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Yahoo and Oricon have recently joined a battle for what could be a small and rapidly shrinking pie.
Yahoo, operator of Japan's largest portal site, rolled out Yahoo! Music Download on February 24, while Oricon, Japan's longtime industry standard for music charts, established the company Oricon Digital Distibution (Oricon DD) on March 23 to offer downloads through its new Oricon Music Town service on its Oricon Style site. These new entries constitute the 8th and 9th major players in the music download service wars, which are reaching fever pitch in Japan.
Yahoo! is entering the fray through a partnership with LabelGate, operator of the Mora music download service. Yahoo! Music Download is part of Yahoo! Japan's Yahoo! Music site, and offers approximately 70,000 songs to users through Mora's download system, with Yahoo! Wallet being used to handle the financial transactions. Yahoo Music Download is trolling for the business of Yahoo! Japan's 39 million users, with a special focus on first time downloaders.
Oricon, provider of the industry leading Oricon Ranking charts, offers over 100,000 songs through Oricon Music Town. Oricon's hit charts, which are often linked to the Oricon Music Town service, can be accessed through numerous channels, including the sites of Japan's major newspapers. These newspaper sites in particular reach a much wider demographic than just hardcore music fans, providing an opportunity to create new fans and tap into older age demographics, making Oricon Music Town's offering unique among Japan's music download services.
The nine major music download services can be divided into three main categories: dedicated music download sites, download sites contained in search portals, and download sites run by Internet service providers. Each has its own strategy.
Many industry observers give the edge to the dedicated music download sites, as their ties with the music industry run deepest. Examples of this type of site are LabelGate's Mora, which has received investment from investment from 17 record companies; Listen Music Store, which is run by Listen Japan and has use of its comprehensive and popular music search site; and Oricon Style. Each of these sites has its own way to reach and serve customers, and its own competitive advantage.
Mora, for example, features a search function for music that has been used in television dramas and commercials, a gigantic selling point in Japan, where a "tie-up" generally guarantees heavy exposure and brisk sales. By making it easy to find and purchase these kinds of songs, Mora is providing a real service to customers who aren't necessarily interested in artists or song names, but want easy access to a song they have heard on television.
Oricon Music Town can trade on its 40 years of chart data. Through Oricon's relationships with numerous major newspaper sites, which often display Oricon music rankings, Oricon Music Town can offer both new and old songs, complemented with reviews and other articles about them from the various newspapers. This service will especially appeal to nostalgia trippers, triggering impulse buys for oldies as well as current hits and catering to a broad range of ages. Oricon says it is targeting light users - people who purchase one or two CDs a year - with this service rather than hardcore music buyers.
Listen Music Store automatically streams music on its top page from high potential artists who are relatively unknown. This strategy has drastically increased downloads for these types of artists, which often rank side by side with more major artists in terms of downloads.
The search portal music download sites, exemplified by Yahoo!, MSN, Excite, and goo, function more like music stores in a large shopping center, leveraging the ability or portals to pull in customers. Most of these sites offer a significant amount of information, but they lose out in comparison to the dedicated sites in terms of value-added information, as the information they provide generally comes from third parties and is licensed widely. In short, music fans can find the same information on any number of other sites.
The internet provider-run download sites could be an even less attractive proposition to fans, and could be considered add-on services used by providers to try and differentiate their Internet services from those of competitors.
While the number of services is increasing, and competition between them is pushing these services to improve their offerings, music downloads do not seem to be grabbing a significant share of the market yet. In the estimation of Nikkei Personal Computing magazine, sales for the music download industry were less then 0.2% of physical CD sales in 2004. That's two tenths of one percent... So while these download services do offer an efficient distribution channel, customers don't appear to be happy with prices or selection just yet.
On the average, the per-song price for downloadable music is around 200 yen. Assuming that the average CD has 10 songs and costs between 2,500 and 3,000 yen, download services are cheap in comparison. And the fact that single tracks can be purchased, allowing music buyers to filter out the inevitable filler, gives downloaders even more bang for their yen. Still, the per-song price is approximately double what US consumers are paying for similar services, and compared to Japanese rental shops, which generally rent CDs (which can be easily burned to a hard drive) for around 300 yen a pop, downloadable music is still not cheap.
Selection is another issue. LabelGate's Mora offers the widest selection, with cooperation from all the major labels and around 10,000 songs to choose from. However, you won't be finding much music from Sony Music Entertainment Japan or Avex on the competitors' sites, and this is a strike against them. Even on Mora, many major acts like Southern All Stars are nowhere to be found.
And then there is the 800 pound gorilla sitting over in the corner. While everybody's lips are tight regarding the upcoming launch date for Apple's iTunes Music Store, there's not much doubt it's on its way. And as anybody not bedridden or in jail can tell you, Apple's iPod has wiped the floor with its competition in Japan's portable player market. This loyalty could extend to the iTunes Music Store as well, spelling bad news for competitors.
Another issue facing the home computer-centric download sites is the rapid emergence of the chaku-uta; music that can be downloaded from anywhere using a compatible mobile phone. The major mobile companies are rushing to introduce devices that can both access and play music, and in mobile-crazy Japan, this has the potential to be very very big.
In this age of plummeting CD sales and a resale price maintenance system that keeps CD prices high, it's a pretty safe bet that some viable alternative channel will emerge. And as obvious as it may seem, the answer might be as simple as providing real value for the customer.
Music Download Sites in Japan
Excite Music Store (http://www.excite.co.jp/music/store/)
goo Music Store (http://musicstore.goo.ne.jp/)
Listen Music Store (http://www.listen.co.jp/store/)
Mora (http://mora.jp/)
MSN Music (http://music.msn.co.jp/)
OCN Music Store (http://music-store.ocn.ne.jp/)
OnGen Usen Music Server (http://www.ongen.net/)
Oricon Music Town (http://www.oricon.co.jp/)
Yahoo! Music Download (http://music.yahoo.co.jp/download/)
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