MIDEM2008 MPAJ Conference

Japan Music Industries & Market
Update 2008

MIDEM2008 MPAJ Conference－sarah fund－This project is promoted under a subsidy granted Common Purpose Fund from sarah, The Society
for the Administration of Remuneration for Audio Home Recording ,which fund was founded to
publicize the principles of copyright.

Moderator
A⇒Alexander Abramoff, President, AIA International Co., Ltd.
Speakers
MS ⇒Mahito Sakai, Sony Music Network Inc.
AS ⇒Asa Suehira , Aniplex,Inc.
KO ⇒Ken Ohtake , President, Sony Music Publishing( Japan),Inc.
SM ⇒Sebastian Mair , Fujipacific Music Inc. (EMI Music Publishing Japan Ltd.)
Reporter
MT ⇒Midori Takayama , Recording Industries Association of Japan
A: Good morning ladies and gentlemen, and welcome to this session. My name isAlexander Abramoff. I was born, raised and educated in Japan, and I have been with theJapanese music industry for more than 30 years. I now run an entertainment consultancy
in Tokyo called AIA International. It is my pleasure to MC this session today; the session
entitled ‘Japan Music Industries and Market Update 2008’. Through this session, we’ll
have an overview of the Japanese music market, and we’ll have a close look at its digitalscene. And then we’ll talk about how active Japanese companies are overseas, trying to
exploit their creative assets. We then will be taking plenty of time for a questions-andanswers session and we’ll try to answer questions you may have on the Japanese music
market.
Now in order to use our limited time efficiently, I would like to go straight to ourspeakers. Our first speaker today is Midori Takayama, senior staff (member) of the

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Recording Industry Association of Japan (RIAJ),
the governing body of the recording industry inJapan. Midori. will give us an overview of theJapanese music market.
MT: Thank you, Master of Ceremony and goodmorning everyone. My name is Midori Takayama
from Recording Industry Associaion of Japan(RIAJ) and I’m working for the public relations
department. Today my topic is an overview of the Japanese recording industry. And I
hope this will be the starter for a later discussion or later presentation. So let me start.
This is the contents of my presentation. First, our profile and characteristics of theJapanese music market. I’ll touch on some statistical data from the Japanese market,
digital music and number of debut artists. CD rental shops and resale price maintenancesystem are very unique features of the Japanese market. And lastly I’ll talk about themobile market.
This is a profile of RIAJ. We were established 66 years ago, and became IFPI National
Group 31 years ago. Our members (include) 45 record companies. And our activities areroughly divided into two groups. One is a trade association and another is a collecting
society for record producers.
This is the characteristic of Japanese music market. I’ll explain the first two things,
resale price maintenance system, CD rental business a little bit more in detail later:, lowphysical piracy. A high ratio of domestic repertoire on the physical production, ourdomestic repertoire amounts to 79%. As for the digital market, the distinctive feature is
the mobile phone that is dominant.
This is the market size of the Japanese recording industry since 1990. We recorded thehighest sales in 1998. The next year, from 1999 our physical products continued to
decline. But our physical market, that is sound recording and music videos, plus digitalmusic tend to be stable or slightly increasing for the last three years. Digital music now
amounts to 16% of the entire music market.
Next page, I’ll touch upon the digital music market. This is the transition of the digitalmusic market in Japan. The bar chart shows quarterly figures. We started collecting thesales data from our members from 2005 and experienced a 50% increase for the last two
years. You can see that 90% was sold via mobile phone in the digital field. The
remarkable thing to say is the Japanese band called GReeeen, achieved one million full
ringtone sales via mobile phone, the first in the world. Sakai san will touch upon that laterin his presentation.
This is the number of debut artists. Since 1999 we have been experiencing the biggest
sales decline. As you could see (this in) the previous chart. In accordance with thisnegative sales growth, the number of new artists declined by 50% around 2000.
However, we review the importance of new artists in our industry and reconsider the

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cost of new releases in effective marketing of new artists,
and try to let many new artists debut. But until now thenumber has totally recovered.
From now, I’ll touch on two features of the Japanesemusic market. One is the rental shop. This is a transition of
the CD rental market. And Japan is the only country thathas legal CD rental shops. And you can see the number ofCD rental shops is decreasing from this chart. However(The) floor space is not decreasing because of the changeof store type. Two big CD rental chain companies withlarge capital opened stores all over Japan. That is because
the floor shop is not decreasing.
We do not think the CD rental shop is favorable for us.
But at the time of 1980 the first CD rental shop was opened in Japan, we did not haverental rights. The rental shop increased sharply in a short period, and reached more thansix thousand in 10 years. We can’t do anything because we don’t have rental right. So welobbied strongly and in 1985 we obtained a rental right and the right of remuneration.
And we again last year negotiated with the Association of CD Rental Shops and won therise of the fee.
This is another feature, the resale price maintenance system (PRMS). And these twocharts show comparison of the top sales physical product retailers in the US and Japan in
March 2006. Observing the US market, shops not specialized in music sell the majority ofCDs but they have fewer catalogues compared to specialized shops. But thanks to PRMS
in Japan, producers market a variety of new releases, and CD retailers buy a wide rangeof stock which supplys the consumers (with) many choices. We think this PRMS works(as) a healthy distribution of physical products.
My last part is the mobile market. You could see our challenges of mobile market
which should be the driving force of our industry. Our survey of illegal mobile digitalmusic shows a huge number of unauthorized music files are shared by its users throughmobile bulletin board (BBS sites) in a form of similar ringtone and full ringtone. 83% ofusers know such illegal services and 37% are using it actually. Especially teens, 64% oflower teen and 57% of upper teens use the services. A considerable share of users findthese illegal sites, illegal files by mobile search engines. 14% of illegal site users did
uploading, not only downloading. Teens tend to download more full ringtones thanringtone from these illegal sites. Illegal downloads exceed legitimate downloads. We
estimated that illegal downloading is about 399 million files a year. On the other hand,
legitimate mobile downloads was 327 million. To tackle this tough situation and recover
the digital market we have taken the following measures.
The first thing is enforcement. We have already sent over 140,000 infringement
notices to BBS operators on mobile phone networks. Four cases have been (found) guilty
under the penal code. One was 1 year prison (term) with 3 years suspension, and other 3were a monetary penalty. The second one is technological measures. We have initiated

