The Battle for the Global Entertainment Industry: Japan's Growing Strength in Digital Culture
Japan is quietly developing a powerhouse of related technologies in the entertainment industry that will give the Americans a run for their money.
"If you are walking past a McDonald's a Global Positioning System (GPS) satellite tracks your location and your phone buzzes you a message that there is a 20% discount to eat at McDonald's."
Hollywood has little to fear from Japan in the film business, with the U.S. turning out almost 800 films a year to Japan's less than 300. But in the new digital media Japan is a force that will have to be reckoned with.
Ronald A. Morse, who holds the Paul I. Terasaki Chair in U.S.-Japan Relations at UCLA, in a January 13 talk predicted that "They will come out like gangbusters. They are the Godzillas of competition." His talk at the UCLA Faculty Center was sponsored by the Center for Japanese Studies.
Japan's strengths are in interactive digital gaming, the use of animation in digital entertainment, and the adaptation of the lowly cell phone into a ubiquitous multimedia apparatus of ever-broadening applications. These industries, often based on interactive technologies, are fast outpacing traditional film and video as mushrooming sectors of the entertainment and communication economy even in the United States. And it is Japan that is perfecting them years ahead of the American market.
"When I am in Tokyo I am in the Japanese digital culture," Morse said. "The big screens everywhere for advertising, everybody reading comic books on the subways, things that here are pop culture are everyday life in Japan."
The entertainment industry in its broadest definition is big business, 4-5% of GDP in both the United States and Japan, although the specific composition is different. That is about US$400-500 billion per year. "The entertainment industry is big in the U.S. economy but in Japan it is an emergent industry. The Japanese are kind of pioneers in this technology. What do the Japanese bring to the table in the entertainment industry? First is the issue of market access. The United States is relatively open, while the Japanese are not very accessible. The Japanese have an export approach and do not import from others things they make themselves. They are ahead of the U.S. in cell phone technology, and may be ahead in digital animation. They have shown a quicker adjustment time to new technologies than the United States."
Part of assessing Japan's potential in the digital industry is its better access to consumers in Asia. "The Asian market is growing much faster and larger than other parts of the world," Morse said. "Japan already has a beachhead in the Asian market. By 2015, 60% of Hollywood film sales will be in Asia. In the computer industry and the game industry the Japanese are very strong. In print and publishing the Japanese are strong in cartoons, comic books, and graphic novels, a kind of longer, more grown up comic book, that is amazingly popular in Japan and in some other parts of Asia. They have strengths in broadcast telecommunications."
Can Japan Come Out of Its Long Recession?
Morse suggested that digital technology is the key industry for a renewal of the long-stagnant Japanese economy. "Can Japan come back? Not in traditional manufacturing. Japan has moved its auto plants to the U.S. and China. The one area where they will be strong is in digital technology, digital pop culture."
In Morse's view Japan's culture, even more than its technology, is attuned to the market it is expanding into. "They are exemplars of the culture for the 21st century: They have no ideology. They have no religion -- that is, most Japanese have three or four religions, but don't take any of them very seriously. They are 99% middle class." And they are eager adopters of new technology.
Components of the New Digital Industry
Morse defined entertainment and digital culture very broadly, referring to it collectively as the content industry. He listed the segments, in many of which the Japanese have particular strength:
- Motion pictures
- Manga (comics)
- Anime (animation)
- Video arcade games (machines for malls and shops)
- Computer and console games for the home
- Cable TV
- Cell phones
- Toys/character goods
- Theme parks
- Internet games
In the West these segments are not usually seen as part of a common industry, but in Japan, Morse said, they are, being referred to as the "culture amusement industry."
Morse gave a few figures: There is $6 billion annual revenue on manga and comics in Japan. Manga, the Japanese graphic novel or expanded comic book, comes in many flavors from products for children and teenagers to many kinds of adult specialized niche markets. Anime is sometimes thought of as the animated motion picture version of Manga. "Animation in Japan represents 60% of world animation. There is a $12 billion U.S. market for video, arcade, and console games; Japan has a big share of this. Cell phones in Japan are a US$130 billion industry. Music is a US$40 billion industry. $5 billion worth of toys and character goods are sold in Japan."
Gambling and pachinko are even bigger, accounting for US$644 billion a year. "As a comparison, the total annual gambling income in Las Vegas is $20 billion, one thirty-second of the Japanese gambling total." Pachinko is a cross between pinball and slot machines in which the customer drops small steel balls into a pachinko machine. If lucky, they activate switches that display matching pictures, as in a slot machine, for a win. There are pachinko parlors throughout the country.
"Incidentally," Morse added, "Japan is the source of 70-80% of the Internet pornography in the world."
Films and Video Not Japan's Strong Suit
While Hollywood is not exactly in decline, it is in the process of outsourcing its production, which is rapidly moving out of California. "The industry is a mainstay of the California economy, jobs in motion pictures and TV, but it peaked in 1998. California is losing its competitive edge. People are going to New Zealand and Canada to film. While domestic income and jobs in this sector are headed downwards, the Japanese film industry produces high quality movies at low cost, often for only $8 million per film."
