Did Amazon Just Beat Netflix to the Punch in Japan?

Japan is a highly connected market with 49 million affluent households. You'd think that the combination of high-speed Internet access, plenty of disposable income, and a bemused addiction to Western culture would make Nippon a perfect target market for digital movie services from America. Netflix (NASDAQ: NFLX  ) hasn't made the leap to Tokyo yet, and Amazon.com (NASDAQ: AMZN  ) just opened up a digital movie store in Japan.

Game, set, and match -- right? Amazon gets the first-mover advantage, and Netflix might as well not bother attacking the Japanese market now.

Not so fast. I can think of at least three big reasons why Amazon's Japanese adventures don't throw any roadblocks in front of Netflix's Far Eastern ambitions:

  • Amazon is only serving up pay-per-view rentals and digital purchase options in Japan. This is a markedly different business model from the all-you-can-eat subscription service that Netflix sticks to and that Amazon's Prime subscription service offers. Apples, meet oranges.

    Like I said, Amazon isn't bringing Prime to Japan at this time, and might in fact never get around to doing so. Amazon prefers the simpler licensing model and higher margins of selling or renting content one item at a time. Netflix goes for a long-term relationship with a larger addressable market instead.

  • A bit of competition never scared Netflix out of overseas market opportunities before. In particular, Amazon already had its LoveFilm subscription service in the U.K. before Netflix entered that market. So even if Amazon does bring Prime or LoveFilm to Japan, that's not exactly the end of Netflix's Japanese ambitions.

    If anything, you should be surprised to see Amazon moving in with its plain-Jane rentals and purchases model. Apple (NASDAQ: AAPL  ) already has its iTunes movie store running in Japan, alongside several local services with a similar model. It's not clear how Amazon plans to set itself apart from Apple, GyaO, or Tsutaya, so this service risks becoming just another commodity in a sea of equivalent options.

  • And Netflix does have Japanese ambitions. The company is already hiring Japanese translators with marketing experience, so you can expect a Netflix service in the Land of the Rising Sun before too long. I'd be shocked if we don't see Netflix crossing over to Japan and South Korea -- another hyperconnected Asian market with more than 20 million movie-hungry households and an existing relationship with Netflix -- in 2014. It's a logical next step for Netflix's international plans.

Netflix is coming to Japan, with or without competition from Amazon and Apple. This particular announcement shouldn't make any difference at all to Netflix's overseas plans.

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  • Report this Comment On November 29, 2013, at 4:45 PM, duuude1 wrote:

    Is Neflix a tough competitor? Let's look at the evidence...

    http://www.theguardian.com/media/2013/aug/21/netflix-uk-subs...

    This Guardian article quotes data saying NFLX site visits gained at Amazon/Lovefilm's expense: "He pointed to data showing a fall in visits to Lovefilm's website versus a rise in Netflix web traffic."

    http://gigaom.com/2013/11/11/netflix-youtube-sandvine-traffi...

    And this GigaOm post shows data from Sandvine proving that NFLX traffic far exceeds that of AMZN or Hulu - cable's darling - by more than 20 times.

    https://www.sandvine.com/trends/global-internet-phenomena/

    And this Sandvine post summarizes data showing that NFLX's UK streaming already consumes 20% of fixed network traffic: "In Europe, Netflix, less than two years since launch, now accounts for over 20% of downstream traffic on certain fixed networks in the British Isles. It took almost four years for Netflix to achieve 20% of data traffic in the United States."

    http://gigaom.com/2013/11/20/hbos-no-cable-experiment-goes-n...

    And this GigaOm post shows NFLX crushing HBO, yet another cable darling, in a direct head-to-head competition in which both launched about the same time:

    "... in Sweden, only 68,000 people have access to HBO Nordic, which makes it one of the least popular paid video services (hat tip to Broadband TV News). According to the survey, only 17,000 people access HBO Nordic every day.

    Netflix, on the other hand, is available to 864,000 Swedes, and 308,000 use it every day, both of which makes it the most popular paid video service in Sweden. Netflix is competing with services like Viaplay, the Modern Times Group’s online video service, which is available to 633,000 people in Sweden, according to MMS."

    Netflix afraid to compete or unable to compete? There is no evidence of that so far. None.

    Evidence shows that cable, rather, is afraid of competition, and plans to combine it's way to size and supposed market strength... TWC (HBO's parent) is now the Albanian Army!! Someone spoke a little too soon...

    Duuude1

  • Report this Comment On November 29, 2013, at 7:33 PM, SuntanIronMan wrote:

    When it comes to American streaming subscription services, Hulu has been in Japan for years. If you want a library of Japanese, Korean, American, and British shows all in one place, Hulu Japan is the place to go.

    N

  • Report this Comment On November 29, 2013, at 7:42 PM, SuntanIronMan wrote:

    Hit the "Post Your Comment" button too soon by accident.