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discussion with mobile operators to completely eliminate piracy. The third one is law
amendment. At the moment, downloading from illegal sites is considered as private
recording and legal under copyright law in Japan. In other words, private recording is
admitted whether the source is legal or not. Which makes our enforcement quite difficult.
We therefore are seeking an amendment of the law, downloading from illegal sources
should be considered illegal.Lastly, I’ll talk about the RIAJ campaign. We are going toconduct the biggest campaign that we have experienced and is supported by four
government bodies, the Agency for Cultural Affairs, Ministry of Economic, Trade andIndustry, Ministry of Communications, and National Police Agency. In addition, 5 music
associations support (us), including MPA, which is the organizer of this session, and 3
mobile carriers as well.
That is all for my presentation. I thank you very much.
A: Thank you very much, Midori. Unfortunately for us, Midori has her next engagement
and she has to leave the auditorium right now. So she will not be able to join us later forour questions-and-answers session. Why don’t we give Midori another big round of
applause? Thank you.
OK, our next speaker is Mahito Sakai of Sony Music Network, the propelling force
behind Sony Music’s digital activities in Japan. Mahito will talk about the digital scene of
the Japanese music market.
MS: Thank you for the introduction Mr. Abramoff. Hello, myname is Mahito Sakai and I work with Sony Music Network, a
subsidiary of Sony Music Entertainment Japan, Inc. that handles
all of its digital music. Today, I would like to give a
presentation that I hope will not only act as an introduction to
Japan’s digital music market but also answer some of thequestions I frequently hear about this unique market.
First, let’s start where Ms. Takayama left off by looking at
the trend of digital sales. This is a chart showing Japan’s
download revenue for the past three years. The red shows
mobile sales while the blue shows pc sales.
Note that sales is increasing dramatically, approximately
doubling in the last three years and that mobile sales dominates the market.
Ok, so, we know that mobile comprises the majority of digital downloads but what
specific services are there? And when did they start?
This slide summarizes the history of music download services that we have today. As
you can see, PC downloads started early (1999) while mobile phone services didn’t start
until late 2002. Mobile services, however, commenced several new services within avery short period of time. I will go into detail on each service in a later foil but please
note mobile services started with ringtones and ringtone videos, which are services
based on partial tracks and later moved onto full tones and fullvideos. Also, there are

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three carriers/operators in Japan: KDDI, SoftBank, DoCoMo. Please note that KDDI has
always been a first-mover to challenge new service formats.
As I promised, let’s go into further detail about each service. Starting with the partial
track services. The ringtones are 45second parts of a track that are downloaded and canbe used as the track that starts playing when your phone receives a call. The ringtone(video) is similar but is a portion of avideo clip used as a ringtone. Cover art
and lyrics are not included and pricing isdetermined by record companies.
Now onto the full track downloads.
Here is a chart of Full Ringtone and Full
Videotones and its features.
An
important feature of the Full Ringtone isthat the Full Track not only can beplayed back but also can be used as aringtone. Both include Cover Art andLyrics.
Lastly, ringback tones, which are partial songs that the caller hears when he or shecalls you. Ringback tones in Japan are charged on a monthly basis. The file is not
downloaded but set with the carriers.
Now that we have a better understanding of each service, I would like to show you
how each format fairs in the market. We are now looking at a pie graph that breaks
down the mobile digital music download in July to September of 2007.
Ringtones make up half of the download numbers but when we take a look at therevenue, Full Ringtones accounts for more than 50% of Sales. Obviously because Full
Ringtones have a higher per unit price.
Now, here is a chart showing the number and percentage of phones that are compatible
with ringtone and fulltone services. 95% of all mobile phones in Japan today are ringtone
compatible but only approximately 50% are compatible with Full Ringtones.
Great, so now that we got a snapshot of the current market. The question that usuallycomes up next is, whats going to happen in the future? To answer that question, I thinkits useful to take a look at the recent trend of Ringtones and Full Ringtones. Here is arough graph of download figures of the two services between July 2006 and December
2007. Notice the shrink in gap between ringtone and fulltones. Also, the chart I showedin the previous slide, showing only 50% of compatible fulltone phones also means there issignificant room for growth in fulltone services as the number of its incompatible phones
become compatible.
So what will happen in the future? As the trends show, I think ringtones are a mature
market and I expect no change or gradual decline in the near future while Full ringtones
continue to increase.
I think Ringtone videos are going to decline but Full ringtone videos are a bit tricky
because they are highly dependent on the capacity of the phones and carriers (softbank

