Digital Content Market in Japan

- From DCAj’s “2003 Digital Content White Paper” -

July 2003

Digital Content Association of Japan (DCAj)

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Table of Contents1. Introduction1.1 Definition of Digital Content1.2 Items Included in the Digital Content Market1.3 Composition of the Digital Content Market1.4 Chart: Items in the Market1.5 Chart: Production/Distribution/Consumption of Digital Content

2. Size of the Digital Content Market2.1 On the whole2.2 By Segment

3. Trend in the Content Industry

4. Challenges and Expectations

1. Introduction

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1.1 Definition of Digital Content

What is digital content? (Definition in this paper)

(1) Digital content is digitally recorded content to be provided to consumers in such forms as package, online distribution and broadcasting

(2) Content and digital contentContent = Content of information. It can roughly be categorized into <audiovisual (incl. movies)>, <music>, <publication/information/newspaper>, <game>It includes both analog and digital contentsDigital content = Digitally recorded content of above

(3) Digitally-created contents not to be covered in this paper•Printed materials, such as newspapers, magazines and books•Contents that are contained in systems or solutions•Corporate websites or contents made personally•Theatrical films, TV commercials, etc.

(4) Distribution formats of digital contents•Package [mainly CD and DVD], online distribution (the Internet), mobile phone, digital broadcasting, fixed location (karaoke shop)

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1.2 Items Included in the Digital Content Market

Shown below are products and services included in the digital content market. 

Audiovisual Music Game Publication/Information

Package SalesRental(DVD)

SalesRental(music CD)

CD-ROMs (game)DVDs (game)

CD-ROMs (publication)- Navigation- References- Education/ Entertainment

Online Video distribution Music distributionMIDI distributionOnline karaoke

Online games Online databasesElectronic booksOthers- Pay mail magazines- Pay websites, etc.

Mobile phone

Stand-by screen/ wallpaper distributionVideo distribution

Ringtone/RingsongKaraokeMusic distribution

Java applicationOther games

Pay websitesPay mail magazines

Digital broadcasting

Digital broadcasting (charged)

(Music distribution) (Application distribution)

Data distribution

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1.3 Composition of the Digital Content Market

Creation/utilization of digital content = Digital content + Platform + Service

Digital content market = Creation/Sales of digital content

Digital content-related market = Platform (hardware/software) + services that utilize digital content

Digital content market

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1.4 Chart: Items in the Market

[Package]·Audiovisual (Sales + Renal) DVD· Music (Sales + Rental) music CD, karaoke· Game Video game console, PC game· Publication/Information Navigation, references - Education, entertainment[Online]· Audiovisual· Music· Online game· Publication/Information[Mobile phone]· Mobile phone[Digital broadcasting]· BS· CS

[Package]·Audiovisual (Sales + Renal) DVD· Music (Sales + Rental) music CD, karaoke· Game Video game console, PC game· Publication/Information Navigation, references - Education, entertainment[Online]· Audiovisual· Music· Online game· Publication/Information[Mobile phone]· Mobile phone[Digital broadcasting]· BS· CS

Content

[Audiovisual]· Digital broadcast terminals· Digital videos - DVD players - Digital video cameras - Digital still cameras[Music]· Consumer players - CD/MD players - Memory audio players· Commercial karaoke machines[Game/Software]· Personal computers - Hardware - Software· Mobile tools - Internet-ready mobile phones - Car navigation systems - PDAs· Game machines - Home video game consoles - Commercial video game machines· Internet terminals

[Audiovisual]· Digital broadcast terminals· Digital videos - DVD players - Digital video cameras - Digital still cameras[Music]· Consumer players - CD/MD players - Memory audio players· Commercial karaoke machines[Game/Software]· Personal computers - Hardware - Software· Mobile tools - Internet-ready mobile phones - Car navigation systems - PDAs· Game machines - Home video game consoles - Commercial video game machines· Internet terminals

Products[Network services]· Communications line (Internet)· Internet access· Digital broadcasting commission

[Value added services]· Internet advertisement· BS digital broadcasting ad· Electronic clearing (B to C business)

[Fixed location services]· Karaoke shops· Amusement arcades· Internet cafes· (Digital cinemas)

[Network services]· Communications line (Internet)· Internet access· Digital broadcasting commission

[Value added services]· Internet advertisement· BS digital broadcasting ad· Electronic clearing (B to C business)

[Fixed location services]· Karaoke shops· Amusement arcades· Internet cafes· (Digital cinemas)

Services

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1.5 Chart: Production/Distribution/Consumption of Digital content

Distribution

Consu

mptio

n

Audiovisual·Movie studio·TV station·Audiovisual prod agency·CG production agency·Anime prod agency

Music·Music production agency·Record company

Software·PC software vendor·CD-ROM publisher·Game software vendor

Publication/Info·Publishing house·Newspaper·Printing press·Info service provider·Mail order house

Package production·Print·Copy·Press, etc.

