I...don't know whether to laugh or cry.

Either way, that face beckons to my fist.

As others have pointed out, Japanese publishers are still making more money than the Western publishers. Smaller Japanese devs may be struggling and the perception that the Japanese industry is struggling is more to do with the fact that much of Japanese development has migrated to handhelds. Console (software) sales are down overall but they still manage to make money.

The other issue is that in terms of technology, Japan is very far behind the West. Even the best looking Japanese games are only average on a technical level.

Japan has a shrinking population while at the same time other markets have opened/grown in gaming;.

China had in 2002 an gaming market of 200 million $ this year it will be around 4,5 Billion $ and that is only for the online gaming market, South America, East Europe, Russia, India are all growing market so it is not strange to see the Japanese market going down to 10% of the world;

nad you know that XBOX the main western console doesn't have a handheld so the games are both western and japanese

xbox on consoles bought alot of western games and PS3 the other japanese third party supporting hardware manufacture made big mistakes so this gen turned out bad for japanese industry

Outside Valve and Blizzard, the same's basically true in the west.  Really, almost everyone is doing awful these days, regardless of location.

But that also comes into the issue of the West and Japan largely catering to two different segments. The consoles the West has focused on are themselves more technologically advanced, so it makes sense that the West has the edge there because the primary realm they're engaged in is itself more technologically advanced, so they have more expertise there

Someone could point to the grand, technologically ambitious The Old Republic from BioWare, a PC MMO, and compare it to the clumsy FFXIV from Square Enix and talk about Japanese regression, but put BioWare on the DS and you get Sonic Chronicles. Put Square Enix on the DS? You get Dragon Quest IX

Now you didnt have to throw Sonic underneath the bus to prove a point. You could of used a different example.

:(. Look at my sig. I'm not the kind to needlessly bash Sonic at all, but Chronicles was, at best, a missed opportunity even for fans of modern Sonic games like me, and the game certainly failed on a production values standpoint

I see, but I don't think support is the problem. They just need to start putting out better games.

activision doesn't really have that good profits either,they have big revenues though

and it is not the same as the game liking of gamers is starting to change