[Ecommerce] New York Times: Japan's Music Industry Wants Fee on Sales of Latest Digital Players

[Thiru Balasubramaniam]

October 10, 2005


  Japan's Music Industry Wants Fee on Sales of Latest Digital Players

By MARTIN FACKLER

TOKYO - In the United States
<http://topics.nytimes.com/top/news/international/countriesandterritories/unitedstates/index.html?inline=nyt-geo>,
recording labels want a bigger slice of Apple's success in digital music
by seeking higher prices on downloaded songs. Japan's
<http://topics.nytimes.com/top/news/international/countriesandterritories/japan/index.html?inline=nyt-geo>
music industry has a different idea: putting a fee on iPods.

The industry has asked the Japanese government to charge a royalty, to
be added to the retail price of portable digital music players like
Apple's iPod
<http://tech2.nytimes.com/gst/technology/techsearch.html?st=p&cat=&query=ipod&inline=nyt-classifier>,
which has been explosively popular here. Money earned from the fee,
which will be probably be 2 to 5 percent of the retail price, would go
to recording companies, songwriters and artists as compensation for
revenue lost from home copying.

It is a familiar story of vested interests feeling threatened by new
technologies. Like their counterparts in the United States, Japanese
recording companies are struggling to catch up with the Internet and the
advances in digital recording technology that are transforming their
industry.

But in Japan, the proposed fee has also touched off an unusual public
battle over the influence that industry groups here still wield over the
government and economy.

As a powerful political lobby, Japan's recording industry expected to
get its way when it first asked for the fee last fall. Instead, its
proposal remains stalled in one of Japan's government committees. The
news media, meanwhile, mock the fee as the "iPod tax."

"This is typical of how industry groups try to manipulate government at
the expense of consumers," said Hiroko Mizuhara, head of the Consumers
Union of Japan. "A lot of things in Japan have changed, but this hasn't."

The recording industry has already succeeded in slowing the arrival of
Apple's iTunes music download service to Japan through its reluctance to
negotiate licensing deals, people in the industry said.

Apple opened a Japanese version of iTunes in August, two years after its
introduction in the United States, but without songs from the major
Japanese labels like Sony Music Entertainment and Warner Music Japan,
which still have not signed licensing agreements.

ITunes received a warmer welcome from Japanese consumers, who bought one
million songs in the first four days, according to Apple, which declined
to comment for this article.

The proposed fees in Japan come as the music industry in the United
States appears to be jealously looking at Apple, whose iPod and iTunes
dominate their respective global markets. Record executives in the
United States have recently said that they wanted to renegotiate and
raise prices of songs sold by iTunes when licensing agreements expire
next spring.

"Recording industries on both sides of the Pacific are trying to find
all kinds of schemes to make more money," said Tim Bajarin, an analyst
at the Creative Strategies consulting firm in Campbell, Calif. "They
have this alternative commercial channel, and they're just trying to
block it or tax it."

The proposed fee would affect portable digital players that store data
on internal hard-disk drives and flash memory computer chips - which
include not only iPods but rivals like the Sony
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=SNE>
Walkman and other portable devices.

A fee of 2 percent is already imposed on devices using earlier digital
recording technologies, like compact disc and minidisc recorders.
Japanese manufacturers have been longtime opponents of such fees. The
fees are similar to a 2 percent surcharge imposed by the United States
government in 1992 on sales of digital tape recorders, the first
generation of digital home recording equipment, also to compensate for
copying.

The current fight in Japan has particular political significance because
it is taking place in a government advisory committee, which helps the
powerful bureaucracies set policy. These committees are usually tame
panels that reflect vested interests because they are packed with
insiders from the industries being regulated.

The committee, under the Agency for Cultural Affairs, is split over the
issue of whether royalties included in the price of music at online
stores allow users to copy songs to portable players. The recording
industry says the royalties only cover transmission to the listener's
personal computer, not for copying from there to a player like an iPod.
Opponents counter that consumers copying to a player for their personal
use should not be forced to pay twice to get a song from iTunes to their
iPod.

"It's like charging riders when they board the bus, and then again when
they get off," said Naoki Koizumi, a law professor in Tokyo at Keio
University who serves on the committee.

The Japanese recording industry complains that the sudden rise of the
portable digital players is robbing it of the revenue that used to come
from the fees on CD and MD recorders. Earnings from fees have fallen
last year to 2.2 billion yen ($20 million) from 3.8 billion yen in 2000,
according to the Japanese Society for Rights of Authors, Composers and
Publishers. "Now everyone who used to be using CD's and MD's are using
iPods," said Koichi Numamura, head of the society's recording rights
department. "We can't just sit by silently while we lose money."