Japanese CD Rental Stores

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For a long time I’ve wondered: How did CD/record rental stores establish themselves in Japan when record labels and artist jimusho wield the greatest power in the music market? These stores totally wrecked industry revenue between ’81 and ’85, and the labels worked actively to shut them down.

So why in the world would the government make rental shops legal in their revision of the Copyright Act in 1985? The Japanese government is not especially well-known to side with consumers over industry associations, and it’s not like the industry didn’t have a good case against this rampant copyright infringement.

Then today, I was reading through some articles about the Japanese music market and found this quote:

Rental shops eventually became another political football between the US and Japan, the American side claiming that ‘rental shops are closely allied to the political lobby of Japanese consumer-electronics and blank-tape manufacturers’ (Guy de Launey, “Not-so-big in Japan” Popular Music 14:2 [1995])

Now this makes sense: The giant consumer-electronics were profiting from the media used to copy records rented at the rental shops. And these companies had much more political clout with the government bureaucracy than the relatively tiny and frivolous music industry.

(I’d like to take this opportunity to thank the Copyright Act of 1985 for plumping up my mp3 collection.)

W. David MARX (Marxy)
January 18, 2005

Marxy wrote a lot of essays back on his old site Néomarxisme. This is one of them.

11 Responses

  1. trevor Says:

    i always assumed that the success of minidisc’s in japan, and complete failure in the states, was do to the rental shop’s. but it also makes more scene that Sony would have had more leverage then the labels. but ironic, now with SONY trying so hard to stop copying of their music release’s.. does sony even have a portabl mp3 player yet?

  2. marxy Says:

    The MD caught on really well in the 90s because CD rental stores were already part of the landscape.

    Sony made a color-screen “portable digital media player” that tanked because it wouldn’t play mp3s.

  3. Patrick Says:

    Besides, Sony’s prioritary format’s encoding application is real crap that keeps crashing. Avoid.

  4. Nick Says:

    Glad you brought this up Marxy, its been a fascinating topic in my english class of late. All my coworkers tell me with straight faces that it is legal for them to make one copy of a rental disc (to CD-R or MD). This amazes me. They all rent music, though many of them also purchase music as often as every weekend. They don’t see this single-copy act as a rebellious ‘screw-the-man’ display. You thanked the Copyright Act for plumping up your mp3 collection, but this logical transition has not yet taken place for most Japanese because of the role the MD has played for the last several years. This explains Apple’s Japanese-only “Hello iPod – Goodbye MD” commercials. The trend still hasn’t caught on in the sharing sector yet. If only there were a way for this to take place! Once the transition does, and music sharing becomes the headliner it once was in America, I suspect you’ll see your local Tsutaya become the downfall of the record industry. Can you imagine if such a thing existed in America? Most of my coworkers are extremely wary of the legal side of downloading or sharing music they have ripped from rentals (though the younger they are, the more open they seem to the concept). I brought up the subject of the iTunes Music Store, and how online vendors have completely destroyed previously well-established laws of economics and marketing (the fact that 20% -pop music/topselling books etc.- of all inventory will be the only thing you make a profit on). Online vendors have proven this wrong by being able to pay more attention to the niche markets on the asymptotical end of the curve, and in turn this right side of the curve has proven endless and the greater revenue generator as a result. This has caused lower sales for the larger record labels and an obvious increase for smaller labels. BUT WHERE IS PITCHFORK JAPAN?! At the moment I don’t think the market is ripe for such an organnization, but it will become so soon, when CD prices rise, as I suspect they will continue to. Rentals will in turn rise, as will the potential for online music vending and sharing. But the percentage of the Japanese population that trusts online vendors is small – most of my students explained they’d NEVER want to put their credit card into a computer. THESE ARE TECH ENGINEERS AGED 25 – 40! They said they’d rather purchase some sort of card that acts as debit. The Japanese seem to use credit cards quite conservatively, which also explains why one must always carry cash on them. Which came first, the chicken or the credit card bill is hard to say, but if some sort of online debit Suica like system could be created, much like gift certificates but with a Suica-feel, I think online businesses would benefit greatly. Apple needs to hop on this ball as soon as they can break into the system. Meanwhile Sony’s music store is selling tracks at 300 yen and performing a beautiful bellyflop for all to see. The bottom line is there seems to be a general lack of the widespread rebelliousness towards big business and the man that is either inherently american (which I doubt, though history would support this just as much as it probably weakens my point) or, it is an attitude inherent to the maturing youth (quite likely). Your previous post on the Tu-Ka ad (thank you for finally explaining this ad to me) explains why this isn’t an overwhelming issue, and also explains the “Yankii” phenomenon/generation-gap. But why are these kids out buying Versace and not spending their cash on something that they could actually use and benefit from – like, say, an internet connection and an mp3 player. Damn this obsession with brands (or is this where apple could come in? *evil snicker*)! side note: I’d love to see the demographic statistics on 2Channel. I don’t understand why the largest bbs service in japan (possibly world?) has not made the logical jump to point-and-click personal publishing. 2Blog. Seems like the logical progression of things…though something tells me in no way will it mimic livejournal’s demographics ( http://www.livejournal.com/stats.bml ). Okay, again, I’ve covered a lot, and probably just hashed things over more than added new questions or topics of discussion. but i swear they’re in there though if you look…

