Japan: Media mould-breakers

Digital upstarts are slowly but surely reshaping Japan's media landscape, David Kilburn reports.

It only takes a ride on a Tokyo subway to see how media habits are changing in Japan. Not so long ago, passengers not sleeping or strap-hanging would have had their noses buried in paperbacks, newspapers or manga comics.

In the evening, some might also have been trying to watch baseball on the flickering screen of an early pocket TV. Today, they are more likely to be shifting their thumbs across the keypad of mobile phones, checking news headlines, sending SMS messages, playing games or surfing sites formatted for the mobile internet (about 76 per cent of mobile users in Japan surf the web through their wireless handset, according to the NPD Group).

Soon, they may also be watching baseball on their phones. And what are those pixillated black-and-white squares on the transit ads that people use their phones to photograph?

Welcome to the tip of Japan's new- media iceberg, which is rattling nerves in the old media Titanics. No-one expects any of the old media to slip beneath the waves, but changing consumer media habits are forcing a budgetary re-allocation that is shifting funds from the media establishment.

Growth is also bringing headaches for the new breed of high-growth internet companies. To drive people to their portals, they desperately need to add compelling content. The rapid growth of broadband makes it feasible to stream audiovisual content not only to PCs but also to mobile phones.

Yet virtually the only sources for compelling Japanese content are the terrestrial TV broadcasters.

A Dentsu spokesman says: "Historically, Japanese mass media, including TV stations, have been among the largest content holders. They have superb production capabilities. Often, they are compared with internet media in the context of 'old' versus 'new', but it is clear that the companies that hold good content will be the ones that flourish in years to come."

Last year, two internet upstarts launched hostile takeover bids for major TV networks. Rakuten is Japan's largest online retailer and its second-largest portal, and a leading provider of internet-based services, with a 2005 turnover of 129.8 billion yen (£632 million). It made a grab for Tokyo Broadcasting System (TBS), Japan's third-largest broadcaster. The bid failed. However, at the end of November, the two companies signed a pact in which Rakuten promised not to exercise voting rights on its TBS stock in return for negotiations on business tie-ups. The agreement outlines three areas of co-operation: e-commerce, attracting customers to the web portal and online distribution of TV programmes.

Livedoor is an internet service provider that encompasses more than 50 companies, including Japan's most popular portal. Led by its flamboyant then chief executive, Takafumi Horie, it tried to gain control of Fuji TV, the largest broadcaster. The bid was blocked and the two agreed to consider ways to integrate their businesses. However, negotiations failed to produce any concrete proposals. Horie maintained his aggressive stance and made scathing comments on TV about the older generation that manages Japan Inc.

All that came to a sudden end in January this year, when Horie and his key lieutenants were taken into custody and charged with securities fraud. Livedoor, once valued at more than 930 billion yen (£4.5 billion) has since lost more than 90 per cent of its stock market value and seems likely to be delisted and broken up.

Proof of the Japanese adage: "The nail that sticks up gets hammered down."

These events mirrored those of 1996, when Masayoshi Son - of Softbank and Yahoo! fame - failed in a joint hostile takeover bid with Rupert Murdoch to acquire TV Asahi, a move widely abhorred by the establishment. Son was persuaded to step back from the bid and has since worked in partnership with Japan Inc.

The lesson is clear. Change may be inevitable, but it will only take place at a pace that the establishment finds comfortable.

The battle for content is not the only area where things are changing.

The internet, out-of-home, transit, TV and print are converging, with "digital paper" expected to become dominant in outdoor, transit and point-of-purchase, overtaking TV within a few years. QR codes, squares of black and white pixels that can be decoded via scanners built into mobile phones, are becoming ubiquitous in print media and outdoor in Japan. The codes direct the phone's web browser to coupons, games or further details on a product.

There is also increasing convergence between advertising, direct response and sales promotion. Gyao is a free web TV service run by the broadband provider Usen. It offers video on demand and will soon target ads by age and gender. Dentsu is working with TV broadcasters to develop ad-funded internet TV channels.

Yet changes in delivery technology and the battles for power are not the most significant changes under way. "The 20th century was an era of interruptions," Jonny Shaw, the head of planning at BBH Japan, explains.

"There were limited channels and you interrupted the consumer with your messages. The passive consumer was obliged to consume them.

"Today, we have technologically empowered consumers who can avoid any message. The key now is to find ways to engage consumers. Japan as a communications marketplace is now the most advanced in the world technologically. We see it as an enormous opportunity to learn, to experiment, to discover how we can engage consumers through this amazing array of technologies as media opportunities."

Traditional media may remain the stalwarts of Japanese media schedules - if nothing else, the retail trade needs them to support distribution.

But the media that build relationships will increasingly come from the convergent digital world.

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