Japan: Reviving The Market

Is the Japanese music market bottoming out?

Industry observers are cautiously optimistic that the steady decline in album sales in the world's second-biggest music market may finally be slowing.

In the first three months of this year, the volume of audio product shipped was unchanged from the same period last year, at 80.9 million units. The wholesale value of those shipments dropped 4%, to 101.1 billion yen ($894.3 million). These figures are compiled from the 24 companies that constitute the Recording Industry Assn. of Japan.

After five years of steadily declining sales, that flat number doesn't look so discouraging. The grim reality, though, is Japanese music sales have shrunk to 1989 levels.

STRONG FIRST QUARTER

"It may be too early to say that 2003 was the year we hit bottom, but we can say that the signs are definitely there," states the 2003 market report from SoundScan Japan.

One encouraging sign: Non-Japanese music has recently been doing well. In first-quarter 2004, RIAJ labels shipped 18.8 million units of foreign product, an increase of 6% year over year. This represents a wholesale value of 25.9 billion yen ($229.1 million), a 4% increase.

In comparison, the labels shipped 62.1 million units of domestic product in the same period, down 1%, with a wholesale value of 75.2 billion yen ($665.2 million), down 6%.

"International acts in Japan have become visible again, and of course this trend was led by acts like Avril Lavigne—basically the acts who were successful everywhere," says Haji Taniguchi, head of international at Avex, Japan's leading independent record company.

"There's a new market for international product," Warner Music Japan senior executive VP Toshikazu Kikuno says. "Until recently, the average age of people who bought international product was 22 to 24, but now there's a new teenage market for foreign music."

Kikuno cites the recent Japanese success of such acts as Lavigne, T.a.t.u., Eminem and Lillix. "Young people may be bored with domestic music," he says.

That analysis is borne out by SoundScan Japan, which notes that the 20 top-selling local acts in 2003 sold only half as many units as 1999's top 20 acts did.

"The failure of big artists to do well has been a major factor in creating the bleak situation in Japanese music today," SoundScan Japan says.

One big local act that bucked that trend last year was male idol group SMAP, whose single "Sekai ni Hitotsu Dake no Hana," released by Victor Entertainment, sold 2 million copies after it was adopted as the theme song of the Japanese movement against the Iraq War.

"Sekai ni Hitotsu Dake no Hana" was the only single—domestic or foreign—to sell more than 1 million copies in 2003. The No. 2 single was "Niji/Himawari/Sore ga Subetesa" by veteran singer/songwriter Masaharu Fukuyama (BMG Funhouse). "Sakura," by vocalist Naotaro Moriyama (Universal), was the No. 3 single. According to SoundScan Japan, those two singles sold 943,310 and 921,310 copies, respectively.

DVDs OFFER HOPE

The strong sales of music DVDs in Japan is one trend offering hope to the country's beleaguered record industry.

In 2003, the 24 member companies of the RIAJ shipped 29.7 million music DVDs, up 166% from 2002, for a wholesale value of 50.5 billion yen ($472.3 million), a rise of 77%.

Last fall the RIAJ launched a campaign titled "Kiite Miyou! (Let's See What It Sounds Like!) Music DVD," aimed at popularizing music DVDs as a new product.

For music companies seeking to license rights to Japan, master ringtones (or ringtunes) present another key opportunity, Tokyo-based music business consultant Sebastian Mair says.

"There are 100 to 200 companies operating in the Japanese ringtunes market," he notes. "And there's a lot of potential for the use of masters as ringtunes outside of traditional contracts—there's a lot of stuff out there that's recognizable that could be exploited in the Japanese ringtunes market."

Label Mobile, a Tokyo-based ringtone provider, estimates that sales of master ringtones totaled 7 billion yen ($900 million) in 2003, while sales of ringtones earned some 95 billion yen ($66.4 million).

Many Japanese ringtone providers are expected to start offering master ringtones in the coming months.

Toshihiro Konno, head of Sony Music Online at Sony Music Entertainment Japan's Digital Network Group, sees master ringtones as a potentially important revenue stream for labels. "We also think that we can expect ringtunes to help promotions of packaged CDs," he says.

Meanwhile, industry players aren't ready to give up on the conventional CD market just yet.

"In Japan, 50% of the labels are independent, and they are clamoring for foreign product," Mair says.

He also says would-be licensors to Japan should make more active use of Japanese publishers in getting deals here.

"Artists must be committed in order to break in Japan," Avex's Taniguchi says. "They need to be ready to spend time and effort for Japan. The chance of succeeding in Japan only by virtue of the influence and buzz from their original territories has become very small."

Mair also notes that a lot of major-label-controlled repertoire "falls through the cracks" and isn't released in Japan by the majors' local affiliates. He says the majors should think about releasing product through independent Japanese labels.

In terms of popular genres, there's now less demand from Japanese licensees for dance music than in the past, while rap and metal remain popular.

SoundScan Japan says a major trend in Japan's foreign-music market is the move away from compilations of catalog material, which were big sellers a couple of years ago, toward new albums by contemporary acts.

Keith Cahoon, president/CEO of Hotwire, a Tokyo-based music publishing/promotion company, says there's no shortage of recent licensing success stories in Japan. He cites power-pop/punk band Sugarcult, from Santa Barbara, Calif., whose records are licensed to Avex; Maria Muldaur and NRBQ, who are licensed to Tokyo-based label Dreamsville; and world-music label Putumayo, whose Japanese licensee, Green Energy, has used grass-roots and retail-oriented campaigns to promote the New York-based label's product in Japan.

Avex's Taniguchi says the renewed interest by Japanese music fans in foreign music will help boost overall demand for overseas acts.

But in Japan, "overseas" doesn't necessarily mean North America and Europe. South Korean acts, for example, are benefiting from Japan's current "Korea boom."

"Korean artists have a better chance" of breaking in Japan, Taniguchi notes, "not only because of the trend, but also because of their quality."

Despite its ups and downs, the Japanese market is always receptive to good music from overseas. But industry observers agree that just being good isn't good enough. The market is both potentially lucrative and often baffling to outsiders. It demands preparation from international business partners.

Mair advises those wanting to license product to Japan to check out the market firsthand.

"If you're serious about the Japanese market," he says, "get over here at least once a year and get to know the market."