The Unique Challenges of the Japanese Market

While Japan is a difficult territory, especially for independents, it is still a viable sales territory for the right independent title. It is one of the few territories where locally produced films outshine U.S. major studio titles at the box office. This creates greater difficulties for independent titles. IFTA Research recently spoke with industry experts in Japan to determine what distribution channels are most profitable for imported independent films and TV series in this market.
The theatrical market is the most profitable sector for independent films. Audiences will seek out and travel to independent cinemas if a title is receiving good reviews. Free Television programming is dominated by local productions. Currently, only Pay or Premium Television are viable television markets for independent product. VOD can also be profitable, however, the foreign-owned services do not match the large subscriber numbers of local VOD players. A deal with a local VOD platform will likely yield higher revenues. 
The theatrical sector saw a 4.9% growth in 2015 compared to the previous year. The country was ranked as the world’s fourth-largest theatrical market, totaling US$1.83 billion (¥217 billion). Local films had a strong share, accounting for 55.4% of theatrical revenue. The majority of Japanese titles released are based on popular books, TV series or are a sequel in a film franchise. This contributes to the success of local films, due to an established audience base.
Despite the popularity of local films, imported independent and arthouse titles perform well when a personal journey is being told. Biopics, especially those centered on a band or a musician are also popular. While not all Japanese moviegoers prefer independent films, there is a local audience for independent cinema.
The structure of film financing and production in Japan is quite distinct. Most commercial films are produced via the Production Committee System, a panel of financiers who play a large role in the making of a film in order to minimize the risk of their investment. As creativity and risk tend to go hand in hand, it’s easy to see the flaw in this system. Japanese directors are frequently restricted by the desires of the Production Committee. Foreign films can be a relief from Japanese titles that are often both over-structured and sequels or franchises. Imported independent titles can cover exciting or difficult topics that the Production Committee would not risk financing. 
Independent and arthouse titles are typically distributed on a limited release, opening in Tokyo for a few weeks before expanding to other cities. However, a limited release does not mean limited box office success. Strong arthouse titles can break into the top 10 following their opening weekend even against major Hollywood studios releasing on seven times the amount of screens. Positive reviews and festival buzz can bring a small title to the attention of local cinephiles. For example the award-winning independent film Room opened on only 76 screens but grossed US$483,930 its opening weekend, ranking number eight on the weekend box office.
Japan is unique in that U.S. theatrical films are often released much later than their U.S. release. While major studios frequently release day and date for larger titles, most films have a six month promotional period before exhibition. This six month promotional period lets distributors hold screenings for the press and allows time for magazines to publish film reviews – one of the best advertising avenues for arthouse and independent films.
There is very little opportunity for foreign independent content on Japanese television. The majority of Japanese households (63%) rely solely on seven free-to-air TV channels. Free TV offers a wide variety of programming of almost exclusively Japanese content. Unlike many foreign markets, U.S. television product is not very popular in Japan.. Roughly 36% of households subscribe to Pay TV and although Pay TV offers more foreign programming, little of it is independent. Most Premium TV channels are available à la carte. For independent product, the only real revenue in television is Premium and Pay TV as it is rare to sell to Free TV. 
The online video market is still developing. Due to the wide variety of entertainment available on Free TV, many viewers are not yet accustomed to paying for content. Foreign-owned VOD players have had a difficult time expanding into Japan. Hulu didn’t gain much traction until it was acquired by local player Nippon Television. Netflix vowed to dedicate 40% of its content library to Japanese programming (compared to the typical 10-20% local content) but is still struggling to gain significant subscriber numbers.
The TVOD market was not able to develop before foreign SVOD giants entered the country. Now, the majority of online platforms are a mix of the two, offering a range of services and payment options. The popularity of mobile streaming is also shaping the growing VOD market. Many mobile carriers are offering video services as additions to mobile plan packages. Some mobile carriers have even started producing original content specifically for mobile streaming. Independent titles can garner revenue on VOD but profits remain low while the market continues to develop.