"It will be challenging for Microsoft to recover," says Yang. "One crucial way for Microsoft to stir growth is to convince the market that Xbox is a home appliance. PS2 did very well because Sony was able to convince the market that the PS2 was a home appliance and a DVD player. For now, the Xbox is only selling itself as a game console, not a home appliance, hence any further growth is a challenge."
Microsoft isn't ready to throw in the towel just yet. "Our goal has never been to be the market leader in Japan," says Yamazaki. "Our focus from the get-go has been on building long term success in Japan."
Out of Line
One way they can do that is the 360's superb Xbox Live service, which lets gamers all over the world connect to play with one another - and be insulted by 12-year-olds. But despite being one of the most broadband-connected countries in the world, Japanese customers are only starting to fall for online gaming the way American, Chinese and Korean gamers have. It is no coincidence that it took Microsoft, an American company, to open up online gaming on consoles.
"Xbox Live has been tremendously successful in Japan and in fact, the percentage of users connected to Xbox Live in Japan is not that far off from the percentage of users connected to Xbox Live in the U.S.," Yamazaki said.
But this statistic is not representative of the general population. Given the small amount of 360s that have been purchased in Japan, it is no stretch to imagine that those buying are the gaming hardcore - not the average John Q. Tanaka.
And in comparison to Korea and China, where stories of gamers keeling over at their keyboards from playing too much Lineage are not uncommon, the popularity of strictly-online games in Japan still lags far behind traditional story-driven titles on consoles.
"The popularity of online games in [other parts of] Asia is due to the fact that packaged games just don't make successful business," says Hamamura. "It is only in network games, where there is little room for pirated versions to flourish, that a market can be built. On the contrary, the culture of packaged games in Japan far exceeds that of other countries. In particular, Japanese tend to like the story in games. I do believe the genre of online games, which are based on the enjoyment of communication, will gradually become more accepted and permeate in the future."
This is the one area where Microsoft has the most experience - provided they supply it with software for Japanese tastes.
Root Beer or Squid
If Japan-oriented software is the answer, the obvious question is: Just what is Japan-oriented software, and why do Japanese gamers favor identikit RPGs and dating simulators over the young-male-targeted muscle games that the 360 specializes in?
In reality, asking why American games fail in Japan is the same as asking why schoolgirl dating sims fail in the U.S. Just as Americans like root beer and the Japanese like dried squid, some inexorable cultural differences still exist. The only question we can attempt to answer is where these cultural differences come from.
Although it is changing, Japan is still an incredibly homogenous, highly literate country. Hollywood movies do decent business, but of far more cultural impact - particularly to the younger age group that games have traditionally targeted - is Japanese-made manga and anime.
"The visual culture of Japanese games has its roots in anime and comics," says Hamamura. "I believe that's why games that have their roots in comics and anime easily become hits, rather than ones that try to recreate the real world. I believe that the success in Japan of RPGs in particular is due to those roots.
"There is also the view that America, which has Hollywood movies as the basis of its visual culture, has fundamentally different tastes."