Japan just took the experts by surprise.
The world’s second biggest recorded music market was widely expected to shrink in 2016, despite the launch of Spotify in the territory in September.
In fact, as MBW reported earlier this week, Japan’s music revenues grew 0.4% on 2015 – thanks largely to a resilient physical market (down just 2.7%) and a 12% growth in digital income.
Subscription streaming, as we’ve gotten so used to writing of late, bounded upwards, jumping 61.4% to generate over $180m.
Yet in the wider context of Japan’s physical-heavy market, this barely made a dent: streaming claimed just 8.7% of Japan’s total recorded music revenues in the year, with CD and vinyl generating more than 77%.
Universal Music Group, a $5bn+ company and the world’s biggest recorded music business, senses a big opportunity for growth in the territory.
It’s why Universal Music Japan (UMJ) swooped for Tokyo-based Office Augusta in December, bringing a ‘full-stack’ music company into its operation – including divisions across records, music publishing, live promotion and artist management.
The Office Augusta merger came off the back of a particularly successful year for widely-respected UMJ President and CEO Naoshi Fujikura (pictured).
Universal claimed the two biggest-selling LPs in Japan last year, including the soundtrack for the movie ‘Kimi no nawa’ (“Your Name”) by RADWIMPS, which dominated the region’s digital charts for six weeks before becoming a smash hit on CD.
MBW caught up with Fujikura to ask all about Japan’s potential, UMG’s plans in the region – and why Sir Lucian Grainge “understands better than anyone the importance of the Japanese market”…
What is Universal Music Group’s ambition in Japan: What is your current market position and where do you want to get to?
Our long-term goal is to become Japan’s leading full-service music entertainment company. We understand our unique local market, and we are taking important steps to evolve our business and embrace new opportunities and challenges. Our core strength has always been our ability to discover artists, help develop their careers and ultimately make “hits.”
“By expanding our business, we are creating a more diverse portfolio that includes important additional areas such as merchandising, live entertainment and fan clubs.”
By expanding our business, we are creating a more diverse portfolio that includes important additional areas such as merchandising, live entertainment and fan clubs. As you know, Japan is the second largest music market in the world, the biggest physical market and the third biggest digital market globally.
We were thrilled that in 2016, we achieved the No.1 position in the digital download market. Going forward, our plan is to continue our intense focus on artist and talent development while expanding our business capabilities.
We’re told the Office Augusta merger was a competitive one. How did you close the deal and did you feel supported by UMG during negotiations?
This deal is a strategic alliance that enhances the current standing of both UMG and Augusta.
Ultimately, it will position us collectively to become a multi-faceted media company in Japan.
“Because Sir Lucian ran the international division prior to becoming Chairman and CEO of Universal Music, he understands better than anyone the importance of the Japanese market.”
Because Sir Lucian ran the international division prior to becoming Chairman and CEO of Universal Music, he understands better than anyone the importance of the Japanese market.
He has been pushing us to expand our business model in order to provide artists with the best services possible.
You’re not just getting a recorded music and publishing presence, but management, live promotion and more. How do these ‘ancillary’ elements play into your strategy in Japan?
We do not view these as “ancillary” businesses. Artist management, merchandising, live entertainment and sponsorship are all key areas of focus and their importance will only continue to grow over time.
It’s by no coincidence that Augusta has a strong presence in each of these areas.
“Artist management, merchandising, live entertainment and sponsorship are all key areas of focus and their importance will only continue to grow over time.”
We have just announced that the first album to be released by an Augusta managed artist will be the compilation ‘All Time Best’ by Motohiro Hata (pictured) on June 14.
We are only getting started and we’re very excited by all of the opportunities that are possible through the integration of our businesses.
Japan is a famously loyal territory to domestic artists: in 2016, Ex-Japan acts made up just 11% of physical sales by value. What, in your experience, do international acts have to do to win over a significant element of Japan’s record-buying public?
In Japan, terrestrial TV networks have a strong influence on music sales, and appearing on popular music TV shows or having tie-in deals with TV commercials are key success factors for international artists.
“After UMG reorganized its international business in 2015, we now have a much stronger and more direct relationship with our executive management team in Santa Monica and the UMG labels around the world.”
Ideally, frequent visits and communications to Japanese fans work really well for international artists to establish a connection with audiences here.
After UMG reorganized its international business in 2015, we now have a much stronger and more direct relationship with our executive management team in Santa Monica and the UMG labels around the world, and this will only help create more opportunities for international artists to have lasting success in Japan.
