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Wanted: killer app

Melanie Stern is the former section editor of Families in Business.

Like many of its contemporaries in the West, Japanese publisher Kodansha is having to look beyond its traditional paper output and embrace the digital age …

Last year, 2006, was not exactly a harbinger of good health for Japanese publishing giant Kodansha. Senior executive vice president and COO Yoshinobu Noma, the fifth generation of the founding Noma family to run the firm, expects to close out 2006 in the black, but revenue has declined. "The first half of the year wasn't so good, especially in our magazines segment," he laments. Unfortunately, magazines are a major part of what they do.

Kodansha is one of Japan's leading publishers of best-selling books translated from English, tabloid-style newspapers, Heat! or People-style magazines and, the jewel in its crown, a vast output of manga – the comic-book genre that has long formed the nucleus of Japanese youth culture and relieved hordes of stifled salarymen commuting on Tokyo's overcrowded metro system.

Manga is the bread and butter of the company, a steady profit provider for Kodansha. One could proffer up a number of reasons why this is so. Japan may still be criticised for its obsession with conservatism, but manga encompases probably the most inclusive, progressive society on earth; from the millions of lovesick teenage girls who read its wide-eyed, princess heroine-themed Ah! My Goddess series every month, and hormonally-charged young men who worship the seminal cyberpunk Akira series, through to Japan's housewives and growing class of career-women looking for a fantasy fix – Kodansha serves them all.

Maximising fortunes
Sex clearly sells, but so does rolling out the rights to their highly-prized comic creations for television, film, toy and video game use. Kodansha and its rivals in the manga world quickly discovered this, and the practice has floated them all for the past decade. Akira is a good example. Though Kodansha finished publishing it in 1990, Marvel Comics serialised it until 1995, and Dark Horse Comics published a version of it in the US at the turn of the millennium; the film came out in 1988 bringing the character into the anime ("animation") world, and is considered responsible for opening the door to manga's international presence. Its phenomenal success at Japanese and American box offices saw licensing for video games and other toys that hit at the height of the computer craze. Kodansha has had some luck with its Ghost in the Shell manga and anime spin-off, a similarly apocalyptic creation that currently has manga enthusiasts, anime addicts and computer gamers all over the world gripped.
As the largest and best-known publisher of manga, as well as a slew of manga-carrying magazines read by teens to fifty-somethings – Kodansha has done well in the last couple of decades in maximising its fortunes. Under president Sawako Noma, Yoshinobu's mother, the firm has made a lot of money from game and movie spin-offs. It also owns stakes in a bunch of companies involved in those areas, including a 2% holding in Tokyo Broadcasting System, which in turn has done well out of showing these series. The list of Kodansha characters that have been made into TV series, films and video games is pretty long.
"Great Teacher Onizuka was huge and Mobile Suit Gundam is still absolutely massive despite being about 20 years old now," says Jon Yongfook Cockle, an expert on such matters and one of Tokyo's foremost culture bloggers. He believes that there is some of "the most beautiful artwork ever in mainstream manga. Video game franchises complement that. Even so, I'd want to ask Kodansha how they plan to differentiate themselves from the competition in the future," he adds, referring to Kodansha's top rival, Shogakukan. "Kodansha and Shogakukan essentially have exactly the same business model, but Shogakukan has been catching up in terms of revenue."
Shogakukan and Kodansha compete with each other in the sense that both are equipped with a full line-up of manga titles. And everyone from kids to adults (and both men and women) reads them. However, Shogakukan is good at appealing to kids, whereas Kodansha titles are more popular among adults.
Receding markets
But Kodansha's annual profits continue to slip away. The reason, according to Yoshinobu, is that Japan is getting older, having fewer babies and choosing to read electronically instead of buying print products. "The market size of magazines for young people, including manga, has been shrinking simply because of the decline in the population of that age group. In addition, consumption behaviour of those people has diversified over the past decade with the introduction of other entertainment media such as video games, the internet and mobile phones."
That's a trend evident in any part of the developed world, and manga made the transition to computers and television a good decade ago. Mobile phones have been commonplace for only a short time less – and in the last five years it's become a rare sight in any modern city in the developed world to see a teenager whose ear is not permanently glued to a mobile phone, usually at the same time as their hands are furiously messaging away on their MySpace account. It figures, then, that the way to a teenybopper's wallet is through the array of gadgetry they plug themselves into every day.

