DEAD OR ALIVE? JAPAN’S STREAMING FUTURE
June, 6th, 2015 MIDEM, Palais des Festivals, Cannes, France (Music Business Stage)

Moderator and Simultaneous interpreter
Jonny Thompson →JT(General Manager, Nichion International, Nichion, Inc. / Vice Chairman of MPAJ International
Committee)

Panelists
Nobuyuki Soma →NS（Executive Director, AMUSE INC.）
Koji Seo →KS（Manager, International Copyright, Avex Music Publishing Inc.）
Charles Mikami →CM（Executive Vice President, Sony Music Publishing(Japan) INC.）
JT: Thank you Mr. Kuwahata and weappreciate introduction.
We would like to go & start the panel
discussion so if I could ask panel members tocome on stage.
I would like to thank everybody for attending
this very interesting panel titled “Dead or
Alive? Japan’s Streaming Future”.
I just want to introduce the panel quickly firstand we have a very distinguished group from the publishing side, the production artist
management side, and also from the label side as well. To my left is Charles Mikami who is
Executive Vice President of Sony Music
Publishing (Japan) Inc. Next to Mikami-san
is Koji Seo who is the Manager of theInternational Copyright with Avex Music
Publishing

Inc.

And

finally

we

haveNobuyuki Soma. Soma-san is the Executive
Director at AMUSE INC. which is the one of
the largest artist management production
companiesinJapan.

And

I’m

your

moderator, slash translator, simultaneous on occasion, Jonny Thompson, General Manager
for Nichion International Thank you.
So before we begin, before we get into the details, I just would like to give you a quick-1-overview, just a few facts and figures of what’s happening in terms of Digital streaming inJapan.
If we could go to the presentation slides.
Here are some numbers for you. As Kuwahata-san was saying earlier with the IFPI global
Market review report, Japan is the No.2 music market in the world and is also the No.3 market
in the world in terms of digital sales. This is in a country which has no major subscription
service at the moment. There is no Spotify. There
are no other major services in action in Japan at
the moment. But it is still the No.3 market in theworld. And those are the values even though it’s
the No.3, it’s about $458 million for 2014, I
believe. And the distribution between physicaland digital, as you can see it’s still very high inJapan in terms of CD sales. It’s almost 80%,nearly 80% Physical, 17% Digital. And this is for recorded music obviously, this is on themaster side and publishing is an entirely different matter. We obviously make a little lessmoney than labels do. So it’s a little bit different.
And there is a copyright income, as you can see, in terms of the share on the master sideclose to 20% of label income comes from Digital.
But for copyright income, Digital makes up only
7.9% of copyright income in Japan. The list of
the categories as you can see, you might besurprised to note and this will probably indicatethat is still strong physical market if you look atmechanicals which are obviously CD sales, right
below that is videograms and videograms
consist of DVDs and Blu-rays and all those round pieces of plastic that still actually sell inJapan. And then there is broadcast and Performance and Karaoke. A word about Digital
Karaoke, in many reports you can see from around the world, sometimes Digital Karaoke islumped in together with Digital as interactive sales and that is not correct. Digital Karaoke isa separate category, it is Karaoke when you go and sing Karaoke in Japan, the Karaoke
shops now are all digital mostly and it’s all collected automatically, so it has nothing to do withwhat we would considered to be regular digital services.

