INSIDE EYE

Japan's media empires think Net

The man I'm chatting with has spent his career at the same firm, clawing his way up the ladder from street reporter to heir-apparent of the president's chair. One of the reasons that my lunch buddy is top candidate is that (gasp!) he has actually surfed the Internet. He confesses that no one on the corporate board of directors has accessed the Net, nor do they know the difference between the Amazon jungle and the bookstore. My buddy knows little about the Internet economy compared to his counterparts in London and New York, but he knows enough to be a bit afraid. He realizes the inevitable: Japan's media empires, despite their extensive holdings, income, and audience, will be doomed if they don't change soon.

At this point, a little background is in order. The media in Japan, except the noncommercial quasi-official NHK, is primarily composed of five conglomerates. The most conservative -- politically and in business philosophy -- is the Yomiuri empire, which runs Japan's largest-circulation newspaper, the Nippon TV network, Nippon Hoso radio, and the national-favorite Yomiuri Giants baseball team. Strong on the print side, but weaker in broadcast, is the Nikkei conglomerate, led by its financial news daily, the Nihon Keizai Shimbun (the Nikkei), and including TV Tokyo and dozens of magazines. The middle-of-the-road Mainichi group controls Tokyo Broadcasting System (TBS -- which includes Osaka-based Mainichi Broadcasting), Bunka Hoso radio, the oldest daily newspaper in Japan (the Mainichi Shimbun), and a slew of mediocre magazines. On the political left is the Asahi group. Its flagship is the Asahi Shimbun, and the group includes various magazines and the Asahi Broadcasting Company. Outside the top four, there is the eclectic Fuji-Sankei group, with the also-ran Sankei Shimbun, highly rated Fuji TV, and such one-off enterprises as art museums.

Few media executives realize the dangers. For the most part, their primary newspaper and broadcast businesses are trying to grab the same core audience while technological, societal, and demographic shifts result in falling circulation and ratings. (The Internet, ironically, has boosted the magazine industry, with virtually every publisher rolling out Internet-themed magazines.)

Inevitably, however, as my lunch mate realizes, the Internet puts the Japanese media cartels in jeopardy. In the post-WWII era, due to the cost of newsprint and the complexity of newsgathering and newspaper delivery, it has been difficult, if not impossible, for any upstart to set up an operation that could threaten the Big Four. One or two of the keener media executives are now whispering an idea that was unthinkable a few years ago: tying with foreign entities to survive in the paperless era.

Even the traditionally xenophobic Nippon TV has made a tentative move in this direction, forming a strategic team with Hughes Corporation's DirecTV. The others are interested, but are really clueless as how to go about it. Anyone who has done business for a week in Japan knows that personal relationships are the catalyst, and few top Japanese media executives have formed those sorts of relationships with foreigners.

A few foreign investment bankers and consulting firms have realized the potential and made tentative efforts in this direction, but their strategies have been wrong on two major points. They have tried, at the front end, to sign up the Japanese conglomerates as clients, essentially telling them, "If you pay us a big, fat retainer, then we'll bring potential JV or M&A partners to your door." This approach is anathema to Japanese media execs who don't want to have to get board approval for signing a crass document essentially asking some strange foreigners to bail them out. (Which, by the way, is indeed exactly what they need.) The second mistake is the approach by (just-off-the-plane, non-Japanese-speaking, low-level) managers to try and get appointments with the indigenous CEOs. The foreigners are baffled why Japanese media poohbahs won't meet them; they are, after all, from Morgan Stanley or Andersen Consulting.

I run some of these gold-plated foreign names by my lunch mate. He's never heard of most of them, including Goldman Sachs and Price-Waterhouse Coopers. A guy from Joe's Media M&A is on equal footing, perhaps better, with the giants, because the first actual step through the door is starting a personal relationship, not touting the corporate legacy.

My friend says he's willing, even eager, to meet some foreign media executives. "Perhaps we can form an Internet joint venture with them," he says. Well, Joe, that's your cue.