a new TV game console. Conversely, if the PlayStation 4 comes out and doesn’t do well, then Microsoft should be shaking in its boots.

The Xbox One is priced higher than PS4 (thought it just now got a price cut in the UK). If a 30,000-yen Wii-U and a 40,000-yen PS4 don’t sell gangbusters, then a 50,000 yen Xbox One isn’t going to come along and clean house. Microsoft spokespeople can smile and give all the pep talks they want, but this, quite frankly, isn’t happening. The console family that has spent well over a decade sitting in distant, distant third place isn’t going to suddenly overtake both Nintendo and Sony, especially not with a higher price and its currently revealed software lineup. Xbox One has some appealing games, but not a collection that will give it a three-or-four-million-unit boost in hardware sales. It needs a lot more than what it’s got, if it wants to move systems in Japan for 50,000 yen. Would MS release at a lower price, already eating a financial bullet before coming out of the gate?

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That price is only going to hurt worse after April, as the nation prepares for a sales tax increase. So many people out here is busy doing a lot of big-ticket shopping before April 1st, to get their big spending out of the way before the tax hike. It’s a hot topic in newspapers and casual discussion, and corporations are making adjustments. Toyota, for example, is cutting production by 15% in order to adjust to decreased demand in 2014. The market will probably recover eventually, but exactly when is anyone’s guess.

And this hurts Microsoft even more. The longer they wait to release Xbox One, the more people already have PS4s and Wii-Us. As time goes on, those systems will get stronger software lineups and possibly even lower prices. Will the Xbox One come out months or a year later, with its slightly weaker hardware specs, less appealing rookie software lineup, and a higher price? Moreover, as online play on console becomes more popular in Japan, there will be increased appeal to having the machine that all of one’s friends have. This is one area where Microsoft gained a big advantage over Sony in the previous generation, with its full year head start. Take that advantage away, and Microsoft’s uphill battle becomes a bike ride up Mt. Fuji.
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I know this might sound crazy, but I think Microsoft might finally be considering pulling the plug on the Xbox brand in Japan. There’s been virtual silence from MS Japan ever since September’s Tokyo Game Show, the Xbox One and its games have no announced release dates — not even hints or vague seasonal windows — and the already-rough forecast only gets worse with all this waiting. The brand is already terribly unpopular, virtually unknown among kids and teenagers, and the wait only makes the product more risky.

Microsoft spent a lot of time and money putting on a big show and puffing up a good PR face for Japan last year, so one would think that it’s too late to stop now. It could be the wiser move, however, to do just that, if it seems there is no possible way for Microsoft to overcome the challenges presented by the current market. Issue a public apology, send out some thank-yous, and stop the bleeding. If you lose some money with Option A (withdrawal), but have an overwhelming chance of losing an enormous amount of money with Option B (pressing on), I think you generally have to withdraw.

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I’m not saying Microsoft will cancel the Xbox One release in Japan. I’m simply saying that the company might do that, and if so, I wouldn’t be surprised, given all that we established above.
Then again, I’m not the one who made a billion dollars in business, so maybe I don’t know Jack.