Sexy and Smart: One Sector that Won't be Left Behind

Japan's massive sex industry has shifted from bricks-and-mortar deflation to Internet elation

LIKE IT OR LOATHE IT, the sex industry in Japan is big business. And despite the rickety economy, it's getting bigger. A recent survey by Takashi Kadokura, an economist with Dai-ichi Life Research Institute Inc., found that the Japanese market for what is rather quaintly called the entertainment trade fuzoku sangyo, swelled to a tumescent JPY2.37 trillion in fiscal 2001, up from JPY1.7 trillion a decade earlier.

This figure does not include "virtual sex" -- Japan's huge sales of adult magazines, rentals and sales of porn videos and DVDs and the burgeoning market for Internet porn. And let's not forget receipts from the country's 40,000-odd love hotels.

Put together, the buying and selling of sex and related services in the world's second largest economy is worth more than the GDP of many smaller countries.

As the sex business expands along with the service sector it becomes increasingly integrated into the mainstream economy, earning billions for blue-chip firms like NTT and increasingly becoming a source of direct and indirect tax revenue for the government.

Why does this industry seem immune to the problems that have kept Japan on the economic disaster pages of the world's newspapers for over a decade? The truth is: It isn't.

As a stroll around the licentious pink heart of Tokyo's sex industry, Kabukicho, or the "soaplands" district of Yoshiwara confirms, many operators of sex clubs and massage parlors have resorted to the same deflationary price-cutting approaches practiced by other businesses.

More noticeable than the stagnation and decline of some areas of the sex trade, however, are the vitality and innovation that characterize the industry as a whole. Despite its murky image and legal problems, thousands of new businesses have sprung up in the last five years, offering all the eye-popping lechery that money can buy.

The older ranks of industry veterans have been swelled by thousands of younger entrepreneurs and casualties from the mainstream economy who are transforming the selling of sex using new technology. Many of them are voraciously ambitious.

Some commentators are now using the once grubby sex trade as a stick to poke in the eye of Japan's arthritic political class. As Dacapo weekly magazine declared in May of this year: "Structural reform has been progressing rapidly in this [sex] industry exactly because the reform-driver has not been Prime Minister Junichiro Koizumi's administration. If he wants to know what reform is about, this is where he should be looking."

Winners and Losers
So who are the winners and losers in Japan's sex services industry? At the top of the list of losers are brick-and-mortar businesses like brothels, soaplands and strip clubs, which have seen collective revenues slump by over a third since the mid 80s, says Kadokura.

Stuck with high overheads (particularly for utilities), prices in these outlets are mostly fixed and are driving away male clientele, who have less disposable income than in the past. The price of a single visit to a soapland outlet (staffed by naked prostitutes offering soapy massages) is about JPY60,000 -- a price that is out of reach for most salarymen.

Strip clubs too are seen as expensive and old hat, and many exotic dancers are under pressure to broaden their appeal, says Tomomi Sawaguchi, who recently formed Japan's first union for sex workers. "The number of customers has fallen, so managers will ask some women to perform extra services on the cheap. I've seen foreign women having sex for as little as JPY1,000."

The older ranks of have been swelled
by thousands of younger entrepreneurs
who are transforming the selling of
sex with new technology

Rushing to fill the gap are the thousands of "fashion (sex) massage" outlets that sprang up nationwide in the 90s. With faster turnaround and cheaper labor costs (many are run and staffed by heavily exploited foreign workers), they offer sessions for as little as JPY10,000 -- keeping their services within range of the average male worker.

Sex massage joins an increasingly long list of exotically titled innovations including imekura (image clubs), sumata (crotch play -- an everything-but-sex service designed to get around regulations banning intercourse in outlets) and "delivery health," or deliheru, a pizza-like business that dispatches a prostitute directly to your door for about JPY20,000 to JPY30,000.

"The life span of popular services used to be 22 years in the high economic growth era, but now it's less than three years," says analyst Takuro Morinaga of UFJ Research. "Firms are working harder to come up with innovations designed to add value to their services."

Many of these services flirt with the limits of the law and exploit mobile phone technology to do it. Prostitution, for example, is prohibited under the Prostitution Prevention Law of 1956, helping to explain the huge growth of delivery health. Now a JPY461 billion annual business, says Kadokura, delivery health firms hook up working women with paying men by advertising on utility poles in most city neighborhoods, using only a keitai number. What happens next takes place in the privacy of the client's home and is therefore out of reach of the law.

Many of the women have never met the people they work for. "They call me on my keitai, I get picked up by a driver and delivered to the client's house," says 26-year-old Jun, who works in the Hachioji area. "Afterwards I send them their cut by bank transfer and pocket the rest."

