Market Insight

Spotify launches in Japan

October 04, 2016

Jack Kent Jack Kent Director, Media and Advertising

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Spotify has launched its premium and free ad-supported music services in Japan. The premium service is available for 980 (USD 9.60) per month and supports credit card, direct debit and mobile operator billing. Spotify will also debut its long anticipated mobile lyrics feature in the Japanese market. Competing services already active in Japan include Apple Music, Rakuten, Google Play and messaging app Line’s music service. 

Our analysis:

Japan is one of the world’s largest recorded music markets but represents something of an anomaly because of the persistence of physical retail sales and the slow development of the digital market. The foundations for growth are promising in Japan despite the relatively slow progress of digital music. Japan is by some distance the world’s most advanced mobile content market; consumer spending on mobile content per capita was around $70 in 2015, around 3x-4x higher than in the most advanced Western markets. Most of this spend was on mobile games, but it shows that there is strong consumer willingness to pay for content on mobile devices. Spotify’s use of mobile operator billing to pay for its service will be an essential factor in its development in Japan.  

According to Recording Industry Association of Japan (RIAJ) data, standalone (i.e. non-mobile operator) on-demand subscriptions were the fastest digital music segment in Japan in Q2 2016, up 185% year-on-year. This is compared with overall digital growth of 113%. But the base is still very low; total on-demand subscription services accounted for 49% of the JPY 39bn JPY (USD 383m) Q2 total digital revenues. Overall digital sales accounted for 16% of Japan’s total USD 2.5bn recorded music market in 2015.

Spotify’s position in Japan will be more challenging than its experience in many Western markets in which it had a first or early mover advantage. The launch in Japan comes behind competitors Apple Music, Google Play, and Rakuten. Japan is also one of Apple’s strongest iPhone markets which presents a further challenge. Spotify claims that it is the only on-demand service in Japan to offer a free tier; the more complicated rights negotiations for ad-support music services could be a reason for its slower roll out.

In terms of revenues, Japan is potentially a very lucrative market for Spotify and its competitors. As the market shifts from physical retail to on-demand digital subscriptions, there is a lot of room for growth. The size of the opportunity also means it is likely to be a very competitive market which could put pressure on profitability. For most digital music services, profitability is still some way off. The main aim is still to capture market share. Spotify’s competitors in Japan may also not face the same pressures to achieve profitability because they are tied to wider company and platform strategies: Apple can use Apple Music to tie people into its ecosystem and drive other device and service sales; Google Play Music serves a similar role keeping people tied into Google services; Line can use music to maintain engagement with its messaging platform; and Rakuten can use music to complement its broad portfolio of online content and services.

IHS expects that Spotify will look to partner with local operators and possibly Android smartphone makers in order to boost its competitive position. Netflix adopted a similar strategy when it launched in Japan, partnering with local operator Softbank. Spotify has pursued a lot of similar operator deals to fuel its growth and while mobile operators in Japan have tried to launch their own music services, these have failed to take off and so they should be more open to partnering with third-parties.  

 

Geography
Japan
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