Japanese games companies facing difficult times in 2012 earnings reports

This week's edition of Famitsu magazine rounded up the 2012 earnings reports for Japan's major console publishers for a special feature. The results: It's a bad time to be launching major new IP (or, indeed, sell hardware period), but it could be a lot worse.

The overall console market in Japan expanded by 1.2 percent over the last Japanese fiscal year, which ended March 31 — a small rise, but the first one the marketplace has seen in five quarters over there. Much of this has to do with Nintendo, which experienced its first negative dip in operating profit in ages but still net income of nearly 7.1 billion yen. Famitsu pointed out a lack of major overseas hits for the Nintendo 3DS outside of New Super Mario Bros. 2, as well as generally anemic Wii U sales overseas (even now, there are only 3.45 million Wii U systems sold worldwide).

"For the next year, Nintendo's goal is to build an overseas market for the 3DS that is at least up to the level of the Japanese one," Famitsu's editors wrote. "To do that, Nintendo will be releasing Animal Crossing: New Leaf in June and Pokemon X/Y worldwide in October, both major titles that show Nintendo's active approach to the overseas market. With the Wii U as well, Nintendo will attempt to boost its userbase with a barrage of powerful first-party titles from the second half of this year forward to 2014."

On the software side, most companies faced reduced earnings, although most of them were still firmly in the black — except for Square Enix, which took major losses after most of its Western-developed releases performed below expectations. Interestingly, Resident Evil 5, which sold 4.9 million copies worldwide, still failed to meet Capcom's sales goals in 2013 — but the company still recorded 2.97 billion yen in profit, thanks in part to Dragon's Dogma doing a lot better in Japan than anticipated.

"This quarter featured tough earnings reports for companies overall," commented SMBC Nikko Securities senior analyst Eiji Maeda. "One reason for that is the shrinking market for packaged software and the way that new, big-budget IP is failing to sell across the board. Also, downloadable content sales are booming in the US and Europe and publishers are taking advantage of that for their bottom line, but Japanese makers have lagged behind, which is key."

"Like the previous one, this past year's reports show a game industry in a transition period, which hits the first parties the worst," Famitsu closed. "For this coming year, Nintendo faces two issues: expanding the Wii U's userbase, and doing the same for the 3DS overseas. How much momentum Sony can generate with the PlayStation 4 launch will also dictate how it performs as a company going into 2014."