Media convergence gains momentum

The Japanese television market looks, on first glance, like a throwback to another era. The five commercial webs and pubcaster NHK still claim the vast majority of the viewing audience and revenues, much as the Big Three did in the U.S. until the 1980s. (NHK does not run ads, but it collects reception fees from viewers.)

Satellite and cable operators have challenged this terrestrial web supremacy, offering hundreds of channels, but only NHK’s two satellite channels — BS1 and BS2 — have moved into the viewing mainstream, with nearly 13 millions subs.

Even so, a new media era is on the horizon, as signaled by Internet startups Livedoor and Rakuten’s bold attempts last year to gain controlling stakes in major webs.

Rakuten grabbed a 19% share of Tokyo Broadcasting System, but the tie-up between the two firms is still more form than substance. Livedoor’s unconsummated partnership with Fuji Television Network has ended with Livedoor’s spectacular meltdown, after its president and other top execs were arrested in January on security law violations. Fuji has since sold its 12.75% Livedoor stake to the president of broadband services provider Usen Corp., booking a $292 million loss.

The webs’ own forays into new media have not always gone well. Tresola Corp., a joint venture launched in 2002 by TBS, Fuji TV and TV Asahi to offer Webcasts on broadband, is now in limbo because of copyright issues.

Despite these setbacks, media convergence is quickly gaining momentum, driven by the rapid advances in Internet and mobile phone technology — and the enthusiastic adoption of that technology by Japanese users.

Mobile phone companies, which collectively serve more than 80 million users in Japan, are launching models able to receive digital “one-segment” broadcasts, as they are called locally. The first was KDDI Corp. in December, followed by NTT DoCoMo in early March and Vodaphone KK in April. The major nets are partnering with these providers to launch one-segment broadcasts, though neither side is yet sure how to make the programs, which are free to mobile phone users, pay their way. Also, the phones themselves, at about $340 a pop, are pricey compared with standard models.

This year’s World Cup in Germany may get them to part with their yen, however. Japanese are fanatic supporters of their national soccer team and will watch World Cup matches wherever they are — even on a crowded train platform where the only screen is in their hand. “One-segment broadcasting will get a big boost from the World Cup,” predicts TBS Digital Media Division president Toshiaki Harada. “By the end of 2006 we should have 5 million users.”

To give those viewers something they can’t get on terrestrial TV, this April NTV and NTT DoCoMo will launch D.N. Dream Partners, a joint venture for developing mobile phone contents and services. Capitalized at $85 million, with NTV and DoCoMo each kicking in half, the company will not only make NTV program ads aimed at mobile phone users, but add links to shopping sites, as well as offer conventional DoCoMo services.

Meanwhile TBS has invested a similar $85 million stake in e-Mobile, the mobile phone subsidiary of ADSL service provider eAccess, to produce mobile-ready contents. “Our main targets are women in their 20s and 30s, both working women and housewives,” says Harada. “They’re the ones with the purchasing power in this country.” This target, however, is a moving one, on the go from morning to night. “(e-Mobile) will give busy viewers more chances to watch our programs,” Harada says.

Broadband Internet is also booming in Japan with 32 million home users, as well as many others who access the Web at schools, offices and the ubiquitous Internet cafes. In December 2005, Internet powerhouse Softbank joined with Yahoo! Japan to start TV Bank Corp., which serves up free Webcasts of nearly 100,000 contents on its site, including sports, dramas and films, with revenues coming from ad fees.

The strongest competitor is the Gyao Web TV service that Usen Corp., a leading broadband connection provider, started in the spring of 2005. Today Gyao serves 10 million registered users with a wide array of programming, from movies, music, news and sports to original contents like the popular romantic comedy series “Love Collection.”

The webs are also getting into the broadband act. TBS and Cultural Convenience Club — the operator of Tsutaya, Japan’s largest video rental chain — are the two largest shareholders in TC Entertainment, a joint venture launched last December that will produce DVDs of TBS dramas and operate mobile phone and broadband Web TV services.

Starting in November 2005, TBS has also been offering BooBo Box, a pay-per-view broadband content service, including dramas, music, documentaries and films. The web supplies the service through Jupiter, KDDI and other broadband operators.

One attractive revenue-generating possibility is product placement. “If viewers see a piece of furniture they like on a drama, they can go directly from the site to an online store that sells it,” he says. “Product placement is going to be very important.” In other words, Japanese webcast viewers may someday not only watch their favorite drama stars, but eat, dress and live like them, which is pretty much convergence taken to its logical conclusion.

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