    I'm an American expat living in Japan. Hulu Japan has a large library of American shows. And they have a much more extensive movie library than Hulu in America (more like U.S. Netflix in that regard). If Netflix does come to Japan, they might have more competition from Hulu than from Amazon. And there are some homegrown Japanese streaming options as well.

  • Report this Comment On November 29, 2013, at 7:53 PM, duuude1 wrote:

    Hey IronMan, very good to know! Can you describe the Hulu Japan setup - how much is it and is it an "all-you-can-eat" subscription service like NFLX - is it ad-supported or not? Do you know how many subscribers or what kind of web traffic they get? How long have they been in Japan?

    And what's the story with the homegrown talent? How do they set up their services?

    Best,

    Duuude1

  • Report this Comment On November 29, 2013, at 8:02 PM, AceInMySleeve wrote:

    Well I agree this Amazon thing means nothing, but Netflix is not gonna get very far internationally if it continues to open a Netherlands-size market every 12 months.

    They really should be taking more flak for their pace than they seem to be.

  • Report this Comment On November 29, 2013, at 8:44 PM, SuntanIronMan wrote:

    @duuude1

    Sure.

    It is a pay-only, all-you-can-eat, subscription service (no free option like Hulu in America). Because of that though, there is more money to pay for the licensing of new, popular movies (just like Netflix in America).

    Hulu Japan has Japanese and English language support for everything: menus, customer service, billing... the entire website. So if you are an English-speaking expat living in Japan and your Japanese language skills are not very good, this is a great service for you. When you are in English-mode, it is basically the exact same website as Hulu America (except with Hulu Japan-specific content). The content offerings are exactly the same no matter which language mode you are in. The only thing that changes is the menus and whatnot.

    For American, British, Korean, Hong Kong, and other non-Japan region shows and movies, the audio is in the original language with the option for Japanese soft subtitles (subtitles that can be turned on/off).

    Japanese shows and movies are all in Japanese with no subtitles for other languages (even if the exact same shows are available with English subtitles over on Hulu America). In theory Japanese shows on Hulu Japan can be subtitled in English (and other languages), but in practice I have yet to see one instance of it. Since it is a Japan-based service though, that is to be expected.

    The service is 980 yen ($9.56 at the current exchange rate) a month and it accepts foreign credit cards. Free two week trial as well.

    It works on Apple TV, iPhone, iPad, Android devices, Xbox 360, PS3, Wii, Wii U, Nintendo 3DS, many brands of Japanese smart TVs ... basically every device you can think of.

    I don't have much experience with other streaming services, but off the top of my head there are Tsutaya TV and Niconico. Tsutaya is like Blockbuster. Except unlike Blockbuster, Tsutaya managed to evolve with the times and are still around with a physical and online presence. I don't frequent the store, but there is a brick and mortar Tsutaya about a 2 minute walk from where I work.

    If there is anything else you want to know, I'd be happy to talk more about this.

  • Report this Comment On November 29, 2013, at 8:51 PM, SuntanIronMan wrote:

    Oh, and no ads on Hulu Japan. As for how long they've been around, they started streaming in Japan in 2011. I've been here since March 2011 and I believe Hulu Japan started up 5 or so months later.

  • Report this Comment On November 29, 2013, at 9:36 PM, duuude1 wrote:

    Thanks again IronMan!

    So Hulu's got more than a year's head start. Amazon is going in already. And there's quite a batch of homegrown competition.

    My guess is that NFLX will be careful about going into Japan. I bet that NFLX will wait for some seriously good content to become available, such as the recent Disney/Pixar/Marvel deals which don't go into full effect until 2015, right? So my bet is no Japan launch until 2016+.

    They will want to get the language issues spot on, so I imagine they will probably test out their Japanese website design locally - as in LA and San Fran where there is a large Japanese population. But for sure they won't go in with a half-baked web interface.

    And they will want to be seamless with the local wireless networks and operate on all the small screens there.

    And finally, they will probably undercut the Hulu price and come in under 900 yen. Remember the Blockbuster price wars? Yeah, that'll be coming for sure in a well-trod market like Japan.... So they'll want to be in a strong financial position to withstand a price war there.

    So, although I partially agree with Ace's comments above - I believe NFLX is taking the time to learn what they do right internationally, and what they need to improve as they launch in these different markets.

    A culture as different as Japan will pose much bigger challenges than these western countries they've focused on to date. And even with that, witness the difficulties that Lat Am has posed.

    So overall I have to agree with NFLX's cautious/aggressive approach.

    Best to all,

    Duuude1

  • Report this Comment On November 29, 2013, at 10:04 PM, SuntanIronMan wrote:

    @Duuude1

    I believe the Disney-Netflix online movie rights deal announced last year is for the U.S. only. I could be mistaken tough.