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has yet to adapt this service). As for ringback tones, I see a healthy growth trend and I
expect this to continue.
Next, I’d like to use specific examples to show how Sony Music has used digital musicas a marketing tool. I chose Yuki as an example because she’s a veteran Japanese artist
that successfully integrated digital and physical product marketing. I wont go into detailsof each step but the marketing method was unique in that a solely digital single called“Biscuit” (where no physical CD) was released bringing fan interest to the digital music,
and then using
multiple versions of
2nd single “Hoshikuzu sunset” ringtones(introduction, buildup, tension, climax, emotional, ending) as “teasers” to create enoughhype for a successful physical CD album. The Best Album “Five-star” was highly
successful and charted number one soon after its release.
We looked at Yuki as a veteran artist so now lets check out a new artist, and see how
digital music was marketed differently. Stephanie, debuted last year and is a good
example of using tie ups with animation on TV, which is also common in Japan. The
ringtone for the singles were released with the OA of the animation. Later, a 90 second
animation version was released solely as a full ringtone (not in physical CD). The
complete full track was released a week prior to the CD. This method was popular withthe anime fans, and as a result, Stephanie’s digital sales exceeded its physical sale andcreated a lot of buzz in the market. She was also nominated for best new artist of theyear.
So, now that we have covered the specific mobile formats and how they are used as amarketing tool, I would like to move onto a question I hear often. “Why is Japan’s mobile
market so strong?” Compared to the US or other countries, 200yen for a partial trackand 400yen for a full tone is expensive but the market is growing exponentially. WHY?
Also, why does the Japanese consumer prefer mobile over PC?
Well, there are multiple factors that attribute to the strength of mobile, but I think theexistence and role of Label Mobile, the largest content provide in Japan is one of themain key factors. What makes LM so special? It’s a company established in 2001andcurrently jointly owned by over 50 record companies.
Since the largest content provider is owned by record companies and not operators orphone manufacturers, it gives record companies more control over artist development
and marketing hit titles in the digital world.
Label Mobiles focuses on single retail sales, whilst other CP’s engage in a monthly
subscription basis. Thus, easy for users to download single song. Also, holds the largest
catalogue of music. Close connection with operators. They have frequent discussions tochallenge new technologies and services. Not surprisingly, the Label Mobile site is #1
on all 3 official operator sites based on site traffic and sales volume.
A second factor I think is the low commission rate for consignment sales through theContent Providers. Usually, its about 20-30%. including mobile carrier billing fees.
(Compared to 40-50% I’ve heard in other foreign markets) And this low commission
equates to higher profits to the record companies, management, artists, publishers
dealing with the music being sold.

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A third factor is Japan’s advanced telecom carriers and phone manufactures that enablesophisticated mobile services that help music downloads. Most experts agree that Japanis the global leader in telecom, about 2-5 yrs ahead of Europe and US in most areas.
Japanese carriers were to the first to launch 3G on a large scale. And manufactures areconstantly coming out with new and interesting functions. Many of the current phones
Include functions like, on-line roll-playing games like Final Fantasy, GPS applications,
Quick Response code reader.
There are, of course many competitive advantages that are inherent to mobile phones
and perhaps not unique to Japan but have undoubtedly helped the mobile market. I’d liketo briefly touch on these advantages. Credit card payment for PC is a hinderance forteenagers, the core target age group of music downloading in Japan, since they don’t use
credit cards. Installation is necessary for PC applications but with mobile phone, there isno need to worry about compatibility with device. Broadband coverage has come a longway but there is much higher penetration with mobile phones. While PC’s are becoming
easier to use, the mobile phone is easier to carry and can be used anytime anywhere.
Lastly, there is a very strong mobile culture in Japan. Mobile phones are not just a
consumer products but tools for fashion and self expression. Do you have the latest
model of the Docomo phone? Do you have a popular song as a RBT? Do you have a
decorated mobile phone?
I’d like to close my presentation on a light note by showing pictures of heavily
decorated mobile phones that are popular amongst teenage girls in Japan. Also known as“decoden.” “deco” for decorated and “den” short for denwa which means phone inJapanese. I think it is a good example of how fanatic these teenagers are with theirmobile phones.
I was very surprised when I first saw these decorations. These are not just yourordinary straps and charms but a whole new level of decoration. I don’t think this one
uses Swarovski crystals but I’ve been told that some of the decorations are so expensivethat they cost almost as much as the actual phone.
Thank you for attending this seminar.
A: Thank you Mahito, that was excellent. Especially, I think we all liked the last photo. I
think we have a very good understanding of the Japanese music market now.
Let’s now try to shift our attention from Japan to outside of Japan and see how active
Japanese companies are overseas trying to exploit their creative content. Japan has
always been associated with its animated content, and Japanese anime is practicallyknown in every part of the world. The word ‘anime’ is actually an international word suchas ‘judo’ and ‘tsunami’. And our next speaker is Asa Suehira, Director of Aniplex. Aniplex
is one of the leading exporters of Japanese animated content, and I think his company
well typifies how active Japanese companies are overseas in this area. And it should beinteresting for us to hear from Asa who is at the very front line of such. Asa?

