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February 20, 2006

Integration of Communication and Broadcasting: Seek a Japanese Formula to Set a Precedent

Ichiya NAKAMURA (Executive Director, Stanford Japan Center-Research)

Advancement of digital technology has made the traditional method of separating communication and broadcasting obsolete. The rules controlling content also require a new structure to cope with varied needs of society. The new configuration should be formulated on a cross-sectional framework seeking a "Japanese style" legal system that sets a precedent in the world.

Integration will provide a huge benefit for Japan

The year 2005 saw a considerable advance in integration of communication and broadcasting in Japan. Internet companies seeking broadcasting business opportunities by hit the headlines, such as the attempt by Livedoor Co.'s acquisition of the shares of Nippon Broadcasting System and the struggle between Rakuten and Tokyo Broadcasting System. Telecommunication service providers, including the giant KDDI, started cable-broadcasting services, and among them USEN began to provide a free video delivery website named GyaO. Broadcasters, including NHK (Japan Broadcasting Corporation - a public station) and key commercial TV stations announced their plans to offer their programs on the internet, and actual services, such as the one provided by Nippon Television Network dubbed as 2nd NTV, were launched. Dentsu, a huge advertising company, is reportedly planning to set up a net service provider through coordination with a key commercial TV station. Pod-casting, a service to provide radio programs on the internet also has begun.

The reason behind the aggressive behaviors of broadcasters is the dissemination of broadband services, which made transmission of video images via the internet commonplace. In addition, as indicated by the fact that the internet advertising market has outgrown that of radio, broadcasters have been struggling to seek ways to hold on to their clients.

The government also was active. In July 2005, the Telecommunications Council of the Ministry of Internal Affairs and Communications submitted a report boldly claiming that "the integration (of communication and broadcasting) should be actively promoted." I recall when I was working for the former Ministry of Post and Telecommunications back in the early 90s when the word "integration" was taboo. The policy stance of the government has indeed changed significantly.

However, the term "integration of communication and broadcasting" is admittedly somewhat ambiguous. The intended meaning may differ depending on who uses it, for example, communization of transmission path, consolidation of functions of terminals, development of new services and by-businesses. In fact, dynamic development can be expected in any of these areas. But it must be pointed out that "integration" in Japan is a Japanese issue, and an issue in formulating a new framework.

First, let us consider the media environment in Japan. A key characteristic here is the already widespread broadband services. As a result of the government-led "e-Japan" campaign, development of broadband environment was adopted as a national policy, and now Japan is the foremost in the world in fields such as fiber-optic connection services and usage of the internet from mobile phones.

On the other hand, in terms of content, the share borne by television is extremely high in Japan. TV programs are the source of the core majority of video contents, and TV's penetration and influence on society is huge compared to other means. According to the Ministry of Internal Affairs and Communications, television accounts for 57% of the image industry in terms of money, and provides 92% of funding for production of content. But utilization of most of the programs so produced ends by merely broadcasting via surface wave TV, and those distributed further in other forms such as DVD and internet are only 8% of the programs produced.

Integration of communication and broadcasting will diminish this barrier, promoting utilization of TV programs on the internet by developing new services based on such a platform. As Japan already maintains both well-established internet and TV broadcasting systems, the benefit of integration would be especially large for Japan compared to other countries. Japan should not miss the opportunity to exploit the synergy effect of integration.

Presently, Japanese broadcasters are expected to provide both hardware (transmission system) and software (program content). In the U.S., however, the tasks are split where Cable-TV stations bear most of the transmission service and Hollywood provides the content. In the U.S., discussions on integration tended to focus on the hardware aspect only, such as in the case of consolidation of cable TV and communications networks.

Since the beginning of the year, new trends originated in the U.S. are being introduced in Japan. Google has announced its scheme to deliver dramas produced by CBS, Yahoo is planning to provide a service to allow for viewing internet video programs on TV screens, Apple is starting to offer dramas created by ABC as pay programs, and Microsoft is contemplating the idea of delivering programs produced by MTV.

Many of the plans revealed through the turn of the year indicates that the computer industry is seeking new services by taking over the functions of the traditional communications and broadcasting industry through utilization of their digital technology, and playing a leadership role in the content industry symbolized by Hollywood. Apple's success in introducing its I-tunes music store in Japan has stimulated start-ups of other similar businesses. Will Japan, which could have taken the lead, end up being left in the dust?

