HD presents an informal analysis of current business models in Japan’s oldest industry. Well, maybe not the oldest. and maybe they’re not models, per se. Or particularly current. All I really know is that the money leaving my wallet in exchange for these things has got to be going somewhere…

Ahem.

In exploring the market for pornographic games in Japan, it may be useful to start from the vantage point of two makers with successful financial strategies: storied veteran Alice Soft, and up-and-coming sharpshooter Lilith. They have both met with financial success in recent years (judging from their augmented production schedules and the mere fact of their continued existence); how they got there is the story that I’m going to try to tell today.

One of the quirkier realities of the eroge market is that while all games are not created equal, historically they tend to have been priced that way: unlike the American market for PC games, for example, the sticker price for virtually all “premiere” eroge releases remains the same: a flat 8,800 yen, 9,240 yen tax included (Alice Soft is a rare though notable exception to this).

A good way to get a ballpark estimate of the value the market places on a given game is to browse them second-hand. The games considered most valuable will retain close to their original retail value over time, while those that have been overpriced will lower to a standard that the secondary market will bear (this is ignoring any supply issues for the moment, in the cases where print runs vastly exceed demand or special limited editions artificially inflate the price).

It is interesting to note that in the case of both our example makers, Alice Soft and Lilith, their games tend to stay close to the original sale price for months or years in the second-hand market. They operate under two distinct business models, however, which I will outline below:

Alice Soft is successful because it consistently releases very high quality, high production value games. It sinks many more resources into a game relative to comparably priced games, and makes up for this initial capital outlay by selling at a proportionally high volume due to the popularity of the brand and the game content. This applies to both their “budget” titles, new games with relatively lower production costs (standard AVGs as opposed to RPGs or epic AVGs), and their “premiere” titles, which are truly epic in scope.

In addition to Alice Soft, makers such as Leaf, Key, August, Minori, Type Moon, etc. tend to operate along these lines, releasing big budget, high value titles that are widely popular and achieve economic success as a result.

Moving down from this we enter the world of eroge brinkmanship, where less well-known makers charge the same price as the super-popular makers but don’t try to compete in terms of quality. Instead they aim for niche fetish markets, a much more risky proposition. The more niche the fetish the more risk, and various makers have settled in at various gradient levels away from the mainstream formula and found success (Cyc, Atelier Kaguya, and the various Teck brands are a few random examples).

They don’t sell at nearly the volume of the major players, but their budgets tend to be correspondingly lower, and if they find a winning fetish formula they can generally succeed. New makers with this business strategy tend to come and go fairly often as their finances are far more dependent on the success of individual premiere-price games.

Perhaps as a result of this, over the past few years makers that charge 2,000 – 3,000 yen per game have begun to emerge and compete in the niche fetish market. I’ve taken to calling them “Simple 2000” makers (after D3’s line of budget PS2 games) .

Lilith is perhaps the flagship example of this sort of brand, operating on a new and thus far solid business model: no-frills, short, high quality fetish-oriented games, at a price that inspires impulse buying. They make no pretense to the epic quality of games by the major established brands, instead vying for the quick impulse purchase and catering to a variety of fetishes with no major stake in a particular one. This has allowed them to be relatively resilient compared to makers who produce one or two games a year at the premiere price point, but also requires much greater discipline on the part of the company – Lilith has succeeded because it has turned to a factory + outsourcing model of eroge production which is very efficient, and they obviously have some good minds in their management structure that keep things running smoothly. Other Simple 2000 makers have succeed to varying degrees based on their possession of similar qualities.

A recent development in a few titles from the more traditional fetish-oriented makers is to sell both a full price package version of a game, and then segment it into “Simple 2000” chunks for sale via download (Westvision did this with Bakunyuu Nurse, and fresh news today that maker Side Step is doing the same with (NWS) Anehame!). As a fan of purchasing hard-copy games I worry that producing a full price game with this sort of segmentability built in cheapens and/or limits the scope the final product, but there’s no arguing with it as a sound financial move. Meanwhile, other makers such as Tinkerbell and Guilty have recently launched “Simple 2000” sub-brands, which may act as a source of steady income while they spend more time and resources on their flagship titles.

Coming full circle, if I were to guess I’d say this is probably what Alice Soft is doing with their 2007 production slate: diversifying production values and price points to stabilize their income and business model, albeit at a standard of quality much higher than that of the second-tier makers.

This seems to be the current state of the shifting eroge economic landscape: some companies are figuring out new ways to enter the market at varying price points, and targeting multiple audiences simultaneously – casual gamers, impulse buyers, fetishists and epic purists alike – while others stick to the classic model of one to two major titles a year and milking them for all they’re worth.

Looking ahead, I would estimate that to ensure financial stability makers will continue to diversify across markets and price points in this way, as a natural progression from the brand-spawning tactics of the past (one of the industry aspects I didn’t get into here , the practice of a company tying a bunch of smaller fetish brands together under a single corporate umbra). There is still room for innovation as online delivery methods are perfected, but I believe the place of the auteur brand releases in the market will be preserved – we won’t be seeing Fate [3,000 yen] | Stay [3,000 yen] | Night [3,000 yen] or To Heart 2.1 any time soon.

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Shingo note: this post was cloned, with minor alterations and additions, from a reply to this thread on the VisualNews.net forums. It may serve as the basis for a more thorough exploration of the subject… there may even be graphs in the offing. Graphs! It’s been awhile since we’ve had a good one of those…