‘Cultural’ Shock
Kyozo Suzuki, a reform-minded official at Japan’s Fair Trade Commission, would like to see compact discs sold competitively--the same way, for example, as fish--rather than at fixed prices set by the manufacturer.
“At markets, if you go late in the evening, the unsold sashimi [fish to be eaten raw] is marked down in price. But they don’t do things like that in the record industry,” Suzuki said.
“Wouldn’t it be good if they sold them cheaply? There are people who would buy them if they were cheaper. . . . We believe the price should be set through competition.”
Music recordings, books, magazines and newspapers are among the most protected products in Japan’s highly regulated economy. A special “resale price maintenance” exemption from this country’s anti-monopoly laws allows manufacturers to dictate the price at which these “cultural” products must be sold. Compact discs, for example, typically sell here for about $25 to $30--with exact prices determined by the manufacturer, not the retailer. CDs sell for $15 or less in the United States.
But now the FTC has triggered controversy by considering elimination of this exemption, a step that would boost competition and almost inevitably lead to sharp price cuts. The proposed move is being bitterly resisted by the recording and publishing industries--and it has only mixed support from the general public, the intended beneficiaries of any such change.
In the music field, the change would affect only items manufactured in Japan. Resale price maintenance rules do not apply to imported CDs, one reason foreign music in Japan is relatively cheap.
The most expensive compact discs in Japan are those of Japanese artists; they usually sell for close to $30. Discs made in Japan with the music of major American singers, which normally are packaged with lyrics in both English and Japanese, usually sell for less--about $22--because they must compete with imported discs holding the same music. At Tower Records, which has 36 stores in Japan, imported discs usually sell for about $18, and on sale they may go for as little as $15.
Though discount stores are spreading in Japan, consumers here are often willing to accept high prices as long as quality and service are good. The 1953 anti-monopoly law originally had about 200 specific exemptions, including for items such as soap and film, for which manufacturers were allowed to set retail prices. This formal price-setting mechanism is now limited to only a few products, including pharmaceuticals, cosmetics and copyrighted items. But in many industries, informal understandings among manufacturers and retailers continue to help keep prices high.
Working under a broad government “Deregulation Action Plan” initiated last year, which is aimed at freeing stronger market forces in the Japanese economy, the Fair Trade Commission is due to reach a conclusion by early 1998 on the resale price maintenance issue for copyrighted items. The agency appears to be leaning toward elimination of the exemption, at least in the music field, in effect unleashing the same kind of wide-open price competition in Japanese music that already exists here, thanks to unregulated imports, for popular foreign music.
Arguments on the issue highlight the kind of trade-offs faced by Japan as it slowly moves toward a more open and competitive domestic economy.
Supporters of change argue that it would benefit consumers and would also be good for the music and publishing industries in the long run, by making them more competitive. Backers of the status quo argue that what’s at stake is the survival--or at least the health--of Japanese culture.
“If resale price maintenance is abolished and price competition gets fierce, only big stores will be able to survive,” said Saburo Kimura, managing director of the Recording Industry Assn. of Japan. “Presently there are 15,000 music stores across Japan. If resale price maintenance is ended, the number will drop in half. That will create inconvenience for consumers because their local store will close.”
And that wouldn’t just mean that music lovers would need to drive farther to buy CDs, said Akira Suzuki, a recording association spokesman. Popular high-volume items would probably be sold at discount stores for as much as 30% off current prices, virtually eliminating profit margins but attracting customers. The resulting collapse of many specialty CD shops would mean recordings “that have significant cultural value but can’t sell in volume--Kabuki music, folk music, Japanese dance music, world ethnic music”--would disappear from the market, he said.
“We think variety is more important than cheaper prices,” Kimura said. “Japan is the only country in the world that has resale price maintenance [in the music industry], and it produces about 15,000 titles annually. America has a population twice as large, it’s ethnically diverse, and total sales are about double Japan’s. But if you look at the number of titles, it’s small compared with Japan.
“The reason is they only sell titles they can sell in massive amounts. . . . From our point of view, that’s not a favorable tendency, because these are cultural products. If we can offer more variety, that is better service.”
Akira Kamogi, an office worker in the remote Japan Sea-area town of Matsue, 400 miles west of Tokyo, agrees with the recording industry’s arguments.
“It is always very difficult for me to find books I want in this small city,” Kamogi said. “It’s already a hard situation for consumers. If resale price maintenance is eliminated, it will get even harder for consumers in small cities to get various books or CDs.”
But many others are skeptical that fixed high prices really have the effect of making a wider variety of music more conveniently available. Tokyo housewife Kayo Mochizuki would be delighted to see shops compete to sell CDs more cheaply: “Of course I’d welcome less expensive CDs. I accept high prices if the quality is good. But the market should have a range: high quality with high prices, and low price with acceptable or relatively low quality. Then we can enjoy buying things.”
The FTC’s Suzuki argued that small music shops could survive an era of tougher competition by specializing, rather than concentrating on best-selling items, he said.
“That’s how other small shops survive in Japan,” he said. “They give specialty service to customers. This is true in all industries.”
Keith Cahoon, the Tokyo-based Far East managing director for Tower Records, said he believes the resale price maintenance system really does make it easier for Japanese firms to produce small quantities of specialized music--Japanese or foreign--for niche markets.
“They do an excellent job of preserving world culture,” Cahoon said. “If you’re looking for Bulgarian music, or any kind of world music, the Japanese are more likely to have it than anyone else. If you’re a music maniac, Japan is the best place to shop in the world. If you’re in Japan, you can buy recordings from England, the United States, Hong Kong, India, anywhere.”
For a U.S. firm doing business here, it doesn’t really matter whether Japan keeps the resale price maintenance system, because it doesn’t apply to imported music anyway, Cahoon said. Japanese music companies compete with foreign imports by reducing the price they set for foreign music CDs made in Japan and by packaging them nicely with Japanese translations of English lyrics, he said.
And when customers want to buy music by Japanese stars, they aren’t put off just because the price is $10 more than a foreign import. “It’s natural in every country in the world that people by and large prefer music sung in their own language,” he said.
Opinion polls show the public broadly split over the issue--but with notable variations in where people stand on music, books and newspapers. An Economic Planning Agency poll found that 66% of those surveyed favored ending the resale price maintenance system for CDs, that 55% wanted it ended for books and magazines, but that only 42% thought it should be cut off for newspapers.
Migiwa Yamaguchi, a Catholic priest interviewed in a downtown Tokyo music shop, is among those who favor an end to price-fixing--and he isn’t worried about negative side effects.
“I welcome free competition,” Yamaguchi said. “It’s an advantage for consumers. I don’t think worthy things will disappear.”
Makiko Inoue of The Times’ Tokyo bureau contributed to this report.