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Apple Pay’s Launch in Japan is a Bet on Revolutionising the Country’s Streaming Market

Photo of Zach Fuller
by Zach Fuller

Often lost among the impassioned online reactions to the removal of the headphone jack at Apple’s iPhone 7 unveiling this week was the expansion of Apple Pay’s Asian strategy. This was specifically emphasised on Japan, where Apple Pay will be launching for the first time in October. Interpreting the move in the wider context of Apple’s move towards services (Apple Music and Apple TV), the tech giant will be looking to use Apple Pay in markets where they can profit from applying a strategy of enticing content experiences that embellish their handset offering, having lost global market share since 2015 to both Samsung and the emerging Chinese brands such as Xiaomi.

An inspection of Japan’s entertainment infrastructure reveals they have chosen an ambitious target, with the country an outlier content market that so often baffles those looking from the outside in. This is because despite boasting one of the most mature mobile payments markets in terms of adoption and regular use, there have remained unique hurdles impeding a thriving streaming industry in Japan in a way that has not existed in other markets:

The popularity of legacy formats: Perhaps owing to the connotations of modernity that have uniquely persisted across generations (similar to the German market), legacy formats such as CDs and DVDs remain popular products in Japan. Paid TV penetration is also fairly low, with only 38% of households using a Paid-TV subscription.  Much of the country’s native film and music output is not ready for streaming: Streaming content online requires the strenuous and time-consuming task of encoding them. Consumption in Japan additionally leans towards domestic creations, and as a result of the video and audio streaming industry in Japan being still comparatively small, there is less demand for more content to be encoded. This creates a chicken and egg dilemma for anyone looking to modernise the business.Complex and strictly enforced media rights: As demonstrated by the struggles of Netflix to effectively launch in the region, streaming rights in Japan are hugely convoluted and the aforementioned lack of demand has stymied innovation in the business. This attitude is likely influenced by stricter copyright law enforcement in Japan which held file-sharing as a criminal instead of civil offence and saw far more co-operation with ISPs than in the US and Europe.

Apple knows these hurdles can be overcome with time, money and expertise - especially in such a tech savy market. Though they are late to the party in Japanese mobile payments (with handsets being used for payments in the country as early as 2004), the brand’s enduring popularity in the country, as well as their classic second-mover advantage strategy of perfecting technologies which are already gaining traction, could see Apple Pay make significant inroads ahead of more established digital wallets in Japan such as Osaifu-Keitai. The company can then seek their big payoff by scaling revenue from an established payment relationship with Japanese consumers through its Pay service by siloing them towards its TV and Music offers. It’s an onerous task, but one that if executed effectively captures an undeveloped yet potentially hugely profitable digital content market just as streaming services begin to cannibalise legacy formats.

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