by Jeff Allan
Generally, Japanese consumers have a reputation for their early adoption of the latest technology and gadget trends. For example, many of the advances within mobile devices that have taken place over the last several years already existed within Japan’s domestic keitai market. Analysts within the online services sector often attribute Japan’s slow adoption of desktop internet in the early 2000s to the Japanese preference for mobile devices and services.
Given the above, however, many people are surprised to learn that Japan lags so far behind with streaming music and video content and services. While markets like the United States have seen rapid advancements with services that include Netflix, Spotify, and Pandora, the Japanese consumer has preferred to stick with physical media, such as CDs and DVDs. Several factors have contributed to this trend, but a combination of pricing controls from the distribution side together with a consumer preference for physical goods has likely been the major driving force. Current industry figures have Japan alone accounting for 30 percent of total music CD sales globally.
These trends might appear favorable if the physical distribution of music was not in a severe, protracted decline. Sales of music content in Japan for 2014 were just under US $2 billion, which is roughly half of what the industry was earning in the early 2000s. Music industry executives are aware of the problem’s scope, but solutions have proven difficult. For several years, Western players like Hulu and Spotify have tried to enter Japan’s streaming market and been met with limited success. Japan’s complex rights holder issues and a lack of access to Japanese artist catalogs have made it especially difficult for these companies to get into the Japanese market.
Renewed Interest in Japan’s Streaming Media Sector
Despite the obstacles, however, there is renewed impetus to get Japanese consumers hooked on streaming media. This time though, the efforts are originating from within Japan. Avex Group Holdings is currently Japan’s largest record label and the company has joined with technology partner Cyberagent to offer a flat-rate music streaming service called AWA. With Cyberagent handling the platform and Avex working to secure rights, the partners have managed to bring in 23 labels to the service. Among that group is Japan’s second largest label, Sony Music. In total, AWA plans to offer 5 million tracks by the end of 2015 and 10 million by the end of 2016.
This is a massive leap forward compared with previous attempts to usher in the streaming era to Japan. AWA is also making efforts to lure new users by offering a 3-month free subscription to the service, which is available on all major mobile and computer platforms, as well as IoT devices like in-car audio systems.
While most people primarily know LINE for their mobile messaging app that dominates the Japanese market, the company has also recently launched its own streaming music service. LINE is only offering access to 1.5 million tracks as of launch, but plans to expand that to 30 million by the end of 2016. Like AWA, they are offering music from Avex and Sony to help capture a broader group of Japanese consumers.
LINE’s offering differs slightly from AWA in that they offer an unlimited subscription and a less expensive limited plan for users. Leveraging their messaging platform, they have also integrated social sharing tools. Users can share and recommend music within conversations through the company’s messaging app. The streaming service compliments LINE’s strategy to reach every corner of a user’s phone, and will be joined by several other services that LINE plans to roll out in the near future.
Avex CEO Masato Matsuura sees streaming as the path to recovery for the Japanese music industry. At the bare minimum, Matsuura believes these new streaming initiatives are capable of bringing revenues back to the early 2000s level.
Video Streaming Services Likely to Follow
This flurry of activity in the Japanese streaming media sector is good news for investors. Although the focus of the activity is currently in the music realm, other Japanese companies?particularly those on the technology side?have been quietly refining the platforms that will allow for video streaming services in Japan. As the music industry helps pave the way toward greater access to domestic content and primes the consumer for subscription-based streaming services, there is little doubt that video streaming will be next to follow.
As with music streaming, the major global players in the video streaming sector have had little success in Japan. Hulu’s ambitious plans for Japan seem to have run into similar issues with lack of local content. That was at least until they finally sold off their Japanese operations to Nippon TV in early 2014. The Nippon TV deal provided Hulu Japan with access to their parent company’s programming catalog. Meanwhile, Nippon TV has pushed ahead with plans to produce entirely original streaming content for Japanese audiences through the Hulu Japan business. By last May, Hulu Japan had over a million paying subscribers. Although Hulu did not release subscriber numbers before the 2014 sale, by all accounts the Nippon TV acquisition and content has been a major boon for the service.
Going forward, investors are likely to find various opportunities emerge from Japan’s streaming media sector, as it plays catch-up with other mature markets like the United States and Europe. Those opportunities will include companies that provide the enabling platform technologies and subscription services, as well as content production companies that create programming for these services.