By Dominic Carter
Many a time it has been said that Japan likes to do things its own way. And nowhere is this truer than in the music business. In the past decade in Western markets we have witnessed an almost complete transformation in the landscape of the music industry.
Starting with illegal file-sharing sites such as Napster in the late 1990s, music fans began to move away from the physical recorded music format.
But it was only when Apple introduced its celebrated iPod and iTunes ecosystem in 2001 in the US that the digital music business began to become legitimate. With its copyrights in mind, the music industry initially adopted a highly aggressive stance against file sharing and the digitization of music in general.
However, it is embracing the future of music. In the US, labels are gradually eliminating the copying and sharing countermeasures, known as digital rights management, that it has been adding to recordings.
By contrast, in October last year Japan introduced draconian anti-piracy legislation threatening fines of up to ¥2 million and two years in prison for consumers knowingly downloading music without the permission of the rights holder.
Rather than prompt a rush back to legitimate purchasing, in the first quarter of this year the move resulted in a 25 percent drop in digital sales.
The fall was largely driven by declines in the rate of purchases of ringtones and songs for feature phones. Nevertheless, purchases by holders of smartphones did show some increase.
Despite the best efforts of the music industry here to fight progress, as well as the needs of its customers, it seems a fair bet that Japan will eventually follow the rest of the world.
With physical sales of ¥49 billion versus ¥10.9 billion for digital sales, Japan’s music market continues to be driven by CDs. Assisted by government-enforced pricing levels, record companies have put huge efforts into defending the physical market and often bundle the CD with extras, thereby creating multiple versions of the same product. Thus, fans often buy the same product several times to complete a collection.
But perhaps the greatest potentially disruptive threat is from a Swedish company called Spotify. Launched in 2008, the digital rights management-protected streaming service features music from huge labels including Sony Entertainment, EMI Music Publishing, Universal Music Group, and Warner Bros.
As a user of Spotify, I can endorse the transformative nature of its service. Although there are some holes in its library, I will probably never need to download a song again, let alone buy a CD. Further, in addition to providing access to a huge range of music, the service creates customized playlists based on your personal tastes. These can then be fine-tuned on a whim, so that the list presents you with only the type of music you are likely to enjoy, given the parameters.
Whether Spotify will succeed in Japan is an open question. Spotify, and services like it, are particularly well suited to smartphones and, with smartphones far from being a mature market here, there is a lot more disruption to come.
As the industry overseas has come to realize, the path to survival and prosperity comes from giving consumers what they want, rather than trying to dictate the terms of the relationship.
In the bigger picture, the opening up of the music business plays a role in the liberalization of Japan in general. Those who produce and market music here see it as a unique and fragile treasure that could be easily crushed by foreign competition. However this is far from the only way of viewing these sorts of industries.
Just as it is easy to see that there exists, for Japan’s farmers, external markets for the nation’s excellent farm produce, the export of music from the country as part of the wider “Cool Japan” movement should be seen as an opportunity.
Could the current music industry pull that off? As can be said regarding many hide-bound industries here, probably not — unless there is a huge change in the way they approach doing business.
However, the release of some animal spirits and competition into the mix surely benefits everyone, including those who feel they have so much to lose.
CarterJMRN is a strategic market research agency that has been helping clients with consumers and businesses in Japan and beyond since 1989.
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