The Journal The Authority on Global Business in Japan

According to recent research, after bottoming out in 2014, the music market has reentered a growth phase. This expansion is being powered by several factors, including the advance­ment of technology, the development of new business models for music, and the emer­gence of an integrated eco­system that links the music industry with technology providers and enables creators to access analysis using Big Data. While this trend is particularly prominent in the United States—the world’s largest music market—other markets, including Japan, are following the same trajectory.

Given this context, the ACCJ and the Business Software Alliance are very concerned about ongoing discussions at the Agency of Cultural Affairs regarding the appropriate return of compensation to creators using the copyright levy system. The discussions are taking place in the Copy­­right Subdivision of the Culture Council among members of the Sub­com­mittee on the Proper Protection, Use, and Distribution of Works.

We recommend that the subcommittee aim to establish an innovative approach to better compensating creators by reviewing changes to the copyright levy system in the current context of the music industry and its changing business model.

Today, an increasing amount of content is controlled by contracts and tech­­nologies to compensate creators. Content delivered to devices such as PCs and smartphones is primarily controlled by such contracts and technologies. We believe the current focus of discussions on the expansion of the copy­right levy system to include general-purpose devices fails to sufficiently and appro­priately consider digital-music listening methods and the implications these methods have for both creators and users.

First, business models within the music industry and across industries are changing significantly, with a shifting focus from an ownership model, under which goods are purchased and owned, to an access model, where desired services and content are accessed on demand. In the music industry, the market as a whole is now growing as a result of this shift. The way people listen to music is moving from buying and down­loading music (the Download Model) to unlimited listening on a monthly flat-rate basis (the Streaming/Subscription Model).

According to the 2018 Global Music Report, issued annually by the International Federation of Phonogram and Videogram Producers (IFPI), global music sales in 2017 were $17.3 billion, up 8.1 percent from the previous year. The growth has been continuously high for the past three years, with digital revenue increasing 19.1 percent to $9.4 billion and accounting for 54 percent of total sales. In particular, the global surge in streaming services was a key driver of this growth. Total revenues in streaming increased by 41.1 percent year on year and, for the first time, streaming became the single largest revenue source for the music industry. According to a 2017 press release issued by the Recording Industry Association of America (RIAA), “revenues from recorded music in the United States in 2017 increased 16.5 percent in estimated retail value to $8.7 billion, continuing the growth seen from the previous year.

“At the wholesale level, revenues grew by 12.6 percent to $5.9 billion. Similar to 2016, these increases came primarily from growth in paid music subscriptions, which grew by more than 50 percent. This is the first time since 1999 that US music revenues have seen material growth for two years in a row.”

In Japan, from 2013 to 2017, the per­­cen­­tage of revenue from streaming sub­scriptions has also increased year by year, and streaming is now the principal method for purchasing music, while sales figures for physical products have remained steady as in the United States and other countries. According to a report by the Recording Industry Association of Japan (RIAJ), streaming is fast becoming an important source of income for the music industry in Japan as well.

The penetration of the Streaming/Subscription Model has allowed users to listen to a variety of music, new and old, at a fixed price per month. As a result, users are rediscovering and listening to older songs. And Big Data analysis has enabled creators to see user trends and consider such factors during the creative process. As music-listening opportunities for users are increasing due to global distribution, chances for rights holders to receive remuneration are also increasing, contributing to revenue growth for the music industry as a whole.

Secondly, the shift toward the Streaming/Subscription Model for digital music eliminates users’ need and ability to copy music to listen. There­fore, expanding the copy­right levy system to include general-purpose devices lacks any reasonable basis given that such equip­ment is not used for private copying in the first place. Thus, such a move imposes an unnecessary burden on consumers who did not receive a private copy but must, nevertheless, pay additional costs for purchase of equipment. And, as the shift to the Streaming/Subscription Model progresses, the amount of music privately copied is decreasing overall.

In addition, all remuneration for content use is handled on a contract basis with both the Download Model and the Streaming/Subscription Model. Because contracts under the Streaming/Subscrip­tion Model permit the same user to down­load to multiple devices, there is little need for those users to create private copying. In some cases, making copies is technologically impossible due to digital rights management security. These factors have contributed to a significant decline in the amount of private copying.

The ACCJ and BSA are very concerned that the discussions currently underway in the subcommittee fail to sufficiently and appropriately consider digital music listening methods and the implications these methods have for both creators and users. Considering the actual current trends in private copying and the provision of remuneration to creators in the ways discussed here, the idea of maintaining the current copyright levy system and simply expanding it to include general-purpose devices is not an acceptable solution for all stakeholders, including—most importantly—the public. In fact, failure to adapt the system to present-day technological trends will hinder innovation in both the IT and music industries.

The reward systems in Japan, as well as those in place elsewhere, must be carefully tailored to support creators while not unduly burdening consumers or the digital world.

Promote Innovative

Approach to Better

Compensating Creators

Global music sales in 2017 were $17.3 billion, up 8.1 percent from the previous year