Digitisation in the Music Industry: The Contrasting Business Strategies of J-pop and K-pop

Yet, Porter’s original diamond model and its extension, the GDD model, focus only on the consequences. They do not explain about the dynamic progress of gaining competitiveness which deals with a shift from the initial to the final state (Parc 2014). Therefore, this paper adopts the basic concept for each determinant but simplifies their labels as follows: Producersfor factor conditions, consumers for demand conditions, technology for related and supporting industries, and business context for firm strategy, structure, and rivalry. In addition, this paper focuses on analysing the responsive strategies of the Japanese and Korean music industries to digitisation. Therefore, the analysis begins by studying technology, and ends by dealing with the business context. Since digitisation can be distinguished into two different stages, emergence of the Internet (entitled as Digitisation 1.0) and its routinisation (entitled as Digitisation 2.0) through smart devices, the following analysis is conducted in two phases.

4. The Responsive Strategies of the Japanese and Korean Music Industry to Digitisation

This section analyses the responsive strategies of business in the Japanese and Korean music industries when facing the evolution of the Internet, from emergence (Digitisation 1.0) to ‘routinisation’ (Digitisation 2.0). It argues that the different strategies of business in each country have diverged the contrasting paths of J-pop and K-pop in the global market. The Japanese music industry has wrestled with digitisation and focused on the conventional market through offline sales (or physical music sales). By contrast, the Korean music industry has embraced digitisation actively.

4.1. Digitisation 1.0 Emergence of the Internet

4.1.1. From Analogue to Digital (Technology)

During the early 1990s, PC-based communication networks and the Internet emerged rapidly in Japan and Korea, a time relatively earlier than in many other countries. Currently, these two countries possess one of the most advanced information and communication technology (ICT) infrastructures in the world. In line with this progress of ICT, consumers have also made better use of related devices such as CD-ROMs, MP3 players, and other devices (Ipsos and IFPI 2016). The Japanese music industry operates under complicated license agreements produced by a ‘sophisticated’ IPR regime which helps to protect the industry fairly well (Sisario 2014; Karp and Inada 2015). By contrast, the Korean music industry functions in a very different environment where online piracy is prevalent (Mamiya 2011).

Due to the fact that Japanese music industry has enjoyed large and profitable physical music sales in its domestic market (RIAJ 2016), Japanese companies have had less incentive to move toward digitisation. For the same reason, Japan’s prestigiousOricon Chart, a Japanese version of Billboard, only began to count digital music sales after October 2016. This meant that Japanese companies were only interested in physical music sales; this ensured a vicious circle endured which hindered digitisation. 1 Furthermore, Japan’s strict IPR regime has contributed toward slowing down moves toward digitisation amid concerns that it would encourage illegal piracy and downloading (Mamiya 2011). Thus, the Japanese music industry has operated more in a protectionist manner than an active one that embraces digitisation (Mochari 2015). Paradoxically, Japan’s huge domestic market and well-developed IPR regime have hindered its companies to respond quickly to digitisation.

In Korea, many believed that the prevalence of piracy would hurt the domestic music industry. However, businesses in Korea reacted differently from Japan. Because pirated songs as a digital file are distributed more rapidly and widely through the Internet than physical copies through retail sales, Korean businesses sought to use this as a way to promote their music. Amidst this changing environment, the first ‘digital music’ album was produced in 1998 by a largely unknown Korean rapper Cho PD who established a ‘one-man’ label. He achieved remarkable success in Korea, and his online fame helped to promote the sales for his second album which was an offline release. Although the eight songs featured on the second album had already been released online, 500,000 physical albums were still sold nationwide (Lee 2015). Recognising the power of the Internet, Korean entertainment companies have actively taken advantage of digitisation.

