Compact Discs Remain Dominant Source for Music in Japan

Around the world, the music business has shifted toward downloads and streaming. But in Japan, the compact disc is still king.

On a drizzly Sunday afternoon recently, Tower Records' nine-level flagship store here was packed with customers like Kimiaki Koinuma. A 23-year-old engineer in a Dee Dee Ramone T-shirt, Mr. Koinuma said that, unlike most men his age around the world, he spends little time with digital services and prefers his music on disc.

"I buy around three CDs a month," he said, showing off a haul of six new albums, including the Rolling Stones' classic "Exile on Main St." and an assortment of the latest Japanese pop hits.

Japan may be one of the world's perennial early adopters of new technologies, but its continuing attachment to the CD puts it sharply at odds with the rest of the global music industry. While CD sales are falling worldwide, including in Japan, they still account for about 85 percent of sales here, compared with as little as 20 percent in some countries, like Sweden, where online streaming is dominant.

"Japan is utterly, totally unique," said Lucian Grainge, the chairman of the Universal Music Group, the world's largest music conglomerate.

That uniqueness has the rest of the music business worried. Despite its robust CD market, sales in Japan — the world's second-largest music market, after the United States — have been sliding for a decade, and last year they dropped 17 percent, dragging worldwide results down 3.9 percent.
Digital sales — rising in every other top market — are quickly eroding in Japan, going from almost $1 billion in 2009 to just $400 million last year, according to the Recording Industry Association of Japan.

Turning Japan around has become a priority for the global music business, which has struggled to regain its footing after losing about half its value since 2000, when digital technology began to disrupt the album-based business model.

But accomplishing change has been difficult, according to analysts and music executives in Japan and the West, in part because of a protectionist business climate in Japan that still views the digital business with suspicion.

Streaming music services like Spotify and Radio, widely seen as the industry's best new hope for new revenue, have stalled in efforts to enter Japan. Spotify, the biggest such player, has been stuck for two years in licensing negotiations with music companies in Japan, where home grown pop idols by far outsell Western acts.

Ken Parks, Spotify's chief content officer, said he was optimistic about his company's prospects, and noted that the negotiating process was slow wherever it went. Spotify, which has more than 10 million customers in 57 markets around the world, negotiated with labels for almost two years before it arrived in the United States in 2011, for example.

"When the decision makers finally feel that the heat is intense enough that they have to do something different, they will," Mr. Parks said. "I think we are approaching that moment in Japan."
Others have doubts, pointing to the Japanese market's devotion to the CD, which remains a primary source of revenue for record labels in the country, and an indispensable promotional tool.

Peculiarities of Japan's business climate have shaped its attachment to the CD, but cultural factors may also be at play, like Japanese consumers' love for collectible goods. Greatest hits albums, for example, do particularly well in Japan, perhaps because of the elaborate, artist-focused packaging.

The hugely popular girl group AKB48 pioneered the sale of CDs containing tickets that can be redeemed for access to live events — a strategy credited with propping up CD sales, because it can lead the biggest fans to buy multiple copies of an album.

Tower Records closed its 89 American outlets in 2006, but the Japanese branch of the chain — controlled by NTT DoCoMo, Japan's largest phone carrier — still has 85 outlets, doing $500 million in business a year.

SOURCE: http://www.cnbc.com/id/102007347