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Japanese Music Industry Still Fighting Its Physical Attraction

Japan has had an enduring love affair with CDs, and labels love the profits ensured by the country’s “saihan” system. But streaming is finally taking off.

TOKYO — Near the iconic scramble crossing in Tokyo’s Shibuya district stands Tower Records Japan’s nine-story flagship store — a hulking, gray colossus proudly defying the local music market’s slow drift toward streaming. Emblazoned in red letters above the entrance is the chain’s slogan: “No Music, No Life.” Despite the pandemic, there’s ample evidence of both.

Crowds of young people mill around the entrance comparing notes on the latest releases, customers browse racks of CDs on floors devoted to specific genres, while others chill out in the second-floor café. Music blares out of speakers throughout the store.

The store is a vivid reminder that music fans here still haven’t given up on physical formats like CDs, vinyl and even cassettes. While much of the world moves further into streaming as the dominant form of music consumption, Japan still has a physical fixation.

That is hampering the overall market, which declined for the second straight year in 2020, falling 9% from 2019 to 272.6 billion yen ($2.64 billion), according to the Recording Industry Association of Japan.


But there are signs that the world’s biggest physical market — and No. 2 market overall — may finally be reaching a tipping point, with global streaming services Amazon Music, Spotify and Apple Music leading the charge. Japanese labels’ streaming revenue rose 27% last year to 58.9 billion yen ($542.2 million) in wholesale value, while physical sales fell 15% to 194.4 billion yen ($1.8 billion), according to the RIAJ.

In a sign of the shift underway, a streaming-only single — “Yoru ni Kakeru” by pop duo YOASOBI — topped the Billboard Japan Hot 100 year-end chart for the first time in 2020. Male vocal group Arashi released its first digital single, “Turning Up,” in November 2019, and then three months later digitally released all 16 of its previously released studio albums. Other major acts made streaming debuts last year, including singer-songwriters Masaharu Fukuyama and Kenshi Yonezu, and rock band Southern All Stars.

Japanese labels are also increasingly using YouTube and music-focused streaming services to promote new music before CDs hit stores. “It has taken us a while to shift, and it was very hard, but it is happening now,” says Iichiro Noda, CEO of digital music distributor TuneCore Japan, noting that since 2019, streaming releases have accounted for most of the top songs on the Japan Hot 100. Japan was Amazon Music’s fastest-growing international territory last year, says Amazon Music Japan director René Fasco. “With greatly improved streaming catalogs and better-informed customers, streaming adoption will continue to accelerate,” he says. (The company doesn’t disclose subscriber data.)

Yet the latest sales results still show physical product (including music videos) comprising 71% of Japanese record companies’ revenue in 2020 — down from 76% in 2019 and 79% in 2018, according to the RIAJ.

Japan — along with South Korea — now dominates global CD sales, accounting for $1.26 billion, or 45.8% of global CD revenue in 2020. South Korean music consumers, driven by the global popularity of K-pop collectibles for groups like BTS, recorded a $189.1 million increase (up 85.9%) in physical sales in 2020 to $409.4 million, according to IFPI.


One reason Japan has been slow to streaming is “saihan,” a government system that allows labels to set retail prices for CDs and other physical products. Introduced in 1953 as an anti-monopoly law exception, saihan (meaning “resale”) ensures copyrighted material’s availability by reducing price competition among retail outlets.

As a result, most CD albums sell for 2,000 to 3,000 yen ($18.32 to $27.51) — up to 80% higher than in the United States. That guarantees a 25% to 30% per-unit profit margin for Japanese labels, while streaming services’ monthly subscription fees average about 1,000 yen ($10), say industry sources. “As long as there is physical demand, it is natural for a profit-seeking company like a label not to abandon it,” says Masanori Ohori, executive officer of Tokyo-based label Toy’s Factory. For that reason, Japan’s powerful talent agencies have also kept their acts off streaming services, but even longtime holdouts like Johnny & Associates, which represents Arashi, are now overcoming those concerns.

The biggest reason for Japan’s enduring physical obsession is consumer loyalty. Music fans show their commitment to artists by buying and collecting tangible products like CDs, while “idol” acts cater to that demand with multiple CD versions of new releases, which include extra features like invitations to “handshake” events and vouchers for better concert seats.

Still, the shift to streaming is changing Japan’s retail landscape. Secondhand CD stores are now few and far between, while CD rental outlets — popular in Japan since the mid-1980s where labels collect royalties when a CD is checked out — fell by one-third from 2,803 in 2010 to 1,844 in 2019, according to the RIAJ. And some big-name music retailers like Virgin Megastores Japan have closed for good.

Tower Records Japan still operates 80 stores nationwide, down from 87 a decade ago. (In 2002, it broke away in a management buyout from the U.S.-based retail chain, which went out of business in 2006 as the U.S. CD market crashed with the rise of downloads and piracy.)

Tower Records in Tokyo's Shibuya District in 2021
Tower Records in Tokyo's Shibuya District in 2021 Steve McClure

The retail chain has also invested in vinyl, opening a dedicated vinyl store in Tokyo’s Shinjuku district in 2017 which stocks an average of 70,000 LPs. (Last year marked the first time since 2013 that the vinyl market shrank in Japan, with revenues falling 1% to 2.2 billion yen, or $19.4 million, according to the RIAJ.)

The Japanese chain says its overall sales have stayed above 50 billion yen ($459 million) for the past decade, recording revenue of 53.2 billion yen ($488 million) in the year ending February 2020.

Tower expects to announce that sales fell last year, due to the pandemic. Physical sales slipped precipitously during the state of emergency in April and May when retail stores closed but recovered in July. Meanwhile, Tower’s online sales have jumped 30%, says Tower spokesman Tatsuro Yagawa.

Japanese music executives say there’s enough room for both physical and digital — for now — but the long-term question is when, and even whether, streaming gains can make up for the decline in CDs. “The relationship between digital music and physical in Japan will change slowly,” says Yagawa. “We don’t think physical sales will drop [all] at once like in the U.S.”

This article originally appeared in the April 3, 2021 issue of Billboard.