October 11, 2016:Merlin expands to Japan: ‘An incredibly vibrant market’ (interview)

Independent licensing agency Merlin has set up shop in Japan, opening an office in Tokyo. It is headed up by Haji Taniguchi, who was previously president of Avex Music Publishing, as well as chairing industry body the Music Publishers Association of Japan. He will work alongside label and service relations exec Kaoruko Hill.

The news follows Merlin’s first pan-Asian licensing deal in 2015, with KKBOX, and represents the company’s second phase of global expansion, following a New York office that opened two years ago. Music Ally has talked to CEO Charles Caldas about the new office, and Japan more generally.

“Two things have been driving the growth in the streaming market for us. One is that within the major territories, the number of subscribers is increasing. But the second is that the markets are spreading geographically,” says Caldas.

Merlin has seen substantial growth in South America and Asia in the last year, with Merlin’s licensing deal with KKBOX its first partnership with a local service in Asia. Caldas says it’s part of a wider strategy to work with local streaming services around the world to understand the dynamics of their markets.

We’re not licensing everything that moves, but we’re trying to get into business with enough local services to give us some insight into how they perform as opposed to the global ones,” he says. “What are the nuances that emerge when a local service is constructed for a local market, or a series of local markets, as opposed to a global one being imported?”

Merlin’s membership is also spreading geographically: the body now has members from 51 countries, compared to around 32 a couple of years ago according to Caldas. Merlin’s expansion to Japan is thus a mixture of all of these factors, as well as the knowledge that the world’s second-biggest music market is finally ready to test the streaming model.

“We needed to have a couple of people on the ground to not only help our Japanese members navigate the world of streaming, but to give our global membership some resource on the ground that interacts with the local services,” says Caldas, noting that Merlin’s office opening just weeks after Spotify’s Japan launch is a coincidence. “This office has been probably three years in the making.”

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Japan is a fascinating music market, and not just because physical sales remain dominant there. Caldas notes that “you have to redefine your perception of what an independent is” in Japan, where ‘indies’ like Avex, JVC Kenwood Victor Entertainment Corporation and Nippon Columbia are “massive players with significant market shares”, alongside smaller labels more akin to what we could call an indie in the West.

In Japan, management companies tend to control the master rights of their recordings, and some of them are branching out and creating their own recorded-music outlets, or labels if you want to call them that, to market their music – particularly outside Japan,” adds Caldas.

“It feels to me like an incredibly vibrant market. There’s all the obvious pop-driven, top-of-the-charts domestic repertoire, but there’s also really great punk rock, hard rock, electronic music, jazz, contemporary classical… and the open nature of the streaming platforms means we have started seeing global consumption patterns emerging for some of these artists.”

Merlin has been analysing some of the data around streams of Japanese music outside Japan. Almost half of those streams come from North America, with South and Central America the next biggest market, followed by South East Asia. Merlin hopes its new Tokyo office will be able to help its members continue to capitalise on this overseas demand.

What about Japan itself, though: will streaming make a quick impact now Spotify has launched, or will the dominance of physical continue for some time? Physical accounted for 75% of the Japanese recorded-music market in 2015, according to the IFPI, although recent figures released by the RIAJ show an 85% rise for subscription streaming revenues in the first half of 2016.

“Japan remains heavily dominated by physical sales, not unlike Germany or Australia. In those markets, digital formats had a presence, but were never really a dominant format in the marketplace. Yet the entrance of streaming has returned those markets to growth,” says Caldas.

He thinks that Japanese music companies are keen to experience similar growth, even if that means moving away from their traditionally-conservative approach to market changes.

“We’ve got a couple of years’ run at this to see how it plays out. On the surface Japan is an incredibly technologically advanced market: cellphone penetration is incredibly high, it’s a music economy, and people are paying for digital content in the form of emoji and ringtones and other forms,” says Caldas.

“My hope is we see the Japanese market navigate through the transition in a way that makes it more valuable in the future than it is now. Japan should be leading the way in the digital [music] revolution, but we need to understand and respect that it tends to move at its own pace.”

Caldas added that on his recent trips to Japan, he has picked up a positive vibe from Japanese labels, who are “much more open to the possibilities that these new models will bring additional value to the market”, even if some of the biggest Japanese labels remain conservative in their mindset.

“Companies are trying to lean into the future a little bit more, and while different companies will take different approaches, there’s a momentum now that is leading us somewhere interesting and valuable and lucrative.”

Stuart Dredge
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