Japan Biz Sends Mixed Messages

The Japanese music market remains in a state of flux as the industry here waits for digital growth to compensate for declining CD shipments.

"We have to accept the fact that this is a market in transition, with all the challenges that entails," Warner Music Asia Pacific president Lachie Rutherford says. "My wish for 2006 would be for more comprehensive agreement between the Japanese music industry and Web portals and online music sites."

Shipment figures in Japan—the world's second-largest recorded-music market—send a mixed message about 2005, according to data from the Recording Industry Assn. of Japan.

Shipments of recorded music (including music videos and DVDs) in 2005 by the RIAJ's 41 member companies rose 2% over the prior year to 357.2 million units, with a wholesale value of 422.2 billion yen ($3.7 billion), down 2%. That compares with declines of 4% in volume and 5% in value for 2004.

Stripping out music videos and DVDs, shipments of audio software fell 1% on a volume basis to 310 million units and 3% in value to 367.2 billion yen ($3.2 billion).

The RIAJ figures are based on trade shipments. SoundScan Japan published its own 2005 market report Jan. 30, based on point-of-sale data from some 2,700 music retailers nationwide.

According to SoundScan Japan, audio sales (excluding music videos and music DVDs) in the 2005 calendar year fell 12% to 361 billion yen ($3.1 billion) in retail value. Total volume was 164.6 million units, down 11% from 2004. SoundScan does not cover sales through e-tailers, convenience stores and other nontraditional outlets.

Sources at brick-and-mortar retailers say sales dropped as more Japanese consumers purchased music digitally from download services and mobile phones or on physical CDs through online retailers.

Neither the RIAJ nor SoundScan include digital sales in their data.

According to SoundScan, 2005's top-selling domestic album was the self-titled set from pop-rap duo Def Tech (Ill Chill), which sold 2.3 million copies. The year's top-selling international album was "Disco-Zone—Koi No Maihai" (Avex) by Romanian trio O-Zone, with 426,635 units.

The RIAJ says shipments of domestic repertoire (excluding music videos and DVDs) in 2005 fell 3% to 228.2 million units. Wholesale value was unchanged at 271.8 billion yen ($2.4 billion). International product (excluding music videos and DVDs) rose 4% in volume terms to 81.8 million units, with value down 8% to 5.4 billion yen ($839.9 million).

The rise in shipments of international repertoire reflects efforts during the year by labels to shift sales of overseas product from imports to local pressings, HMV Asia Pacific president Paul Dezelsky says. "Record companies have gradually reduced prices of international domestic catalog to be closer to the price of [previously cheaper] imports," Dezelsky says.

"The good news," he adds, "is the leveling out of the domestic market in value terms after several years of decline."

Rutherford says labels are also cutting prices of international catalog to compete with high-profile new releases. The increase in shipment volume also reflects labels' decision to bar Japan's sizable music rental sector from offering international product until one year after release, he adds.

Toshiba-EMI president/CEO Shoji Doyama notes that the RIAJ includes Western classical recordings as international repertoire, and the fall in value reflects the emergence of "many low-priced products" on the classical market.

Sony Music Entertainment (Japan) remained the territory's biggest label in 2005, with a market share of 18.5%, according to SoundScan Japan. Avex was No. 2 with a 13.6% share, followed by Universal Music Japan (10.8%), Toshiba-EMI (7.8%) and Victor Entertainment (7.6%). ••••