Is Japan Finally Ready For The Streaming Revolution?

A new report by indie music rights agency Merlin highlights the slow but now steady shift towards music streaming in Japan, one of the world's last bastions of physical product. As the second largest music market in the world, Japan has been historically slow to take up streaming music despite the presence of advanced broadband capabilities in much of the country.

As of 2017, 80%  of music sold in the country comes via physical product, according to the Recording Industry Association of Japan, with the staid compact disc dominating the distribution channel.  Japan may be unique in featuring brick and mortar retail locations that allow consumers to rent music CDs, often with shelves of blank recordable CD-RWs stored adjacent to the rental racks.

In 1992, the country introduced the Compensation System for Digital Private Recording, which bakes royalties right into retail prices for digital recording equipment and media. As well, the rental stores pay compulsory licensing to labels, ostensibly enough to cover the loss of sales to rightsholders.

However, those record rental stores have slowly been disappearing from the country’s retail landscape, and according to the RIAJ are down from a peak in 1990 of 6,200 to 2,100. The private copying levy and rental remuneration rates have plummeted as well, with the PCL down Y324m in 2007 to just Y14m in 2016, while the RRR has slipped from Y4.3b in 2007 to Y2.3b in 2016.

Another factor holding Japanese consumers back from the switch to streaming appears to be related to pricing. According to research conducted by Tokyo-based ICT Research & Consulting, consumers in Japan are deterred by monthly fees for subscription services, particularly when ad-supported services such as YouTube are available.

The shift appears to finally be taking place though and in 2017, the first year the RIAJ started releasing data on streaming services, the industry recorded sales of Y26.3 billion sales of streaming music represented 46 percent of digital music sales, versus 47 percent for downloads, amounting to 9% of music sales.

“Comparative to other major music markets, streaming services came to Japan quite late. We are yet to reach critical mass, although the signs ahead look positive,” Danger Crue CEO Masahiro “Jack” Oishi told Merlin.

Japanese reticence to shift away from physical hasn’t stopped music streaming services from trying to shoulder their way into the market. Both Deezer and Amazon launched in Japan last year, following Spotify who has been operating in Japan since 2016.