Amazon.com Inc said a shift by Japanese fans from compact discs to streaming is picking up speed, opening the door for its Prime brand in the world’s second-biggest market for music.
Physical media – including CDs, DVDs and vinyl – accounts for about 71% of music sales in Japan compared to just a quarter worldwide, according to the latest data from the International Federation of the Phonographic Industry. In the last year, a growing number of artists in the country made their music available on digital platforms, René Fasco, the head of Amazon Music in Japan, said in an interview. Twenty of the top 25 best-selling artistes didn’t stream as of late 2018, whereas now only two or three were holding out, he said.
Japan’s annual sales of about 50 million music DVDs alone would make it among the biggest markets in the world. Many music CDs are sold in bundles that come with concert tickets or a chance to win a handshake with the artiste. For fans of Japanese girl bands like AKB48 and Sony Corp’s Nogizaka 46, each disc comes with a vote they can cast to help their favourite member advance in the ranks.
"The continued importance of the physical business makes Japan different from any market in the world right now. It’s driven by the way the fans interact with music,” said Fasco, who was a consultant with McKinsey & Co before joining Amazon in 2010. He spent his first eight years building Amazon’s music business in Germany where he witnessed a market not unlike Japan’s transition to streaming.
Music and video streaming are an increasingly important part of Amazon’s user acquisition and retention strategy in the country, where competition is heating up. Rakuten Inc, which pioneered online shopping in Japan, is launching its own mobile phone network next month in a bid to win back market share from Amazon. SoftBank Group Corp is creating an Internet behemoth. Its domestic telecom arm last year acquired online clothing retailer Zozo Inc. Now the company is looking to combine its Yahoo Japan e-commerce services and mobile payments with messaging service Line Corp’s 83 million monthly active users in Japan.
Vey-Sern Ling, an analyst with Bloomberg Intelligence, said Japan will be a very lucrative e-commerce market given its low penetration rate relative to other countries and high consumer spending power. "The Zozo-Yahoo-Line mergers will make it harder for Amazon to gain market share,” Ling said. "But using Prime and music as a way to gain users and eventually convert them to more e-commerce services is probably an advantage that Amazon has over the domestic players.”
Prime Music was the most popular paid streaming service by users in Japan last year, followed by Apple Music, the offering from messenger Line and Spotify in fourth. That’s according to a survey of more than 4,000 respondents conducted by Tokyo-based ICT Research & Consulting in April of last year. Only 14% of the respondents said they paid to stream songs, while 73% said they didn’t use any service at all.
Amazon’s Echo smart speaker is one key channel for user acquisition, Fasco said. Just one year since its launch, around a third of Amazon’s streaming service customers use the device to listen to music. The company is also focusing on high-definition streaming and last month added 10,000 ultra HD songs to its library in a bid to lure music fans away from physical media.
Fasco says a tipping point is coming when music streaming becomes the norm in Japan. "I don’t think it will take five years and may be not even three,” he said. – Bloomberg
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