Daiichikosho Company Ltd.

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Daiichikosho Company Ltd.

5-5-26 Kita-Shinagawa
Shinagawa-ku
Tokyo,
Japan
Telephone: (81 03) 3280 2151
Fax: (81 03) 3280 2150
Web site: http://www.dkkaraoke.co.jp

Public Company
Incorporated: 1973
Employees: 1,310
Sales: CNY 129.34 billion ($1.15 billion) (2006)
Stock Exchanges: Tokyo
Ticker Symbol: 7458
NAIC: 423620 Electrical and Electronic Appliance, Television, and Radio Set Merchant Wholesalers

Daiichikosho Company Ltd. is the Japanese leader in the karaoke entertainment industry. One of the pioneers of this industry, Daiichikosho is the largest producer of karaoke machinery and equipment for the professional market, supplying clubs, bars, and the like with increasingly sophisticated machinery. At the midpoint of the first decade of the 2000s, for example, the company became one of the first to offer Internet-based wireless broadband technology, permitting karaoke patrons to connect with other karaoke enthusiasts around the world. The group’s equipment development, sales, and rentals are conducted through its Commercial Karaoke division, while equipment is marketed under the DAM brand name. This division remains the centerpiece of the company’s operations. Daiichikosho is also Japan’s leading operator of karaoke clubs, known as karaoke “boxes” under the Big Echo name, and grouped under its Karaoke Room and Restaurant Division.

Daiichikosho has built up its own content portfolio, grouped under the Music Software division, including control of two major music publishers, Tokuma and Nippon Crown. The company has also taken steps to shield itself from an ongoing decline in the karaoke industry by expanding its range of services. Grouped under the Gateway division, these include software, content, and other media and information services for the mobile telephone market. Daiichikosho’s Others division includes its control of the Stardigio and Star-dam satellite broadcasting services, as well as the group’s financial services operations. Daiichikosho is based in Tokyo and listed on the Tokyo Stock Exchange. In 2006 the group posted revenues of ¥129 billion ($1.2 billion).

PIONEER KARAOKE MACHINERY MAKER IN 1973

The second half of the 20th century saw Japan’s rise into a global industrial and economic powerhouse. At the same time, the country also emerged as one of the leading forces in an increasingly globalized entertainment industry. Perhaps one of the most important of the country’s (pop) cultural innovations was the invention of the karaoke machine in the early 1970s.

Public singing had long been a centerpiece of Japanese social tradition, as party guests joined each other in song, accompanied by live musicians, bands, and orchestras. Once a fixture in the Japanese royal courts, by the 1960s public singing had become an important part of Japanese corporate life. Many deals were sealed at local bars and clubs, where guests took turns singing along with an orchestra. Singing together also became a cornerstone of Japanese corporate culture, as colleagues joined together after work to relax and sing in local bars.

The term karaoke —a contraction of Japanese words for “empty” and “orchestra”—had long been applied to the house bands providing the musical accompanied for would-be singers. The orchestras were referred to as “empty” in that they lacked a singer. By the end of the 1960s, karaoke singing had become a popular pastime.

Among the many musicians performing at this time was Daisuke Inoue, who worked as a drummer for a house band at the Baron club in Kobe. As a self-described “incompetent” musician, Inoue had taken up the drums because he was unable to read music. Inoue told Time, “Out of 108 club musicians in Kobe, I was the worst! And the clients in my club were the worst singers!” Yet Inoue’s lack of musical training and ability played an important role in the creation of the new entertainment form. Because he was unable to read music, Inoue was required to play from memory and take his timing cues from the people who came up on stage to sing. As a result, Inoue developed a somewhat laid-back, easily paced playing style.

Inoue soon attracted a strong following among Kobe’s would-be singers, in large part because of his playing style. At one point, one of the club’s patrons asked Inoue to accompany him on a business vacation. Because he was unable to leave his job at the club, Inoue instead gave the client a tape of the band playing without a singer. The client performed with the tape— and paid Inoue—and the karaoke concept was born.

Inoue recognized that there might be a market for a machine that could provide musical accompaniment for Japan’s myriad would-be singers. With a group of friends, Inoue put together a number of tape-players equipped with an amplifier, microphones, and an echo effect. The device was kept small in order to fit inside Japan’s typically small-sized bar. Inoue leased his machines to Kobe area bars, collecting a relatively stiff CNY 100 fee per song. Despite the high price, the first karaoke machine was a hit, and demand soon spread to other major cities, including Tokyo.

