The Japanese industry is doing very well. Almost all companies are profitable. This even despite the much smaller Japanese market.
I think the problem is that western companies are mis-identifying the very large market that the Japanese industry (namely Nintendo) has done so well with.
1. They make cheap feeling immitation games that aren't fun.
2. They mistake the so called "casual" market with the term "retard".
3. When they attempt to make a "hardcore" game, it ends up being some violent game that feels like it is trying REALLY hard to be badass. Rather than really mature.
4. Nintendo makes games that are what people like, other companies make games that they feel other people should like.
I describe myself as a little dose of toxic masculinity.