  • Report this Comment On November 29, 2013, at 10:19 PM, duuude1 wrote:

    You could be right IronMan, but no one has published the details of the deal(s) right? Tim Beyers here speculates that NFLX's international reach is what helped to seal the more recent Disney/Marvel deal:

    http://www.fool.com/investing/general/2013/11/16/disneys-dea...

    So it would seem surprising to me that NFLX would have limited themselves to US only for the broader Disney deals, since NFLX has had such a major international focus over the past several years.

    Duuude1

  • Report this Comment On November 29, 2013, at 10:24 PM, SuntanIronMan wrote:

    I need to stop hitting that "Post Your Comment" button before I'm done typing. Easy to hit as I'm typing this on my phone, haha.

    Netflix recently signed a separate deal (to go in effect next year) to get the Disney subscription rights in the Netherlands. So I'm assuming the Disney-Netflix deal announced last year was not for the global rights, just the United States. So Netflix would presumably have to compete with other providers to get the Disney rights in Japan.

    Right now you can find Disney content (Disney, Marvel, ABC) can be found on Hulu Japan. And I think Tsutaya has them as well (though I can't confirm that since the site is down for maintenance down at the moment).

    Although as I'm looking at Hulu Japan, the Iron Man movie is listed under Sony Pictures Entertainment. So maybe the distribution rights for Japan are a bit messy. Iron Man (1) was made before Disney acquired Marvel, so maybe the other Marvel movie rights in Japan aren't as messy.

  • Report this Comment On November 29, 2013, at 10:30 PM, duuude1 wrote:

    One last question, IronMan, before I turn into a pumpkin (getting old):

    What's the story with smartphones and tablets there? Do feature phones still rule, or does everyone and their grandmother have a small screen to watch their favorite videos on?

    Duuude1

  • Report this Comment On November 29, 2013, at 10:31 PM, SuntanIronMan wrote:

    Alright, switching to my computer now. Typing on my phone is not going well, haha. Fixing one of my paragraphs:

    ***

    Right now you can find Disney content (Disney, Marvel, ABC) on Hulu Japan. And I think Tsutaya has them as well (though I can't confirm that since the site is down for maintenance at the moment).

  • Report this Comment On November 29, 2013, at 10:56 PM, SuntanIronMan wrote:

    @Duuude1

    Oh, no. Feature phones are out. Have been for a while. People still buy feature/dumb phones of course since they are cheaper and do not require data service. And as far as these things go, Japanese feature/dumb phones have a lot of nice features and spec (good camera, water proofing, mobile wallet, one-seg mobile TV, etc).

    But Japan is an iPhone/Android country. Lots of iPhones and Samsung Galaxies. There are Japanese brands that use Android as well, but like the U.S. the most popular smartphones here are made by Apple and Samsung.

    The tablet scene is much like the U.S. as well: iPads are the most popular, Samsung is growing in popularity, and Amazon's Kindles are trying to disrupt at the lower end.

    Here is a link to Softbank's (mobile phone carrier) site. You can take a look at what phones are selling right now. For whatever reason the English language site is usually a few months behind what the latest models are (so I'll throw in a link to the Japanese site as well), but you can get a general idea of what's popular right now.

    English:

    http://www.softbank.jp/en/mobile/

    Japanese:

    http://www.softbank.jp/mobile/

  • Report this Comment On November 29, 2013, at 11:18 PM, SuntanIronMan wrote:

    I should also mention that some Japanese-made tablets running Android (like Sony's tablets) are popular options as well.

  • Report this Comment On November 30, 2013, at 2:08 AM, AceInMySleeve wrote:

    It's almost a certainty the Disney deal is US only. I know Sony has the spiderman film rights so maybe that has something to do with Iron man.. not sure.

    The length of time that some of these content deals get locked up for (5 years) also speaks towards moving as quickly as possible.

    I get that Netflix doesn't want to kill itself by over-expansion. I also think the dirty secret is just how bad Lat Am has gone. Nevertheless they are financially much better off than they were when they did expand more rapidly, so it's simply not clear to me the slowdown. I can make up reasons like anyone else of course but they haven't been particularly aggressive in communicating officially on this issue. At one point it was simply about maintaining global profitability (which they are doing quite easily now),

  • Report this Comment On March 07, 2014, at 11:49 AM, Karlathemidget wrote:

    This article was not very well researched.

    Japan has had Tsutaya TV and actVila for quite some time.

    Hulu and Amazon aren't even real competition for these sites. Hulu is going to sell it's japanese service I heard and Amazon's video service just started and nobody I now uses it.

    Most TV's now are sold equipped with smart capabilities and Tsutaya, actVila and T's TV have a much better selection in Japan than Hulu or Amazon.

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