Japan's problem is not that it is not Western enough: Japan's problem is that it is not being Japanese enough. How is this possible? Look at the death of Japanese science fiction, which is intrinsically tied to the death of Japanese creativity in its pursuit and emulation of Western design and mass market appeal.
Japanese games and anime were once littered with these very cool, near-future types of environments and aesthetics that are, sadly, sort of a lost art today. It was very cyber-punkish, very Blade Runner, and usually unlike anything you'd ever seen. There were vast, modern, urban cities, filled with glowing neon light against the dark nightlife around you. This was Japan's greatest strength: Dreaming up and bringing into fruition ideas, environments, and things you had never experienced before, in contrast to the West's focus on hyper realism; on pulling the real into the virtual as much as possible.
I consider the PS1 era during the 90s to really be the pinnacle of Japanese RPG and Japanese game development, precisely for this reason. It was the age of games like Parasite Eve, Final Fantasy VII and VIII, Xenogears, Persona I and II, and the entire Front Mission franchise, along with non-RPGs like Armored Core, Resident Evil (especially 2 and 3), and Metal Gear Solid. These were not only fantastic and revolutionary games in their content, but also in that 90s, urban, Japanese sci-fi look. And we haven't seen these types of games since the turn of the millennium.
Ok, the games look different. So what?
The point is that this lost art style is a clue as to why Japan is now inferior to the West. To put it simply: Japan stopped dreaming. All those games mentioned above, whether you love them or hate them, were unlike much of what had been done before in both their art styles and the games themselves, with Parasite Eve really being the best example of the lot. They are unique games in how they look and play, offering a viable alternative to the aforementioned hyper-realism of the Western market.
Look at the really great games that have come out of Japan lately: Catherine, Demon's Souls, No More Heroes, Dead Rising, etc. What do these games have in common?
They are either unlike anything you have played before, or they take established genres and present them in new and undiscovered ways. They are different than anything the West is offering.
These games might not always sell well. I am not speaking in terms of commercial success, but rather critical success, because quite honestly: Japan will not overtake Activision. You can't out-West the West, especially in its native market. These companies, and the people that work for them, will always have a natural, innate advantage as to what will work in their respective markets because that is where they have spent their whole lives.
We must separate commercial from critical success, and Japan has to learn that it's not going to match the profits of Activision and EA: They're at a cultural disadvantage. Japan can rip off Gears of War and call it Quantum Theory and think they're going to change that, but why play a poor Japanese knockoff when you can just play Gears of War?
Games became commercialized. Japanese culture became commercialized. It's why we get games like Resident Evil 5, or Final Fantasy XIII, games which do nothing to innovate and inspire – they simply feast off the corpses of previous franchise entries, hoping to get in a few more bucks without having to do a lot of work.
I have made it a point to try to buy every Yakuza game the day it comes out. They're not very complex games, and some even call their mechanics dated (which, they're not too wrong about). Despite that, they're well made with a lot of content, they have that urban nightlife look I love, they're fun, and most importantly: they're different. They are unlike anything I can readily pick up, just like Xenogears was. I want to encourage and reward companies willing to take these kinds of risks.
We no longer have real alternatives to the Western market like we used to. We have Western games, and the Japanese imitations of those games, or Japanese games that have been disfigured and crammed into a hallway-shooter-like RPG to try to appeal to the Call of Duty gamer (You can really tell I was very disappointed with Final Fantasy XIII).
Has Yakuza 4 been a commercial blockbuster? Not really. Catherine probably won't sell as many copies as Final Fantasy XIII did (it's not fair to compare a fresh IPs with one of the most established franchises in the industry, but it's still a fact). People are still going to keep buying whatever Resident Evil game Capcom pumps out, even if they really are nowhere as good as they used to be.
With that said, Yakuza 4 will sell more copies than Quantum Theory ever will. Square may have made some money off Final Fantasy XIII this time, but they've severely hurt the brand of both the franchise and its company. Eventually, people are going to catch on and stop buying the shitty games they slap Final Fantasy titles onto, if these trends keep up.
Square may never pull in the money Activision does now. However, pulling in the money Square did in the 90s ain't exactly the worst thing in the world either. A game like Parasite Eve wouldn't be made today because it probably wouldn't pull in the money Battlefield would, but Parasite Eve still pulled in decent money. I guess that's just not good enough these days for Japan.
This is why the West sits on top right now. That, and it has home advantage in the most profitable game market. Japan can't win this fight commercially, but they can win it critically. They can win that fight in the hearts and minds of those who really game, who are willing to stick with companies and franchises they love, and still make lots of money.
But not until they start dreaming again.
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