Inoue failed to patent the device, however, opening the stage for the creation of an entirely new industry in Japan. While Inoue founded his own company, which produced some 10,000 machines, the market quickly saw a raft of new competitors. Among these was the Daiichikosho Company, founded in 1973, which began developing its own machine. Meanwhile, a number of larger companies had begun developing karaoke machines as well. Among these was Clarion, which launched a system in 1976 that has been credited with having been the first to be marketed as a “karaoke machine.” The same year, Daiichikosho launched its own system, and began supplying the commercial market. Inoue himself later faded into obscurity. It was only in 1996 that he became recognized as the founder of the karaoke industry.

DEVELOPING AN INDUSTRY IN THE 1980S

Daiichikosho, in the meantime, had by then established itself as the clear leader in the industry. By 1979, the company launched its first retail sales of karaoke equipment, and opened a rental outlet in Tokyo as well. The company moved into the wholesale market in 1982, founding a new subsidiary based in Nagoya. In support of its sales operations, the company also established a financial subsidiary, DK Finance, to offer credit assistance and other financial services to its customers.

COMPANY PERSPECTIVES

With the goal of branching out from our roots in karaoke to become a comprehensive music content service, we intend to offer customers new content and business models as we evolve from a business-to-business venture into a business-to-business-to-customer and business-to-customer enterprise that provides services to people gathered in sites other than corporate venues.

The early 1980s marked the true boom period of the karaoke industry. Much of the industry’s growth stemmed from the rapid technological advances, starting from Clarion’s 1976 system, that greatly improved equipment reliability, sound quality, and ease of use. The launch of the first laser disc-based system in 1982, created by Pioneer in 1982, was credited with the next revolution in the industry. The new support enabled the simultaneous scrolling of song lyrics across a video screen—greatly easing singers’ performance, as they were able to read the text in time with the music. Daiichikosho was itself credited with the next major advance in the industry, when it joined with Sony Corporation to develop a system for automatically switching among songs.

Daiichikosho also was quick to join in on another new trend in the karaoke industry, that of the creation of the so-called karaoke box. The first of these had been created in 1985, when an entrepreneur in Okayama had converted an unused shipping container into a number of cubicles, each outfitted with its own karaoke machine. The cubicles, which were then rented on a per-song basis to clients, were credited with extending the karaoke market to the full range of the Japanese population. Japanese youth, who were excluded from the bars and clubs, became a new and dynamic market for the industry.

By 1988, Daiichikosho had created its own version of the karaoke box, called the Big Echo, helping to evolve the concept into a more comfortable environment in which groups of friends were able to join together to pass an evening singing along with the karaoke machine. The development of new support systems, notably of compact disc-based systems, enabled machines to offer a wider variety of songs. By the early 1990s, the first telephone-based, song-delivery systems had begun to appear. Daiichikosho, however, was forced to play catch-up in this new and fast-growing segment, debuting its own remote-based delivery systems in 1994.

By then, the company had taken advantage of the growing international interest for the karaoke market, as the new entertainment form began to sweep the globe in the late 1980s. In 1988, the company set up the offshore subsidiary DK Enterprises (Guam) Inc. to support its international sales. Two years later, the company founded DK Korea Co. and established a direct presence in South Korea, which had become one of the world’s fastest-growing karaoke markets outside of Japan. The following year, the company added its first operations in Singapore, then moved into Hong Kong, where it opened its first foreign Big Echo shop. Daiichikosho also attempted an entry into the U.S. market, establishing a subsidiary in New York. The company failed to establish a place for itself with American consumers, however, leading it to abandon the effort in the 1990s.

BRANCHING OUT FROM A DECLINING MARKET IN THE NEW CENTURY

The karaoke industry continued to soar through much of the 1990s, leading Daiichikosho to a successful listing on the Tokyo Stock Exchange in 1995. The company broadened its horizons the following year, adding a satellite-based broadcast service, PerfecTV, to provide new satellite-based services for its karaoke systems. The company continued to develop a range of services into the next decade, such as taking advantage of the rising popularity of singing competitions among karaoke enthusiasts. Indeed, whereas in other markets karaoke remained an occasional pastime for amateurs, in Japan, a growing number of karaoke singers had begun to achieve a degree of national attention for their vocal talent. This in turn inspired enthusiasts to spend long hours honing their karaoke chops and participating in competitions in which their performances were rated by others. Into the 2000s, Daiichikosho launched new fee-based services, including the promise to forward performances by aspiring singers to recording industry professionals for evaluation.