Digital content

Business user·Companies·Public offices·Schools

Consumer·Home use·Mobile use

Package distribution·Distributing agency ·Wholesaler/retailer·Renting business etc.

Distribution

Value-added online service·Internet advertisement agency·Electronic clearing house

Online service·Broadcast operator·Communications provider·CATV operator ·Internet service provider

Products(Use/creation environment)·Hardware vendor·Software vendor·Info service provider

Service(Fixed-location)·Amusement arcade·Karaoke shops

Pro

ductio

n

Products(Creation environment)·Hardware vendor·Software vendor·Info service provider

Service(Creation assistance)·Info service provider

Online distribution

Composition of Digital Content/Digital Content-Related Market

2. Size of the Digital Content Market

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2.1 Entire Market (1)

Digital Content Market in Japan (2002 Estimation)\2,057.3 billion (+108.1% over the previous year)Breakdown: Package \1,456.2 billion Online \287.3 billion Mobile phone \175.7 billion Digital broadcast \138.1 billion

1) Packaged content accounts for 70% of the market. (DVD maintains robust sales as the previous year)

2) Online content accounts for only 20% of the market, but distribution of audiovisual, music and game content showed rapid growth. In 2003 video distribution and online games are expected to double.

3) Mobile phone content is mostly ringtones, but games have doubled over the previous year.

4) As for broadcasting, CS increased thanks to free live coverage of the World Cup. As for BS, migration from analog to digital (charged) increased thanks to proliferation of the terminal.

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2.1 Entire Market (2)

Digital Content Market & Digital Content-Related Market2003 digital content and related markets (Projection) = \13,614.3 billion

1,787

1,903

2,057

2,278

5,958

6,852

6,575

7,042

2,478

3,238

3,709

4,294

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

2000 estimation

2001estimation

2002 estimation

2003 projection

(in billion yen)

Digital content Related/Products Related/Services

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2.2 By Segment (1)

2002 Estimation

Audiovisual:(1) DVD’s sales hit \323.0 billion (110.4% over the previous year)

“Spirited Away” and “Harry Potter” became the first DVD million sellers. Box sets of anime titles were also welcomed by enthusiastic fans. Thanks to accelerated migration from the rental market and video tapes, DVD sales showed rapid growth to \16.9 billion (211.3% over the previous year).

(2) As for the Internet, video distribution, such as movies, TV programs and anime titles apparently reached \1.9 billion thanks to proliferation of broadband access. The market is expected to reach \11.2 billion in 2003.

Music:(1) The sales of music CDs declined for 4 consecutive years, to \431.8 billion (88.2% over

the previous year). Decline of album sales broadened.

(2) Music distribution over the Internet was \39.3 billion (105% over the previous year). New releases recorded robust sales. This success results from significant theme-oriented addition, such as music of 80’s and seasonal music.

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2.2 By Segment (2)

Game:

(1) The market of software for home video game consoles was \422.9 billion (114.8% over the previous year)

Nintendo “Pokémon” became a success with 3.6 million copies

(2) The market of PC games is \65.7 billion (113.5%)

Online game gained wide recognition thanks to FF XI.

Adult games account for 80% of PC games.

(3) The market of online games has grown to \6.0 billion

Subscribers to FF XI exceed 200,000. Korean online games (Fortress, Lineage, Ragnarok) were launched in Japan in rapid succession

2003 projection of the online game market is \22.5 billion

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2.2 By Segment (3)

Publication/Information:(1) As for the package market, navigation accounts for \34.4 billion

(111.3% over the previous year)The references (e.g. dictionaries) market grew thanks to revised Education Ministry guidelinesCultural/entertainment segment was \29.7 billion (139.4% over the previous year). Shift toward the Internet has been accelerated

(2) As for the Internet, online databases represent a huge market.Electronic books \0.5 billion Pay websites/mail magazines, etc. \12.9 billion

Mobile phone:Audiovisual contents such as wallpapers, stand-by screens and videos is \22.0 billion. Ringtone accounts for most of it (\85.2 billion). Game (\24.2 billion) also shows rapid growth. Miscellaneous services such as news and weather forecast (\44.3 billion) are also robust.

Digital broadcasting:\138.1 billion (111.7% over the previous year). CS attracted new subscribers by free live coverage of the World Cup. As for BS, proliferation of receiving terminals contributed to the increase.

3. Trend in the Content Industry

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3. Trend in the Content Industry (1)

*This section describes several noteworthy trends in the Japanese content industry (audiovisual, music, games, publication), both analog and digital.

1. Animation

(1) Movie: Of 01 Japanese movie market (box-office sales) of approx. \200.0 billion (\1,090.0 billion for the U.S.), animation accounts for \53.0 billion (26.5%). “Spirited Away” earned \30.0 billion.

(2) Video/DVD: Steadily rising, \75.4 billion in 01 and \107.6 billion in 02. In 02, DVD version of “Spirited Away” became a million seller.

(3) Digitization of animation creation

Since the release of animationauthoring software “RETAS! Pro”(CELSYS), almost all Japaneseanimes are now made digitally.