  5. Chris_B Says:

    Nick: your post is all over the place and you are mistaken/unclear on a few points.

    1 rental shops: The album/cd rental business is not a threat to the music publishing industry, it is another revenue stream. First of all royalties are paid for each rental (as I understand) and on the sale of blank recordable media. The publishers may actually make more revenues on a rental copy than on a sale copy. Rental shops get a CD after a certain delay from the initial release, this is done to prevent cannibalization of inital sales. After a certain period the product is not worth much in the eyes of the publishers anyway as discussed elsewhere on this board. The bigger threat is used CD shops since kids now buy a CD, record it and sell it back the same day. The used shop can continue selling and profiting from the same item witout payment of royalties to the music publisher (this may change or have already changed). Years ago there used to be record renal shops in the US, but not anymore.

    2: copyright law: First off Japanese copyright law is structured VERY differently than US copyright law. It treats muisc, movies, books, artwork and softare differently. One similar point is that in both countries, “personal copying” is permitted, so MD’ing a CD you bought or rented (in Japan) is not illegal.

    3: cash vs credit: as you know, credit cards are not as widely used here as in the west. This is for a number of reasons, one of which is people still associate credit cards wit ursurous interest rates charged by sarakin/personal loan companies. Considering that most people I know here have trouble with the idea of compound interest, I’m not surprised they associate cards with ursury. Things are changing slowly though. Lots more shops take cards now than they did in the late 90s when I got here. Part of the problem is the card service companies charge merchants much more here to accept cards than in the west so lots of merchants dont want to eat into their profits by taking cards.

    There have been many efforts to develop prepaid cash systems for use online, BitCash (or was it BitPass?) comes to mind, and now NTT DoCoMo has got a few things they are working on as well. Sony is trying to push their Edy (sp?) prepaid card system out to PCs now. There are also established ways of handling C.O.D. payment on delivery of physical goods, as well as the furikomi bank transfer system. Unfortunately none of those work very well for selling data. I expect it will take a few more years before anything catches on and my bet in the longer run is on credit cards. Point 6 is related as well.

    4: “long tail”: As discussed elsewhere on this board, that model may not apply as well here. The only online vendor who might be able to provide those sorts of stats would be amazon.co.jp and AFAIK they arent talking. In a market where back catalog is not considered a traditional source of product, how can the “long tail” model apply?

    5: generation issue: First of all, “yankii” refers to a specific subgroup of young males who dress in a very flashy pseudo-yakuza “bad boy” style. Even general young people may not see any benefit from the large investment of money/time/learning of a copmuter (as discussed elsewhere on this board) when for less money they can get some nice clothes which may help fill the more immediate need of finding a mate ^_^

    6 Why am I not at all surprised that “engineers” dont trust the use of credit cards online? Most IT people I know here dont understand what SSL is or even what the littel yellow lock icon on their web browser means. How can you explain to people who lack the basic math required to explain encryption, who lack the knowledge that they are in fact already protected by law against credit card fraud, who dont understand how to measure the risk of online card fraud vs the risk of a card fraud in the phsical world, that buying something online is not a risky thing at all?

  6. Nick Says:

    okay. lets just say i shouldn’t be on so much caffeine while listening to the boredoms and reading marxy’s blog between my meetings. if i could remove the above post i would, because it looks like i just shat out every thought in my head right onto the paper. chris, thank you for taking the time to reply to each of my “points,” or lack thereof, and being so kind about it. I think I enjoy the discourse that’s been taking place here, and at times my desire to contribute overwhelms me, and i try to force myself to do so when i don’t really have the time. The result being that I end up sounding like I’m writing while I’m dying in line for the mens room. I’ll try to be more concise and less caffeinated in the future.

  7. marxy Says:

    1 rental shops: The album/cd rental business is not a threat to the music publishing industry, it is another revenue stream.

    Not a threat to music publishing, but they were a threat to record labels until the labels found a way to incorporate it into their overall marketing plans in the late 80s.

