Changes are on the horizon for Japan’s media markets. Just listen to Yutaka Narita, Dentsu’s president in his new year address to the 6,000 members of that giant agency: "The digital revolution now under way is having an even greater impact on the human race than the industrial revolution of the 18^th century, and it is ushering in the transformation from an industrial society to an information-based society. In the information media sector, the multichannel age has arrived, with the launch of digital commercial satellite (CS) broadcasting, while the year 2000 is set to be a watershed for the digitalization of broadcast satellite (BS) and terrestrial broadcast systems. Furthermore, the convergence of broadcasting, communications and computing is continuing to gather pace."

Narita describes the digital revolution as "the media Big Bang," [. . which will be . . ] be based on global rules and the emergence of massive competition going beyond the existing framework. "A new media market will be born, made up of a variety of media and networks. Intense competition, which will include new players, will begin, aiming for a new type of marketing and the creation of new businesses," he says.

Even without that wake-up call, Japan’s giant media groups are bracing themselves for a season of change. The market is dominated by four major business groups, each centered on a leading national newspaper. Each includes a major television network, as well as magazine publishing interests, advertising agencies, radio broadcasting and investments in cable and satellite TV.

 The Asahi Group, for example, includes the Asahi Shimbun, Japan’s #2 daily newspaper in circulation plus a number of provincial and sports newspapers. There’s also Asahi National Broadcasting Company [Asahi-TV], the lead station of the Asahi TV network and several other brodcasters, including cable and satellite. There are also six advertising agencies including two of the top ten (Daiko and Asahi), and a host or printing, distribution, and education companies. All these are bonded by equity links. And around the periphery of the group are a number of non equity-related affiliates.

 Likewise, the Yomiuri Group includes the Yomiuri Shimbun newspaper, Nippon TV network, the Yomiko and I&S agencies, among other companies. The Nikkei Group with Nihon Keizai Shimbun at its core, also includes Television Tokyo, Nikkei BP (the leading publisher of technical and business-oriented magazines) plus the Nikkeisha agency, while the Fuji-Sankei Group includes Fuji TV and the Sankei Shimbun Newspaper among other companies.

 Each group is structured as a network of interlocking companies linked through cross shareholdings between the major members, each of whom has a number of subsidiaries. Since all the newspapers and most of the other companies are privately owned and consolidated accounts are not published, accurate financial comparisons are hard to make.

The advent of commercial television was the last major challenge faced by the four. But now, as the landscape changes all must prepare for a new era of competition. While the impact of global competitors arriving in Japan and digitalization both loom large, there are two more immediate challenges the Asahi Shimbun faces, according to Mr. Masanori Nakashima, the paper’s Advertisement Director.

"Within a few years, we expect the retail price of newspapers to be de-regulated, which will have a significant effect on marketing and may also impact our distribution network," Nakashima says. De-regulation will inevitably lead to lower prices, and a reduction in circulation income. The economics of newspaper distribution, especially outside high density urban areas will also change. Currently, the Asahi, like all major newspapers relies an army of delivery boys employed by distributors to bring the paper to subscribers’ homes around 7 am each morning. Doorstep delivery reaches over 95% of Japanese households and is a key reason why massive circulations - 8.4 million daily [ABC, Jan-June 1997] for the Asahi Shimbun - can be maintained. Some 99.6 % of the Asahi’s daily circulation is delivered this way to subscribers' homes by 90,000 delivery people employed at 3,900 delivery agents across Japan. Circulation revenues accounted for about half the Asahi’s Yen 417,989 million sales revenues sales last fiscal [ending March ‘97] which are fundamental to the group’s financial health.

 There’ll be a severe pressure on margins which only the efficient and financially strong will survive. The Asahi’s strategy is clear cut. "We must focus very strongly on quality to compete successfully in this new environment," says Nakashima. Quality embraces not only the editorial product but every aspect of the newspaper’s production and service to advertisers.

 Last fiscal, the Asahi spent Yen 14,400 million on new equipment. There’ll be more heavy investments in new printing technology, both to improve efficiency and make the paper more attractive to readers. EDI will also cut costs by enabling advertising agencies to deliver ads electronically. The new technologies also enables staff numbers to be reduced, says Nakashima.

 The drive for Quality also includes information about the paper and its readership provided to agencies. Since marketing strategies in Japan now focus on individual rather than family life styles and media habits, there is growing need to explore not only the relationships readers have with the paper in general terms, but also with particular pages or sections of the paper. A weekly fax research survey helps do this and enables the Asahi also to price different sections of the paper both to reflect their reader appeal and market forces. It is a pricing mechanism not with out controversy. The editorial teams responsible for both the political and sports pages of the papers were chastened to discover that TV program listings were the most popular section of the paper.

 The impact of digitalization will initially be faced primarily by television. Asahi National Broadcasting reaped a net income of Yen 6,512 million on sales of Yen 71,838 million last fiscal. However forecasts suggest it will become difficult to generate the new capital needed to invest in digital broadcasting through ongoing activities.

 This March, TV-Asahi plans to increase its capital from Y1.2 billion to Y8.6 billion by issuing new shares to third parties including financial institutions, affiliated stations and current shareholders, including the Toei group and Dai-Nippon Printing Co.

 This autumn, TV Asahi plans to set up a new satellite broadcaster. TV Asahi, the Asahi Shimbun and its affiliates are expected to hold the majority equity, but there will be room for new investors. Nippon Telegraph and Telephone Corp. (NTT) will probably be one of these, contributing some 3% of the new companies Yen 25 Billion capital.

 But there are limits to how much new capital can be raise via private placements. And so, says Nakashima, the station will seek a listing on the Tokyo Stock Exchange within the next couple of years, joining the other key Tokyo stations, Fuji TV, TV Tokyo, Nippon TV, and TBS.

 The paper’s public foray into the digital world can be seen on the World Wide Web at http://www.asahi.com which carries, in Japanese, stories from the newspaper and also leading stories from the English-language Asahi Evening News. Though the site is popular with banner advertisers, revenues are tiny compared with those of the newspaper itself.

The future role of Daiko and Asahi Agency within the group is more problematical. Daiko, once Japan’s #3 agency, has been losing share since 1987 while Asahi Agency has been slipping since the 1960’s. Both act as sales agents for the Asahi Shimbun in additional to performing more normal agency services. Both rely heavily on the newspaper for business. Asahi Agency is particularly weak in television which provides only 11% of its media billings compared with an industry average of 50%.

 Even so, the Asahi Shimbun is committed to supporting both agencies. "However," adds Nakashima, "we would like to see both improve their financial position to the point where they could attract foreign investment." Elsewhere in the developed world, media publishers have long since abandoned the notion that they needed agency subsidiaries and affiliates to channel business their way. With the massive investments now required by both the Asahi Shimbun and Asahi National Broadcasting is not partial ownership of agencies a distraction ? Nakashima’s only comment is that the Asahi will work to make both agencies more competitive and will ultimately retain an equity position in each.