With operating as easy as that, the delivery health business has attracted thousands of budding entrepreneurs. Under the revised Entertainment Establishment Control Law of April 1999, companies must register these services, which provides some idea of how fast they have grown. National Police Agency figures show the number of businesses that "send out female companions" soared from 2,684 in 1999 to 12,251 by the end of 2002.

The sex business has also been a boon to cable, satellite and telecom companies. Consider the fee a mobile phone company pockets every time a user finds his way to a telephone sex business, which often advertises with mass calls to thousands of numbers. The female operators of de-ai businesses are then paid by the minute to keep men on the other end of the line, often by hinting at the possibility of sex.

"I worked in a nice, clean office in Shibuya. Everyone looked like salarymen and office ladies," says Narumi, who spent a year temping at a de-ai firm. "My job was to get men to talk for as long as I could by playing along with their fantasies. Sometimes they ran up bills of JPY10,000 to JPY20,000."

Other sex services such as telephone clubs terikura and even enjo kosai (or compensated dating) also rake in billions of yen for the telecom firms.

Official data on this sort of business is hard to come by, but in 2001 DoCoMo said that revenue from "non-official sites" was JPY250 million -- practically all derived from adult and de-ai sites, according to Giles Richter of Mobile Media Japan.

Satellite companies and cable firms, many of which are involved with local governments, are reluctant to divulge revenues from porn, but content and equipment providers say it is significant. "They might not tell you, but people in the industry recognize that the real profits initially are in adult content," says Lincoln Owens, who is director of Asia-Pacific sales at SeaChange International Inc., the largest seller of video servers in the world.

"Pay-TV firms became big in the US by selling adult TV to hotels and other outlets, and they're now the front-runners in cable. In Japan, one of the few cable and broadband content providers able to make money has 40,000 subscribers to streaming porn, and half the content on pay-per-view satellite is adult."

The impact of the Net
The other big losers in the recession have been adult content publishers and videogaphers. Sales of glossy adult magazines have been in steep decline for some time, falling by over 15 percent last year alone, according to the All Japan Magazine and Book Publisher's and Editor's Association.

Apart from the ever-shrinking average male budget, the main culprit is the Internet, which not only offers billions of free bytes for the curious surfer but often comes uncensored, a novelty for many in Japan where a mosaic-like effect called bokashi blocks out the sex organs.

"The Net has hit us hard," says Go Wada, editor of an adult magazine with Tatsumi Press in Tokyo. "Older guys have stayed with us but the youngsters have all drifted off to cyberspace."

Hiroyuki Tsunoda, president of one of Japan's biggest adult entertainment firms, Media Station Co. Ltd., which releases 15 titles a month under the brand Uchu Keikaku, also admits Net freebies have taken a big chunk out of his business, along with mobile phones, which have eaten up the disposable income of younger customers. "People have a lot more options now, and they can look at uncensored porn from US servers. We estimate video rentals are down by half compared to what they were 10 years ago."

These difficulties bring a rare industry call for government help from Tsunoda. "The government should be doing more to stop uncensored material," he says. "They should realize that this is just another industry and that illegal porn from abroad is hurting us."

Other industry insiders, however, such as Ganri Takahashi of Soft On Demand, say the problem is not falling demand but the failure of firms like Media Station to change quickly enough. "There has been an explosion in the number of genres, so it's no good just churning out the cute-girl-older-guy formula," he says. "If the industry offers imaginative quality products, customers will stay with us."

Most large adult video makers are dealing with the threat from cyberspace by moving online themselves. Media Station's Tsunoda says that about 7 percent of the firm's income currently comes from the Net, and this is likely to grow. "Profit is high because we've already shot the movie. Internet sales are an extra."

Machiki Katsumi of V&R Planning Co. Ltd., another large erotic-video maker, agrees. "About ten percent of our income now comes from the Internet, but there's no question that this will be a crucial part of this business in the near future, once people discover how to make real money from it. The problem at the moment is people will not yet pay for something they can get for free."

The Internet is only one of a raft of new delivery methods that is transforming the industry and leaving video in the technological dustbin. Most adult firms are phasing out VHS for DVD, and many sell directly to satellite and cable companies. All agree that broadband will be hugely important for the industry.

"Until now, people who consumed porn had to find somewhere to keep it," says V&R's Katsumi. "Most didn't want wives or children to find it. The Internet conveniently solved this problem because you don't have an actual product lying around anywhere. Once the quality improves, and it takes less time to access and download the stuff, it will take off." @