As Japanese animes are consumedworldwide, techniques andtechnologies of “Japanese digitalanime” are likely to become theglobal standard.

Animation Market in J apan

0

50000

100000

150000

200000

250000

2001 2002

(mill

ion

yen) TV

Theater

Video

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3. Trend in the Content Industry (2)

2. Changes in the content business brought by multimedia

(1) Audiovisual: Short interval from theatrical release to video (DVD) release

“Spirited Away” Released in Japan (01). After subsequent release in Asia and North America, DVD went on the market (02). More than 2 million copies were sold. Then broadcasted on TV (03).

(2) Music: Decline in CD, rise in DVD and ringtone

• Sales of music CDs declined for 4 consecutive years, resulting from decrease of young customers and casual hacking.

• On the other hand, music DVDs, mobile phone ringtones and music distribution on the Internet is growing.

(3) Game: Game consoles v.s. Online games• Japanese games are known worldwide. The business needs to sell both game co

nsoles and software. Japan lags behind in Web-based games.• Online games, that show rapid growth in Korea and Taiwan among others, have b

ecome a threat to Japanese game industry. PS (PlayStation) also launched online games.

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3. Trend in the Content Industry (3)3. Accelerated international deployment(1) U.S. version of “SHONEN JUNP” was launched

The U.S. version of “Shonen Jump,” a weekly manga magazine popular among Japanese children (circulation 3 million) was launched (Nov. 02). Japanese manga is 80.0 billion market in Asia.

(2) Japanese animes received global recognition• “Spirited Away” won the Academy Award (Animated Feature Film), indicating global re

cognition of Japanese animes. The economic effects of Pokémon is said to be \2 trillion worldwide. North American market is \1 trillion.

• “Sailor Moon” and “Dragon Ball” are popular TV programs in Europe.(3) Games have been aiming at overseas from the start

• For the game industry that requires enormous investment, overseas deployment is a must. Japanese vendors have been considering export as a premise in R&D since 1970's.

• Starting from Nintendo’s first release (1983), home video game consoles came into wide use in 1990’s.

• Sony shipped 100 million units of PlayStation 1 and 50 million of PS 2 worldwide. Regional distribution of PS2 software developers is in the order of North America, Europe and Japan.

4.Challenges and Expectations

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4.Challenges and Expectations (1)

Challenges for the digital content industry(1) Dependence on the media industryA. Media industry (movie distributors, TV stations, etc.) leads content distribution.

B. Contents creators are subcontractors.

C. As most contents are created by small production agencies with limited financial resources, it is difficult to secure copyrights or for the contents industry to take the initiative.

D. There is insufficient system and schemes to nurture talents

(2) Slow content distributionA. In the time of broadband access and multimedia, labor and costs associated with c

omplex copyright-related procedures hinders smooth content distribution.

B. As content will be exposed to P-to-P copying using digital/online technologies, copyright holders are reluctant to Internet distribution

(3) Illegal copies/PiracyA. In Japan, music gets the hardest hit. B. Piracy is rampant in East Asia.

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4.Challenges and Expectations (2)

Policies of Japanese Government(1) Improvement of business environmentA. Promote contract-based businessB. Regulate abuse of dominant bargaining position concerning copyright and

secondary use of TV programs and others against subcontractorsC. Establish the scheme to allow funding using copyrights and patents as collateral

(revision of the trust business law, creation of the completion guarantee system)D. Development of human resources: Establish the institution to to train producers

(DCAj will conduct an experiment)

(2) Promotion of content distributionA. Improve the functionality of the copyright management business that serves as

the windows of copyright-related issues and provides centralized managementB. Develop technologies for content protectionC. Stronger legal protection of contents: intellectual property regulations suitable

for the digital/online age

(3) Prevention of illegal copy and piracy/support to international deployment

A. Package: Copy-protect technologies Online: DRM and CID technologiesB. Crack down on piracy in overseas: Content Overseas Distribution Promotion

Organization (02)C. Content Industry Global Strategy Committee (03. Ministry of Economy, Trade and

Industry)- Examine spillover effects (effects on other industries, tourism, culture and diplomacy, etc.)- Examine assistance to companies that operate overseas

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4.Challenges and Expectations (3)

IT policies: e-JAPAN Strategy, e-JAPAN Plan, e-JAPAN 2002 program (2001), e-JAPAN Plan 2002 (2002)

IT Basic Strategy II (2003): Promote utilization of communication infrastructure

Improve the international competitiveness of the content industry, promote understanding of Japanese culture in overseas

Intellectual Property Strategic Promotion Plan (2003) Assist funding, assist deployment in overseas markets

Expectations of the Content Industry(1) Contribute to industrialization of culture

(2) Lead the change of industrial structure toward knowledge-intensive industry

(3) Make Japan-made products to global products (animes, mangas, games, digital cinemas)

(4) Shift focus from GDP to GNC (Gross National Cool)

From hard power (economic power, military power) to soft power (cultural value, brand value)

End

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