MMW-83 -- iTunes Off to Strong Start in Japan

J@pan Inc Magazine Presents:
Commentary on Japan's music technology news

Issue No. 83
Wednesday, August 17, 2005


++ FEATURE: iTunes Off to Strong Start in Japan
** Vodafone Starts Full Song Download Service
** RIAJ Begins Tracking Paid Digital Downloads
** Napster and Tower Records to Start Service in Japan
** Japanese Radio Stations Start Podcasting
** J-Wave Radio Station Opens i-mode Site
** Taito Releases 3D Sound Content for Vodafone

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++ FEATURE: iTunes Off to Strong Start in Japan

After weeks of rumors and speculation, the veil of secrecy surrounding
Japan's new iTunes Music store was officially lifted on August 4 by
none other than Steve Jobs himself, making a surprise appearance
in Tokyo for the big event. By now you've no doubt seen the news
briefs about the launch of the store and its impressive start. The
coverage in Japan has been huge, with comparisons to Commodore
Perry and his 'black ships?f, which forced Japan to open its doors to
foreign trade in the 19th century.

While those comparisons may seem exaggerated, there is no question
that the launch will dramatically change the landscape of digital music
downloads here. The early numbers from iTunes - one million songs
purchased in four days - are nothing less than spectacular. To put this
in perspective, consider Mora, the next largest online music service in
Japan. This store, which is backed by Sony (through the joint venture
LabelGate) and contains all the major tracks by Sony artists, currently
averages 450,000 downloads per MONTH.

At first glance, the new Japanese iTunes store looks very much like
the ones that have been so successful in the US and Europe.
However, there are also some important differences that have been
attracting attention over the past week. Apple's Japan launch marks
the first time that major record labels are missing from the iTunes
catalog. In addition to Sony Music Entertainment, whose disagreement
with Apple has been widely publicized, the Japanese iTunes store
is also missing tracks from Victor Entertainment, Warner Music Japan,
BMG Fun House, King Records and Pony Canyon.

These labels are home to some highly popular Japanese artists,
including Ken Hirai, Dragon Ash, Southern Allstars and Ryuichi
Sakamoto. Their absence leaves some major holes in the Japanese
iTunes catalog. Although over one million songs are offered on the
service, only about 10 percent of these are by Japanese artists. While
it is likely that Apple will eventually come to an agreement with Victor
and Warner, the differences with Sony will be harder to reconcile,
especially given the intense competition between the two companies
in the MP3 player market.

The second major difference is in the pricing of tracks and albums.
Apple has had to compromise its 'one coin per download' policy in
Japan, pricing singles at 150 yen (US$1.35 ) and 200 yen (US $1.80)
depending on the song. While Apple has announced that only 10
percent of the songs are priced at 200 yen, it still appears that most
of the major J-Pop songs fall into this category. Likewise,
albums - priced at $9.99 in the US - can cost anywhere from
1,650 yen (US$14.86) to 1,800 yen (US$16.22).

Despite the higher pricing models, the iTunes launch had an immediate
impact on the pricing of other online services. Within one day of
the launch, nearly all of the competing online music stores (including
Mora, Oricon, MusicDrop and OnGen) had lowered their prices to
match iTunes. The price of most Toshiba-EMI tracks dropped 45
percent from 270 yen to 150 yen on the other services.

Pricing is at the heart of Apple's current disputes with the major record
labels. Apple would like to keep prices low, since it makes most of its
money through iPod sales anyway. Sony's position is that Apple is
simply lending 'store space' to the record label, and has no business
trying to set prices. This sentiment has been echoed recently by major
US labels, whose contracts come up for renewal next year and are now
lobbying for higher pricing on iTunes. The fact that the prices have been
set higher in Japan will no doubt add more fuel to this fire.

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** Vodafone Starts Full Song Download Service
In brief: Vodafone has announced the start of its own Chaku-uta-Full'
download service in Japan. The service will begin at 10AM on August
17th, and the Chaku-uta Full sites will be accessible from the main
Vodafone Live menu. The service will launch initially on two
handsets - the newly released 703SH and 903SH.

** RIAJ Begins Tracking Paid Digital Downloads
In brief: The Record Industry Association of Japan (RIAJ) announced
last week that it would begin tracking and making quarterly reports of
paid digital downloads in Japan for both mobile and fixed-line download
services. The first reports for the quarters of January-March and
April-June 2005 were also released. For the six-month period from
January to June 2005, the total number of downloads was just over
111 million and the total sales were JPY 14.16 billion (US$128.7 million).
Mobile downloads represented an overwhelming 98 percent of the total
number of downloads.

** Napster and Tower Records to Start Service in Japan
In brief: Last week, Napster and Tower Records announced they were
forming a Japanese joint venture company called Napster Japan that
will offer services for the Japanese market. The new company will be
70 percent owned by Tower Records, which will be contributing US
$7 million in start-up capital. Napster will add US $3 million and own
30 percent.

** Japanese Radio Stations Start Podcasting
In brief: A recent article in the Nikkei Shimbun reports that in the past
month, major Japanese FM radio stations such as J-Wave in Tokyo and
FM 802 in Osaka have begun offering some of their programs as podcasts.
Apple's newly released Japanese iTunes Music Store contains a
'Podcasts' corner with more than 3,000 registered programs.

** J-Wave Radio Station Opens i-mode Site
In brief: On August 15, the J-Wave FM radio station started its own mobile
site on NTT DoCoMo's i-mode portal, offering music chart info, ringtones,
and audio clips of its DJs. The new service is called 'J-Wave Sounds' and
is also expected to appear on the Vodafone and KDDI menus in the fall.

** Taito Releases 3D Sound Content for Vodafone
In brief: On August 11, Taito announced that it would offer new games
using 3D sound for its site on Vodafone. The new 3D content releases
will coincide with the release of Vodafone's new 3D sound handset,
the 903SH. The first 3D releases will be a pinball game called 'Tranceball
Floor Mix' and a diving simulation game called 'Coral Island Blue.

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Written by: Steve Myers