An autumn of plunging console and software sales in Japan has stunned the video games sector, prompting worries that the industry may not be quite as recession-proof as previously thought.

The surprise rout of the Japanese games market, while others are performing strongly, has sparked intense speculation over how the global sector behaves: does it follow or defy the prevailing economic conditions?

Although new research by Goldman Sachs suggests that games will fare relatively well over the Christmas season - far better than other areas of consumer spending - industry analysts in Tokyo have raised concerns that the good times could stop abruptly in the new year.

Industry veterans have also given warning that the pipeline of new games, particularly the sort that ignite the Japanese market, is looking somewhat anaemic beyond January.

Over the first half of the fiscal year to early October, industry data shows that combined hardware and games sales in Japan have slumped by 21 per cent.

Compared with the first half of 2007, sales of Nintendo's once-must-have DS portable console have dipped by nearly two thirds over the same period this year, sparking fears that the Japanese market may be nearing its natural saturation-point for consoles in the present cycle.

It is expected that the so-called casual gaming market will be particularly vulnerable over the coming months. This sector has boomed over the past two years and at one stage made Nintendo one of the most valuable companies in Japan.

Sony has also benefited from the trend, with strong sales of its handheld PSP machine offsetting the still tepid sales of the PlayStation 3 console.

Although a worldwide core of committed gamers is expected to continue spending in the face of the economic downturn, games purchases by relative newcomers who, for example, bought Nintendo's handheld DS console for the popular Brain Trainer software and other lifestyle titles, are expected to fall.

Handheld software has already begun to slide in Britain, and while Nintendo's versatile Wii console may achieve strong Christmas sales as families seek to entertain themselves at home, analysts are cautioning that software sales beyond January could be very weak.

Hiroshi Kamide, of KBC Securities in Tokyo, said: “The Japanese market for casual gaming has matured before those in the United States and Europe, but the same will happen there, too.

“Nintendo will never say it, but casual gamers, almost by definition, are happy with just a few games and will easily cut gaming out of their discretionary spending as the downturn hits their wallets. The market seems to be expecting casual gamers to act like hardcore gamers and they just won't.”

Despite Japan's troubles over the April-to-September period, sales in the United States and Britain showed far more resilience, raising speculation that the sector might survive the overall economic bleakness with relatively good prospects.

In a note to clients last week, Hirotoshi Murakami, an analyst at Mitsubishi UFJ Securities, said that 8 per cent growth rates in the American games market between July and August was proof that correlation between economic conditions and the game market is weak.

Japan's sharp drop in games sales coincides exactly with the country's steady decline into recession over the summer; because Western recessions are lagging behind the Japanese downturn by some months, other analysts believe that their games slump has merely been delayed.

Commentary, page 41

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