PicoBlog

Each year, we get industry reports from music organizations like the RIAA, the IFPI, and Luminate. The top line numbers for 2023 are worth celebrating. According to the IFPI, total recorded music revenues crossed $28.6 billion in 2023, up 10.5% from 2022 and 58.7% from 2019. Of course, much of this was driven by the global proliferation of streaming, but there was also growth in physical sales.

Anytime you read about the physical format revival, it is almost always focused on vinyl. But as I was digging through this year’s IFPI report, I was surprised to see that the CD market is still generating billions of dollars. In fact, 36% of those billions come from just one country: Japan. This week I decided to try to figure out why the Japanese love their CDs. As always, this newsletter is also available as a podcast on Spotify, Apple Podcasts, and Substack.

Did Streaming Really Kill the Compact Disc Star?

When Sony and Philips introduced the compact disc (CD) to label heads at a conference in 1981, their innovation was not well received. In journalist Steve Knopper’s book Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age, Jay Timmer, an early CD advocate and then-head of PolyGram Records, recalls the industry response: “Hostile. Very hostile. I am fortunate there weren’t any rotten tomatoes in the room. Otherwise, they would have thrown them at me.”

There were clear advantages to CDs over other popular formats available at the time. Primarily, they didn’t degrade like cassettes and vinyl. They were also very portable. Though some people argued that CDs were of inferior sound quality compared to vinyl, the record industry’s initial opposition had little to do with that. Switching over to a new format was just expensive. Manufacturing plants would have to be revamped to make CDs. Studios would need to be fitted with new gear to record digitally. Record stores would even have to rebuild their displays.

But the industry did an about face when they realized something else: They could charge almost double for a CD compared to what they could charge for vinyl. And this wouldn’t only apply to new releases. They could also rerelease all their older material at this higher price point.

It’s easy to forget, but CDs were very expensive. According to a USA Today history of the format, when CDs were first marketed, they “cost $16-$20 … the equivalent of $48-$60 today”. That price point largely explains why industry profits ballooned in the lead up to the year 2000. But it also explains why they cratered right after.

Both legal and illegal digital music services of the 2000s (e.g., iTunes, Napster, LimeWire) unbundled the album. Now, if you wanted to get a copy of “Smooth” by Santana, you didn’t need to go out and buy his star-studded album Supernatural. You could just get the single song for very cheap. Whether that was good for musicians or not, listeners really liked this new level of choice afforded by music on the internet. As streaming came to dominate the industry, this level of musical choice only became more pervasive.

This brief history raises some important questions. If consumers like the flexibility of online music, what has driven the vinyl revival of the last few years? Furthermore, why have the Japanese people clung to their CDs and not moved their listening to streaming as rapidly as the rest of the world?

Vinyl’s resurgence in the last two decades has been nothing short of astounding. If you told someone in 1990 that teenagers would be buying vinyl 30 years in the future, they wouldn’t have believed you. But that’s exactly what happened.

I think there are a few factors that explain this resurgence. First, there is this somewhat popular idea that vinyl not only has the best sound quality, but it’s the correct way to listen to music. If you want to hear your favorite album as it is meant to be heard, you need to get it on vinyl. To be clear, I don’t think this is true. I think if you were looking at sound in some objective sense, sound reproduced from vinyl would be laden with hiss, pops, and other imperfections. I think we just like the way these “imperfections” sound.

Sound quality aside, vinyl also provides things that other formats just don’t. With vinyl, you not only get a record, but you also get a big piece of artwork, along with liner notes, lyric sheets, posters, and other knick-knacks.

In this sense, vinyl is just a collectible that has very little to do with sound reproduction. This aligns with some data that has emerged in the last few years. According to Luminate, only half of vinyl-purchasers actually own a record player. Furthermore, megastars are starting to release the same album with different artwork variants. Fans are buying all of those variants even though the music is the same. Still, this doesn’t explain why CDs remain tremendously popular in Japan.

Despite the fact that Japan is the 11th most populated country on Earth, they have been the second largest music market by revenue for a long time. You could use this point to argue why the CD has remained so popular in Japan. The Japanese people love their music. Of course, they remain infatuated with the compact disc, a format with high quality audio.

That’s a nice theory. But it’s incomplete. Though some of the Japanese CD infatuation is driven by musical factors, demographic and economic factors are far more important.

First, Japan’s population is old. As of 2021, the United Nations lists 29.8% of Japanese people as 65 or older, the highest percentage among any country with a population of at least one million people. Other metrics tell the same story. For example, in 2023, the CIA listed the median age of a person living in Japan as 49.5, the oldest on Earth among countries with a population of at least one million people. Older people, more set in their ways, are more likely to listen to music in antiquated formats.

But this can’t tell the whole story. Compare Japan with Italy. Both countries have some of the oldest populations on Earth, and those populations are getting older. Their respective music listening couldn’t be more different, though. In 2023, 65% of Italian music revenues came from streaming. Only 14% came from physical sales, more than half of which was from vinyl. In Japan, on the other hand, 36% of revenues came from streaming. 55% came from physical sales, only 3% of which were vinyl. The large majority of that physical volume was CDs. Why do these two aging populations listen to music so differently?