4.1.2. From Offline to Online (Producers)

As the online diffusion of music has been more rapid than offline sales, so has the expansion to other global markets. This means that companies had to produce global products that could meet the demands of consumers from around the world and thus increase the opportunity of success in business terms. Although Japan has long enjoyed its position as the world’s second largest music market, Korea’s music market was considered to be marginal in terms of its size. As noted before, it has been afflicted by widespread piracy. The different market size and recognition of market changes from offline to online sales have induced contrasting responsive strategies from the Japanese and Korean music industries.

In general selling music abroad requires various types of business activities such as exposure on TV and radio, as well as running large promotional campaigns. These activities are not just for companies, but also for their singers and idol bands. Because the Japanese music market is larger than Korea and much of its profits are from domestic offline sales, the domestic offline market has been the main target for Japanese companies. Naturally, there was no incentive for Japanese companies to push their singers to learn foreign languages or even recruit performers from other countries. (Mamiya 2011).

The reaction of Korean companies was different. First, English lyrics have appeared more often in K-pop songs since the early 1990s: interestingly this practice was already prevailing in J-pop at an earlier point than in Korea. Second, Korean companies recruited singers who can speak foreign languages such as English or Japanese in order to enter larger foreign markets in the late 1990s. The latter strategy began with S.E.S. who were formed in 1997 by SM Entertainment. This trend has changed over the years as companies sought to recruit Korean-American or other foreign singers, such as Chinese, Taiwanese, Thai, and even Japanese performers. Alongside this, there has been increased collaboration with foreign song writers in order to produce more globalised music that can be easily enjoyed by fans around the world (Mamiya 2011).

4.1.3. From Album to Song (Consumer)

With the emergence of the Internet, the way in which consumers appreciate music has changed. Instead of purchasing a complete album, they have focused on purchasing and listening to only a few attractive songs that are either extracted from CDs or purchased (or downloaded) online (Yoo 2001; Ipsos and IFPI 2016). As the behaviour of consumers has changed, the strategies of businesses have also changed from producing a whole album to focusing on producing a few more elaborate songs. Despite these trends, the Japanese music industry, in contrast to Korea, has been more focused on physical music sales such as releasing many different versions of the same album. This difference has resulted in the two music industries pursuing different paths.

Unlike other advanced countries, in Japan digital sales have dropped since 2009 and physical music sales even surpassed digital sales in 2012 (Lindvall 2013; McIntyre 2014). As offline sales are larger than online sales, most Japanese companies have focused on developing ways to maximise album sales rather than songs per se. Therefore, the Japanese music industry has developed various marketing strategies to sell more CDs by introducing pricing restrictions on retailers, producing single albums – a strategy to sell more physical albums – with only one or two songs, and packaging CDs with promotional contents, such as photos or tickets for certain events (Karp and Inada 2015; Lindvall 2013; Mochari 2015; Looi 2016). However, these physical objects cannot be easily distributed abroad compared to the online market, particularly as consumers have become more interested in purchasing specific songs instead of the whole album. Thus, J-pop has not been so effectively diffused abroad, and its rigid copyrights regime has hindered its evolution towards digitisation.

By contrast, Korean companies have focused on diffusing songs per se instead of selling albums. The outcome from this approach has been that they have tried to improve the musicality of a few main songs. In the early years, Korean companies lacked the capability to make their musical contents more attractive on a global level. Thus in the 1990s they turned to talent from abroad, notably Scandinavian countries such as Finland, Norway, and Sweden (Im 2013; Shin 2013a, 2013b; Seo 2014). This collaboration with foreign song writers helped to enhance the musical quality of their songs. It has also contributed toward making K-pop more modern and globalised in a way that can be easily enjoyed by fans around the world through its diffusion on the Internet. This song-oriented strategy coupled with online diffusion was the key factor toward K-pop becoming more easily and quickly disseminated than J-pop.

