Japan’s Unique Music Industry

April 15, 2015

In celebration of this year’s World IP Day theme – “Get up, stand up. For music.” – the WIPO Japan Office takes a look at some unique aspects of Japan’s music industry, the intellectual property (IP) tools that have shaped it, and future challenges.

Diverse contributions

Archeological evidence suggests that musical traditions have been with humanity since the earliest days and musical instruments have been used for thousands of years as a means of personal, communal, and cultural expression. The power music holds over us is difficult to ignore. Like other countries, Japan has a long and unique history of music. From enka (traditional Japanese country music) and the koto, the country’s national instrument, to a holographic pop star whose creators have used technology to synthesize over 100,000 songs, music makes diverse and important contributions to Japan’s culture and economy.

The rise of technology

In the past few decades, technology has brought completely new ways of making music and changed the industry. When high-speed Internet access became common in nearly any home, café, or public space in many countries, everything changed and artists faced new challenges. With illegal copies just a click away and few legal offerings available, sales of physical media in many markets have seen continual decline since 2002 and new distribution methods were needed.

These methods were found in the form of digital sales and online music streaming, which in some markets have overtaken compact disc (CD) sales. However, among the world’s major music markets Japan continues to buck this trend, with CDs making up over 85 percent of sales. Some might think this odd, but unique aspects of the country’s music industry and culture provide some clues to its long love affair with CDs.

Unique business models

If you walk into just about any video rental store in Japan you will find rows of CDs in just about any genre. But many are not for sale. They are for rent. A unique aspect of Japanese copyright law – introduced by an amendment in 1985 – allows for legal CD rentals. In fact, some argue that much of the continued success of CDs in the country is due to rentals, which has been a relatively stable market.

While in that same store you might be surprised by the price of a new CD. Unlike many other markets, national law puts pricing restrictions on retailers, meaning that new CDs are rarely sold under JPY 2,500 (approximately US$ 21). Even with these relatively expensive prices, Japan never experienced a period of vast illegal downloading. In fact, over the past few years the country has seen a 40 percent decrease in the use of peer-to-peer file sharing programs.

Additionally, the Japanese music industry has ascribed to the “360 deal” for much longer than other markets. Under a typical 360 deal, a record label provides artists with financial advances and support and the artists give the label a percentage of their total revenue of their other IP rights, such as concerts, publications, and appearances. While 360 deals tend to be more common in geographical areas with significant piracy, they have allowed record labels in Japan to maintain profitability during periods of decreased CD sales.

There also are the efforts record stores make, such as “hand shake events” that enhance the purchasing experience by regularly bringing in artists to meet fans, sign autographs, and pose for photographs. CDs and the stores that sell them remain viable business in Japan due to these initiatives and the country’s unique business models.

A case of culture

Cultural reasons could also be why Japanese consumers still purchase CDs long after they have seemingly gone out of style in other markets. In Japan, artists typically release different versions of the same album, each with different value added features such as elaborate packaging, photo booklets, or exclusive music videos. In a country with a long affection for collectible goods, this leads to stronger CD sales.

Traditionally, Japan has been a cash-based society with much lower credit card usage than other countries. This means fewer online purchases than other major music markets and could also suggest a feeling among consumers that CDs are safer to own than digital copies of an album, of which many consumers in Japan remain wary.

Yet another cultural reason is different attitudes towards product placement, a practice that tends to be frowned upon in other countries but is considered a badge of honor for artists in Japan. Combined, these cultural differences could contribute to the continued importance CDs make to the Japanese music industry.

Looking to the future

Will all of these unique aspects of Japan’s music industry be enough to ensure that authors, producers, and performers can continue to protect their IP and be adequately rewarded for their creativity? Japan is the world’s second largest music industry (and could possibly become the largest) and continually sells more physical media than other markets, but sales have gone down across the board in recent years, including digital sales.

Some of the country’s industry experts argue that the only way for it to remain successful is to export more Japanese artists abroad and import more foreign artists (only 20 percent of music sold in Japan is from foreign artists). Others point to the trend of artists in Japan increasing their live shows and using these events as opportunities to sell limited edition CDs or other merchandise.

For now, CDs continue to trump all other types of music sales in Japan while digital business models are still in their infancy. As they make inroads over the coming years, some in the international music industry argue that the only way for Japan’s music industry to grow, IP to enjoy continued respect, and the creativity of artists to reach a wider audience, is to combine the uniqueness of the country’s music industry while fully embracing the digital revolution.