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Finally some trends in 2014, without any
streaming service activity digital music sales still
increased by 5% over prior year, Single track
downloads increased by 19% which means
there is still a very strong download based
market. And within that, it’s interesting to notethat there were 41 singles which sold over 1
million downloads. There were also 3 singles
that sold over 2 million and there was one single
that had over 3 million downloads in Japan. Now at the same time subscription service
increased by 150% but if you look and if you recall that the total value for copyright income
is about $458 million and $82 million is from subscription services that would lead one tobelieve that there might be some riable services in Japan. But what that number is in manycases in Japan, when you purchase your smartphone, there are many services that areautomatically included which average maybe about $3 per month. And most of those services
if you tend to forget to cancel them, they renew automatically. And lots of growth that isincluded in that figure is automatic renewals for services that are pre-installed into your phone.
So it’s not necessarily an indication that subscription services are the be all end all in termsof future growth in Japan.
So those are the numbers and highlights, now I would like to kind get into what’s actually
happening in the Japanese market and I’d like to start with Charles to my left here, Charles,
If you could give us update on what’s going on in Japan in terms of streaming services andwhat’s happening, that would be great.
CT: As Johnny was telling you guys, there wasn’t any big major
streaming digital service up to last week but currently they are.
They are streaming services on demand also like a radio type.
But the one that I want to mention is called “AWA” which has
started last week and there’s another one coming up which will
start next week called “LINE MUSIC”. Those two’s are going to
be big game changer I think. And also within this year, we are
expecting to see more of the international major streaming
services coming in and I’m sure Apple & Google, one of thosemight start. And I just want to mention that I’m an already userof “AWA” and it’s very fun to use. The gadget for music lovers.
You make playlist and it has window of 8 songs. You like a making own cassette tape now-3-back in the days. And also LINE MUSIC, I think it’s going to be huge. Because LINE is thelargest social network site in Japan and it’s already part of people’s lives so people use thatfor communication and sharing photos, sharing messages, stamps, and stickers. And now
they about to share the music so I think it’s going to be a big one.

JT: Charles, Both AWA and LINE MUSIC are those local Japanese services only?
CT: Do you mean the big ones?
JT: AWA and LINE. The ones that you just stated. They are only for the Japanese market.
Is that correct?

CT: Yes, Exactly.
JT: Ok. That’s interesting. I think AWA started May 28th and LINE starts on June 12th. And
those of the first two kind are significant services that will start Avex, Sony and UNIVERSAL
recently as well have all come on board with those services. So I would like to ask Seo-san
from a music publishing stand point. Do you think that there will be some benefits domestic& international repertoire in Japan with these streaming services?

KS: One of the things to please keep in mind is that I in terms of domestic & international,
the market splits between the two is that domestic is now 87% of the market and international
is only 13%.
There’s lots of reasons for this and I think we can all agree with what I said that there is atremendous amount of interest in International music in
Japan. I think the problem is the way that the music iscommunicated and how it’s made available to the fans andJapanese market. It’s probably very limited and what to doabout those limitations is one of the issues that is key torevitalizing the growth of International in Japan.
The AWA service has just recently launched and things that
I mentioned is that one of the unique features of the AWA
platform which is something that Charles mentioned as wellwhich is the ability to create a playlist. And what makes aplaylist interesting for Japan is that you can freely combine-4-International repertoire together with local Japanese domestic repertoire and create a playlist
which will probably quite possibly International music more exposure, and a great opportunity
to be heard and also maybe create more opportunities. At the same time I noticed that AWA
now has a total of 450 thousands subscribers in 4 days, which I think is a good sign as wellfor that service also.
KS: I feel that it’s a really good opportunity for services such as AWA to provide exposure forboth Domestic & International catalogues. Obviously this is a platform now where you canhave both sides of music that will be available and create new opportunities for that music.
UNIVERSAL is onboard and Sony is onboard, Avex is onboard.
Avex is actually an investor in AWA as well so that they have a vested interest to make surethat the services is successful also. But the key there is obviously to create new opportunities
for music and new opportunities to create an audience, and hopefully a younger audience aswell to listen to both International & Domestic music.

JT: With that I would like to ask Soma-san. I have to ask Soma-san in Japanese so pleasebear with me.

