A lot of contridictory information here, it seems like a lot of people who are not JRPG fans are parroting what a lot of other people say about them.
I think the problem is mostly that we don't see many JRPGs released in the US, and those that are released tend to be released under the radar with little, if any fanfare at all. "Final Fantasy VII" is what catapulted the series into the fame it has in the West (though it WAS around before that), but consider that this was done through a MASSIVE marketing campaign. You had guys at Gamestops basically giving away T-shirts, posters, and everything else to attract interest. It also had a TV commercial, which to be honest is fairly uncommon for JRPG series even now.
What JRPGs that *DO* come to the US underground are facing a losing battle, things like the "Shin Megami Tensei" games are a rare, successful, exception that managed to crawl out of obscurity due to a devoted cult following that grew slowly over a number of years.
Ultimatly I think that the general JRPG formula works well, there is no reason to change it simply to be differant. However people who say that the genere has not innovated has not been paying attention... though admittedly due to bad marketing you REALLY have to pay attention to notice. We've seen everything from typical menu driven combat, to tactical grid systems, to pseudo-real time systems, to ones that determine action via reflexive inputs (like Shadow Hearts, or Legend Of Dragoon). There have also been complicated sub-systems involved which can range from setting teammate AI, to customizing vehicles and mecha (Metal Saga, and MS Saga both do this well, being similar in some respects to Xenogears, but are virtually unknown).
The wierd thing is that while people complain about lack of evolution, just about every JRPG has some new gimmick, and tweaks, although the focus DOES stay entirely on stat management, leveling, etc... as opposed to becoming an action game (though there are Action-JRPGs like Devil Summoner now as well). What's more, despite some media bias, you will noticed that periodicals DO compare systems. For example the unfavorable comparison Xenosaga 2 received compared to Xenosaga 1.
What is "hurting" JRPGs are as follows:
#1: Gaming has become more mainstream, and that mainstream is mostly represented by a younger demographic. That and allowing for the masses of humanity who can deal with affordable "plug and play", means that there is more desire for flashy, active, very shallow action games that nearly anyone can enjoy in spurts with a minimal time investment.
JRPGs are a cereberal exercise, requiring someone that can take pleasure in strategies and tweaking numbers. They being similar to the paper and pencil RPGs which spawned them, which were specifically developed to be contrary to other forms of "make believe" with kids running around playing Cowboys and Indians or whatever (which is what action games are more akin to).
As the gaming crowd grows older and slows down, I suspect we'll see more favor towards RPGs again, but right now the fact remains that RPGs are a niche market, and will remain that way until the ages actually even out a bit more accross the spectrum.
Right now, it's very true that your going to be hitting a bigger audience by developing an action title.
#2: Akin to point #1, I think part of the problem is ironically that a lot of JRPGs go over the heads of the "twitch" generations. They require you not only to spend a lot of time, and manage stats, but oftentimes to pay attention.
One odd thing you'll notice is that those who dislike JRPGs will rotate between claiming they have NO plot, or an involuted plot that doesn't make sense. The problem of course being that your supposed to be mentally invested and paying attention. Oddly details oftentimes come from little, inconsequential seeming side characters, or as a result of the dialogue, texts you find, and exposition.
It's kind of amusing when someone will say a "stereotypical plot that makes no sense". Part of the point is that in a lot of JRPGs it starts out as fairly typical high-fantasy cliques and then gets away from that as things progress. How did you get from fighting rats, goblins, and orcs to duelling your father in the center of the moon for the fate of reality, before being confronted by the spirit of the ruler of a long dead empire? Well... for that you need to pay attention.
In general opinion tends to be divided while there are horrible JRPG stories (like any genere) you'll notice that with your typical game you'll have one group of people going "wow, that was awesome", and the other group taking about derivitive junk and how nothing made sense... depending on how much attention they were paying.
I will admit though that the storytelling techniques can leave something to be desired, though there are usually few better ways to do them. For some things to work, you need to establish a lot of basics. The transformation between a normal sword and sorcery tale, and how things wind up developing can't be established, unless you spend a lot of time building the foundation of the normal stuff first for the rest of it to stick out in comparison. This is why with a number of JRPGs people are expected to be willing to put a lot of time into it, and some people will say "well it doesn't get good until like 12 hours in" or whatever.
I guess it's like reading a long book where you need to deal with 100 pages of setting the stage before the 200 pages of the cool stuff that happens as a result. Tastes in literature vary, some people feel things need to move along at a clip all along, others appreciate atmosphere and are willing to endure a "potboiler" so to speak.
#3: Finally, and most importantly, I will say that I think racism plays into this. While it has been years, at one point I was pretty into reading translated Japanese periodicals (and had multiple sources who were able to vouch for the accuracy of translations). While no where near on the level of a KKK rally, to put it bluntly a lot of the Japanese public believes that releasing games and fiction outside of Japan somehow cheapens them. Something being "Japan only" can actually be a selling point, especially if it's something they feel the rest of the world wants, but can't have. For all the nice fans in Japan, there are plenty who cruelly feed on the tears of their American counterparts.
Also, while many people will talk about how money is all that is important, a lot of people tend not to realize that this isn't how it is for everyone. There are Japanese creators who would rather limit their audience for nationalistic/cultural reasons, rather than make more money in an international marketplace.
In general, "liscensing" is an issue that comes up with why a lot of Japanese games are not brought to the US. While the usual claim is that it would cost too much, that's generally BS because introducing the liscense to the US market holds nothing but the potential for gain. If the game was viable in JApan, it's viable for an international release. HOWEVER, this does not mean that the liscence holders want their work released outside of Japan, wanting to keep it for the intended audience, or in some (somewhat more legitimate cases) not wanting to risk the changes that might be involved. I remember reading stuff about how some Japanese creators have gotten royally irked at how their material was changed, and how with the proliferation caused by an American release that changed version (oftentimes stupid) was what the world got to see. Like it or not science fiction and fantasy writers are artists.
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Consider also that by the time certain things are released to the US because Japan is "done with them" they tend to be antiquidated. We get games two or three years after their initial release at times. Some games like "Dragon Quest" haven't made a huge splash since the "Dragon Warrior" days, largely because we rarely see them. It seems to me that Dragon Quest 8 was the only one we saw in a timely manner, and compared to other franchise launches it arrived with very little fanfare or pre-amble. There was no "Final Fantasy VII" months long gala to draw people in.
Why is Dragon Quest not succeeding more? Well consider that what we got of most of these games were DS ports of long-term RPGs designed for dozens of hours to be spent on them. Very difficult RPGs, with unforgiving save systems and such. Take that game, put it on a tiny screen, and understand that this is not something you can really take with you and play in chunks... so to play it you pretty much need to plug in you "portable" and then sit there in your home with that tiny screen for dozens of hours to really play the game. Honestly it takes a really special kind of nerd to endure that, heck the "instruction manual" for Dragon Quest "Hand Of The Heavenly Bride" (such as it is) is pretty much nothing but a pamphlet telling you this.
The fact that these games are selling as well as they are (we see more and more of them) should be a sign of the potential market... because honestly there are a lot of JRPG players who would be interested (even with the old school save system) if it wasn't for the whole masochistic portable bit.
At any rate, apologies for the essay, these are my thoughts. Wondering if maybe I should put this in a text file to cut and paste when JRPG discussions come back around again.
In short, I more or less disagree with the article, there are plenty of western JRPG fans (I like both JRPGs and WRPGs...preferring WRPGs despite how this might sound in places). I think it's a solid and profitable market, but much smaller than pure action titles. I also think the relative failure of JRPGs comes down to things like attitude, and bad marketing.