• Government Price Control: In 1953, Japan established its “price retail maintenance system,” known as “saihanbai kakaku iji seido” or “saihan seido.” This allowed copyright owners, rather than retailers, to set a minimum price for copyrighted material that couldn’t be lowered even if something was being resold. According to Billboard, the goal of this system was to ensure “copyrighted material’s availability by reducing price competition among retail outlets.” In reality, it led to inflated prices. These prices have created a strong incentive for Japanese record labels to maintain the status quo.

• Bundling: According to Reuters, CDs have remained so popular in Japan because “record labels often bundle CD singles and albums with perks … including vouchers for priority concert ticket purchases and invitations to handshake events.” These practices are not as common in other countries.

• Fan Culture: While pop star worship is common around the globe, it seems to be particularly potent throughout many Asian countries, including Japan. In fact, the Recording Industry Association of Japan notes in its FAQ that “idol groups” are some of the most popular on the archipelago. Fans of these groups are often willing to buy multiple copies of the same album and coordinate mass-purchase campaigns to push their favorite artists up the charts.

• Sony’s Influence: Spotify was founded in Sweden in 2006. Thus, it’s not shocking that the Swedes were some of the first users on the service. According to the IFPI, music streaming now represents 80% of Swedish music revenues. As noted earlier, Sony was one of the inventors of the CD. Part of the compact disc’s long-term domination might be connected to the Japanese firm’s power in its homeland.

In a 2014 New York Times exploration of the continued popularity of the CD in Japan, Universal Music Group CEO Lucian Grainge noted, “Japan is utterly, totally unique.” A decade later, Grainge’s characterization of the music landscape on the Japanese archipelago remains accurate. But there are signs that things are changing.

Despite the fact that CDs still generate a ton of revenue in Japan, streaming is finally taking hold. In 2019, streaming only accounted for 17.5% of recorded music revenue in Japan. In 2023, that percentage had increased to 35.7%. And that’s a good thing.

According to the Recording Association Industry of Japan, industry revenues have fallen almost unimpeded since 2005. This is because just like in the west in the early 2000s, music piracy is rampant. That’s particularly crazy given that pirating copyrighted material is a criminal offense in Japan that can result in up to two years of jail time. Also like the west, the one thing that seems to be turning revenues around is the widespread adoption of streaming.

Of course, I don’t want every Japanese record shop to shut down. In fact, I think it’s really cool that you can still walk into a Tower Records in Japan. But there are some practices around physical media that I think are wasteful. Billie Eilish recently espoused this belief in an interview with Billboard:

[I]t’s some of the biggest artists in the world making fucking 40 different vinyl packages that have a different unique thing just to get you to keep buying more. It’s so wasteful, and it’s irritating to me that we’re still at a point where you care that much about your numbers and you care that much about making money.

Over the next decade, streaming will likely win out in Japan. If it doesn’t, we will see the United Kingdom or Germany overtake it as the world’s second largest music market. I do hope that the Japanese are able to maintain their love for physical media as our world becomes more digital. I just hope that that love can be maintained in a way that isn’t as wasteful.

A New One
"Time Paradox" by Vaundy
2024 - Jaunty Pop

While I was writing this newsletter, I thought it would be appropriate to listen to some popular songs in Japan. So, I fired up Spotify’s top songs in Japan chart and clicked play. The first song that struck me was this tune by Vaundy, a tune whose title I believe translates to “Time Paradox”.

“Time Paradox” was written for Doraemon the Movie: Nobita's Earth Symphony, a recent film adaptation of the popular anime focused on the titular character. I have no idea what the movie is about. I also have no idea what the song is about. But the light, jaunty melody has been banging around in my head for a few days.

An Old One
"Sukiyaki" by Kyu Sakamoto
1961 - Orchestral Pop

One of my favorite pointless facts is that in under 20 years after the end of World War II, artists from all three of the former Axis Powers had topped the American pop chart, namely the Billboard Hot 100. First, it was the Italian Domenico Modugno crooning his song “Nel Blu Dipinto di Blu” in 1958. Then it was German Bert Kaempfert conducting his orchestra for the sleeping-walking instrumental “Wonderland by Night” in 1961. Finally, it was Japanese singer Kyu Sakamoto on his wistful number “Sukiyaki” two years later.

“Sukiyaki” has a strange history. Lyricist Rokusuke Ei wrote the song in response to the then-controversial U.S.-Japan Security Treaty under the title “I Look Up When I Walk”. An American record executive heard it and decided to release it stateside, albeit under “Sukiyaki”, the name of a hot pot dish that has nothing to do with the song. Nevertheless, the incorrectly-titled song was a smash. Almost two decades later, new lyrics were written in English and it was again a hit, this time for the group A Taste of Honey. It’s continued popularity is proof that a great melody knows no borders.

Want to hear the music that I make? Check out my latest single “Move On Up” wherever you listen to music.

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