4.1.4. From Specialisation to Integration (Business Context)

As the scope of competition has expanded from domestic to global and the diffusion of music had become quicker online, the music industry has had to keep up with demand and produce songs more rapidly. In this case, the introduction of ICT has helped the process for music production to be faster and shorter. From the perspective of the companies, having many promising stars or idol bands would be more beneficial for their profits as they can have a high turnover of songs and increase their opportunities for success. As a result, they have to recruit and train many people who display some potential. Managing all of these separately through individual specialised-companies is not an easy task and requires much effort in terms of time and financing. In order to reduce time and cost in this regard, entertainment companies have merged and acquired other individual companies that specialise in specific sectors (Christensen, Schmidt, Larsen 2003).

The Japanese music industry also formed conglomerates, but its process was rather superficial when compared with the Korean case (Hong 2012). In addition, these big companies have not dominated the country’s music industry (Karp and Inada 2015). Instead of enhancing its corporate structural efficiency, Japanese companies have focused more on specialisation. This led it toward developing various ‘distorted’ marketing strategies that sought to exploit the large-size of its domestic market. A good example is the music connecting card that allows purchasers to download music online for a limited period only. Although the music source was online, it was counted by Oricon Chart as a physical album sale. This was important because the number of physical albums sold was a critical factor in achieving higher rankings, but this created various distorted effects. One outcome was related to packaged items and music sales. Physical albums usually include a bonus ticket for an event, however for music cards, several had to be purchased in order to be able to acquire the same bonus ticket (Karp and Inada 2015). This meant that consumers ended up buying more music cards which would help to artificially boost album sales. Hence, by focusing too much on marketing instead of optimising the integration of various functions, the Japanese music industry has not properly adjusted to digitisation.

For many years, Korean companies benchmarked the Japanese conglomerate system and began to integrate many specialised sectors under chaebolisation. With this process, companies have focused more effort and investment into fostering new idol groups and would-be singers by utilising the revenues gained from previously successful acts within the same company to meet the growing market and rapid trends (Hong 2012). This has also allowed Korean companies to possess stronger bargaining power when they negotiate with foreign companies abroad. By utilising the power of chaebolisation, some Korean idol bands were able to release their albums through well-known international record labels. Optimising the corporate structure through integration has enhanced K-pop’s competitiveness and its international popularity through easier diffusion.

4.2. Digitisation 2.0: Routinisation of the Internet

4.2.1. From Possess to Access (Technology) 

When CD and MP3 players were introduced to the market, the focus was on the possession of music. This trend has significantly changed following the introduction of smartphones and tablets that are always connected to the Internet. As well as this, young people are also changing these devices more frequently than before. In such an environment, consumers are now increasingly accessing streaming service providers (IFPI 2016; Ipsos and IFPI 2016). These technological advances have changed music consumption from possessing to accessing music. Crucially, both Japan and Korea enjoy widespread Internet coverage including on subway networks and rural areas. Due to larger physical music sales, Japanese companies have been slower to adapt to these changes, while Korean companies have become more responsive.

Due to various marketing strategies for physical music sales, the large offline-based market, and a strict IPR regime, the Japanese music market is orientated toward possessing music instead of accessing it. In particular, Japanese companies have a relatively complicated or overly sophisticated copyright procedure compared to Korea. This ensures that they are reluctant to share music with online platforms such as YouTube (Mamiya 2011; Sisario 2014; Karp and Inada 2015). This issue thus makes it difficult for foreign consumers to access and enjoy Japanese music online. On websites like Quora, a question-and-answer forum, it is easy to find many complaints from international fans that they are unable to access easily online the latest Japanese music. The result is that J-pop’s popularity has become more limited.

As the Internet has become part of everyday life with the rise of smartphones, the focus among Korean business sectors has shifted from hardware to software. In the early years, they introduced virtual services for storing music, but later they have concentrated more on music streaming services such as Melon which was launched in 2004. In order to promote K-pop more effectively in this new environment, Korean companies did not hesitate to release their music through YouTube or other SNS platforms (Oh and Park 2012). Having created their own official channels on these online services, young people around the world were able to easily access K-pop. Under a loose IPR regime, these activities have been very effective in attracting a more global audience.

