"Japan has moved to handheld gaming and console gaming is dead.", you may have read something like that if you spent time in threads concerning Japanese sales data. The thing is that hardly anyone cares to think about the reasons why consoles are on a decline while handhelds are selling better than ever. It's simply accepted as the "truth".

Since pretty much nobody on this forum is really familiar with the Japanese culture, my explanations are as good as anyone else's (actually mine are better). There may be truth in what I say or I may be totally off (probably the former). Anyway, I'll try my best to offer a decent explanation.

The main reasons I can come up with why consoles have a hard time selling in Japan nowadays are:

1. The Japanese are busy people and the majority of the time they can spend on videogames is on the way to and back from school/work. A lot of them use the train or subway and videogames are a great way to pass the time. Basically handhelds suit the Japanese way of life better than consoles do.
2. The PSP is effectively replacing console gaming and making it obsolete in Japan.

While point 1 is pretty much selfexplanatory, point 2 deserves to be discussed in more detail. The reasons why the PSP is able to replace console gaming are the following:

• During the sixth generation of consoles, graphics have hit the point where they are considered to be "good enough" by a majority of gamers. The PSP's graphics are very close to the PS2, so obviously they are "good enough" as well.
  
• The important genres for the Japanese market don't need a second analog stick. While Western gamers often complain about the lack of a second stick, it isn't a problem for the Japanese.
• The PSP offers basically the same gaming experiences that the PS2, the PS3 and the 360 do, but it is portable and can even be connected to a TV if desired.

All these points considered, it should become clear why the demand for consoles in Japan isn't as high as it used to be. On a sidenote, consoles becoming sort of obsolete in Japan could have happened already a decade ago, but the step to 3D graphics in the mid '90s differentiated console gaming experiences from handhelds at the time drastically. The move to 3D happened before handhelds got to the point of offering "good enough" 2D graphics. So everything was fine until the PSP came around and offered everything that a console can do.

Western markets aren't in danger of the same thing happening because for one thing, console gaming is much higher valued (especially in the USA) and secondly, the most popular genres aren't offered in a "good enough" quality on the PSP (think FPS for example).

A look at PSP hardware sales by region supports the above theory: While the Japanese market is about 10 % of the world market today, about a third of the PSP's sales per week come from Japan.

Solutions to keep console gaming alive and relevant in Japan:

1. Sequels to popular gaming franchises (minimum of 250k in sales) appear exclusively on consoles.
2. Console gaming experiences differentiate themselves from handheld gaming (i.e. they can't be replicated by handhelds).

Point 1 is what largely kept the 360 and PS3 sales going. It should be pretty obvious for any observer that the HD consoles wouldn't have sold nearly as much as they did without the help of so many big name sequels. Both systems would have been dead by now, if it weren't for those games. The 360 pretty much was, before it started to get regular releases of important sequels, either exclusively or shared with the PS3. The Wii depended on games mainly from Nintendo themselves, like SSBB and Mario Kart Wii.

Point 2 is what can save console gaming in Japan in the longterm. Quite obviously, the Wii has currently the best chance at this due to its unique controller. It's not impossible for the 360 and PS3 to create unique experiences, but it's much harder to do than on the Wii.

However, the big problem for the Wii is that most third parties didn't seem to bother yet and that Nintendo hasn't had many successes either. The million sellers Wii Sports and Wii Fit lead the way, but apart from that there hasn't been a lot that would be worth noting. At the moment it looks like the Wii will be dependent mainly on sequels to popular franchises (Monster Hunter, Tales, Dragon Quest), just like the HD consoles.

Okay, this is already a long enough read, so I'll leave it at that for now. Agree with me, add some insight or shred my theory to pieces. But do NOT criticize me for writing about a serious topic.