Focus on software, not hardware

The second point is that integration is not an issue of technological discussions or business-model propositions, but of establishing a legal and administrative framework. Moreover, the framework is closely related to software rather than the hardware side, where the emphasis of conventional policy measures regarding communication and broadcasting has been placed. The distinction between communication and broadcasting depends not on the means of transmission but on the form in which the contents are delivered.

From the legal perspective, the content of communication must be kept confidential while the content itself is not restricted. As for broadcasting, however, content is restricted but its confidentiality is not acknowledged. There is also the historical difference. Communication has considered the hardware and software separately, while broadcasting has treated them together.

The advancement of digital technology has brought about devices that can be utilized for both communication and broadcasting, antiquating the notion of separating the two. Cases are increasing where the current framework interferes with the intentions of those who seek new businesses.

In order to cope with such circumstances, the "Law Concerning Broadcast on Telecommunications Services" was enacted and became effective in 2002, which made it possible for communication facilities to be utilized for broadcasting. Communication satellites and optic fibers intended to serve as elements of communication networks were allowed to be used for broadcasting as well as communication. The law also promoted separation of hardware and software in broadcasting services. It became possible for parties other than operators of satellites or cable TV to provide contents to be delivered. The legislation was a bold attempt to allow for a new scheme to become operable while still maintaining the basic and independent structures of communication and broadcasting. The new formula implemented in the law is indeed an innovative approach, a Japanese solution for the new era which is attracting global interest.

There are, however, still flaws in the legislation. The law does not cover existing surface wave TV nor BS (broadcast satellite) TV, so the separation of hardware and software is not possible for these already established broadcasting systems. In addition, the possibility of conflict with intellectual property rights remains. It is possible for a program treated as broadcast under this legislation to be considered communication under copyright laws, in which case certain preferential treatments for "broadcasting stations" under the copyright laws would not be applied that could effectively prohibit the material to be delivered through broadband communication facilities.

Utilize NHK produced programs for delivery through internet

A characteristic of Japan's communication and broadcast framework is the existence of huge government-affiliated public corporations, namely NHK (Japan Broadcasting Corporation) and NTT (Nippon Telephone and Telegraph). NTT's foray into broadcasting and NHK's diversification to broadband business are both prohibited or heavily suppressed by legislation and government policy.

Internal Affairs and Communications Minister Heizo Takenaka in January launched an advisory panel addressing the nation's telecommunications and broadcasting framework. It apparently intends to discuss bold plans to cope with the integration issue from the basic issues. But there are also immediate problems that are solvable in short periods of time, and it seems more appropriate that they be tackled first. For example, the copyright issue indicated above needs to be resolved as soon as possible.

Discussions on how NHK and NTT would fit into the new framework are also important. For example, it would be a pity if the archived programs of NHK were prohibited to be delivered through communication networks. It might be more beneficial as well as practical if NHK were to become obliged to deliver the programs in stock via communication networks in a way that would allow for NHK to develop new markets. The U.K.'s BBC divided itself into hard and soft oriented companies and actively provides the archived programs via communication networks. Restrictions imposed upon NTT for starting of broadcasting services should be reviewed, too. By dividing it into two, one for competitive businesses and the other to look over monopolistic services, could be a viable idea. There are also measures already adoptable without new legislation. For example, the "Law Concerning Broadcast on Telecommunications Services" could be made applicable to surface wave TV in certain designated areas so as to foster new businesses in localities.

That said, it might be about time to reconsider the concept of separating communication and broadcasting as two distinct creatures. Popularization of digitization technique and IP friendly formats has not only made it possible but practically commands sharing of communication and broadcasting channels. Rules applicable to handling contents should also be revamped. Demolishing the current classification in accordance with communication or broadcasting, and adopting new criteria such as consumer protection and privacy protection fine-tuned to the needs of a multi-faceted society seems to be a constructive approach. By restructuring the current framework based on a set of group of business laws such as the Telecommunication Business Law and Broadcast Law into a new group of legislation established upon the concept to deal with the hardware and software aspects - such as a legislation to control both wired and wireless transmission paths, and another to cover services and contents - Japan should become the forerunner to establish a new "Japan style" legal framework.

(The original Japanese article appeared in the February 9, 2006 issue of Nihon Keizai Shimbun.)

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