Ofrium

When video-blogger Martina Sazunic moved from Seoul to Tokyo in 2016, she was shocked to learn that — unlike in South Korea — using music by some of Japan’s biggest pop stars on her YouTube channel was not permitted. Doing so, she quickly learned, would result in the offending video being taken down at the request of the rights holder.
“In [South] Korea, the record labels were open to uploading music videos and that encouraged people to share and spread Korean music. At the same time in Japan, labels refused to upload their music,” says Sazunic, a Canadian expat, who has spent 15 years producing content for YouTube and since 2021 has run the popular lifestyle channel King Kogi (188,000 subscribers), featuring videos about her adopted homeland.

For many years, local labels were reluctant to upload official music videos on YouTube through fear of cannibalizing physical sales and would only release truncated versions of songs on the platform. Use of sound recordings in user-generated content would, for the most part, be blocked and taken down. The rising popularity of streaming in the world’s second-biggest recorded music market — worth $2.7 billion in 2022, according to IFPI, behind only the United States — has, however, been transformative, leading local labels and management companies to pivot away from blocking songs on UGC platforms and towards licensing and monetizing them.

Trending on Billboard

“It’s been an uneasy process for consumers in Japan and that’s entirely down to Japanese rights holders, but the market is moving wholeheartedly into embracing music usage on UGC,” says Rob Wells, chief executive of Los Angeles-headquartered Orfium, one of several international tech firms now fighting it out to grow their share of the country’s emerging, yet potentially huge, UGC music market.

At present, UGC monetization is in its infancy in Japan, says Wells, but he predicts the market will rapidly grow over the next five years to deliver rights holders the kind of returns they already receive from other major music territories.

In 2022, Alphabet-owned YouTube says it paid out a record $6 billion to the music industry, although executives in Asia tell Billboard that only around 5% of that total — around $300 million – went to rights holders in Japan. That’s despite YouTube being the most popular video platform in the country with over 70 million monthly active users (YouTube declined to comment when contacted by Billboard for this article).

The main reason why Japan’s digital music market lags behind other countries is down to stakeholders’ historic desire to protect the enduring popularity of physical music formats, primarily CDs and music DVDs/Blu-ray discs, which accounted for 66% of revenues in 2022, according to the Recording Industry Association of Japan (RIAJ).

Digital’s share of the market is fast-growing though with streaming revenues rising 25% year-on-year to 93 billion yen ($618 million) in 2022, fueled by increased consumer take up of subscription services during the pandemic. That same year, overall digital music sales exceeded 100 billion yen ($665 million) for the first time since the RIAJ began tracking the data in 2005.

In response to the changing market, many of Japan’s leading labels and management companies (which often own the master recording rights for their acts) are rushing to partner with copyright technology companies to track and monetize the use of their content online.

Orfium, which generates income for clients by tracking and monetizing the use of music in broadcast and UGC platforms, has been active in Japan since 2022 when it acquired social media firm Breaker and is now one of the biggest operators in the local market. Others include Los Angeles-based PEX, Swiss-based Utopia Music, Spain’s BMAT and California-based Vobile.

French Music company Believe began operating in Japan last year and recently launched PLAYCODE, a new imprint dedicated to championing Japanese hip-hop acts. Prior to the company entering the market, Erika Ogawa, general manager of Believe Japan, said YouTube was being “under-utilized” by the music industry in Japan.

“It has untapped potential, particularly in terms of monetization, audience engagement and artist development which should be exploited by leveraging all its capabilities,” said Ogawa last year in a blogpost.

“I see Japan as being a huge opportunity for us and the wider industry,” says Wells, who served as Universal Music Group’s president of global digital business before joining Orfium in 2017. The company now has over 700 employees across nine territories in Europe, Asia and the U.S.

Wells says the company’s clients in Japan, which include Warner Music Japan, Victor Entertainment and leading music and entertainment company Avex Inc, have seen a 77% year-on-year rise in the number of YouTube UGC views being monetized with revenues growing 34%. (Wells declined to provide equivalent financial figures. Globally, Orfium says it generated more than $200 million in incremental revenue in 2022. Notable U.S. clients include Sony Music Publishing, Warner Music Group, Warner Chappell Music, Kobalt, Ingrooves and Hipgnosis.)

In recent months, the company has ramped up its operations in Japan, signing a deal with JASRAC, Japan’s largest collective management organization. It has also started working with entertainment company Bandai Namco Music Live, a leading player in the Japanese anime music market that represents an extensive catalog of more than 100,000 sound recordings and compositions, as well as more than 3,000 digital creators, including many YouTubers and Virtual YouTubers — a popular trend in Japan where online creators use virtual avatars and are known as VTubers.

The Bandai Namco deal marks Orfium’s entry into the global anime market — a rapidly growing sector that generated almost $25 billion in 2023, according to Morgan Stanley Research, and is projected to rise to over $35 billion within the next three years. The rising global prominence of Japanese anime opens up opportunities for the country’s creators of anime music, says Alan Swarts, CEO of Orfium Japan. Anime ranks as one of the continent’s most popular music genres behind only pop and Enka (traditional Japanese music), with 11 of last year’s top 30 songs in Japan being either anime theme songs or anime related. Anime titles in Bandai’s catalog include the hugely popular Love Live series, One-Punch Man and The Melancholy of Haruhi Suzumiya.

Swarts points to last year’s launch of a new weekly global chart by Billboard Japan, ranking the top 20 Japanese songs based on streaming and/or sales activity from more than 200 international markets, excluding Japan, as a significant development in the country’s music business that has heightened local labels’ focus on reaching global audiences.

“For a long time, Japan was a very insular physical-based market. That’s now changed and within Japanese music companies there is a big push to go global and make Japanese music as a big as Latin and K-pop has become outside their native territories,” says Swarts. “Utilizing streaming services and UGC platforms like YouTube will be key towards achieving that aim.”

“For us, Japan is the jump off point – the gateway to the rest of Asia,” says Wells. “People will soon realize that there are no more blocks on them being able to share music on these [UGC] platforms and that will quickly accelerate the growth.”