Japan, Land of a Rising Market for Recorded Music
The drop in annual recorded music sales is nowadays taken for granted in almost every domestic market. Indeed, global music sales, as reported by the International Federation of the Phonographic Industry have been declining steadily since 2001 (1) . Yet Japan, with the second largest economy and music market in the world, seems to be a star performer. The retail value of recorded music has grown by about one per cent a year since 2004. Even though such numbers are not stellar by the standards of most trades, in the current recorded music marketplace they are more than noteworthy (2).
There are good reasons why Japan is out-performing other developed nations in sales of recorded music, and I will try to illustrate some of my considerations below. Moreover, Japan’s underlying trends in music consumption offer a glimpse on the future of music.
First, Japan is the only one of the larger markets where the fall in physical sales of music appears to have been fully offset by the rise in digital sales. There has been much redistribution already of dollar purchases towards digital media, which has prevented the fall in the overall market. The evidence suggests, for instance, that during 2006 a near doubling of online and mobile downloads more than compensated for a seven per cent unit decline in CD and DVD sales (3) .
Second, the make-up of Japan’s digital market is remarkable. Japan is the most sophisticated buying and selling nation for recorded music in the world. Dollar for dollar, sales of mobile digital content far exceed sales of audio downloads. There are, of course, a number of countries in Europe that exhibit this behavior, including Austria, France, Italy, Spain, and Sweden. But none has made the switch as comprehensibly as Japan. The ratio of dollars spent on mobile music to audio downloads exceeds 10:1 in Japan. By comparison, Spain and Italy, two Mediterranean countries that come first in the mobile vs. download rankings in Europe, only achieve targets, respectively, of 5:1 and 3:1–nowhere near (4).
Third, the case of Japan suggests that the music business should continue to look aggressively at mobile music revenue in a bid to replace its traditional sources of income. Pure Internet revenue is, in a very literal sense, passé for Japan. Japan is doing relatively well in recorded music sales because it has largely substituted downloads via a computer with mobile purchases of music on a cell-phone. In addition, while Japan ushered in the era of the telecoms for music purchases, it avoided Apple’s stranglehold on the business. If, as Japan’s history suggests, the era of the music telecoms is not far away, then a single computer company will no longer be able to hold music sellers hostage. More competition can be expected in distribution, both domestically and abroad, and music makers, including the major record labels, stand to benefit. Nokia, a Finnish company that is the world’s leading mobile phone supplier and a leading supplier of mobile and fixed telecom networks, is already staking this territory by announcing global plans for a store to rival iTunes. It is contemplating a sizeable investment in the Boston area (5).
There is a fourth factor in Japan’s success story that merits special attention–but it does not bode well for everyone. Traditionally, this country tended to focus on pop stardom and singles as opposed to artists and albums. Production houses manufactured pop stars and record labels were mostly involved in their marketing and distribution. When the global music crisis began in 2001, labels in Japan were much less exposed to A&R expenses than, say, American labels. The latter had huge overheads because the “establishment cost” of setting an artist in business included sizeable recording advances that they could not recoup. Japan’s business model, instead, was better attuned to the reality of the marketplace after 2001, and the historical trend away from A&R and the album continued. More mobile music purchases, in addition, grew the singles market, as did the new opportunities to cross- promote stand-alone songs across many platforms, including soundtracks of animes and video games (6). Of course, a growing market for shorter, piecemeal, music might not help artist development. Outside Japan, moreover, such a market could have dire implications in the generation of long-term music revenues.
Fifth, a cursory look at the mobile digital content in demand in Japan can shed light into the profile of the new global music consumer. Madison Avenue in Manhattan, the site of the biggest advertising companies in the US, has long considered Japanese youth to be trend setting. In Japan cell-phone single track purchases are nearly nine times larger than over the Internet–a figure that would surprise any American teenager. Such buys are the hottest ticket there, followed by ringtones, ringback tones (which are popular in Japan and in Greece, but hardly anywhere else), music videos, and other mobile content (7). Do-it-yourself ringtones are proliferating too, with websites offering advise for making one’s own mastertones and converting CD tracks into the various mobile formats. This has led to mobile piracy. Last year, apparently, nearly 300 million single tracks and mastertones were downloaded illegally (8). Japan’s rogue consumers are also proving that everyone is vulnerable to copyright infringement, and that, contrary to what may have been assumed by some publications, including The Economist and Music & Copyright, there are no safe-harbors for content providers under the umbrella of mobile technology.
Finally, in Japan there is a deepening of the domestic market and a fragmentation of music genres that co-exists with a strong movement towards globalization. On the one hand, commentators remark that in the mass market for recorded music there is a growth of interest in styles beyond J-Pop, and that some “long-tail” effect is in operation due to the new distribution channels of music (9). It should be observed here that this has become a feature of many developed markets, and not just because the Internet made the issue of catalog or back-shop recordings cheaper—it has to do too with tastes shifting from universal genres like rock to niche markets like Latin (a case in point is the US in the early nineties) (10). On the other hand, Japan is looking to become a bigger player in Asia. The regional bloc of Japan, South Korea, Hong Kong, Taiwan, and China’s coastal cities has half a billion people, compared to the three hundred million of the US. Aggregation is becoming de riguer, with Music & Copyright reporting that Japanese talent agencies and labels are seeking out performers who can appeal to the various markets (11). The US was able to leverage its Recording Academy to institute its Pan American award, the Latin Grammy. Perhaps the future of music will also depend, as it did in the Latin market, on the unification of the ever-promising Asian market.
(2)No country issues sales data corrected for inflation, which would make even Japan’s gains seem almost illusory.
(3)Data from the Recording Industry Association of Japan (RIAJ), quoted in “Digital Sales Bring Continued Growth to the Japanese Market in the First half of 2007”, Music & Copyright, Sept. 14, 2007, 8. Disaggregated value data for digital vs. physical sales was not readily available in the article.
(4) Ibid., 8.
(5)Wahington II, C., “The Challenge of a Telecom: Nokia Phones, Music, and Retail”, Music Business Journal, Nov. 2007, 3-4.
(6)Music & Copyright, op. cit., 8.
(7) In turn, RIAJ data in $US millions was 130, 110, 24, 8, and 3; Music & Copyright, op. cit., 8.
(9) Ibid., 8.
(10) See The Recording Industry Association of America (RIAA)’s, “Market Data: US Consumer Profile, 1992-2007”, available at www. riaa.com.
(11) Ibid., 9.