Netflix Faces Headwinds in Japan

Netflix vs. The World - H 2015

Netflix vs. The World - H 2015

While the SVOD giant has been compared to U.S. gunships forcing Japan to open its borders, the platform may struggle in the tricky and crowded local market.

Netflix launched in Japan this week, entering a crowded and difficult market in which VOD profits have been hard to come by and where some of its flagship content is already available. While some local media have dubbed it a ‘Black Ships’ force in a nod to the fleet of Commodore Perry that forced Japan to open its borders to trade in the 1850s, its biggest challenge is to be disruptive enough to live up to that moniker.

Japan represents Netflix’s debut in Asia, and the young, fast-growing region that is home to two-thirds of the world’s population is a top priority for any business with global ambitions. But Japan is an idiosyncratic market and one more mature than most of the region.

A director at a Japanese content holder which held unsuccessful negotiations with Netflix on distribution laid out some of the issues facing the platform in the domestic market.

“We discussed licensing our content to Netflix in Japan, with a view to distributing it globally on their platform, but the price wasn’t right,” said the director, who asked not to be identified. “And I’m not confident [Netflix] is going to succeed in Japan; I don’t think the content is enough to attract customers here, who don’t have the habit of paying for online video content yet,” he added.

The total VOD market in Japan was worth $1.04 billion (?125.5 billion) in 2014, up only 2 percent on the previous year, according to the Digital Contents Association of Japan. The market received a boost in 2013 when the major mobile phone carriers all offered discounted options for streaming video to handsets, according to a spokesperson from the association.

There are a multitude of platforms competing for a slice of this billion-dollar market, and more on the way. So far, none of which have managed to establish a dominant position.

Amazon launched its online video service in November 2013, with its Prime Video offering coming later this month. Meanwhile, Hulu chose Japan as its first overseas expansion market, bowing in 2011, only to withdraw in early 2014 and sell the business to Nippon TV.

In addition to the foreign invaders, there are a host of local platforms, with the big five commercial networks to debut their online streaming service next month, which will include 10 shows from each channel, available free, with no commercials. It will be joined later this year by Bonobo, a platform owned by a consortium of 30 content holders offering new dramas, movies, anime and music on a pay-per-view (PPV) basis.

Japan’s three mobile phone carriers also have their own dedicated online video platforms.That, however, didn't stop SoftBank from seeing potential in Netflix Japan. The group has teamed up with Netflix for its local launch.

Japan’s largest cable TV operator J:COM, available in more than 4 million homes, has a VOD library with more than 53,000 titles. A J:COM spokesperson declined to provide figures for what percentage of VOD purchases are accounted for by foreign dramas, but conceded the number was low. Therein lies another challenge for Netflix: despite its promises of local content, the unique tastes of Japanese consumers means demand for Netflix' signature programs is likely to be less than in other international territories.

House of Cards has long been available on multiple platforms, including J:COM channels and mobile services, while Orange is the New Black could struggle to find an audience in law-abiding Japan. There hasn’t been a U.S. drama that has become a mainstream hit here since the early seasons of 24, and unless Netflix can deliver a show that captures audiences on that level, it faces an uphill task to make its mark in the Japanese market.

Twitter: @GavinJBlair