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Friday, September 2, 2016

Why Japan has more old-fashioned music stores than anywhere else in the world


Written by Mun Keat Looi — For many people, the days of wandering into a store, browsing the shelves, and walking out with music stored on plastic are a distant memory. In Japan, however, the CD is still king.

Globally, 39% of all music sales are physical CDs and vinyl, but in Japan, the figure is double that. It helps make Japan the world’s second biggest music market, selling more than ¥254 billion ($2.44 billion) worth of music a year—most of it in the form of CDs.



Feeding that demand are 6,000 music stores, according to an estimate from the Recording Industry Association of Japan (RIAJ). To put that in context, the US is the world’s largest music market in terms of revenue, but has about 1,900 old-fashioned music stores, according to Almighty Music Marketing. Germany, the third biggest market, has only around 700 stores.

Japan’s odd consumer behavior is a prime example of the Galapagos syndrome, a business term that takes its name from Darwinian evolutionary theory. It explains how the country’s geography, history, and culture have come together to create a love for a technology that the rest of the world has all but forgotten.

Darwin’s finches

In 1835, Charles Darwin visited Ecuador and brought back some skulls of finches. What he saw in those skulls would form one of the cornerstones of his theory of evolution. When these birds were stranded on an island, they quickly evolved their beaks to adapt to the kinds of prey that lived there.

Like Darwin’s finches, many industries of the Japanese archipelago developed in unique ways at their own pace. For instance, Japan had phone cameras, email, and 3G years before the rest of the world. But it meant that the industry clung to flip-phone models, resisting black-slab smartphones until years after the West. This would have knock-on effects on related markets, such as online shopping and web design, where sites were designed for feature-phone screens, with clunky user interfaces.

Something similar is at work in the Japanese music industry. It has been slow to take up digital downloads and streaming—8% of Japan’s total music revenue, compared with 68% in the US—despite broadband access being almost universally available since 2000. Japan has evolved its own unique music market, and for several decades the change-averse Japanese character has kept the seemingly odd status quo.

Keeping things as they are

The popularity of CDs in Japan has nothing to do with cheapness. At around ¥2,500-¥3,000, or $23-$29, the average CD album costs more than double the price in most countries.



Japan’s CDs are subject to a law that fixes prices. Brought into force in 1953, the “resale price maintenance system” allows the owners of copyrighted material—music, books, and magazines—to set a mandatory minimum retail price for their new products. Japanese consumers have paid these prices for decades, and continue to do without much fuss for a number of reasons (more on this later).

The industry prefers physical copies, which are easier to control in terms of manufacture, pricing and distribution, says Patrick St Michel, a Tokyo-based music journalist. Yet the preference for CDs has also led to another anomaly of the Japanese music market: CD rentals.

Out to rent

Blockbuster Video may be a thing of the past in the West, but rental services are still hugely popular in Japan, and alongside DVDs (and books), they also lend music.

Rental services are, of course, a gateway to piracy, since it’s easy to rent a CD and copy it onto blank discs. And, yet, after initial legal skirmishes with the rental companies, the Japanese music industry reached a compromise in the early 1980s. It introduced a license fee, paid by the rental companies each year, which claws back some of the revenue lost to piracy.

That revenue has dropped over the last two decades, as the popularity of rentals has declined. In 2014, rentals brought in ¥2.9 billion to the music industry, barely more than 1% of total revenue. That said, there are still more than 2,400 rental stores in Japan.



The industry, however, doesn’t mind the rentals and the associated piracy risk, because renting trains consumers to want physical copies. It also offers more opportunity for retail sales; whole floors of rental stores are often dedicated to selling new CDs. Even in small towns, there’s still a convenient place to browse physical media and be exposed to the music industry’s advertising. And according to Mark Mulligan, a global music analyst, people who rent could be a ready-made customer base for streaming services in future.

Bring in the pop

Another quirk of Japan is that, though CD singles went out of fashion in the West over a decade ago, in Japan the singles market remains strong. For instance, all of the singles that sold one million or more copies in 2015 were by idol groups.

The huge popularity of girl and boy bands, and the rabid fandoms that they spawn, allow record companies to cash in using the marketing gimmick of limited editions. It’s not uncommon for a CD to be released in five different versions, featuring different covers, B-sides, or bonus DVDs.

This speaks to a love of physical objects that’s characteristic of Japanese and also German culture, says Mulligan. These two countries have a shared preference for cash over credit cards, and also the strongest sales of physical music in the world.

This has led to a transformation in what CDs mean—from being objects that play songs to a form of merchandise. It’s less about the music itself and more about the experience of supporting, and feeling closer to, your favorite idol, says Ronald Taylor, music correspondent for the Japan Times.

In the last 15 years, record companies have partnered with artist management agencies to take this further. Inside the CDs there are tickets to special concerts; handshake events, where buyers can spend a few seconds locking hands with their idol; and voting cards used for annual “elections” that determine the popularity of band members within the group. Popular members get TV appearances and endorsement deals that the bands and management can further profit from. Fans can vote as many times as they want—one CD single counts as one vote—leading extreme fans to buy thousands of copies of the same CD.

Mind the gap

Idols are a big reason for Japan’s enduring attachment to the CD and the stores that sell them. But perhaps the biggest cause is its aging population.

Among the most popular artists of 2016 are Arashi, a boy band in its 17th year of existence, and the 47-year-old artist Masaharu Fukuyama. The fans for these bands tend to be older and have more money to spend, and they are buying music by artists they grew up with.

That’s a trend in many countries, Mulligan says, but Japan’s population is exceptionally old, and so that’s where its spending power and consumer demand are concentrated—not among the teenagers or young adults who are more comfortable with digital downloads and streaming services.

Still, over the last few years, even Japan’s music industry has been moving towards digital.



Japan’s consumer behavior is finally changing, with a surge of interest in online shopping; online retailers made sales worth nearly $90 billion in 2015, compared to $33 billion in 2009.

Just like Darwin’s finches on Galapagos, when introduced to a new ecosystem, Japan’s consumers will start adapting to it. The convenience of digital music will sooner or later trump the love of physical objects. And, yet, whenever that happens, Japan’s history shows that it will probably happen in its own unique way.

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