Netflix, Amazon Prime go head-to-head in Japan

As Netflix and Amazon Prime Video launch their assault on Japan, they may find their biggest battle is not with each other, but with domestic competitors and the idiosyncrasies of the Japanese market.

Netflix has announced a tie-up with Japanese conglomerate SoftBank Corp, along with a three-tier pricing structure (basic, standard and premium) for its September 2 launch in Japan. SoftBank will offer Netflix subscriptions to its 37 million phone customers, with the monthly fee added to their regular bills.

Just a few days after Netflix’s announcement, Amazon said it would be launching its streaming service, Prime Instant Video, in Japan next month. The service will be free for existing Amazon Prime customers in Japan, who pay $33 (Y3,900) a year for fast delivery and other perks.

Amazon has an existing user base in Japan after more than ten years of ecommerce operations. But neither Amazon nor Netflix will have an easy ride in this market. Hulu has been there before them, launching in Japan in 2011, but then selling its operations to local broadcaster Nippon TV in 2014 after failing to gain traction.

The challenges they face include stiff competition from domestic players, the audience’s focus on local content and the unique conditions of the Japanese market, which make it impressively tech-savvy and charmingly old-fashioned at the same time.

DOMESTIC COMPETITION

Japan’s big three telcos – SoftBank, NTT Docomo and KDDI – are the biggest players in the SVOD space, due to the fact that they bundle content with their data subscriptions. NTT is the largest player with about 4 million subs, while the other two have about 1 million each. Avex Group has deals to supply content to both NTT and SoftBank.

In addition, Japan’s big five commercial broadcasters are launching an ad-supported streaming service in October, TVer, with each network supplying around ten shows a week, free to the viewer. Japan’s largest cable operator J:COM also has a substantial VOD library. Meanwhile, a consortium of 29 companies, Japan Contents Group (JCG), is planning to launch a streaming platform called Bonobo.

Japan also has niche online sites such as Dwango’s NicoNico, which satisfy “otaku” appetites for anime, computer games and pop music, allowing users to share videos and comment in real-time on what they’re watching.

LOCAL CONTENT

Local films had a 58% share of the Japanese market in 2014 and foreign product, including US shows such as House Of Cards and Breaking Bad, don’t get much air-time on TV. Therefore, both Netflix and Amazon will have to supply much more local content than they do in Europe and Latin America, where audiences are more open to Hollywood product.

Netflix has said it would work with SoftBank on local content, without providing details, and has previously announced content deals with broadcaster Fuji TV and talent agency Yoshimoto Kogyo. At the launch event in Tokyo, Netflix Japan chief Greg Peters said local content would eventually account for 40% of the offering in Japan, compared to 10-20% in most other territories.

Amazon hasn’t said a great deal about its content line-up so far except that it will feature “thousands of popular Japanese and US movies and TV shows, anime series, music concerts and variety shows, plus Amazon’s own award-winning originals and new Japanese originals.”

JAPANESE MARKET

With low piracy levels and consumers’ refreshing respect for intellectual property, Japan may be one of the last bastions of the physical DVD market. People still buy and even rent DVDs, with the biggest sellers being boy band videos and related merchandising.

At the same time, consumers haven’t developed the habit of buying content online, expecting it to be packaged with other services. According to the Digital Contents Association of Japan, the total VOD market was worth $1.04bn in 2014, an increase of only 2% on the previous year.

Japanese consumers haven’t even embraced pay-TV to the same extent as other territories. Although ad revenues are flat, the free-to-air broadcasters still dominate the market and less than 30% of TV households have signed up for pay-TV subscriptions. Indeed, the power of Japan’s might broadcasters, which in recent years have also ruled the film industry, may be the greatest challenge for the foreign invaders.