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AS: Thank you very much. Today, I’d like to talk about Japanese animation known as‘anime’. And introduce its business structure and its opportunities. My name is Asa
Suehira, and I’m in charge of international licensing for Aniplex. Aniplex is an anime
distributor and an anime production company based in Tokyo, and have produced manysuccessful titles worldwide. Today I would like to share some of my experience with you
and hopefully today’s presentation will be helpful for your future business.
So I’m going to be talking about anime today, and first I’d like to ask the audience if
you have ever seen anime before? Could you raise your hands if you have seen anime?
Good, so I guess everybody, not everybody, but a lot of people in here have seen anime.
So I assume you are familiar with these titles. The top title, the top illustration is from
Pokemon. The bottom left one is from Dragonball, and the right one is from Yu-Gi-Oh!
And these three titles are the most famous properties fromJapan and are extremely successful worldwide.
Pokemon is originally a Nintendo based video game then was
released as anime. The first anime movie was released in morethan 3000 theaters in the US. And the box office was an
astonishing $91 million. Pokemon’s TV series was released on
Fox Channel in the US, and Pokemon franchise has sold over
167 million units in video games, and ranks as the second best
selling video game franchise of all time.
Yu-Gi-Oh! was originally a comic book then turned into an
anime series. Together with this anime a trading card gamewas released and sold over 15 billion card games worldwide.
And another successful story from Japan was Dragonball. The TV series aired on
Cartoon Network, and many products were released around its successful broadcast in
the US. So anime is known as Japan’s most successful cultural export. And most exports
from Japan are cars or electronics. Japan was never able to be successful with exporting
cultural elements such as movies or music. And anime has now become a familiar
entertainment genre among kids around the world, and I’d like to briefly explain its
business structure.
First I’d like to explain the market size in Japan. Anime’s market is around $2 billion in
Japan. The movie business is around $5 billion. But the $2 billion market for anime is justthe tip of the iceberg. The real business for anime is the anime derivative market whereyou (have) character business selling toys, video games, merchandizing, and this makes
up to a $20 billion market. On the other hand the movie business’s derivative market isonly about $2 billion, and (so) you can tell that there are many opportunities with anime.
And here’s one example of how a property can be exploited. Fullmetal Alchemist, oneof Aniplex’s most successful titles, was first launched as a TV series in Japan. And was
released with many products such as DVDs, card games, video games, sound tracks andtoys. If you look at the sales performance for Fullmetal Alchemist, this shows that theanime derivative product has a bigger share than the anime market. The key to anime is

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MIDEM2008 MPAJ ConferenceMIDEM2008 MPAJ Conferenceto establish a brand and connect the audience with the character of the series. And once
you establish this it is pretty easy to sell merchandize and toys around the character.
With this unique business structure of anime, anime consortium comprises of many
companies such as an anime production company, the manga publisher, record company,
broadcaster, toy companies. And each company has a strategy to release its own product,
and this is reflected in creating the target audience, and strategic business plans.
A record company’s role is to place an opening and closing theme song in the anime. If
it was a 52 episode series, a record company would place a new opening and closing
theme song per 13 episodes, and prepare four opening and four closing songs. And thiswill be enough to make a compilation album of the anime series. Also there is a big
opportunity for placing music and video games and merchandizing products as well.
Recently in Japan, slot game companies are making animated driven games. There is a
big demand for using music and anime from the anime. Record companies and publishingcompanies are finding new markets to exploit their rights.
Here are some examples of successful anime albums comprised of tie-in songs. For
Fullmetal Alchemist, it sold over 350,000 units in Japan. Since it comes with a DVD withextra footage from the anime, the product is able to sell at a higher price than normal
CDs.
And shifting to international markets, the business structure is basically the same as
Japan. In the US, the anime market share is approximately $730 million, and the anime
derivative market size is about $2.6 billion. So I would like to explain how anime isbrought overseas. There are basically two ways in bringing anime to the international
market. One way is to find a master licensee in that territory. The master licensee will
license out each right to a specific company. Another way is that the Japanese rights
holder will directly license each right to a specialized company such as video distributoror broadcaster or merchandizing company. And by doing this the Japanese rights holder
will be able to control the market more directly.
For Fullmetal Alchemist, Aniplex took a different strategy in bringing this title to the
US. Aniplex distinguished (between) the animee market licensee and the derivative
market licensee. For the anime market we’ve licenced to a massive licensee. And
licensed each rights in the derivative markets separately. By doing this Aniplex was able
to control the bigger market and bring in Japanese products to the US.
Relating to the music strategy for Fullmetal Alchemist in the US, we have many
strategies for selling the tie-in songs. We determined that it would be very difficult for
us to sell CDs as an independent product so we banded the CDs in the animated DVDs,
and also placed tie-in songs in the video games as well. We’ve also brought artists fromJapan to animated conventions creating a lot of promotional awareness of the series. So
there are many opportunities for exploitation of products if planned carefully.
However, anime is not all optimistic. The market share for anime hit the peak in 2003
and is on the downside. In 2007, the DVD market is estimated to decrease by 20% of
2006’s share. There are many reasons why anime is not showing growth recently. One of
the reasons is the highly priced products compared to local products around the world.

