Music Streaming Services in Japan: Identifying Winners

• The purpose of this report is to examine the Japanese music streaming industry. We discuss the profitability of this strand of the music industry and we seek to identify the potential winners and losers.
• The global value of music streaming is approximately US$2.9bil – just 19% of the US$15.0bil in total revenues for the recorded music industry. That ratio is less than 5% for Japan, however, which suggests that future growth potential is enormous.
• Music streaming in Japan is a 21st century development. It got off to a rocky start, seeing the rise and fall of Groovy, for example, which was a music streaming app developed by DeNA (2432) and which shut down in March 2014 after only one year.

Before the arrival in Japan of Apple Music (July 2015) and the like, services such as LINE MUSIC and AWA were the top two music streaming apps. Indeed, download rankings data suggest that their competition is not doing well. We think these two domestic services have a number of competitive advantages which will continue to support their dominant position in the Japanese market. These are: 

• Their close relationship with record labels; 
• Their understanding of local tastes and preferences; 
• Their relatively extensive Japanese song catalogues; and 
• The potential synergies with their parent companies’ existing businesses.

We expect Japan’s music streaming business will continue to catch up with global peers in terms of growing its market share of the music industry in years to come. However, since this business is less lucrative than the shrinking physical music business, we forecast that the size of the Japanese music industry, excluding live performances, will be ¥275bil by 2020 as against ¥301.5bil now – a negative CAGR of 1.8%. While the recorded music market is expected to contract, the digital music market is forecast to achieve CAGR of 18.5%, to reach ¥110bil in 2020. The key source of growth will come from subscription streaming services, where we estimate a CAGR of 34.7% will generate ¥55bil in revenues by the end of the decade.
In our view, LINE MUSIC and AWA are likely to continue as the market leaders, enjoying 70% of the market (~¥38bil) between them, with the balance to be shared among foreign players.