Japan: Economics of the “Illegal” Download

Following on recent moves by the government to regulate the Internet, plans for regulation in other areas of online communication have been moving ahead apace in Japan. On December 10th, the Japanese government requested mobile companies NTT Docomo, KDDI, Softbank and Willcom to strictly filter web content for minors [ja], filtering which would block access to forums, chat rooms, and social networks for users under the age of 18 and potentially put an end to popular youth-oriented web services.

Meanwhile, on December 18th, the Private Music and Video Recording Subcommittee of Japan's Agency for Cultural Affairs convened a meeting at which they pushed for a ban on private downloads of material designated as illegal. While reproduction of copyrighted material for personal use has up until now been considered legal (only uploads being illegal), the subcommittee has pressed for this policy, expressed in article 30 of Japan's Copyright Law, to be revised to outlaw downloads as well [ja].

The decision to push ahead with the outlaw of personal downloads openly goes against opinions expressed in a record-setting 7500 comments submitted by citizens, who reportedly opposed changes to article 30 in large numbers. Economist and blogger Ikeda Nobuo commented on the implications of this fact in two entries posted on December 22nd. In the first post, he writes:


The other day, at the 15th meeting of the Private Music and Video Recording Subcommittee, the Agency for Cultural Affairs made a declaration that, as already reported in the news: “Even though the public comments expressed many opposing views, it is inevitable that an exception will have to be made to Article 30 for reproduction of illegally copied material”.


In public comments [recorded] in the interim findings, many views opposing [the change to Article 30] were found, and overall these opposing views represented the majority. Nonetheless, without answering the doubts expressed in the public comments, the work toward revision, which lacks transparency in the process and arguments leading to this conclusion, and which clearly ignores the will of the people, is going ahead.

The following entry posted shortly thereafter delves deeper into the economics of the “illegal download”:




First, the basic problem is that the premise for the current revision, the fact, as stated by the Recording Industry Association of Japan and so on, that “the injury from illegal song ringtones is serious”, has up to now not even once been proven quantitatively. There would seem to be cases of people who download [music], have a listen to it, and then buy a CD, cases of people who then go to a concert, and cases of people who then buy the album (or pay to download it). In such cases, both the consumer and the musician make a profit. On the other hand, when the person intending to buy [the music] is substituted for someone downloading [the music] illegally, the record company loses an opportunity. Therefore in order for the Record Industry Association to make its claim, the inequality:

Loss of opportunities to musicians and corporations due to illegal downloads [is greater than] Benefits to consumers and profits to musicians due to music being listened to more widely (*)

must be substantiated with actual data. However, as I wrote earlier, this has not been proven by experimental studies in economics. In particular, note that musicians are included in both sides of equation (*). For these musicians, whether profits are greater or losses are greater is a priori unknown. As experimental research has shown, there is a high possibility that for minor artists, profits are greater.


In the current revision, there is a condition to “acknowledge mercy” and a compromise not to impose criminal penalty, but as Ogura Hideo has noted, the aim of the Agency for Cultural Affairs has taken a step away from cracking down on vendors selling traditional tools and machinery of illegal reproduction, to also cracking down on reproduction for personal use by individuals. Therefore as merely outlawing this does not make it possible to step into an individual's private residence, there is a danger that criminal penalties will be imposed and [moves in] the direction of compulsory investigations will be strengthened.


What has recently been shown in behavioural economics indicates that the atrophying effect on society of this kind of outlawing will be far greater than any actual losses [incurred]. This can also be understood from the case of subprime loans, no more than 1.4 percent of the world securities market, developing into a financial crisis that shakes the whole world. It seems that, hearing of the “outlawing of downloads”, corporations fussy about compliance will block access to [services such as] YouTube from the office. As new business markets atrophy, new businesses will then also stop appearing.


The Agency for Cultural Affairs has over and over repeated these same kinds of mistakes. As search and indexing have been treated as violations of the Copyright Act, it is not possible to set up search servers within Japan. The arrest of the developers of Winny, pioneering peer-to-peer software on a worldwide scale, dealt Japan's peer-to-peer technology a fatal blow. Even considering only Google's aggregate market value, chances lost as a result of this kind of atrophy amount to 20 trillion yen. This is equivalent to the proceeds collected by Japan's entire record industry over a span of 40 years. If you factor in this kind of economic result, then the inequality in (*) may be thought of as: (left side) [is much less than] (right side).


As I have written many times in this blog, the main reason that Japan's economy has entered a long-term decline is that a large amount of money from national expenditures was invested in zombie corporations that should have left the scene in the 90s, keeping them alive, while on the other hand innovation and entrepreneurial spirit were killed by excess regulation. In the Council on Fiscal and Economic Policy, in the Ministry of Economy, Trade and Industry, and even in the headquarters of intellectual property strategy, there is an awareness that excess copyright protection becomes a bottleneck in the information industry. It is the question of whether it is right to hand over jurisdiction on copyrights to the Agency for Cultural Affairs, which has no vision about Japanese economy like this [about the information bottleneck, etc.] and no IT knowledge, and which listens only to what voices of industry groups (including prior amaku-dari recipients) are saying and hurries to strengthen [property] rights, which I want to consider at the upcoming symposium.

For those who are interested, the symposium which Ikeda-san mentions is to be held on December 26th at room 201 of the Graduate School of Film Producing in Shibuya, Tokyo (map [ja]), from 18:30 to 20:00 (doors open at 18:00), and will feature a number of speakers including Ikeda-san himself. People interested in attending should send an email to MIAU (Movement for the Internet Active Users) at info AT miau.jp (with name, affiliation, and contact details) before midnight of December 25th. The talk will be in Japanese only.


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