How would you characterize the current health of the Japanese recorded music market?
The latest RIAJ figures actually showed Japan’s overall recorded market up year-on-year between 2015-16 and not in decline as some had predicted. This is because we saw a steady expansion of digital subscription businesses.
Moving forward, our outlook on Japan’s music market continues to be cautiously optimistic. The physical market is still strong, despite the 2.7% decline in 2016, with consumers showing they continue to value bundled products and high-quality sound.
If digital, which grew 12% in 2016 across downloads and subscription services, continues at this pace it could become a significant opportunity for growth in our market.
From an outsider perspective, Spotify is a huge brand. But in terms of the Japanese market, was its launch greatly meaningful?
It was certainly meaningful in Japan. From a business perspective, it was symbolic that Spotify, which was long anticipated in Japan, finally arrived after so many years of speculation.
It was also great news for tech-savvy, music-loving consumers in Japan and for the millions of smart phone owners who will now have access to streaming services.
“Spotify’s launch in Japan was certainly meaningful.”
For us it is important to promote competition within the market in order to help give fans the best possible listening experience.
By the end of last year, all of the major subscription services – Apple Music, Line Music, Google Play, AWA, Amazon Prime Music and Spotify had launched in Japan. As a result, the overall subscription market grew over 60% year-over-year in 2016. And we are optimistic it will continue to grow.
Subscription streaming made up just 8.7% of Japan revenues in 2016. How fast do you expect this area of the market to grow in the coming years?
For the next few years, we expect the market to grow reasonably. For it to become a significant, steady source of revenue for the entire music ecosystem, we must make sure that two groups of people embrace the model – artists and consumers.
“For streaming to become a significant, steady source of revenue for the entire music ecosystem, we must make sure that two groups of people embrace the model – artists and consumers.”
On one hand, there are still several established Japanese artists who are holding their music off subscription services, and on the other hand, many consumers are still unaware of the many benefits of a subscription service.
We can play a unique and helpful role by working closely with our artists and the technology platforms and services. We understand artists, content and distribution. As our Japanese artists embrace streaming, it will open up new opportunities to reach new audiences and fans outside of Japan and around the world.
Japan’s recorded music industry is still just under 80% physical by value. Why do physical formats remain so popular and how long can they continue to dominate the market?
For Japanese consumers, CDs not only provide a way to enjoy music, they are also seen almost like a piece of merchandise or collectable art.
Some major artists attach bonus videos that as of yet are not available on other platforms. This can be a big incentive for consumers to purchase physical products. Also, some domestic idol groups release versions of the album package with different cover designs.
Consumers love these “value-add” elements. It certainly helps that Japan has the most music retail stores of any country in the world, even more than in the U.S. and U.K.
For consumers, a key part of the music culture in Japan is being a fan of an artist, collecting the physical product and the personal experience that ownership offers.
As recently noted by Sir Lucian Grainge, you had the top two-selling LPs in Japan last year. What were the factors behind this success?
First and foremost, let there be no doubt, both albums are superb. As musicians and singer songwriters, both RADWIMPS (pictured) and Utada Hikaru masterfully demonstrated their musicality, which resonated with fans. Our sales and marketing team also executed a well-devised strategy across all media outlets, helping both albums reach the levels of success they deserved. Most importantly, we had the will and passion for these projects to succeed.
Not only does UMG have the best artists, we also have incredible staff who are always willing to take on challenging assignments to achieve great results for our artists and partners.
Having just recently won the Best Music category at the 40th annual Japanese Academy Awards, our equivalent of the Oscars, we are now releasing the English language version of RADWIMPS soundtrack to Makoto Shinkai’s film ‘Kimi No Nawa” (“Your Name”) ahead of its US theatrical release this month. We are already excited about 2017 and many of the projects we are preparing to launch over the coming months.
Does the album have a strong future in Japan, or do you see the market becoming more track-led?
Well, first off, we are going to make sure consumers have access to our music on every format they want and that includes CDs, downloads, vinyl – whatever.
If streaming is the future way that the majority of consumers will interact with music, then our business will likely become more track-driven like in the U.S. and across Europe. Streaming also opens up new opportunities for artists to release music in innovative and non-traditional ways and formats.
That said, our physical and download business today are still driven by the album format, especially for the more established artists. New albums and “best-of” compilations will continue to have strong appeal with Japanese consumers.
[Picture credit: Masakazu Yoshiba]Music Business Worldwide