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Each anime is sold (for) around $30 for 4-5 episodes, where American TV series are
priced around $60 for the entire season. Illegal downloads are also spreading rapidly
allowing consumers to download episodes illegally and rapidly.
So these are the issues that anime companies need to face and need to act (on)promptly. But we believe that anime is a business that all entertainment companies canbe a part of, and hopefully this presentation gave you some ideas in your future business.
We look forward to working you. Thank you very much.
A: Thank you very much Asa, that was excellent, thank you.
Now, I would like to open up to the floor for a questions-and-answers session. In
order for us to be able to answer a broader scope of questions, in addition to Mahito andAsa, I would to invite two more people to this stage. Ken Ohtake, President of SonyMusic Publishing, who is also a board member of the Music Publisher’s Association ofJapan (MPA of Japan). I also would like to invite Sebastian Mair of Fujipacific Music.
Sebastian is replacing Haji Taniguchi of Avex Group Holdings who cannot be here
because of his illness, unfortunately. Sebastian, we appreciate you being here with us
today.
SM: The pleasure’s all mine.
A: And before we start, Ken would you like to say a few words?
KO: Yeah. I think those three previous presentations wereinteresting enough for you to listen to. And that was very
fruitful from my point of view as well. The Japanese musicindustry is quite distinctive. There is one time zone, one
language, and still the world’s second largest music market.
There are maybe two reasons. Healthy growth of the digitalmarket, and a variety of strategies…secondary usage such as
anime. And also there is an increasing usage of gamblingmachines called ‘pachinko’. If you go to the Riviera to see theactual pachinko machine at Nichion booth they’ll give yousome kind of reward when you win.
But there is another thing that we’re a little bit struggling
about (with). We are as the Music Publisher’s Association with the help of the Japanese
government, we are in the process of extending our copyright protection which iscurrently 50 years, and we would like to have it as long as 70 years, which is thestandard of leading world zone countries. This is not only a kind of extension. We start
using the word ‘harmonization’ with the rest of the world. Please kindly give us some
support because the foreign pressure can move the Japanese government quicker andmaybe more efficiently, thank you.

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A: Thank you. Sebastian would you like to say a few words as well?
SM: Well, I don’t really quite have an opening statement, as was mentioned I am kind of alast minute replacement here. But just to give you background: I’m a Canadian, but I’ve
been based in Japan now for 12 years. As Alex introduced me, I’m primarily with
Fujipacific Music which is part of the Fuji Sankei Group. Fuji
Television which is the largest television station in Japan, asister company record label Pony Canyon which is one of the
top 10 Indie record labels. On top of that, Fujipacificrepresents many catalogues such as EMI which of course is
the world’s biggest music publishing catalogue.
I also run my own company Music Solutions which isprimarily a consulting and music branding company. We
handle CDs for Starbucks Japan, the Hilton, the Ritz-Carlton,
we have other partners and clients including A&R Worldwide,Ioda, Syn Entertainment which is production company partly
owned by Simon Le Bon from Duran Duran based in Tokyo.
We do a lot of bookings in Asia, a lot on the mobile side as well. Our main project for thelast few months has been…is actually a keitai mobile manga based by Avril Lavigne
which incorporates her image as well as some music for the previous album. Avril was
the biggest selling international artist last year in Japan, and has been the biggest for thelast five years, actually. And one other thing, I’m also the cultural officer at the CanadianEmbassy in Tokyo in charge of music. So I guess you can say that I wear a few different
hats.

Q &A
A: Thanks Sebastian, you are doing so many different things.
Now, let’s open up to the floor for questions. The lady over here, please. Microphone?
Do you have a microphone?
Lady 1: I have a question for the anime chap. How much of the diminishing, let’s sayrevenues, for anime or interest in it is about age? Because the traditional audiences foranime have been children.
AS: Right. Most of the anime produced recently are targeted towards more of the adultaudiences. So most of the broadcasting for anime has shifted towards midnight, insteadof 4 to 5 o’clock in the evening. And also the market trend is that kids are not buyingDVDs, and adults are the ones who actually are buying DVDs. So anime companies are
shifting their target audience more towards the adult audience. I don’t know if thatanswers your question?

