You can excuse the executives of Hughes Electronics for feeling a little uneasy. Hughes's DirecTV Japan division has shelled out $100 million for a state-of-the-art digital-satellite uplink center north of Tokyo and hired 150 people. But not until the direct-to-home broadcast system is fully tested will the Japanese government license any of the service's programming--or even let DirecTV publicize its lineup of shows. "We've had to invest before we had approval," said C. Michael Armstrong, chairman of Hughes Electronics Corp., which owns one-third of DirecTV. "Japan is the only country in the world like this."
Digital-satellite television, which can beam down hundreds of channels, is coming to Japan, with Hughes, Rupert Murdoch's News Corp., and big Japanese trading houses jockeying for position (table). All want to repeat the smashing success that occurred in the U.S. in 1994, when satellite TV began its ascent to today's 5 million subscribers. But in Japan, these pioneers will have to lock horns with regulators, scrounge for programming, and deal with a clubby media establishment that will not give up its privileges easily. By design or not, these obstacles will blunt the impact of a powerful technology that could shake up Japan's media order. "It's all very Japanese," said Tadashi Nishi, senior researcher at the Sakura Institute of Research. "It's impossible to open up the market in one fell swoop."
BIG BANG. The battle will be intense, given the deep pockets of the rivals--DirecTV, Murdoch's Japan Sky Broadcasting, and PerfecTV, which is backed by Itochu and Sumitomo, among others. "If all three compete, there will be a bloodbath," said Seiichiro Ujiie, president of Nippon Television Network Corp., Japan's biggest broadcaster.
That's especially so because a popular analog-satellite service, run by the semipublic Japan Broadcasting Corp. (NHK), already reaches one household in four. NHK's satellite also beams down the world's only high-definition television (HDTV) service, the advanced analog format that many once thought would be the global standard--but that now serves fewer than 400,000 Japanese households.
Given the billions invested by NHK and others to develop these analog services, digital satellite broadcasting looked as if it would have a long wait before entering Japan. But the success of digital satellite broadcasting in the U.S. convinced Japan's big electronics companies that they could sell digital antennas and decoders at home. And trading companies were keen to create fresh demand for the satellites they own. So these companies have pushed regulators to embrace digital broadcasting. With PerfecTV in operation since October and DirecTV and JSkyB starting up soon, regulators are bracing for a Big Bang of digital capacity far beyond anything they expected--more than 300 channels.
Japan is trumpeting the explosion of channels as evidence of a new spirit of deregulation. But the differences between the U.S. and Japan are striking. In America, Hughes and others own most aspects of their operations. In Japan, the digital broadcasters cannot own the satellites they use. Nor can they own more than 20% of a programming company. "In the U.S., it's easier to turn a profit," says "Rex" Koya Mita, president and CEO of PerfecTV.
SUMO WRESTLING. The new entrants desperately need programming to attract subscribers. American TV shows aren't too popular, while, in a bizarre twist, most samurai series and other old Japanese offerings aren't authorized for satellite broadcast. Domestic production houses are the key source of fresh programming. But they are tightly tethered to the terrestrial broadcasters, who have their own plans to launch HDTV services on a new satellite shared with NHK in 2000. Meanwhile, rights for the most popular baseball and sumo wrestling matches are sewn up. Why pay extra to watch Major League Baseball on PerfecTV, for instance, when NHK's satellite channel broadcasts live whenever Hideo Nomo pitches for the Dodgers?
To get more Japanese programming that viewers want, the satellite services want to cut a deal to rebroadcast NHK's channels. But NHK, afraid to undermine its own satellite service, has little interest. "We can't tell people to watch the new services and not ours," says Hiroshi Shiina, associate director general for corporate planning at NHK. Because of its paucity of local programming, Japanese viewers have so far found few reasons to cough up $30 a month for PerfecTV's basic package of programming. It went on the air last December but has lured only 350,000 subscribers, far fewer than analysts expected.
News Corp. and Hughes both hope to do better. For Murdoch, the solution has been to take on Japanese features by seeking alliances with terrestrial broadcasters. After their aggressive purchase of 21.4% of Asahi Broadcasting Co. aroused hostility in the industry, so Murdoch and Masayoshi Son, president of Softbank, were forced to sell back their shares. But Murdoch has persisted, persuading Sony Corp. and Fuji Television Network to invest in JSkyB. Now, Fuji is trying to get other domestic broadcasters and production companies to create programming that complements shows on terrestrial stations. A viewer may catch golf-match highlights on Fuji's terrestrial station, for example, but can watch the whole game on JSkyB.
By giving leadership to Fuji and Sony, Murdoch has acquired a Japanese face that could make an alliance with PerfecTV politically palatable. The two services have already agreed to use a common antenna, decoder, and payment system--and more cooperation is likely, given PerfecTV's poor performance to date. "PerfecTV's agreeing to double up with JSkyB is an admission of defeat," said Paul Smith, a senior analyst at HSBC James Capel in Tokyo. But Murdoch has given up most of his control of JSkyB to stay in the game.
If JSkyB teams up with PerfecTV, the pressing question is how Hughes's DirecTV fits in. Its strategy is to be a price leader, while offering movies from Hollywood and Tokuma Shoten, the Japanese animation powerhouse that has taken a 10% stake. In addition, it will carry some American programming from NBC, Japanese soccer and rugby matches, and Internet content. It also will lease two transponders to Japan's Defense Agency for telecommunications use. Finally, DirecTV hopes to develop an antenna and decoder system that would work with all three satellite services: Such a deal could help keep DirecTV from being marginalized. Yet for technical reasons, its satellite position makes that difficult. "DirecTV is engaging in wishful thinking in talking about a common system," said PerfecTV's Mita.
Before they even get off the ground, Japan's digital-satellite broadcasters are already ripe for a shakeout. When that happens, look for Japan Inc. to make the key decisions. Digital-satellite TV will develop--but according to a very Japanese script.