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Amazon, Apple kick-start Japan’s digital content-delivery business

by Steve McClure

Remember CCCD? Probably not, unless you collect outdated acronyms.

Between 2002 and 2004 many Japanese record companies released copy-controlled compact discs, aka CCCDs. Tracks from such CDs could not be burned onto PCs or copied onto portable devices such as mp3 players.

But consumers didn’t like what they saw as a heavy-handed tactic by Japanese labels, which eventually dumped CCCD.

Fast-forward to 2010, where people are now asking whether DRM — digital-rights management — is destined to go the way of CCCD. DRM, which is used by rights-holders such as record labels to limit the use of digital content and devices, has become a hot topic in the local music business following Amazon Japan’s Nov. 9 launch of a DRM-free music-download service.

That, along with iTunes Japan’s recent launch of movie downloads, could kick-start Japan’s online digital content-delivery business, which has lagged behind those in other countries.

But most Japanese record companies are shunning the Amazon service, because they refuse to make their product available digitally without DRM.

Takayuki Suzuki, Universal Music Japan’s general manager, digital sales marketing, explains that his company has yet to offer DRM-free mp3s because “mobile phone downloads are still dominant in Japan’s digital music market . . . consumers are happy with what is available right now. However, we will keep considering various avenues to provide music content to please our users.”

At the moment, EMI Music Japan is the only major local label that’s making DRM-free tracks available via Amazon’s online download store.

“The response from customers has been very good,” says Kazufumi Watanabe, Amazon Japan’s vice president of media. “They love the ease of use of our service as well as the convenience of DRM-free. Our customers are buying more albums in proportion to individual tracks and more back catalog titles than we expected.”

Prices vary widely on the new service. For example, vintage Blue Note jazz albums go for ¥700, Pink Floyd’s “Wish You Were Here” album sells for a bargain-basement ¥750 and Norah Jones’ “Featuring” is priced at ¥1,500. Single tracks retail for ¥150.

Giles Duke, EMI Music Japan general manager, business development, says the label’s decision to support Amazon’s DRM-free service is in line with global EMI policy.

“It is a response to customer needs, in order to enhance usability on the part of the customer,” Duke says. “There is no change in the fact that EMI places the highest priority on protecting the rights of artists and intellectual property,” he adds.

Some 200,000 EMI Japan tracks are currently available for download via the Amazon Japan online store. International music comprises about 90 percent of that total.

“We want to deliver the best possible artists and music to the greatest number of people through a variety of formats, including CDs and digital distribution,” Duke says. “And we believe that expansion of the music market can be driven in this manner.”

The decision by Amazon Japan — now one of Japan’s top music retailers due to its strong online sales of CDs — to offer DRM-free downloads, as Amazon subsidiaries in other countries have done for some time, comes just months after Napster Japan closed its doors for good. Napster Japan — a joint venture between the American parent company and Tower Records Japan — offered a subscription service that allowed users unlimited downloads for a monthly fee. But Napster concluded that the DRM-free business model that had been adopted by its American parent in 2008 wouldn’t wash in Japan.

The reason for Japanese labels’ strong pro-DRM stance is their fear of the new digital paradigm, argues one local music-industry insider who wishes to remain anonymous.

“Japanese business, generally speaking, does not encourage change,” he says. “If your business is making, distributing or retailing CDs, digital downloading is seriously destabilizing.”

He has harsh words for digital content aggregator/distributor Label Gate, which is owned by a consortium of major Japanese labels. “Label Gate, which would in some countries very likely be considered anti-competitive in nature, was set up not to encourage downloading of music, but to control it and slow its growth.”

A key factor in Japan’s digital-music market is the rivalry between Sony and Apple. Sony — which saw Apple’s iPod take over from the Walkman as Japan’s most popular digital-music player — doesn’t like the idea that Apple might become Japan’s biggest music retailer, and has not agreed to make its music available on iTunes Japan, even though Sony Music affiliates do so in other countries.

Even so, PC-based downloading remains one of the few growth areas in the Japanese music ecosystem. According to local labels body the Recording Industry Association of Japan (RIAJ), PC-download sales rose 11 percent to 13.4 million units in the July-September quarter over the corresponding period last year, for a value of ¥2.5 billion, up 8 percent.

Cell-phone-based music sales, in contrast, appear to have run out of steam. Mobile-based downloads fell 7 percent in the third quarter to 98.5 million units, for a value of ¥18.8 billion, down 3 percent, according to the RIAJ.

Overall, digitally delivered music now accounts for close to 30 percent of recorded-music sales in Japan.

“The Amazon launch has had minimal impact so far,” notes Keith Cahoon, president/CEO of Tokyo-based music publisher/consulting company Hotwire Japan. “The Apple launch is far more significant — they are renting and selling a wide range of top-grade Japanese and foreign movies, with an easy-to-use interface, and at a price that both rights-holders and customers are comfortable with.”

The Japanese version of Apple’s iTunes Music Store now offers 1,000 movies from international and Japanese studios.

“I am sure they will add to this content and that their competitors will be spurred to bring their business plans to market,” Cahoon says. “TV is very likely to be part of the mix soon too. And the competition for digital books, newspapers, magazines and manga also promises to be fierce.”

Steve McClure is executive editor of online newsletter McClure’s Asia Music News (www.mccluremusic.com).