The Sony Playstation 2 and the Nintendo Game Cube are just the latest in a long line of Japanese-made game consoles that have taken the world by storm. The popularity of these consoles is sustained largely by the hit software gamers can play on them, and the Japanese game software industry is currently undergoing a major reorganization. A typical example is the merger between Japan's fourth largest game publisher, Square Co., and the fifth largest, Enix Corp., which will take place in April 2003. Square (site is Japanese only) is the producer of the Final Fantasy series, which has sold an estimated 30 million titles, while Enix produces the 24-million-selling Dragon Quest series. The two firms are streets ahead of the competition in terms of unit sales per title, so their partnership is sure to create a formidable industry player.

Eyes on Overseas Markets
The primary objective of the merger is to enhance the firms' software development capabilities. The overseas video game market is experiencing solid growth, and Square and Enix hope to take advantage of expanding global opportunities by building a system that can develop even more formidable hit games.

Another factor in the consolidation is the rapid pace of technological progress in the industry. Video games are now transcending the traditional setup of one or two players sitting in front of a screen playing against the machine or each other. The spread of broadband Internet connections and progress in mobile phone technology are hastening the advent of the next generation of games and consoles, which are designed for play online as well as in the home. Developing software that can exploit the hardware advances requires vast amounts of capital and top-notch personnel. To strengthen themselves for this challenge, Square and Enix decided to pool their resources.

Both companies are best known for producing role-playing games, but while quite a few of Square's customers are adults, Enix's games appeal to lower age groups. In terms of their overseas ventures, moreover, Square has a stronger base in Europe and North America, while Enix's main market is Asia. Direct competition between the two is, accordingly, limited. Enix President Keiji Honda describes the partnership as an "ideal complementary relationship," while one industry analyst predicts, "If these two companies unite, there's every chance they can become the top game maker in the world."

Going Their Own Way
This is not the first instance of reorganization and consolidation in the Japanese game software industry. In 2001 Sapporo-based veteran game publisher Hudson Soft Co. was absorbed by Konami Corp., one of the industry's biggest players, and there has been a series of other mergers involving small, midsize, and major game publishers. But other publishers have taken a different path, opting to remain independent. They include Koei Co., renowned for its best-selling historical games like Nobunaga's Ambition, and Tecmo, the deep-pocketed maker of Dead or Alive.

Whether by teaming up with other companies or going their own way, all software publishers are dealing with the tight domestic market by increasing their overseas operations. Major industry players like Nintendo Co. and Sega Corp. have chosen to expand their overseas production bases by investing in local software firms, while Koei and Tecmo have chosen to branch into overseas markets of their own accord.

Another Bumper Spring
The software industry is now focusing on the annual spring sales battle. The game attracting most attention this year is Final Fantasy X-2. Since the previous release in the Final Fantasy series, 2001's Final Fantasy X, clocked up worldwide sales of over 5 million, expectations are high that FFX-2 will be another smash hit. In the action genre, Koei hopes Shin Sangoku Musou 3 (Dynasty Warriors 4), the latest title in a series that portrays military battles in ancient China, will match the previous installment, which sold 1.5 million copies, when it hits the stores at the end of February and goes head to head with Capcom's Devil May Cry 2.

Following such a major bout of reorganization, all eyes in the game industry are on March and April - the months after the major publishers' next big titles hit the shelves - because sales in these months will provide clues as to where the market is heading. With overseas markets also providing plenty of impetus, the industry is set for an exciting future.