NS: The question Jonny asked me comes from a much different perspective, which is theartist management production perspective and how streaming services might help benefit
local Japanese artists and domestic artists.
The first thing I would like to point out, which maybe all of you are already aware of, is thefact that contrary to what happens in other countries in thecase of most of the artists in Japan the managementcompany or what we called production office actuallyowns the master rights to the artist masters and it also
controls most of the publishing to those artist as well. So
in a situation where most cases where you will be able to
go to the label to license directly the masters. In Japan thelabel is limited and what rights they are able to license andultimately you will have to go streaming services out
ultimately have to go to management companies andproduction companies to trying to get their approval interms of licensing their artist to the services. At the sametime, in terms of benefit for the artist I do think that it’s a positive thing however obviously ina market which has very rich CD sales where 80% of market is still physical, and as we all-5-know where the value of physical CD sales is significantly greater than what we can get fromstreaming service, there is obviously a lot of debate within artist management companies
themselves about what the value of what you are giving up in return for what you getting, andwhether it makes sense to put aside a physical product market and move immediatelytransition over to streaming. My view is it probably won’t happen. Most likely what will happen
in terms of artist management companies is that maybe 6 months or maybe a year from now,
seeing how these services perform and then at that point perhaps start introducing somecatalogue and some older songs onto the services. Streaming is an entry point as a way outof Japan, but at the risk of a kind of wholesale abandonment of a very physical market is avery difficult decision for management companies at this point.

NS: Something that I think is also very relevant and very important is, as an artist
management company, my responsibility is to increase the value of my artists, and increasing
the value of artists obviously involves many things in terms of management companies they
derive either in come or not only from CD sales which are very important but also obviously
from merchandising, from concert tours, and so on. And how you increase add value
becomes really critical and in Japan a much of that value, one of the barometer evaluating
artist become CD sales. And chart activity for CD sales. How many numbers units you havebeen sold, what ranking you are, where you are. That is a valuable barometer for clients &other people you trying work with to increase the value of artist. In the streaming environment,that is necessary the case. It’s very difficult I know they are talking about the transparency
before artist management prospective and how transparent information can be what does
really mean if you have X number of streams. And how that affects the evaluation of theartists also another area from artist management prospective that I feels they have toconcerns about. I do love streaming services.

JT: Are you already become a subscriber with AWA?
NS: I’m already a subscriber with AWA as well.
JT: Actually, One of the things that Soma-san mentioned which is the different set up in Japanin terms of artist management companies controlling rights, master rights and publishingrights. I think that it’s going to be very interesting so that I am going to ask Charlie that interms of some of the streaming services which have launched, whether it be AWA or LINE
MUSIC, could you maybe talk about some of the licensing issues which might been related
to the launch of those services?
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CT: Well… I think everybody now has heard, Soma-san was saying & Johnny was saying,maybe outside of Japan, in most of your countries, subscribing service companies can go to
few major labels also to a big label to get the rights of using their rights of masters but thesituation is so much different in Japan. You got go to each and every labels of course but toother management companies also maybe publishers who owns masters so that is big
difference I guess.

JT: I guess that means we need to have lots of negotiations directly with each repertoire
owner as opposed to just 1 single entity you can negotiate with, so that makes it very, very
complicated and very, very difficult. Of course how certain management companies are goingto value their artist against against other management companies will also be an issue aswell.
I want to ask Seo-san. Do you see the streaming business as something that might replace
CD sales in Japan? It’s 80% or higher right now, so could we see a 50:50 split sometime infuture?

KS: Actually before I came here for this panel, I had a discussion with some members from
Avex and part of AWA team. I actually asked them about a question how they see the futureof streaming service in terms of replacing CD sales. Basically In Japan, there is a large groupof individuals who are willing to spend $30 for an album and $15 to $10 more for single. And
that group is not a group of individuals or consumers who are going to be interested in piracy
and illegal downloads anything like that. They are a very loyal CD buying public and very
loyal CD buying audience. And my discussion with Avex team from AWA seems to indicatethat they don’t feel like that they are going to be taking away from that audience. That
audience who is going to purchase CD’s, they continue to purchase CD’s. So this isn’t areplacement factor, this is actually it will be more of extension or another marketing outlet formusic rather than something it is going to be replaced.

KS: One of the things that I was talking about is what AWA is aiming for. It is not targeting
heavy CD consumers. That person is going to buy the single and that person is going to pay$30 for an album and that person is going to pay $60 to $70 DVD. Instead, what they areaiming for is more of the light users. Somebody who maybe for that particular consumer $30
is a lot of money, or $15 is a lot of money. Somebody who is interested in music but maybe
doesn’t want to spend that much on CDs. Maybe wants to have access to music for a morereasonable fee. So that’s the range group they are targeting.
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Light user is the right word and light users like to listen to music.
At the same time, AWA is not in the business to dominate the Japan streaming market. They
feel it’s very important that this kind of service opens the window for other streaming services
whether that would be LINE MUSIC, or Spotify or Google, YouTube or other services to beable to come in to the Japanese market as well. How they will play out, nobody knows, but
certainly this is not a means for one company to try and dominate an entire industry.
Again, AWA’s unique approach is to reach a target audience that may be interested in both
Domestic and International music and make it easier for that audience to be able to accessthe music.

