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Laying foundation for some major cable

When cable television last year came to the town of Aoba, south of Tokyo, it brought the usual fare of ESPN, CNN and old sitcoms.

Trouble is, those U.S. staples are in English.

When the locals wanted some juicy Japanese programming, they had to do create it themselves. So, families, friends and neighbors were recruited as “actors” in a dramatic, fictional miniseries about the town.

Communities like Aoba throughout Japan have resorted to making their own entertainment to fill up otherwise nearly empty channels. But viewers have mostly been turned off.

Now, help is on the way.

Foreign investors have been moving in during the past year to team up with Japan’s corporate giants, investing billions of dollars to lay cable throughout the country.

As a result, the number of subscribers is growing by about 50% a year. The telecommunications ministry projects that up to 60% of Japan’s households with TVs will become cable subscribers by 2010. The office also projects that, by that year, cable will fetch $30 billion to $40 billion in revenue in Japan.

Why has Japan’s cable industry lagged so far behind the U.S.?

“Cable has not caught on here because of huge costs and lack of programming,” says Shinichi Ogata of the research institute, SRI Intl. “But while costs can be brought down, the major problem lies in finding enough programming.

First, however, cablers desperately needed to find the right recipe to encourage investment.

Of Japan’s 42 million TV-viewing homes, only 5% subscribed to cable as of last year. And while more than 95% of American homes have access to cable services, only a quarter of Japan’s homes do.

Until recently, government regulations permitted cable operations only in limited areas and prohibited companies from consolidating multiple cable systems under a single operator.

Such restrictions blocked economies of scale, while other regulations limited the foreign presence in the market.

Why the opposition to cable?

Japan’s established TV broadcasters, fearing an onslaught of competition, worked with the telecommunications ministry to ensure that cable couldn’t become a viable alternative. But a series of recent deregulatory moves is finally giving cable a fighting chance.

“The government saw Japan was falling far behind the U.S. and Europe and wouldn’t be able to catch up in time for the multimedia age unless they encouraged growth,” says Ted Matsumoto, multimedia strategist for Itochu.

“Japan is now shaping up to be a growth market,” says William Kelly, president of Turner International Japan.

As a result of the loosening restrictions, U.S.-based Tele-Communications Inc. (TCI) and Japan’s Sumitomo teamed up last year to launch a cable operator, Jupiter Telecommunications.

The firm, which will invest $500 million in the industry, offers residents in Tokyo’s Sugimami district 36 channels. It hopes to offer interactive services, such as home shopping, as early as this fall. So far, 2,500 subscribers have signed up.

Another big venture launched earlier this year between Itochu and Toshiba of Japan and U.S. giants Time Warner and US West will pump $400 million over five years into the market.

The firm, TITUS Telecommunications, after the initials of the four companies, hopes to start operations in December.

Other ventures in the works: Nissho Iwai has been talking with Viacom about forming an alliance, and Home Shopping Network is negotiating with Sumitomo to bring its programming to Japan.

Hitachi, Marubeni and Nissho Iwai will establish a cable TV network to bring home-shopping and video-on-demand to homes near Tokyo, the Japanese media reported this month. Marubeni, Nissho Iwai, Itochu and Sumitomo are all large trading companies.

If the broadcasters feared such a foreign invasion, many other Japanese companies are welcoming the flood of new money and technology.

For their part, foreign firms are attracted to Japan by the possibilities of testing their multimedia wheels, analysts say. Japan is better-positioned than many nations for laying the more advanced cable systems needed for what Americans call the information superhighway.

“Japan’s cable industry, which was almost dead just a couple of years ago, is now at a turning point. The deregulation has helped,” says Matsumoto.

Prior to the recent investment frenzy, the biggest addition to Japan’s TV viewing was two satellite channels run by public broadcaster NHK, which have lured more than 6 million viewers. But most of the programming is foreign news and sports.

WOWOW, Japan’s first commercial satellite TV broadcaster, has only 1.6 million subscribers, far short of its original break-even target of 3 million.

And the satellite channels often switch off early in the evening due to a lack of programs.

Will cable be any different?

“Japan is weak in regard to programming. We don’t have our own Hollywood. We can lay out the infrastructure, but when it comes to what will be broadcast, we’re horribly ill-equipped,” says Akira Sato, manager of the industrial research division at Fuji Research Institute. “If cable is ever expected to really get off the ground in Japan, the issue of programming must be given serious attention.”

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