Well, exciting times for you all in the west. The big merger between Activision and Vivendi has been approved, and Activision Blizzard will soon come into existence. Instantly, there will be a company that overtakes EA as the biggest third-party publisher. It’s quite a thing to think about, and has been big news in Japan.


But perhaps the reason for that is that there’s little to compare it with in the Japanese videogame industry. Of course, if you look back over the past few years we can look at Square Co and the Enix Corporation becoming Square Enix in 2003, or the formation of Bandai Namco Games in 2005. But that’s about all we can point at in our industry, and it has been noticeably quiet since then.


It’s widely thought to be a time of consolidation in the videogame industry, so why isn’t Japan following this trend? Actually, it is, but on a smaller scale. We can see this simply by looking at the good old software sales chart – but not on the surface. In terms of software in Japan, we find Nintendo at the very top, which of course includes the Pokémon Company. It is followed by Bandai Namco – composed of Bandai, Namco, Banpresto and Sunrise Interactive; then Square Enix (Square Co, Enix and Taito); Konami (Konami and Hudson); Sega Sammy (erm…Sega and Sammy); Index (Takara, Tomy, Atlus and Interchannel Horon), and Dwango (Spike and Chunsoft). Outside ofNintendo, which itself has important subsidiaries, they’re all component companies.


Now, if you consider companies that are not part of groups, then you’ll perhaps think of names like Capcom, Koei, Level-5 or Tecmo. Level-5 is a bit of a special case, being a developer that very recently turned into a publisher. But as for the other three, they seem to stand tall despite the changes that took place in the industry. But that’s not the whole story: Capcom has collaborated with Nintendo on its Zelda series, and used its expertise to develop the 3D action Gundam VS game for Bandai. Koei similarly worked in close collaboration with Bandai for Gundam Musou, and Tecmo is currently developing the new Zero for Wii with Nintendo. They have indeed shifted some of their development resources into collaboration with the bigger Japanese companies. The main reason behind this move is, of course, the huge increase in development costs that this console generation has brought.


So there are now fewer game companies in the market. But at the same time, we could say that it helps bring some fresh air into the industry. These smaller companies have to look outside of the established genres, where the big boys tend to dominate, and consider things like the enormous popular success of DS and PSP – on these formats the level of risk is decreased and publishers can begin to consider a variety of markets, not just gaming but electronic dictionaries and other multimedia content, which is now a major genre of its own.


A good example of this is Level-5, which was well known for developing titles like Dragon Quest VIII, Dark Chronicle, Rogue Galaxy and so on. But it really gained in momentum with its Professor Layton puzzle adventure series for DS. The two games released so far on Nintendo’s portable sold over 1.4 million copies in Japan alone – and Level-5 is a company with major status. But this is not an isolated case: you also find companies such as Flight-Plan with its Summon Night series, Tetsuya Mizuguchi’s Q Entertainment, PAON, which has been founded mainly by former Data East employees, and the list goes on. Today’s game development industry in Japan allows those developers to not only exist but, if they can find the right niche, to thrive and achieve the status of publisher.


If you look at the market share figures for DS and PSP, though, it’s clear to see that this is a situation dependent on the widespread adoption of handhelds, and these companies will always have problems breaking into the truly major leagues of 360 and PS3 releases. That section of the industry today requires such huge investments – and if there’s one guarantee with companies that taste success, it’s that they want to grow. So, despite my optimism over the success of these small companies, I feel like the day when some big mergers begin to take place in Japan might not be that far away.