    3. credit cards

    Seems like it’s also harder to get a credit card in Japan. But I get a sense that a lot of fashion consumption is done on installment payment. There a lot of unanswered questions in my mind about Japanese use of credit – I’d like to read something on it.

    Overall technological literacy in Japan

    Very low. Gadgets do not lead to media/technological literacy with computers. Unlike the US, kids do not become computer literate in their teens, and the Japanese university system does not have a “dorm culture” with everyone chatting and file trading with their T3 connections. Computer skills still cluster around those in the industry, and everyone else types like 10 words a minute.

    Compare this with Korea where a huge majority of the population is computer literate and has embraced computers as a part of their everyday lives.

    People thus don’t trust computer encryption because they don’t trust computers to start with.

  8. Chris_B Says:

    Nick: glad you didnt think I was being harsh on you

    Marxy: I suspect that the technological illiteracy is caused by the educational system in general. Not that they dont teach kids the skills (they dont) but that education here stresses memorization over problem solving. Without a sense of deductinve reasoning and problem solving skills, a general purpose device is not very attractive.

    Rental shops (again) That time they did figure it out, this time they are busy squabbling and trying their own proprietary solutions which will fail. Sure the iTMS is semi proprietary too but it beats the crap out of anything offered here so far. Unfortunately iTMS & the iPod are Not Invented Here, so there will be resistance to allowing iTMS into the market.

    Credit Cards (a few facts): Its easy to get a card if you are an employed ethnic Japanese. The system here does not work the same as in the US where you can decide your monthy payments, they take a fixed ammount out of your bank account as your monthly payment to make it easier for locals to understand. As in the US, most store branded cards are actually run and managed by GE Consumer Credit. There are now laws in place to limit consumer liabilty against card fraud, unfortunately lots of people dont know that and still assume they would be liable for fraudulent use of the card. Unfortunately the law no longer requires that retailers get a signature from the consumer at the point of purchase and even when they did, clerks almost never checked and when they did they did it wront (sigs should be checked upside down against the card, its easier to spot mismatches that way), the result of all this is card fraud is now easier to do.

    As I understand it, but can not quote a source for, the MOF/BOJ used to lack enthusiasm about consumer credit due to fear of rampant spending (thus depeleting the Postal Savings which they use for their own nefarious purposes (see Alex Kerr for more info on that)) but have changed their minds due to years of downward trending consumption in the hopes of reflating the economy somewhat. If they had a lick of sense they would have started with offering the banks “guidance” on keeping ATMs open later, then followed up with consumer education on how cards are good and safe, and “encouraged” more retailers to accept cards. Fortunately for me, some retailers managed to figure this out without official “guidance”.

    If you find a formal history on consumer credit here, please let us know.

  9. Dave Says:

    As far as credit cards are concerned, I’d have to say I wouldn’t use one if I was in Japan either.

    The whole purpose of using a credit card (at least for the financially skilled) is to take advantage of the ~15 to 30 days free interest on the balance, and then pay it off. So with an average balance of $4000 spent each month, you might pick up $200 per year (at 5% interest on your deposits.) (Of course you probably also pay an annual fee of around $40, so the net benefit is about $160.)

    But this doesn’t look so attractive in Japan. Less places accept credit cards, so you might only be able to spend $2000 per month instead of $4000. Interest rates are also a lot lower for deposits – right now major banks are offering around 1%. So in the end the net benefit is 1% x $2000 = $20. Pay the annual fee of $40 and you are $20 in the red.

    So for people who pay their bills on time, there’s not a lot of benefit (apart from convenience) in having a credit card. Couple that with the fact that the interest rates (on loans) are high, and that there’s no bankruptcy in Japan (if you die in debt, debts are passed on to your children) and credit cards don’t seem that attractive.

    As for the comment about engineers not trusting the use of consumer credit online, I imagine that their concerns may be to a large extent about what the company at the other end does with the data, rather than the security of the transaction.

  10. marxy Says:

    $4000 spent each month

    Hey, big spender!

  11. Chris_B Says:

    Dave,

    two points:

    1) card payment is almost always fixed here not variable. You cant choose to pay off your entire balance or only the minimum or more than the minimum. You decide the payment when you sign up. Thats why stores will ask you if you want to spread the charge payments out over several months. Your model of the interest free window does not apply here.

    2 VERY few engineers here (that I know) understand the data retention/privacy issues. There is a new law in place which will come into effect this spring (koujin jouhou hougo) which will affect how companies handle personal data. Unfortunately its a very poorly written law, unlike the DPA in the UK. At least something is being done though…

    I stand by my oringal point. The opinions I hear are that credit card data is not safe in transit, not that it is unsafe on the recieving servers.