Tecmo and Koei are now working on a detailed merger plan together, as Tecmo has said joining up with Koei gives it a better shot at "boosting corporate value," even though the proposed merger would create a company only a third Square Enix's size.
Separately of these new announcements, Gamasutra recently spoke to Koei president Kenji Matsubara, who says that the current market in Japan "is very tough for third parties like us to do our business," which suggests that it may indeed be better in the eyes of smaller developers to join forces, rather than to be consumed by the larger ones.
"In Japan, it's slow compared with some years ago," Matsubara says. "Four years ago, PlayStation 2 was dominant, and it's not now, so I'd say that it's in a transition situation."
Developers like Koei had anticipated that growth of current-generation consoles would happen even more quickly than in past generations, he says, when in fact it's generally been the opposite.
Nintendo's Wii and DS largely dominate the market, says Matsubara, who currently sees a corresponding software dominance by Nintendo alongside its hardware proliferation. But he says that Japanese third parties will eventually be able to make headway on Nintendo's platforms, and Matsubara also looks to a growing PS3 market in Japan and a still-solid PS2 market to sustain third parties like Koei over time.
"I think it will take some years [for PS3 and Xbox 360] to be a big market," hs says. "The DS is big enough, but the DS has already established a market for third parties. Two or three years ago, only Nintendo could make a business in the DS market, but these days, third parties can make a business. We expect the same situation for Wii."
In the present climate, though, Matsubara says many third parties are encouraged by the PSP, seeing Capcom's Monster Hunter Freedom sell over two million units.
The company plans to announce several PSP titles at this year's upcoming Tokyo Games Show, and while Matsubara declined to disclose details, he did point to Monster Hunter Freedom's team play focus as a factor behind its Japanese success.
"One problem is that in the States, it's not so popular for people to get together and have team play with the PSP," says Matsubara. "Some people say that such team play will grow in the Western market, but some people say that Western people are not so much interested in team play. That's why we'd like to see if such team play could be popular in the Western market."
Given that the Japanese market is currently in a "transition state," creating a "tough situation" for third parties like Koei, the key overall point for third parties' continued survival, according to Matsubara, is to diversify, developing titles for each platform and each region. However, it's a goal easier said than done.
"It's back to surviving the market, I think," he says. "In the PlayStation days, the platform was only one, but the competition was so high. For PlayStation 3, we have to spend huge resources. In the PlayStation 2 days, we could just focus on one platform, but these days, we have to spend resources on handhelds, popular consoles like the Wii, and high-performance consoles like the Xbox 360 and PS3. It means that we have to spend too much money and many resources. That's a challenge for us."
In Koei's case, the developer's looking to the online market as well; Matsubara has produced four online titles for Koei, including Nobunaga's Ambition Online, Dynasty Warriors Online, and RTK Online.
"We think we're pioneers among Japanese developers for online games," says Matsubara. But even in that arena, Koei's a bit challenged -- thanks to an early start and solid opportunities in the Asian market, they developed titles modeled on the Eastern aesthetic, incorporating Japanese history and other aspects that made a WoW-dominated Western market harder to penetrate.
"In the Asian market, it's a good business opportunity, but in the Western market, the situation is quite different," he says. So while Koei keeps up development of MMORPGs specifically aimed at the Asian market, they approach the West by adding online features to existing console titles.
Meanwhile, the company founded a Canadian subsidiary in 2001, and progress has been slow there -- it just started packaged game development in 2005. "So far, we're not quite successful," Matsubara admits, "but we have a very long-term view with the Canada studios."
"We're one of the big developers in Japan, but we do not have a big brand image in the Western market. That's what we have to include, and the Canada studio is the key to our success in the western market."
Koei will invest more, both money and human resources, in the Western market, Matsubara says, having the team in Canada build experience on multiple platforms, but focusing on portable titles first.
"Development continues on the PlayStation 3 and 360, but at the same time, we're challenging some new titles for new generation consoles," Matsubara says. "It means that with new generation consoles, we can encourage people to be successful in the Western market."
It also means that projects take time. Koei debuted DS title Gabu Gabu Planet at 2007's Tokyo Game Show, where critics likened its quirky competitive eating gameplay to Katamari Damacy. It's the first DS project forthcoming from the Canada studio, on which Matsubara says "we may have been working more than three years."
"We have to spend on the new generation consoles, but at the same time, we have to train people in short titles. That's our strategy."
But how long will the "transition situation" in Japan endure, and how long will it take for third parties like Koei to ramp up into the next-generation?
"In Japan, it's very tough to see the future. It may take two or three years to go from PlayStation 2 to PlayStation 3, or even more," says Matsubara.
Part of it is that Matsubara says Japanese tastes favor 2D graphics more than 3D. "In terms of those game titles, we do not need the PlayStation 3. The PlayStation 2 is good," he says.
"So it may be slow in this year or next year. We'd like to see the PlayStation 3's next marketing strategy. With that, we can expand the PlayStation 3 or Xbox 360 market in Japan. Maybe it will take some years, but we'd like to have such a big market in Japan. I'm very optimistic about the new generation market in Japan."