This front, while it may produce a little friction, is not going to be the main arena of competition between California and Japan. "The U.S. film industry is 3 to 10 times larger than the Japanese film industry. Japan has also been very slow to develop video stores and cable TV. There are very few Japanese theaters: only 11,577 in the whole country compared to 120,807 in the United States. There are only 16 screens per million people in Japan. And on top of that, ticket prices are very high. Right now, Western films sell more than Japanese films in Japan. At the same time, Japanese films have not done well in the United States: Final Fantasy, the Pokemon films, Princess Mononoke, none sold well."
The Two Sides of Intellectual Property Rights
From the standpoint of the various disputes over intellectual property rights there are two components to the culture entertainment industry and they are facing off in this debate: those that control content and those that control technology. "These two sides have opposite interests no matter which country they are based in. This is reflected in the current battle in front of the U.S. Supreme Court over the Sonny Bono Copyright Extension law. High tech wants to sell the equipment, not put chips in to control copying. The entertainment content industry wants control of the material. These take opposite sides on copyrights. And both industries are spending much more on lobbying." A few days after this talk the Court ruled 7-2 in favor of upholding the 20 year extension provided by the act, although generally adding that most of the justices thought the law was a bad idea, but not unconstitutional.
The Internet companies are hungry for free content, so they have strongly lobbied against copyright extension that prevents tens of thousands of books and films of the 1920s, the great majority long out of print and unavailable in any form, from passing into the public domain where they could be digitized and presented on websites. Japan, Morse, said, generally tends to lean toward the tech side of this dispute. "Japan has not hesitated to press ahead strongly to enter the Chinese market despite the fact that 90% of all Japanese products are pirated in China, almost as high as for the U.S."
Computer Games, Yu-Gi-Oh, and Cell Phones
Worldwide video and computer game sales in 2001 were US$9 billion. Including game hardware as well as software, sales in the United States totaled more than $6 billion through the first 10 months of 2002. "This is a big industry for young people," Morse said. "And U.S. companies have only 40% of the U.S. market."
The trading-card craze among young children is largely a Japanese fueled phenomenon, around Pokemon and Yu-Gi-Oh card sets.
But the Godzilla of these segments is the cell phone. With satellite communications, cell phones now have elaborate menu systems that can tap into the Internet and into corporate and banking web servers for text and picture information previously only available on a desktop PC or a full-sized laptop. "This has burgeoned far beyond mere talking on the telephone in Japan. It has grown into wireless connectivity, digital news, mobile banking, travel arrangements, dictionaries and tools, games on cell phones. It has become a life style experience in Japan that has nothing to do with telephones. You can track deliveries on your cell phone, consult an encyclopedia. If you are walking past a McDonald's a Global Positioning System (GPS) satellite tracks your location and your phone buzzes you a message that there is a 20% discount to eat at McDonald's."
The phones download and play MP3 music, "and can be coded to play a different specific song for each of your regular callers, so you know who it is from the song the phone is playing for its ring."
You can get everything from an online, phone-screen-adapted gaming channel, to a fortune teller. "Everything is merging into one. The biggest Japanese cell phone company, NTT DoCoMo, has a $40 billion business with 70% of the Japanese market. Foreigners are pretty much locked out of this market. It is a classic monopoly organization. Its i-mode wireless Internet service has 29 million subscribers in Japan. Their advertising claims their i-mode phones are linked into more than 60,000 Internet sites, as well as specialized services such as e-mail, online shopping and banking, ticket reservations, and restaurant advice. Users can access sites from anywhere in Japan."
The i-mode system has a partnership with Nippon Rental Cars and Japan Airlines. Their only serious challenge comes from the number 2 Japanese cell phone company, KDDI. "They don't allow competition from foreign companies in Japan," Morse said. "The competition will be here in the United States. American kids spend 22% of their money on cell phones. NTT DoCoMo has a 16% interest in AT&T Wireless."
Japan's Cultural Strength
What, Morse asked, is Japan's core competence? "For years they said they were good at manufacturing. I never thought they were as good as they thought they were. They've put their esthetic and their quality control into their auto products. Similarly, cell phones are not particularly a Japanese technology. But they are very big because they have put their special orientation into the use of the cell phone. It is a cultural content, a powerful core cultural competence. They are good at drawing, illustration, artistic sensibility, and combining that with technology gives them a competitive advantage. Japan may be even more competitive here than they were in autos or steel."
Morse added that Japan should not be underestimated because of its decade-long recession. "A lot of retooling doesn't show up on the radar screen," he said. "These will begin to emerge in 2004-05 in renewed competion in a big way. The private sector has seen a tremendous amount of restructuring. The Banks may look bad, but at the micro level there has been a turnaround. l think they will come out like gangbusters. They are the Godzillas of competition."
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Ronald A. Morse holds a Ph.D. in Japanese history from Princeton University. He is a Managing Director of the Sangikyo Corporation, a telecommunications infrastructure company. From 1996 to 2001, Morse was professor of economics and business administration at Reitaku University in Tokyo. From 1981 to 1988, he was Development Director and Director of the Asia Program at the Woodrow Wilson International Center for Scholars in Washington D.C. From 1988 to 1990, he served as a special assistant to the Librarian of Congress. From 1990 to 1991, he was executive vice president of the Economic Strategy Institute, a Washington, D.C. think tank focused on global business.