4.2.2. From Complexity to Simplicity (Producers)

The advance of technologies in both hardware and software as well as the commonality of the Internet have shortened the process for producing music and its subsequent distribution. The effect has been that many traditional functions within music production and distribution have been replaced by new technology or have disappeared altogether. In responding to these changes, the music industry structure has transformed from a complicated structure to a simple one (Yoo 2001). This process has also become more international in scope. Through the Internet, collaborations with song writers in other countries to produce music has become simpler and more effective, as well as distribution, promotion, and marketing. As noted before, Japanese companies were more reluctant to take advantage of these conditions.

With a single focus on physical album sales, the Japanese music industry’s value chain has edged more toward the role of distributors and marketing sectors. Unlike some countries where a management agent takes charge of promotion, in Japan the distributors are the ones who are responsible for such activities, including scheduling on TV or radio and other promotional activities. As a result, compared with Korea, digitisation has been slower and the value chain to produce music has not simplified. This complicated distribution system continues to be maintained, which makes it difficult for the entry of new participants into the market. Furthermore, this has slowed down market dynamics as well.

In Korea, due to the simplification of the process in the music industry, a great number of SMEs have been established and operate in an environment of severe competition. Companies such as FNC Entertainment have become one of the four major entertainment companies in Korea despite only being established in 2006. Other SMEs can easily participate in the market with low costs due to simplification of both production and distribution. As a result, the number of SMEs has increased, and they have to differentiate themselves from the four major ones. This fact has helped to enhance diversity within K-pop. For the major four companies, they can afford to discover and foster promising talent and diversify their market abroad for a more sustainable future by taking advantage of simplified process.

4.2.3. From Audio to Visual (Consumers)

As smart devices such as smartphone and tablets are routinised, the visual image of a singer or an idol band is often as important as the audio sound for consumers (IPSOS and IFPI 2016). Naturally, this means a change from ‘music to listen’ to ‘music to listen and watch.’ In particular, the impact of a well-integrated audio sound and visual image would enhance the popularity of the music among young people who are more used to the digital environment, as the case of the viral hit song ‘Gangnam Style’ has shown. Because J-pop became popular with the emergence of the Walkman and with a market focused on physical sales, its development has been geared more toward its audio impact (Yoshimi 1999; Stevens, 2012, 115). K-pop by contrast developed during a digital period and its market is thus more orientated toward computers and smart devices, which means its music has to compliment the audio sound with the visual image.

Most J-pop idol bands are focused on the audio sound and therefore musically they seek to create more impact by utilising a stronger beat. Currently, there are some Japanese idol bands such as AKB48 and Arashi who have adopted a two-track strategy of audio sound and visual image. However, these two factors have not been optimally integrated enough to help penetrate foreign markets. For example, AKB48 has achieved its fame through the concept of ‘idol you can meet’ by holding ‘handshake’ and photo-shoot events as well as allowing fans to vote for the following year’s main line-up among the band’s forty-eight members (Sisario 2014). The problem though is that these events are limited to Japanese consumers. Another group Arashi developed its popularity through a drama series Boys over Flowers. Due to the complicated IPR regime and license agreements, this drama was difficult to expand to other countries. Instead spinoff versions were produced in other Asian countries, such as China, Taiwan, and Korea. Crucially though they featured local actors rather than the original band members.

K-pop’s two-track strategy is different. It has placed both audio sound and visual image in a song with music and dance (Messerlin and Shin 2017). Furthermore, these songs have been successfully distributed through Internet intermediaries such as YouTube under a loose copyright regime. This kind of strategy is more directed toward global consumers (Kawashima 2010). By contrast, J-pop’s visual-focused programs such as dramas or voting for band members are specifically aimed at Japanese consumers and are limited by the complicated IPR regime. Therefore, it is hard for J-pop to achieve a synergetic effect with its music. In the global market, J-pop with a single focus on the audio sound has found it hard to compete with K-pop that is supported by both audio sound and visual image. In contrast, the Korean music industry has utilised K-pop as a promotional tool that has helped to attract foreign fans to on-site performances such as concerts which today is their main source of income (Mamiya 2011).

