Japan's arcade industry slumps as Wii takes off

By Edwina Gibbs

TOKYO (Reuters) - Japanese superhero Ultraman vanquishes an evil enemy during a live performance at a Tokyo games arcade. But Ultraman's real battle is proving much harder -- enticing customers back to the nation's arcades.

Japan's $6.9 billion arcade industry has been whacked hard by new advances in gaming, particularly Nintendo Co Ltd's wildly popular Wii, the latest big craze to compete for the time and pocket money of Japanese kids.

Unlike many countries where the rise of Sony Corp's PlayStation during the 1990s wreaked havoc on the industry, Japan's arcades were more resilient, helped by a greater variety of machines and plentiful foot traffic in crowded cities.

But now some of the biggest chains are shutting many of their outlets.

"Arcades are expensive, noisy and filled with cigarette smoke," said 15-year-old Gene Sato, adding he'd rather save his money to go to a theme park. "Besides, I can stay home and play NBA Live on PlayStation 3."

The Wii, launched in late 2006, has introduced innovative games that have players jumping around as they simulate boxing, skiing and other sports.

That has robbed arcades of one important advantage they used to have over home devices -- being the best place to play active games such as Konami Corp's dancing hit Dance Dance Revolution, analysts say.

"A large element of the problem is innovation and in Japan, it's pretty clear that Nintendo has been the leader in innovation," said Jay Defibaugh, an analyst at Credit Suisse.