Supposedly, some people were put off my Microsoft's brash marketing, which had them looking like an invasive foreign force. That's one criticism leveled against MS anyway.
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the xbox 360 mainly has games that never really appealed to the Japanese, such as violent FPS games and such.
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There are several (heavily marketed) Japanese-oriented games that haven't taken off. Only the most hardcore gamers have given the X360 a chance. Since MS needs to attract a mainstream audience, visual novels won't help them (else the NEC PC-FX might've survived :lol
. These games occupy an even smaller niche and are generally unappealing to both mainstream and hardcore gamers.
In general, neither Japanese developers/publishers (whose games aren't selling well enough to accommodate such high production costs) nor consumers are ready for next-gen gaming. I think that's why XBox360 and PS3 have both struggled. Without publisher commitment, a market can't open up.