The Journal The Authority on Global Business in Japan

Fans of the British Premier League living in Tokyo have long been able to subscribe to cable to watch games live. But in August, they got a nasty shock: The service offered by the four J Sports channels was drastically reduced. Instead of offering at least four or five live games each week, there would now be two. Fans of Shinji Okazaki felt added pain. Okazaki plays for Leicester City—the Davids who defeated Britain’s Goliath clubs to take the title last year—and the chances of a live game featuring long-established teams such as Manchester City, Chelsea, and Liverpool have been drastically reduced.

“Yes, the service has been cut somewhat,” a J Sports official said on the phone. “I am very sorry.” Behind the cut is a drastic shift in the way we consume media, which is likely to bring as much pain to the cable and television industries as iTunes did to music and Google News did to journalism. Today, we no longer want packages. We want an à la carte menu of our favorite shows—and online services are delivering that.

Behind the loss of the Premier League was Sports Navi Live, the joint venture between Masayoshi Son’s SoftBank and Yahoo Japan. With little fanfare, the companies announced in March a new package that would allow users to see seven genres of sports—including soccer and the Premier League—for a fee. Those with other mobile providers pay ¥3,000 per month, while SoftBank users pay just ¥500.

Great, right? Perhaps. A cheaper service from J Sports (English slogan: “We have the best live coverage of your favorite sports!”) also costs ¥500 per month. Instantly, those on other mobile networks are paying through the nose. Additionally, the new service is designed for use with handheld devices such as smartphones and tablets. That 45-inch TV bought for viewing sports just got bricked—at least until you go and pick up the right piece of hardware to link it with your mobile device.

Those in Japan with cable—a service quickly becoming a relic of a bygone age when English speakers needed it to hear any moving image complemented by sounds in their mother tongue—may have noticed that the disappearance of the English Premier League was not the first reduction of service this year. Fox Movies simply vanished. Will other channels follow? Probably. As the Premier League situation shows, cable cannot continue to pay for broadcasting rights in today’s environment.

Shinji Okazaki gets past Brazil's defense in an international friendly in 2014.

Shinji Okazaki gets past Brazil’s defense in an international friendly in 2014.

NEW ERA
Cable is in a problematic place worldwide. Today, anybody with a healthy Internet connection has no need to subscribe to its vast amount of channels. Most non-Japanese have no need for the Jidaigeki Bangumi Channel, which specializes in samurai dramas. What these residents from abroad want is Game of Thrones, Star Trek: Discovery, Mr. Robot, and Stranger Things. These shows are offered by online streaming services such as Hulu and Netflix.

Of these two well established streaming services from overseas, Hulu was the first to launch in Japan—six months after the Great East Japan Earthquake and Tsunami of March 11, 2011. It was, initially, a failure.

“Hulu had a couple of missteps. But now, today, four years later and under new ownership, they are actually growing and seeing some real success in Japan,” Reed Hastings, CEO of Netflix, told analysts in July last year. “But the initial missteps were pricing was too high. It was ¥2,000 [per month] at that time. It had no local content.”

Attracting a foreign audience isn’t the problem, it is getting the locals on board. For streaming, “it seems to me their value proposition in Japan will take them longer,” said Tim Romero of the Disrupting Japan podcast. “They don’t have the depth of Japanese content, and the market itself doesn’t see Internet-based TV as a normal thing. It’s a classic case that they haven’t built up the mindshare with consumers to let them know what they are offering and why it has value.”

Today, Hulu is owned by Nippon Television Network Corporation and is enjoying a resurgence with HBO programs and a number of domestic shows. Netflix, on the other hand, is going it alone. In June, the service known for creating original programming in the US launched Hibana, a Japanese drama based on the prizewinning novel of the same name. Variety called the series “a profoundly reflective and achingly tender look at Japan’s vibrant, cutthroat comedy scene.”

“When we release a show like Hibana in Japan, people are watching . . . all around the world at the exact same time, which makes us a very important part of the entertainment landscape in those countries, and ultimately to those consumers as well,” Ted Sarandos, Netflix’s chief content officer, told analysts earlier this year. He added that the company intends to produce more shows outside of the US. “We currently have productions going on in Germany, Spain, Italy, [South] Korea, Japan, France, Brazil, and Cambodia,” Sarandos said.