4.2.4. From Threat to Opportunity (Business Context)

As globalisationhas accelerated further, the interaction between international companies and countries has increased. On the one hand, regarding foreign (music) service providers in the domestic market, companies should be more active to counteract this potential threat, transforming it into an opportunity. On the other, these companies should be more active to globalise their activities to take advantage of an international audience. Many Japanese companies have enjoyed a complacent attitude and have therefore been reluctant to explore foreign markets due to the fact that they already operate in the second largest market in the world. This has materialised in spite of the fact that the Japanese government has initiated efforts for the further globalisation of Japanese culture. The Korean music industry has developed in the opposite direction, thus they have been more active in exploring overseas markets and utilising foreign participants in the domestic market.

Many foreign companies such as iTunes and Spotify have sought to take advantage of Japan’s huge market. These companies should instead focus more on Japanese contents as the music market is largely domestic-oriented. However, due to the rigid IPR regime and complicated license agreements, it is difficult for foreign companies to negotiate with a large number of organisations and to provide a diverse range of music as customers wish (Karp and Inada 2014; Sisario 2014). Moreover, the whole Japanese market has long been dominated by physical music sales, companies have been reluctant to expedite deals with new digital services. It has only been since 2015 that these physical sales have begun to decline and domestic giants – such as Line Music, Sony Music Entertainment Japan, AWA, Avex Group, and others – have setup streaming services (Byford 2015; Mochari 2015; Morikawa 2015). Still, they continue to be mostly interested in the domestic market rather than the international one.

Since Korean music distributors have long had to compete with music pirates, they offer cheaper prices compared to their counterparts in other countries. Foreign service providers seeking to enter the Korean market are prepared to pay a higher price to the music industry in order to acquire more Korean music and thus compete against local companies (Kim 2011). As a result, the Korean music industry has been welcoming these foreign service providers to enter the market. It is also believed that competition with foreign companies would help to enhance the quality of the Korean market (Yonhap News 2010). Accordingly, Korean companies have invested in foreign countries to diversify their music market and genre as well as develop the pool of potential talent.

5. Discussion: A Dynamic Framework

By utilising a more comprehensive and systematic approach with a diamond model, it is now possible to present a dynamic framework that grasps the dynamic evolution of the music industry in Japan and Korea. There were two phases in terms of technological breakthroughs. The first is with the emergence of the Internet and the latter is with its routinisation. Based on the previous analysis, the first phase is captioned as series A, whereas the latter as series B in Table 1. This table provides a summary of the whole evolution of the music industry more systematically and comprehensively. Although, a sequence of events can be found in the table, it is noteworthy that all these developments have occurred pretty much simultaneously and within a relatively short period of time.

Facing this evolution, the music industries in Japan and Korea have developed different responsive strategies that have resulted in divergent outcomes since the emergence of the Internet. The Korean music industry has been more responsive to the changes brought on by digitisation than its Japanese counterpart. In the early years, as the Internet became more widespread the Korean music industry began to produce digitised music, glocalise – globalise and localise – its business, focus on songs instead of albums, and integrate different sectors to enhance efficiency. Later, to keep pace with the routinisation of the Internet the Korean music industry has focused on emphasising online diffusion by enhancing accessibility, reducing cost and ineffectiveness by simplifying the value chain, developing the visual image by adding well-trained choreography, and adopting actively globalisation in order to seek out more routes to success.