JT: I am going to ask Soma-san now that Seo-san has mentioned Spotify as well as otherservices. Since AWA and LINE MUSIC are both very local domestic services, and Spotify
has yet to launch in Japan, and we don’t know yet when they are going to launch in Japan.
Although they promised every 6 months they are going to launch. But I was just curious froman artist management prospective, if you think Japanese artists would be looking to kind ofreach out to the rest of the world and maybe create opportunities in music for themselves
and in the rest of the world. That’s very difficult to do if you only have a local service so I wasgoing to ask if that might have any effect on any of his thinking in terms of what streaming
services might become available in Japan.
NS: AMUSE INC. manages two artists, one is “ONE OK ROCK” and the other is “Perfume”
and those of both artist you might already be familiar with.
Both of those artists have been licensed on Spotify worldwide to make themselves available
streaming as well. So in terms of artist management, in terms of musician position, they are
already taking actions in certain areas to make sure that artist get exposure. And I pointed
out that it having international base streaming services such as Spotify coming into Japan
will obviously be another benefit to Japanese artist in terms of international exposure but
important element for that is what the strategy is again for creating the value for artist. Simply
putting the artist on platform alone is not what artist management company in Japan islooking at. It’s more extra value you can bring to the artist and what kind of strategy & whatkind of tactics how you going to develop. All of those issues have to be taken in account andnot just single issue being able to have worldwide exposure but obviously how it’s going tobenefit the artist locally in Japan as well. I mentioned that he would like to see that thoseartists have more and more opportunity to reach an international audience but obviously thestrategy and the follow through have to be carefully thought out.

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JT: Well this is interesting, because I’ve run out of questions.
I thought that this was going to take a little longer so I think it might be good to open the floor
up to questions anybody might have. I know you are going to ask something because you
look like you wanted to ask something from the beginning.
Female: First of all, It’s little sad you go online like we have done it in Europe in many many
years and lot of people have got bankrupt because of online services. Right now, we arefighting against Spotify which you allowing in. So what kind of strategy do you think about toavoid same situation as in Europe?

NS: In answer to your question, what I was saying earlier is that basically the strategy isgetting back to what artist management companies are doing in Japan and all around theworld. It’s monetizing different areas,
obviously merchandising, concert touring,
and whatever else. I am saying thatstreaming is just one another area forincreasing income. It’s not something thatis going to replace the value of CDs andthe purchase of CDs which continues tobe strong in Japan but it is something that
can also add extra value and not
something it is going to replace the existing value. You may disagree , but that’s the answer
I can give you. It’s a very different market and how the market reacts and how the fan basereacts. This was in the market and you have a lots of piracy either so they are different issues
here at work but I think he would agree that the strategy has to be well thought out. Which is
why this isn’t a wholesale, open-door and everybody coming tomorrow and they want to be
the management companies want to be very careful and licensing. And we will be able tocontrol the licensing and even though they know that they are not going to make lot ofrevenue or money from those services, to find a way to incorporate them into the other areasof income that they are generating.

Male: That is very interesting how different the Japanese market is and also it must be apretty big change coming up now with the most develop market that mobile consumption is
actually the prime driver of any consumption pattern. And you wouldn’t sell any CDs to sortof capture that part of the question. I will actually also disagree with speaker here because if
you see the earlier launched market in Spotify, they have about 50 to 60 % of user basis-9-actually monetizing with the subscribers so we see that actually the business is growing backto the levels it was in the 80’s till the 99. How it look like that you will lose physical sale andthen you will hopefully sort of convert that to a mobile consumption pattern at different pricepoint. How do you think about that?

