Why the State of Japan’s Music Industry Worries the Rest of the World

This week, we’re seeing all kinds of deep analysis of music sales figures from 2013.  And the big story is how much things sucked in Japan, the world’s second largest music market.

Sales were down 16.7% in Japan.  That was significant enough to push down global music sales to 3.9% from the previous year.  If Japan is taken out of the mix, global sales were actually up by 0.7%.

So what’s the deal in the Land of the Rising Sun?  Piracy, that old bugaboo, is an issue.  But whatever you do, don’t go blaming streaming music services for the drop in physical sales. Despite the high adoption rate of technology in Japan, the country is just starting to get into that arena.  From what I understand, Japan is even behind Canada in adoption rates–and that’s saying something.

A big part of the issue is Japan’s closed music economy.  Compared to other markets, Japan doesn’t export a lot of music to the rest of the world because of that pesky language barrier.  And second, unlike most places on the planet, the price of recorded music in Japan is set by the labels and not the retailers.  If the label says a CD needs to sell for ¥3,000, then that’s the price. And if the CD comes bundled with something else–like, say, extra swag or a chance to meet the artist–they’ll just hike the price.  Retailers can’t do a thing.

How did this happen?  Because they did things backward.  Imported CDs tend to be cheaper in Japan than CDs produced domestically.  To get people to buy made-in-Japan product, labels often include bonus tracks and other material on Japan-only release.  This explains all those “Japanese bonus tracks” and “Japan-only” releases that we’ve seen for decades.  This helped the local industry preserve its fat margins.

But with the decline in popularity of purchasing physical music everywhere, this old tactic is obviously no longer working.  It’s going to be tough to reverse this trend.

On a related note, revenue from streaming music was up 39% in the US and generated over one-fifth the recorded music’s total revenue.  Meanwhile, sales from physical product declined by 12.3%.  Digital sales–i.e. selling downloads–was up 7.6%.

Think that streaming isn’t the way of the future?  Think again.