“Globally in 2016, Netflix plans to release over 600 hours of original content. We expect to spend close to $5 billion on original and licensed content for our members, and this would double next year,” Yumi Doi, speaking on behalf of Netflix, told The Journal.

Disrupting Japan‘s Romero believes this is the correct strategy. “The Japanese movie market is 80 percent domestic, so trying to go with foreign content, it will win you the foreign audience but won’t get you to the mainstream,” he said.

With a strategy decided, and likely to mean more people turning to streaming, terrestrial networks face a serious threat.

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GOING BROKE
The real danger surrounds funding for journalism and documentaries that do public good but do not attract serious advertising dollars. Pay for those working in media is not rising, and advertising in print is declining. There is no guarantee the Internet will help remedy that. Dentsu’s Advertising Expenditures in Japan report, released each December, paints a dark picture. Spending was at ¥5.84 billion overall in 2010, and by 2015 it had risen to ¥6.17 trillion. However, a closer look at the statistics shows many areas of media in crisis.

Newspapers hit peak advertising in 1990, when spending was at ¥1.35 trillion. In 2015, the figure stood at ¥567.9 billion. Magazines fell from ¥477.7 billion in 2006 to ¥244.3 billion in 2015. Television was at ¥2.14 trillion in 2005 and ¥1.8 trillion in 2015. Online spending, on an upward curve, hit ¥1.15 trillion in 2015 and is increasing at an accelerating rate, currently around ¥100 billion per year.

Questions about the future of advertising are not limited to simple quantities—though the issue of when and if TV and print advertising bottom out is important. When advertising goes online, what happens to the unpopular-but-important shows? Where does news come from? In an à-la-carte broadcast world, if metrics are most important, will there be space for great documentary and avant garde drama makers?

Maryland Governor Martin O'Malley visits the set of Netflix's House of Cards at Joppa, MD in 2013.

Maryland Governor Martin O’Malley visits the set of Netflix’s House of Cards at Joppa, MD in 2013.

The world has owed a lot to public broadcasters over the years. The British Broadcasting Corporation, today under constant attack for “wasting public money,” brought us Monty Python, Doctor Who, and Have I Got News For You, a precursor to topical comedy programs in the US such as The Daily Show. In Japan, NHK has always broadcast less-compromising investigative journalism such as Close Up Gendai, which was recently moved from its prime-time nightly slot of 7:30 to 10:00, and Project X, a documentary series that looks at Japan’s great cultural, scientific, and sporting achievements.

The screw is being turned on NHK. A judge in Saitama recently ruled that viewers using devices capable of receiving one-seg broadcasts—a method of transmitting television to cellular phones using the single open band in terrestrial TV broadcasts—do not have to pay licensing fees. This has the government pushing NHK to research the matter. Both the Japanese broadcaster and BBC have similar mandates: to produce TV not just for the biggest audience, but also for the sake of improving culture and society.

That content is unlikely to transfer to the streaming video-on-demand model of broadcasting. “Netflix aims to deliver various types of content from documentaries to drama series to animation in order to satisfy our members,” Doi said. “And Netflix does not invest in live content such as news. We focus more on scripted content that can be enjoyed regardless of when our members watch it.”

Audiences, however, are rarely interested in high culture or the news: Sex and soaps sell. Evgeny Morozov, author of The Net Delusion, notes that transmissions to convey news from the West to the Communist bloc during the Cold War had unintended effects. “East Germans were not all that interested in tracking the latest news from NATO. Instead, they preferred soft news and entertainment, particularly American TV series. Such shows as Dallas, Miami Vice, Bonanza, Sesame Street, and The Streets of San Francisco were particularly popular. Even the leading Communist Party journal Einheit acknowledged that Dynasty—known in Germany as The Denver Clan, and the most popular of the lot—was widely watched.”

In an à-la-carte broadcasting world, soft shows are more likely to make the big money than hard-hitting fact-based programs. But this is the direction in which we’re heading, for better or worse. And streaming services are leading the way.

Richard Smart has been living and writing in Japan since 2002.
Today, we no longer want packages. We want an à la carte menu of our favorite shows.