Table. 1. The evolution of the music industries through digitisation

Contrary to the Korean music industry, Japan’s large music market and ‘well-developed’ IPR regime positioned Japanese companies into rent-seeking behaviour and hindered their adaption to digitisation. With an overly sophisticated IPR regime coupled with complicated licence agreements, they have been reluctant to digitise the music industry which has made it difficult for global fans to enjoy their contents. Therefore, Japanese companies have lost their momentum to take off further in the digital era. This results in a decrease of their global popularity. In particular, as seen from the Japanese case, the function of the producer-focused IPR regime and license agreements needs to be carefully reconsidered to be more consumer-oriented.

6. Conclusion

Having realised the importance of culture as soft power and witnessed the dominance of American pop culture, many countries are concerned that its strong influence has a negative impact upon their culture and national identity. Due to the fact that the notion of culture is related to art and national identity, the important function of business and the economy has often been overlooked while the concept of art and culture has been more highlighted (Kawashim 2012). In this regard, governments have tried to intervene to protect and promote their culture and national identity. However, most of their measures have been ineffective or unsuccessful.

Furthermore, with emergence of the Internet and ICT, digitisation has significantly changed the music industry and has played a critical role in producing and distributing music. Under these circumstances, consumers have also changed their music consumption behaviour. Therefore, knowing that the role of government is unlikely to be effective, it is important to emphasise the responsive strategy of business activities toward digitisation. In other words, it is essential to analyse how the business responsiveness changes competitiveness within the music industry and brings about a different outcome in the digital era where online diffusion prevails.

The rise of K-pop and the decline of J-pop explicitly demonstrate the importance of timely business activities and there is a contrast in their responsive strategies when faced with digitisation. Due to its large market size and producer-oriented IPR regime, Japanese companies have been less responsive to the new trends in the music industry despite active government initiatives to promote its cultural power. By contrast, Korean companies have been more actively engaged in improving the international competitiveness of its music industry. However, in recent years there have been increasing voices in Korea calling for the IPR regime to be strengthened. In this case, many aspects should be carefully considered by looking more closely at the example of the Japanese music industry. The important function of business rather than government support under consumer-friendly conditions. This has also been seen in other cultural industries such as film industry (Kawashima 2011; Messerlin and Parc 2014, 2017; Parc, 2016).

The findings of this paper may apply beyond the two countries considered. Because digitisation is a global phenomenon, and the shifting consumer attitude – from album to on-site performance such as concerts as main source of revenue, from ownership to streaming, or audio to video – has also been observed in Japanese and Korean music industries likely hits all music production and consumption around the world. For instance, chances are that we could unveil comparable results between, say, Sweden and France. Accordingly, business models need to be urgently and thoroughly revisited. In particular, country-specific and conventional copyrights based on cultural industries before the emergence of the Internet are no longer fit to the current borderless digital world. By being put on life-support well beyond its ‘sell-by’ date, it is proving to be toxic to the very products it aims to protect and enhance the value of.

The intention of this paper is not to disparage the Japanese music industry or exalt the Korean music industry. It aims simply to understand what made K-pop more globally recognised than J-pop. Japan and Korea are interrelated in many respects and have also been competitors in various sectors. Hence, they have exchanged many influences with each other. J-pop, K-pop, and their music industries are no exception. When they understand each other better, the two countries can then achieve better synergies to enhance their cultural competitiveness in competition. In this respect, much can be learnt from the two famous figure skaters Mao Asada from Japan and Yuna Kim from Korea. Both have often confessed in interviews that they were able to develop as better figure skaters due to the intense competition between them. The authors of this paper wish the same for both countries and their constructive future, particularly their cultures.

Acknowledgement

This work was supported by the Laboratory Program for Korean Studies through the Ministry of Education of the Republic of Korea and the Korean Studies Promotion Service of the Academy of Korean Studies (AKS-2015-LAB-2250003).

Disclosure Statement

No potential conflict of interest was reported by the authors.

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Views expressed in this article are those of the authors and not those of the Global Digital Foundation which does not hold corporate views.