So why does Kodansha's chief complain that kids are buying less printed manga when it seems plain that the age of printed manga is dying a death? Yoshinobu says that his firm won't dump paper manga but will instead try to create a platform for both print and e-manga to thrive and complement each other. So far, though, progress in comparison with the demands of the market has been slow. In 2004, Kodansha began one of its projects for digital distribution of its products by joining forces with Sony to devise the Librie, a handheld e-book designed specifically to bring manga to the electronic age. Launched initially for the Japanese market only, and looking much like a Personal Digital Assistant, the Librie was designed to weigh roughly as much as the average manga "phone book". With a USB port able to store 10MB of downloaded manga, the Librie was supposed to herald an entirely new method of manga consumption that Kodansha could control and own.
Reviewers were excited by the Librie's technology, which features a 170 dots-per-inch black-and-white screen to resemble newsprint and give four shades of grey, so that users could continue to enjoy the clarity and "feel" that printed manga provides, something that has always been as much a part of the product as the characters. But the market shunned it, complaining that the manga subscription service wasn't up to scratch, downloaded products deleted themselves from the Librie because they had a built-in 60-day expiry date, and they couldn't add their existing collection of e-books to it due to the Digital Management Rights (DRM) software built into it, which only allowed users to download products from Publishing Link (a joint venture between Sony, Kodansha and a clutch of other Japanese publishers).
Users were frustrated with the limited number of products they could "rent" – rather than buy to keep – from Publishing Link, and reported "ghosting" left on the screen by the last image that interrupted with the next. A rival product from Mitsubishi was launched at the same time, doing much the same thing and for the same price, but fared better in the tech press for having a less anti-competitive DRM system. Surprisingly, none of these issues is exactly a teething problem since e-book technology has been around for a good decade and previous efforts have fallen at these same hurdles.
Manga by cellphone, however, does make money for Kodansha and appears to be a market already in a position to experience a boom, particularly with the popularity in Japan of 3G handsets that can handle the needs of manga. Indeed, Sony Entertainment lauded the arrival of its anime series for cellphones last year, sparking a rash of similar deals such as Konami's agreement to supply manga games to cellphones for US manga importer Tokyopop.

"We have started digital publishing for all platforms; including PC, mobile phone and specialised devices, mostly with novels and manga," Yoshinobu explains. "Mobile manga is showing the best growth so far, already generating income for us. But we must wait and see if this will become a long-term trend. Whatever happens, the critical point is to keep trying to find the synergy between paper and digital media." E-books, meanwhile, need more time to bear fruit. "We are not fully satisfied with the achievements of Publishing Link so far, because the sales of Librie are not as good as we expected," Yoshinobu concedes. "However, digital publications in general have been growing year on year, and we believe that Publishing Link will remain one of the most popular outlets for digital distribution of written content."

The PDA market has exploded with rival products. Techie blogs dismiss the Librie, and reserve judgement on the potential of the e-book industry at large. They believe developments to date are simply unable to compete with the latest PDAs, which are powerful enough to surf the web wirelessly, store music and e-books, and are both cheaper and much smaller than bulky e-books.

The Librie was made available in English last year and sold in North America and Europe – sales data aren't available yet – but at the same time Japan e-Book Collective, a coalition of Japanese publishers and investors such as Sumitomo that backs the development of e-book technologies, announced that it would license manga content to the rest of the world. One of the members of that coalition is Shogakukan. And, of course, there's Apple's iPod, which Yoshinobu thinks "very interesting" for the future of the market.

But with mobile manga on the up and e-books a poor second, is it worth continuing to invest in the Librie and the concept? "It all depends on the fans and readers whether or not digital distribution will become a source of income on which publishers can rely. It is the readers who decide what device they like to use to experience the world of novels or manga," the president thinks. "So we provide the readers with our properties through any platforms they like." Somewhat surprisingly, the most voracious consumers of mobile manga today are women rather than the youth market or even salarymen, though some vendors have hinted that they think the appeal for women is the ability to access a mine of rather racy manga in privacy, and anywhere they choose.

Rise in the west
Aside from licensing their creations for film, TV, gaming and mobiles, print manga has shifted to become a major profit centre for Kodansha through its export business, which itself has been fuelled by the global success of those roll-outs over the years. At least half of Kodansha's profits from these secondary sources is generated outside Japan, says Yoshinobu. Europe and North American sales make up half of all Kodansha's manga licensing business, while half of its anime business comes from the States, with Japan contributing only 25% of profits, by contrast. Growth in 2007 and beyond will come from the North American and European manga markets, says Yoshinobu, not Japan. But, for the moment, Japan's publishing market and manga demand continues to shrink and it falls to Yoshinobu to shore the company up. With the Librie's potential looking somewhat pallid in the face of rival inventions and the ease with which rivals have started selling mobile content, the race is on for Kodansha to redefine itself and find an electronic niche into which it can fit.

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