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Man 1: Yeah, this is for Mahito. I was just wondering since you’re part of an international
company Sony, are they seeing the US market as a market that is going to develop thesame way as the Japanese market or are they trying to…since you said that the Japanesemarket is years ahead, I was just wondering if they expect it to develop the same or is itmuch different? It is kind of a basic question.
MS: There was an informative presentation a few days ago by (Thomas) Hesse, hehandles the Sony BMG digital side covering all markets outside Japan, including the US.
One unique factor of the US side is that it is mostly based on PCs as opposed to themobile side to Japan. So I’m not sure if you can actually apply some of the techniques or
methods we’ve used in Japan and direct that to the US. But I also understand that there
are a lot of common factors such as the technology used for digital music. I think the US
is focusing on better broadband connection for the mobile and better phones with morefunctionality. That’s going to broaden your usage in the US market and I think that thatwill help introducing more sophisticated services on the digital music side as well.
Man 2: This would go in regards to marketing and promotion of your artists’ music, anime,
all types of marketing in Japan. I’ve been made aware that your telephone technology hasa feature where you can take a photo of an icon and it will lead you directly to a web site,
and this just blows my mind away. And when they say that you are light-years ahead of
the other markets, the phone technology is where that’s all based upon. And I wanted toknow if you can discuss this at greater length.
MS: I’m really glad you brought this up. OK I think this is known as a quick response
code, otherwise known as a QR code. It is a two-dimensional bar code created by theJapanese corporation called Denso-Wave in 1994. Its contents can be decoded at a highrate and it is currently the most popular type of two-dimensional code in Japan. And as
you mentioned it is highly used where a cell phone user starts its camera, and points it tothis code on the right hand side it will automatically detect a URL. So at Sony Music what
we do is we use the QR codes that link them to the artists’ sites and put them on live
fliers, posters, T-shirts or PC sites, anything that can connect them to the artist’s mobile
sites. I hope that that answers your question.
SM: These are being used in Europe I guess. I don’t know if you are North American
based, possibly? So in North America…I think they started using these in Europe the past
six months. So I’m sure in North America probably by the end of the year.
Just talking about cell phones as well, especially in North America and Europe with thei-phone, and the hoopla around that. Being in Japan, my phone has been able to do thisfor the past year. So I guess with the i-phone being rolled out in Japan in the past, in thenext year i-pods have really taken off. The i-phone itself has just been anotherknickknack per se. It’s not really…don’t quite know what’s next (that is) going to haveanother ‘i’ in front of it to make it stand out in the crowd.

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Lady 2: I’ve seen this thing in Switzerland, and I find if you have a big surface panel
where you have that thing, people who do not use that function they just have this big
square thing there, and it doesn’t mean anything about the brand. So I don’t know to what
extent it is really good for the marketing in that sense. There needs to be a certain
percentage of the people that actually use the function for it to make sense.
MS: I think you have a good point. You have to have user recognition in order to use thistechnology. You can’t just have this QR code on a poster without any explanation.
Without user recognition, a huge QR code on the wall may seem to be an art design. The
user needs to know that mobile phone camera has to be pointed to the code forrecognition and connection to a link
By the way, when we use this as a marketing tool, we don’t just put up the QR code,
we provide an explanation with the code. For example, saying that if you want to go toso-and-so’s site, we have a promotional program going on, please access through thisQR code.
A: We also put it on a package itself in Japan, right?
MS: Right. That’s popular recently.
A: And you see it is quite an effective promotional tool. More questions?
OK, let me throw in this question, I think I’ll refer to Midori’s presentation. Why do thinkphysical sales in Japan are stronger when compared with those in the rest of the world?
Why do you think physical sales in Japan are stronger, Ken?
KO: A very difficult question.
A: The rate of decline in the United States is dramatic, but in Japan although sales are
declining, the decline is not so sharp.
KO: I think one of the reasons is that still the position of the physical product attracts
them to a lot of consumers, especially for the artists like teen pop idols. Because
everyone wants to keep it at home as a gadget. And they of course download theirsingles to their phones but they want to keep their physical product, as in the album, intheir library, or whatever. That is one of the reasons, I think. And also I think theacceleration of digital downloading on the movie side will increase more in the near
future because a lot of DVDs which you buy or rent will only be seen once or maybe
twice. But, you play a CD multiple times, three or four times, or more. So, that’s worth
paying that much. That sustains the CD sales in Japan compared to other markets, I think.
A: The packaging is quite important. We come up with some elaborate packages.

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KO: Yes, extremely important.
SM: Actually if I could add a couple of things as well. Going back to Midori’s presentation.
If you saw one major factor it is that broadband penetration is still just over 50% in Japan.
So for one, when you talk about illegal downloading, the means are still not technicallythere. One other factor which is very famous in a lot of artists, in record labels who dobusiness in Japan, customer loyalty is number one, it is incredible. So if you are a Rolling
Stones fan you buy every Stone’s CD that has ever been released. You buy every core
T-shirt that’s ever been out. You buy every bootleg as well. There are bootleg shopsthat still exist in Japan. That brand loyalty is something you don’t really see in other
territories, and I think it has really helped kept sales relatively steady throughout the
decline in many other territories.
A: Thank you.
(inaudible)
KO: …increase by digital, you mean? There’s an increase on the digital…I mean on thephysical surface is declining. What increased recently on the physical side is classicalmusic. So publishers won’t make any money on this.
A: I think we have people from different countries here. So let me ask this question. If
you were to name one, what do you think a non Japanese company that is trying to break
its artist in Japan should know or should be aware of about the Japanese market?
Sebastian would you like to take this one?
SM: Just what is one thing to know about the market in general?
A: Things they have to keep in their mind.
SM: There are so many different factors. Throughout my time being here in Japan, (the)one thing you hear over and over again is that I’ve got this artist that I think is great forJapan. You hear that so often but what is the actual backing? If you are trying to breakinto Japan the number one thing is just to get yourself over and get to know the market.
It is incredible how much you can learn about the Japanese industry by spending anafternoon in just going to Tower Records in Shibuya. It is six floors. It will probably give
you the best taste of the market you could possibly have.
There are so many different factors. Hitting the international music conference circuit
such as Midem. Getting to know the Japanese industry as a whole. In international terms,
it is 50% independent compared to 50% major. So you’ve got companies like Avex whichis the world’s biggest Indie. You’ve got JVC which is number two. You’ve got Toy’s

