By Mark Schilling
How tough can Japan's cutthroat distribution business be? Gaga Communications has been finding out the hard way; the indie distributor bled Y15 billion ($141 million) in red ink in the last fiscal year. It now has a corporate savior in broadband services giant Usen Corp., which plans to buy Y10 billion ($943 million) of new Gaga shares, for a 57.6% stake. Meanwhile, arch-rival Nippon Herald, after running up large losses, despite co-distrbuting the Lord of the Rings films, found shelter under the corporate umbrella of media conglomerate Kadokawa Holdings last March. Herald had run up large losses, despite distributing the Lord of the Rings films and Kadokawa now owns a leading 43% share in the distributor.
Both companies compete fiercely for Hollywood A product. Though the Japanese market for has grown in the past decade with boom in multiplex construction, minimum guarantees and P &A costs have been rising even faster. Also, the demand for mid-range Hollywood films, once a staple of Gaga's theatrical and video business, has declined, with video renters checking out more Korean and other Asian titles instead. Gaga has compensated by buying more non-Hollywood films, but despite hits like last year's Shaolin Soccer, the company has not been able to stop the profit slide.
Finally, the bottom has dropped out of the TV sales market. Movie Television, once a major supplier of foreign films and TV shows to Japanese TV stations, went out of business last year, while other sellers of TV product are struggling. Meanwhile, the TV networks led by Fuji TV with its two Bayside Shakedown blockbusters, have been moving aggressively into film production -- and keeping the domestic TV rights for themselves.
What's the key to survival and success? Usen hopes to find it by distributing Gaga product over broadband. Remember that big idea of the early 1990s -- video-on-demand? Gaga can only hope its time has finally come.
