Capcom, one of the last remaining developers still making games for arcades, has blamed the declining Japanese arcade market on the rising cost of fuel, among other things.

Their latest earnings report shows “sluggish growth” in the ailing arcade market, even though the company opened up nine new arcade plazas across the country last year.

“There were several factors that negatively affected performance: the dissemination of home video game machines, intensified competition, declining popularity of card dispensing games for children, and the decrease of visitors to those arcades located in suburban shopping malls due to rising gasoline/petrol prices,” Capcom said.

The company notes that its arcade operating income took a huge dip in 2007 versus the previous year, leading to a nearly 10% drop in Capcom’s net profit for its arcade business.

Following the trend of acquisitions in the gaming industry set by the mergers between Activision and Vivendi, as well as EA’s attempted takeover of Take-Two, Square Enix president Yoichi Wada has announced plans to invest in rival publishers and developers to combat rising competition from both new and established companies.

“Economies of scale and breadth of scope is getting important. It may be a business alliance or it may be us taking a stake in others, but we need to go beyond traditional Square Enix,” Wada said. “We face competition not only from Japanese videogame companies but from game companies worldwide. We also see some new players from outside the videogame industry coming in.”

No specific companies were mentioned.

GI.biz reports that Ubisoft’s sales for the first quarter of 2007-08 have gone up 90.5 percent from the same period last year and has raked in 134 million Euro sales, exceeding the forecast of approximately 120 million Euros.

“Ubisoft has made a solid start to the year, and continued to win market share,” said CEO Yves Guillemot. “Momentum was particularly strong during the period for European sales, which climbed 109 per cent thanks to the ramp-up of new-generation consoles and the impact of PS3 game sales, including Rainbow Six Vegas and Oblivion.”

The company hopes to keep sales stable for the second quarter. Ubi has two huge games coming in the fourth quarter - Far Cry 2 and Splinter Cell Conviction.