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Factory, Pony Canyon and so on. Since these are under international terms as
independent labels, get an idea on what they are putting out from the international side.
Get an idea what is selling in Japan, and you’ll be surprised quite a lot of the time.
A: Ken would you like to add anything?
KO: To find the right partner is the key point.
A: How do you do that?
KO: How do you do that? Maybe this is the case. (laughter) Use Midem. Still if you havean international artist it is really difficult to break from Japan. If you have decent successin your home country that’ll help the development of your artist in Japan somehow. Stillthat kind of situation exists.
A: Now going back to anime, what are some of untapped international markets forJapanese anime, Asa? You have penetrated the world?
AS: Almost everywhere. Europe is strong, especially France, Italy, Spain are very strong
markets for Japanese anime. Latin America is also very strong. In Latin America DVDs
don’t actually sell well but a lot of merchandizing like trading cards, sticker albums. So
each market is different with what type of product sells. I think still the strongest market
for DVD is the US and Europe. But we are also trying to move into other countries like
Africa, trying to exploit our products especially in South Africa, English territories.
A: What are some of the hurdles you often encounter with when you try to go into an
overseas market?
AS: When going to an overseas market, I think having a broadcaster is the most difficult.
Because a lot of the Japanese anime has a lot of violence, some nudity, sexual scenes. So
those are the things that a lot of the US broadcasters tend to be worried of, and often
those scenes are edited. And when those scenes are edited I think the real anime fansare disappointed to see the edited version of the broadcast.
A: Mahito, if I could ask you a number of questions. Although you can expose yourcontent on a website, you still have to draw traffic to your site. How do you do that?
MS: That is a problem we are challenged with it everyday. We try new techniques, newpromotions, we try to use banners to get traffic from sites that have more traffic than us.
I’d also like to point out an example of new a new method we used in the artist that I
showed in one of my slides. Stephanie. What we did was we did not disclose her face
anywhere on any of the sites, all mobile and PC sites, until the release of the CD. We

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just streamed her voice and pictures other than her face. We tried to get different hypefrom SNS and non-official sites. Soon enough, a lot of people started asking, “Who is
this artist?” “What does she look like?” “Why don’t you show her face?” And this hype inturn ignited Yahoo to have a link to the top page for Stephanie, and access for theStephanie site went off the roof. I think it was like 160,000 accesses that day.
A: A big number.
MS: That triggered more interest from the TV side, and it was a success story after that.
A: Do you think that digital will be the propelling force in breaking international artists inJapan?
MS: Right. Sony BMG handles all the digital outside of Japan. So if we were to do
anything outside of Japan we would have to of course talk to Sony BMG. But I think it is avery useful tool. You don’t have any regional barriers or time differences. Ourinternational artists are doing well in Japan. We’ve also tried to promote some of ourartists, especially some of our classical artists, instrumental artists, into the international
market and been fairly successful. We’ve used South by Southwest forum and applied
digital marketing there too. Triggering interest abroad and have them come and visit our
website from different countries.
A: Any questions from the floor? Our Japanese friends can ask questions too, you know?
Man 3: I feel that this question will be directed toward all of you. I like to watch theinternational charts, and I think Sebastian and Ken may answer this more directly. You
mentioned Avex is the number one independent company. I’ve noticed that they havethree singles in the top ten on the charts this week with an artist called Mirage. How
does something like that happen? Is it just the strength of their marketing? Is it the time?
How do you release three singles and have it in the top ten at the same time?
KO: Three singles from one artist?
Man 3: The artist is Mirage.
KO: Right. That happens sometimes. It is really difficult to answer that question. I think if
Haji was here he would be the perfect person. (laughter) It is really a strategic thing that
Avex has. Is it the artist called Exile? Mirage?
A: It’s a marketing technique that they use. Naturally it does get the attention of people if
an artist has three charted singles at one time.

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KO: As far as those Avex singles and albums are concerned they have a very strong
strategy of having the same song with different versions as a different product. So in one
case they add a DVD, in another product they add something else. They have a thicker
booklet in it. So it is a very strategic aspect that they are good at.
A: So in other words they are three different packages. Maybe they are using different
photos on the cover, for example, or different pricing.
SM: Maybe if I could drop in as well? That is kind of an oddity as well, I mean having
three different singles by the same artist. Maybe to give a little background aboutmarketing in Japan: radio success for one is very subjective. You could have a very top
radio hit and it doesn’t necessarily compute to sales. I’d say probably about 8 to 9 out of
10 songs top singles in any (one) time have some kind of television tie-up to somedegree. You can very much look towards…if you’re looking into Japan, historically you
need some kind of television tie-up. Whether it’s tied into a television program, acommercial tie-up with an actual product placement, to some degree. I think you could
look at the western model. 10 to 15 years ago having this kind of commercial tie-up in
the west was very much looked down upon. You could look at one of my favourite
examples is Eric Clapton, I think it was After Midnight for Michelob, it was kind of Ericsold out. This was always historically your number one marketing tool in Japan. If you
look at how things have turned over the last 15 years the two markets have very muchconverged in that respect. So it is still television rules all.
(inaudible from audience)
SM: No, there aren’t really any independent promotional companies as such.
(inaudible from audience)
SM: Not like you’d find in let’s say the US or UK.
KO: Sometimes some artist management company can act as an independent promoter
because a lot of singers’ management also has their actors and actresses on their roster.
So if they cast their actors or actresses in the drama, they also have the right to choose
the theme song which they must use their artist’s song for the tie-in. So that kind offunction is done by the artist management. Like used for leveraging, that can be analternative for an independent promoter in Japan.
A: Yes, that gentleman.
Man 4: Hi, I’m Hakkan from Turkey. I would like to ask the gentlemen a question about
new technologies and research and development. Because we have this 2D entertainment,

