Tsunami on the Horizon

Perceptions of Japan’s technological advancements in streaming have been inaccurately positive. Development, infrastructure and the user-adoption rate are now advancing quickly, but it was not long ago that Japan referred to itself as "the underdeveloped country of streaming."

Surprising? Several factors have contributed to the relatively slow development of streaming in Japan.

The biggest factor is the lack of a flat-rate phone service. Flat-rate service for local calls is a given in the U.S. market, but in Japan (like in many Asian and European countries), per-minute charges for local calls are still standard. On top of ISP fees, users pay per-minute fees for dial-up connections. Streaming content has not been an appealing proposition given the connection time it requires.

Leading broadband technologies, such as cable and DSL, cannot get a foothold. Their market penetration has been slowed by regulation and the dominant position of telecom carrier NTT. As a side note, DSL’s delay has been compounded by the fact that Japan has the world’s highest penetration of ISDN lines, which interfere with DSL connections.

The slow penetration of broadband, and the resulting slow deployment of streaming content have been a source of irritation to technical people in Japan. That irritation has also turned to national shame, with the Japanese press reporting that Japan is behind its Asian neighbors and that "Korea has caused a broadband shock" and is "more than one year ahead of Japan." As of January 2001, Korea boasted 2.6 million broadband users — one out of every four households. This is in stark contrast to Japan, where, as of January 2001, only one of out every 2000 households enjoyed a broadband connection. Along with the frustration of slow economic recovery, this news sparked action by Japanese business leaders and politicians.

The Sea Change

A fundamental shift is now occurring in Japan: The entire country is moving from underdevelopment to overachievement in a remarkably short time. This is what will ultimately drive streaming media adoption.

In the spring, Usen Broad Networks triggered the primary thrust. A true dark horse known primarily as a provider of karaoke and "elevator" music, Usen Broad Networks offered fiber to the home (FTTH) services at an amazingly reasonable price point — up to 100Mbps optical fiber for ¥4900 per month (approximately $40 per month). Even taking into account that actual transfer rates range from 10Mbps to 20Mbps, this is an incredible deal. The services were a wake-up call to many potential publishers of streaming content in Japan.

The second big wave to dramatically shake up the market this year comes from Yahoo! Broadband, a lead project by Masayoshi Son, president of Softbank. Announced in July 2001, Yahoo! Broadband’s ADSL service is priced at only ¥2280 per month (approximately $19 per month) for up to 6Mbps, and is nicknamed "the world’s cheapest ADSL." Japan’s strong desire for affordable, flat-rate, fast broadband service is evidenced by the adoption rate: In only one day, orders for this service exceeded the existing installed base of ADSL subscribers in all of Japan, which was estimated to be 200,000 users. The ADSL subscriber population almost doubled in 24 hours.

Even the traditionally slow-moving players in the industry are waking up. A significant impact has been made on the NTT group, which has been forced to follow the FTTH price war. NTT announced an experimental FTTH service priced at ¥13,000 per month ($105), and then reduced the price to ¥5900 ($48) when it launched the service in July. On the DSL side, all major ISPs have started DSL services, and prices competitive with Yahoo! Broadband are expected. Japanese consumers now have DSL from $19 and FTTH from $40.

Thanks to the high visibility and promises of NTT DoCoMo’s iMode technology, Americans may think that Japan’s cell phone "keitai" industry is determining the country’s rate of streaming media adoption. The speed bumps in the next generation keitai (3G) rollout are well known: DoCoMo’s 3G service was originally slated for May but is now not expected to be fully launched until November. But the truth of the matter is that 3G service is still in an experimental stage, and packet prices have been too high for wide consumer adoption.

Expectations ran too high last year, and in terms of broadband and streaming, the current market’s attention is shifting to ADSL or FTTH. It’s been an interesting change of market expectations in one year. Those who are waiting for wireless streaming are missing the opportunity on the ground.

The Tide is Turning

One year ago, when we started Generic Media, there was not much streaming to be found in Japan. The majority of content resided on the sites of the format companies (Microsoft, QuickTime and Real), and there was very little content from broadcasters. But "Buro-do bando" (broadband) and "Sutori-minngu" (streaming) are now considered key components of Japan’s economic breakthrough due to the increased availability of local streaming content.

In March, Jupiter Research forecasted that 8.6 million Japanese households would be connected to broadband by 2005 (one-seventh of all households). This prediction was partly based on an assumed ADSL-adoption figure of 200,000 users in 2001. However, at the end of June, ADSL subscription already totaled over 300,000 users: The adoption rate dramatically exceeded Jupiter’s prediction. The government’s recent "e-Japan" strategy set a target of 30 million households connected to broadband by 2006 (one-half of all households in Japan).

Generic Media has also been navigating these turbulent waters. We were honored to be an invited guest at DEMO Japan’s Super-Session in February. Since then our Japan office has had numerous contacts with the leading players in Japan’s streaming industry — infrastructure providers, ISPs, broadcasters, film companies and educational institutions. At every turn, we feel the momentum and enthusiasm building, along with their interest in Generic Media’s solution. These companies are not driven by technology, but by the smell of money, as the whole industry moves toward meaningful implementations of streaming. High-speed connections to the home, as well as the build-out of wireless streaming services, are finally gaining critical mass in Japan. This fall, Streaming Media will host the first Japanese trade show dedicated entirely to streaming. Of course, Generic Media will be there.

The tide is high. The infrastructure being built in Japan represents a great opportunity for companies that are ready to exploit it. The next challenge will be for streaming content and service providers to develop and deploy winning streaming strategies that keep pace with a tumultuous industry.