Japan is finally catching on to user-generated content and there is money to be made

When video-blogger Martina Sazunic moved from Seoul to Tokyo in 2016, she was shocked to learn that — unlike in South Korea — she wasn't allowed to use music from some of Japan's biggest pop stars on her YouTube channel. Doing so, he quickly learned, would result in the offending video being removed at the request of the rights holder.

“In [South] Korea, record labels were open to uploading music videos and this encouraged people to share and spread Korean music. At the same time in Japan, record labels refused to upload their music,” says Sazunic, a Canadian expat who has spent 15 years producing content for YouTube and as of 2021 runs the popular lifestyle channel King Kogi (188,000 subscribers ), with videos about her adopted homeland.

For many years, local record labels were reluctant to upload official music videos to YouTube for fear of cannibalizing physical sales, and would only release cut-down versions of songs on the platform. The use of recordings in user-generated content will, for the most part, be blocked and removed. The growing popularity of streaming in the world's second-largest recorded music market – worth $2.7 billion in 2022, according to IFPI, behind only the United States – has, however, transformed it, leading local labels and management companies to move away from the blocking of songs on UGC platforms and for the licensing and monetization thereof.

“It's been a difficult process for consumers in Japan, and that's entirely due to the Japanese rights holders, but the market is moving wholeheartedly toward adopting the use of music in UGC,” he says. Rob Wellschief executive of Los Angeles-based Orfium, one of several international tech companies now battling it out to increase their share of the country's nascent, but potentially huge, music UGC market.

For now, UGC monetization is in its infancy in Japan, Wells says, but he predicts the market will grow rapidly over the next five years to offer rights holders the kind of returns they already get from other major music territories. .

In 2022, Alphabet-owned YouTube says it has paid a record $6 billion in the music industry, though executives in Asia say Advertising sign that only about 5% of that total – about $300 million – went to rights holders in Japan. This is despite the fact that YouTube is the most popular video platform in the country with more than 70 million monthly active users (YouTube declined to comment when contacted Advertising sign for this article).

The main reason why Japan's digital music market lags behind other countries is due to stakeholders' historical desire to protect the enduring popularity of physical music formats, notably CDs and music DVDs/Blu-ray discs, which have represented the 66% of revenue in 2022. according to the Recording Industry Association of Japan (RIAJ).

Digital's market share is growing rapidly, however, with streaming revenue expected to rise 25% year-on-year to 93 billion yen ($618 million) in 2022, fueled by increased consumer acceptance of subscription services during pandemic. That same year, total digital music sales topped 100 billion yen ($665 million) for the first time since the RIAJ began tracking the data in 2005.

In response to the changing market, many of Japan's top record labels and management companies (who often own the master recording rights to their acts) are rushing to partner with copyright technology companies to track and monetize the use of their content on the Internet.

Orfium, which generates income for customers by tracking and monetizing the use of music on broadcast and UGC platforms, has been operating in Japan since 2022 when it acquired social media company Breaker and is now one of the largest providers in the local market. Others include Los Angeles-based PEX, Switzerland-based Utopia Music, Spain's BMAT and California-based Vobile.

French music label Believe began operating in Japan last year and recently launched PLAYCODE, a new imprint dedicated to championing Japanese hip-hop acts. Before the company entered the market, Erica Ogawageneral manager of Believe Japan, said that YouTube is “underutilized” by the music industry in Japan.

“It has untapped potential, particularly in terms of monetization, audience engagement and artist development, which should be exploited to its full potential,” Ogawa said last year in a blogpost.

“I see Japan as a huge opportunity for us and the wider industry,” says Wells, who served as president of Universal Music Group's global digital business before joining Orfium in 2017. The company now has more than 700 employees across nine regions in Europe. Asia and USA

Wells says the company's clients in Japan, which include Warner Music Japan, Victor Entertainment and leading music and entertainment company Avex Inc, have seen a 77% year-over-year increase in the number of monetized YouTube UGC views with revenues increasing by 34%. . (Wells declined to provide equivalent financials. Globally, Orfium says it has generated more than $200 million in incremental revenue by 2022. Notable U.S. clients include Sony Music Publishing, Warner Music Group, Warner Chappell Music, Kobalt, Ingrooves and Hipgnosis.)

In recent months, the company has strengthened its operations in Japan, signing an agreement with JASRAC, Japan's largest collective management organization. It has also begun working with entertainment company Bandai Namco Music Live, a leading player in the Japanese anime music market representing an extensive catalog of over 100,000 recordings and compositions, as well as over 3,000 digital creators, including many YouTubers and Virtual YouTubers — a popular trend in Japan where online creators use virtual avatars and are known as VTubers.

The Bandai Namco deal marks Orfium's entry into the global anime market — a fast-growing sector that generated nearly $25 billion in 2023, according to Morgan Stanley Research, and is forecast to rise to more than $35 billion within the next three years. The growing global exposure of Japanese anime opens up opportunities for the country's anime music creators, he says Alan Swartz, CEO of Orfium Japan. Anime ranks as one of the continent's most popular music genres behind only pop and Enka (traditional Japanese music), with 11 of last year's top 30 songs in Japan being either anime-themed or anime-related songs . Anime titles in Bandai's catalog include the extremely popular Love live series, One punch man and The melancholy of Haruhi Suzumiya.

Swarts points to last year's launch of a new weekly global chart by Billboard Japan, which ranks the top 20 Japanese songs based on streaming and/or sales activity from more than 200 international markets, excluding Japan, as a major development in music country business that has increased the focus of local labels to reach a global audience.

“For a long time, Japan was a very insular market based on physics. That's changed now and in Japanese music companies there's a big push to go global and make Japanese music as big as Latin and K-pop has become outside of their home countries,” says Swarts. “Using streaming services and UGC platforms like YouTube will be key to achieving this goal.”

“For us, Japan is the jumping off point—the gateway to the rest of Asia,” says Wells. “People will soon realize that there are no longer any barriers to being able to share music on them [UGC] platforms and this will rapidly accelerate development.”