October 2008 - Channel Crossing: Global Outlook

Japan’s Economy and the Prognosis for the DR Industry

By Harry Hill

The recent announcement that Japan’s economy shrank at an annualized 2.4 percent decline in GDP has led the government to warn that the economy is approaching a recession. With consumer confidence dropping to a record low for the month of July and inflation hitting 20-year highs, the Japanese industry cannot expect robust domestic demand in the near future.

Toyota, Honda, Toshiba, Sony and other world-class Japanese manufacturing companies led the charge of the Japanese economy over the last five years, particularly with strong overseas sales. Toyota has already revised down its annual projections to show a decline in sales due to the weakness of the U.S. and European economies. Coupled with shrinking domestic demand, Japanese corporations are facing challenges both internationally and domestically.

After several years of robust growth, 2007 saw a 0.9-percent decline in television. By category, terrestrial and cable television saw a decrease, but broadcast satellite (BS) television advertising saw growth driven particularly by revenue from DRTV. While the terrestrial market at 47 million households and the cable market at approximately 20 million households saw flat growth, the BS penetration continues to grow with penetration nearing 30 million households.

Although television commercial and program sponsorship advertising were down, overall advertising spend in Japan grew by 1.1 percent in 2007. Driven in particular by online advertising, which is now a larger category than magazine advertising, there is a growing focus on online direct response advertising, particularly in mobile advertising.

The top-four companies in the TV shopping industry, Japanet Takada, Jupiter Shop Channel, QVC Japan and Oak Lawn Marketing, had all achieved double-digit growth in revenue from 2004 to 2006. In 2007, however, two of those companies achieved less than 5-percent growth, while another saw revenue decline. Only one out of the top-four companies experienced double-digit growth.

A recent Direct Marketing Newspaper article speculated that the TV shopping industry is facing a head wind, citing the 2007 performance of the top-three companies; the recent debate in the Japanese diet to mandate that television stations and convenience stores stop operations from 2:00 a.m. to 5:00 a.m. to protect the environment; and the recent request by the Ministry of Tele-Communications that BS stations limit their broadcasting of shopping content to less than 18 percent as the main negative factors affecting the industry.

Despite these pressures, the top-four shopping companies all achieved growth during the prolonged period of Japanese economic downturn prior to 2005. Likewise, as traditional television advertising revenue continues to decline, television stations are increasingly dependent upon shopping content and, indeed, all the terrestrial stations have launched their own in-house shopping content in order to create non-advertising streams of revenue. So while there are certainly challenges facing the industry, there appear to be numerous opportunities, as well.

Harry Hill is president of Oak Lawn Marketing in Nagoya, Japan. He can be reached at [email protected].

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