Market Insight

Rise in Japanese rental sales fails to offset price decline in 2015

February 17, 2016  | Subscribers Only

David Scott David Scott Associate Director – Research and Analysis, Service Providers & Platforms
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  • Total rental video sales up 2.8% but revenues down 13.1% in 2015
  • BD rental shipments up 1.0% but revenues down 13.5% due to steep fall in average price
  • Shipment of rental DVDs up 2.9%; DVD revenues down 10.4%
  • IHS has revised down its full-year rental BD and DVD revenue figures for 2015

Japanese rental video returns continued downward in 2015 after a rise in unit sales failed to offset a price decline, according to IHS analysis of year-end 2015 data from the Japan Video Software Association (JVA). A 2.8% increase in the number of rental discs sold, to nearly 29.6 million, failed to compensate for a fall in rental disc prices, which drove rental video returns down 13.1% to ¥54.3 billion ($449 million) compared with the previous year. 

JVA indicates the number of rental BD units shipped rose 1.0% to almost 2.1 million in 2015 whilst revenues declined 13.5% to ¥3.9 billion ($31.8 million), reflecting a 14.4% decline in the average trade price of a rental BD to ¥1,878 ($15.52). IHS has made minor adjustments to its full-year rental BD shipment figure for 2015 in light of the latest result, Revenues, which IHS gross up to reflect the total market, are down from our previous forecast of ¥4.6 billion ($38.0 million) to ¥4.1 billion ($33.9 million).

The average trade price of a rental DVD fell 13% to ¥1,833 ($15.14) in 2015 compared with a year earlier, whilst a 2.9% increase in rental DVD unit shipments (to just over 27.5 million) resulted in JVA member revenues from the format declining 10.4% to less than ¥50.5 billion ($417 million). IHS has revised its rental DVD shipment figure for full-year 2015 upward from 33.2 million to 34.8 million in light of the latest results, whilst revenues are down from our previous forecast of ¥64.0 billion ($514 million) to ¥62.2 billion ($515 million).

IHS forecast a 7% decline in total rental video unit shipments to 34.8 million in 2016. Total revenues from the sector will also decline from ¥66.4 billion ($549 million) to ¥58.3 billion ($482 million) over the same period. At consumer level, we expect total spending on the rental sector to reach ¥188 billion ($1.6 million) in 2016, down 11% compared with the previous year, whilst rental transactions will reach 1.0 million.

Our analysis:

The increase in sales of rental units shows that, compared with most world markets, physical rental continues to be popular in Japan despite the launch of a dozen or more sVOD services from operators including Amazon, Google, Hulu Japan, and NTT. We believe that the recent (1 September 2015) launch of Netflix has the potential to change that, but only if the company succeeds in building a substantial catalogue of strong local and original on-demand content, especially anime titles. IHS research shows that over the past five years anime titles have accounted for almost 20% of distributor revenues from rental DVDs (5.5% on BD). The genre's share of the retail business is even more significant; over half of retail BD revenues and 16% on DVD. (further details are available to subscribers in the IHS Technology Insight Report: Did Netflix kill the physical video market?)

Although Japan's physical video market has so far proved resilient, this may slowly be shifting. The number of active renters in Japan is declining as the number and availability of affordable sVOD services increases. This is having an impact on rental stores in Japan, particularly those of smaller operators. As a result, the market is consolidating rapidly and the country’s number one and two rentailers, Tsutaya and Geo respectively, now account for around 90% of rental unit sales. Competitive pressure between the market leaders is driving down rental disc prices.

The number of Geo rental stores declined by 18 to 1,145 stores in the year ending 30 September 2015. Geo is integrating mobile-related goods into its stores in an attempt to improve brand value and tap another revenue stream in the face of declining physical video sales. The converting rental-to-mobile floor strategy is likely to have prevented more rental store closures for the company in 2015. Geo’s 1.5% decline in its rental store count to 1,145 stores was below the nationwide average. According to IHS analysis of JVA data, the number of physical rental stores in operation in Japan had fallen to 3,137 by end 2015, a decline of 4.2% since the end of December 2014. While significant in Japanese terms, this is a relatively small decline compared with the collapse of store-based rental in many other world markets.

Rental media (which includes DVD, BD, and video game rentals) accounted for 35.8% of Geo’s total turnover down from a 36.9% share in the six months ending 30 September 2014. However, the company attributed this decline largely to a lack of blockbuster titles in the first nine months of 2015 and expects blockbuster box office titles Mission: Impossible Rogue Nation and Jurassic World to  continue their success on physical video and help boost rental video turnover figures for late 2015 and early 2016 respectively.

Geography
Asia Pacific Japan
Research by Market
Media & Advertising
Category
Video
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