These new services were made possible in part by Daiichikosho’s addition of a new generation of Internet-based karaoke delivery systems. Launched in 2000 under the DAM brand, the new systems enabled the company to offer catalogs of songs reaching to the tens of thousands, while at the same time keeping track of competitors’ scores, and offering the possibility for clients to meet, share song lists and scores, and compete with each other online.

KEY DATES

1976:: Daiichikosho, established in 1973, launches its first karaoke system.
1988:: Company opens first Big Echo “karaoke box” in Hiroshima; begins international development.
1995:: Public listing on Tokyo Stock Exchange.
2001:: Company acquires two music companies, Nippon Crown and Tokuma.
2004:: Gateway Division is established as a move to broaden scope beyond declining karaoke market.

The need to roll out new services became all the more important as Daiichikosho began facing the brunt of a steady decline in Japan’s karaoke market. The entertainment industry had begun a radical shift at the beginning of the 2000s, as new technologies including mobile telephones, wireless and broadband Internet services, and video gaming consoles captured an increasing share of consumers’ discretionary spending. In response, Daiichikosho sought to broaden the appeal of its karaoke clubs by developing family-themed rooms, such as a string of Hello Kitty rooms, based on the popular character, launched in 1997. In 2001 the company launched a new system, DK Elder, directly targeting Japan’s large and fast-growing senior citizen market. At the same time, the company moved to tighten its control of its content, buying two major recorded music companies, Nippon Crown Records and Tokuma Japan Communications, both in 2001.

Daiichikosho also looked toward increasing its overseas operations. In 2000, the company created a joint venture with Thailand’s Saha group to launch a string of Big Echo clubs there. Yet the company’s ambitions there were thwarted when the difficult economic climate at mid-decade forced the company to place further expansion in Thailand on hold in 2006. The company also made a promising entry into China, setting up Daiichikosho (Shanghai) Ltd. in 2002. The company later established a second subsidiary in China, Daiichikosho (Beijing) Music & Culture Co., in 2005, and opened its first retail shop in the country. Yet the company found itself unable to compete successfully in what had become a crowded market. In December 2006, Daiichikosho announced plans to shut down its Chinese operations.

While few expected Japan’s karaoke industry to fade out completely, to many it had become clear that the market’s best days were behind it. In response, Daiichikosho sought to establish itself as a major player for the new and fast-growing mobile services market. In 2004, the company established a new Gateway Business Division focused on the development of content and services for the mobile telephone and wireless telecommunications markets. In support of this, Daiichikosho launched a series of new initiatives. These included a partnership with Japan Telecom to develop wireless, touch-screen-based karaoke terminals for the restaurant market in 2006. The company also launched a new service, the DAM Remote Control service, providing a consolidated membership platform via the I-mode telephone service. Having established itself as a leader in Japan’s karaoke industry, Daiichikosho hoped to remain a major player in the next generation entertainment market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Daiichikosho (Shanghai), Ltd. (China); Daiichikosho Co., Ltd.; Daiichikosho Co., Ltd.; Daiichikosho Kinki Co., Ltd.; DK KOREA Co., Ltd.; First Distribution Co., Ltd.; Tri-M, Inc.; Gauss Entertainment Co., Ltd.; Hokkaido Daiichikosho Co., Ltd.; Kyushu Daiichikosho Co., Ltd.; Niigata Daiichikosho Co., Ltd.; Nippon Crown Co., Ltd.; Shanghai Zong-Yi Music & Entertainment Co., Ltd.; Taito Daiichikosho Co., Ltd.; Tohoku Daiichikosho Co., Ltd.; Tokai Daiichikosho Co., Ltd.; Tokuma Japan Communications Co., Ltd.

PRINCIPAL COMPETITORS

Xing Ltd.; Pioneer Electronic Corp.; SEGA Enterprises Ltd.; Taito Corp.; Victor-JVC Ltd.; Yusen Broadcasting Corp.; GIGA Networks Inc.; Toei Video Co., Ltd.