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and I hear sometimes rumors that people are working on holographic exposure and newtechnology and entertainment. Maybe because you come from Japan you can enlighten us
about the future.
MS: Actually I’m not that technically savvy. If there any other phone manufacture people
in the audience? No? Holographics, I’ve never really come across holographics but someof the new technology that we are thinking about at Sony music is user generated
content with emphasis on pictures. Not just on the PC-ROM but on the mobile. Also
recommendations, of course not just on the PC but on the mobile. Development of a lotof new technology like holographs helps implement new services, and we are constantly
talking to new companies, new technologies so we can come up with new services thatwill hopefully help out the music site.
A: More questions? Let me throw in this one then. With the advent of the digital era, do
you think the market will become singles or rather single tracks oriented at anaccelerated pace in the future?
MS: We actually have album downloads, mostly on the PC side, and they’ve been fairly
successful. I don’t think, as I used on my example on the slides, it is not just based on
singles but we use digital music to, especially on the mobile, to have success on thephysical almbum. For example on Yuki, we had success on the album through digital
singles. We’ve used the ringback tones, or the ringtones way ahead of the release of the
CD. And that helps us determine short term marketing approaches to go with. For
example, if you have several artists releasing CDs on the same date or in the near
timeframe and you have a limited budget what do you do? You release the ringtones andsee which artists are doing fairly well, and you target your budget to this artist.
A: Ken would you like to add anything?
KO: The single market is completely taken over by digital from physical. That means thatrecord companies used to sell, I don’t say shitty songs, but some unexpected songs by
selling albums. That kind of revenue I think was huge for the record companies but now
people, especially kids, are more picky in choosing songs. So that would become a very
big fear for the record company. So that is one of the reasons that why the highpercentage of modern kids will only buy singles on the phone and albums on the PC or on
the physical. But as you’ve already indicated PC penetration is very low, about 5%, lessthan 10%. i-tunes seems to be huge in America but they only have 2 or 3% which wehope will become a big digital album download on tool.
A: Sebastian would you like to say anything?
SM: If I’m not mistaken with the question, is it going to be reverting back to a singles
market? I think it almost has in a way. If you look at the numbers in the past year, a lot of

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people are comparing it to the golden age of single sales. Singles have gone from amarket that was almost disappearing as far as physical goes. The sales in physicalsingles have, we’ve heard numbers like Green selling over a million downloads, Avril
Lavigne selling one to two million. You are seeing some pretty massive numbers in that.
Yes it is definitely going back to the heyday of being a singles market.
A: Any questions from the floor? OK let me throw in this one then. Could the success ofan international artist in Japan be a stepping-stone for his or her success in other Asianmarkets? Ken what do you think? Well, if an artist becomes successful in Japan, can thatsuccess be translated or spread out to other parts in Asia?
SM: International artists in Japan?
KO: A lot of kids in Korea and places like Taipei and Honk Kong, all those advanced
cities in Asia, kids tend to love the Japanese culture, including fashion and of course
anime and things like that. So whatever has become trendy in Tokyo can be transferred.
That is a cool thing in those cities but I don’t know about the size of revenue or the
results.
SM: I would think that with so many Asian markets being an immature touring market,
once (in) Japan, geographically you’ve already got promoters who are bringing artists
over. Countries like China are finally opening up to westerners. Taiwan now has a few
different music festivals. Korea is not quite there but I mean Thailand, countries like that,are launching international rock festivals now. I think once you have a little bit moreregional cooperation within the record labels, especially within the promoters, definitely
once you’ve used Japan as a stepping block.
Finally, I keep using Avril Lavigne as an example, but she is looking at a 25 city Asian
tour this September which is pretty much unheard of. A lot of the time you tour Japan,
you come you do Tokyo/Osaka, that’s a weekend then you go back home. Occasionallymaybe you combine with Australia because if you are flying from the west you are often
flying over Japan, so it is a good one to combine that way. But now you’ve got things likethe Beijing Pop Festival which last year had Nine Inch Nails, and New York Dolls, Public
Enemy and what not. I know India is starting to open up to a lot more artists. So once you
have a little bit more cooperation I think with the promoters, once agents become a little
bit more savvy, yeah I think Japan can definitely be more of a stepping-stone to opening
up the rest of Asia.
A: Good, thank you. Any more questions? Before we close just one note: details of
today’s discussions will appear in English on the website of the Music Publishers
Association of Japan. Thank you very much. Why don’t we give a big round of applauseto Mahito, Asa, Ken and Sebastian. Thank you.
- END -

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20MIDEM2008 MPAJ ConferenceMusic Publishers Association of Japan
www.mpaj.or.jp

Music Publishers Association of Japan
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107-0062
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