KS: If you take the example of AWA, as we said earlier, AWA is the service that is being
funded and entirely supported by Avex Record label.
Obviously, Avex as a label investing its own streaming service and they have a vested
interest to make the service successful but also have an interest to make sure that the service
does not cannibalize the CD sales which obviously are greater than the streaming service.
So it’s getting back to what I said earlier which is one side is for an existing area which is a
CD side and this is a new platform area to generate additional sales not cannibalize sales
but to reach a different audience. Maybe at a certain point of time, the streaming audience
will overtake the CD audience but to be honest we don’t know. It’s one strategic approach inJapan and involves lots of thinking. Obviously Avex doesn’t want to lose money on CD sales
and doesn’t want to lose money on AWA that is a platform idea they came up with. What ismost valuable is generating income in the in Japanese market with subscription services
being one of those areas.

KS: Another key point for these services, whether it be AWA or LINE MUSIC is thedifferentiation from other services, such as localizing and making the services specific to theneeds and wants of consumers in the Japanese market.
And it’s very very focused on that I have seen some of the applications that both LINE MUSIC
have and AWA have and they are very unique for Japan. Those applications probably
wouldn’t necessarily be applicable in another territories, utilized in another territories. And
that’s also another one of the unique things always about the Japanese market it tends tofind its own way to meet the demands of its audience.
We may end up where you have stated, but my feeling is concept of localization anddeveloping something that works particularly in this market is something that would be alaunch point for those services.
I will also add that for AWA and also for LINE MUSIC, for these local services, there are nofreemium platforms. They are all paid subscription from the beginning. They are no freeservices to start with. There is no giving away of any music, any of these services. You haveto pay in the beginning. They are different platforms but there is no freemium to start with atall.

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KS: As a music publisher, my interest obviously is also making sure of my responsibility to
the songwriters I represent so that I am making sure we are generating adequate income
from these services and definite revenue from those services as well. I want the services tobe successful but I also obviously want to be able to have a rate structure in place that makes
it worthwhile for the writers we represent as well.

Male2: OK. Looking at how social media is increase and coming integrated with streaming
services here in West. I would like to ask one question to Seo-san which is that I am very
interested in AWA and it is kind of promoting with 8 songs enclose playlist format whichranges selected for social media. And kind of quite well organized in Japanese society. So
obviously AWA is supported by Avex Music Publishing Inc. How does it to compete against
LINE MUSIC which is supported by one of the biggest social media platform in Japan whenit’s launches services which is so reliant on social media.

JT: I am interested to hear the answer to that.
NS: Actually, I’d like to hear the answer to that question as well.
KS: I haven’t seen the LINE MUSIC service yet either so until June 12th, when it does launch,
I can’t answer that question.

JT: I am not going to answer on behalf of Seo-san or anybody, but I do think that in having
seen the presentations for both the AWA service and LINE MUSIC, I think they are very
different. I don’t necessarily think that they are competing against each other. I think they arevery very different services. And I had long discussion with Seo-san before this meeting about
the AWA service, and the playlist factor which Seo-san mentioned is a very key factor for
AWA service. It’s very unique and it’s getting lots of exposure and lot of attention. That is not
the primary function of the LINE MUSIC service. They are not looking at a playlist factor.
Actually their platform itself is very very simple. They are trying to reach a different level ofaudience and even through some of the pricing structure issues they are having they aretrying to do that as well. So I don’t necessarily think that it’s a case of one against the other.
I think that they might be trying to serve different needs. And ultimately one maybe more
successful than the other but there might be room again with the localizing issue, of being
able to have different services which provide different functions and meet different consumer
needs at the same time.

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KS: One thing I also mentioned earlier is that obviously AWA is not looking to dominate thestreaming industry in Japan. They welcome having more streaming services come in to
Japan, but one interesting point is that the Avex Group is also a 20% owner of LINE MUSIC
as well. So they have invested also in LINE MUSIC, and they have AWA as well so obviously
they are looking to create different platforms for different needs and I think to be able tosupport those services equally.
JT: So we have come to the end of session actually. It’s red clock countdown time. If you
have any other questions, you can ask me on the way out. I would like to thank the panelists
again and thank you everybody for your kind attention.

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