Still No Spotify Japan

Music lovers were told that Japan would have its own version of Spotify by July 2014, and the company has reportedly been looking for a PR person for almost a year. Here it is the end of summer and still no service. What gives?

Those negotiations have slowed to almost a standstill, according to the Asahi Shimbun newspaper. At a December press conference, Spotify founder Daniel Ek said that it was “just a matter of time” before the company launched in Japan, but nothing has really changed and representatives of the company told Asahi that they have no idea when the launch will take place. “When we’re ready, we’ll start,” one said.

The problem comes down to the “uniqueness” of the Japanese music market, which was worth $3 billion in 2013 and is either the biggest or the second-biggest in the world, depending on calculations.

Eighty percent of music sales in Japan are still through physical product, which only accounts for 30 percent of music sales in the U.S. Consequently, record labels are very reluctant to give up content to a subscription service that might compromise those sales.

What makes these labels stubborn is the nature of the Japanese domestic market. Foreign artists are mostly beyond the control of local labels, because those labels have to compete with imports, which are much cheaper. But Japanese artists are sold only in Japan, and labels are guaranteed a certain profit margin thanks to the “seihan” system, in which labels are allowed to legally fix prices for physical albums.

So whereas a foreign artist’s CD would sell for the equivalent of, say, $18 in Japan, a Japanese major label artist’s CD typically sells for more than $30. And retailers cannot sell them for less.

Spotify is meaningless if it cannot stream local artists, and record companies aren’t willing to give up those rights while they can still make money from CDs and DVDs. The main sticking point, according to insiders, is Spotify’s system of free service to subscribers who opt to listen to advertising.

Japanese labels won’t go for that. There are already some streaming services in Japan, but they are very limited. Sony has its own, but it’s only for some Sony artists. Some industry people think Japan’s success as a software-centered market is mostly an illusion, when such a significant portion of sales is taken up by “incentives.”

CDs are sold as premiums for something else, such as means to acquire concert tickets and meetings with singers – the so-called AKB48 strategy, named after the popular female idol group.

One music critic says that the Japanese record industry refuses to acknowledge the growth of that segment of music consumers who listen to music through YouTube or illegal downloading. Consequently, it may be just a matter of time before music streaming becomes an inevitable fixture of the Japanese music scene.