In addition to karaoke, interactive education and healthcare will be popular, too. JAPAN SINGS AN INTERACTIVE TUNE TELECOMMUNICATIONS COMPANIES SEEK U.S. PARTNERS FOR NEW-MEDIA VENTURES

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Make way for karaoke on demand.

Although nearly every planned interactive TV test in Japan will offer some form of this entertainment phenomenon, it will take the help of U.S. companies to make it a reality.

News of the information superhighway is as rampant in Japan as in the U.S., but Japan's nascent interactive TV industry has suffered as a result of tight regulations that restricted foreign investment, limited the geographic area each of the country's 158 cable operators could serve and favored investment by small, local companies.

Since those restrictions were lifted a year ago, Japanese trading and telecommunications companies have been wooing U.S. partners, hoping they'll provide much-needed technical expertise.

"We're now seeing some of the smartest and richest Japanese firms becoming involved in the industry," said Joe Osha, analyst at Baring Securities Japan, Tokyo. "They are keen to form international partnerships because they can see how badly they have slipped behind the U.S. in the whole multimedia industry, not just cable."

But don't look for advertising to make its way to Japan's interactive TV systems any time soon. Cable TV has less than a 4% penetration in Japan, far below the 60%-plus in the U.S., and has yet to become a truly viable advertising medium.

"We're not looking at advertising as an important source of revenue until we've built up the numbers of subscribers and introduced new services," said Yasushige Nishimura, deputy general manager of trading giant Sumitomo Corp.'s Media Business Division in Tokyo. "Right now, the numbers of subscribers are simply too small to make this a strong advertising medium."

Sumitomo and Tele-Communications Inc. are negotiating a joint venture that would bring TCI's cable and interactive TV expertise to Japan.

"We'd expect them to contribute across the board in technology and operating know-how. They would have a substantial equity share, though Sumitomo would have the majority," said Mr. Nishimura.

Sumitomo is also conducting a feasibility study with Home Shopping Network and TCI to launch a shopping network in Japan, possibly next year. This would become an interactive service within three years, or as soon as the necessary technology is in place.

Technical tests and demonstrations for the home shopping network, video on demand and pay-per-view are due to take place in Tokyo next spring. At the same time, Sumitomo expects to test a new catalog shopping cable network in conjunction with Otto-Sumisho, a mail-order joint venture between Sumitomo and Otto Versand GmbH of Germany.

Itochu Corp., one of Japan's largest trading companies, is working on interactive TV applications with both Time Warner and U S West. Itochu has already invested in 38 cable TV operators and plans to achieve "a 10% market share at the very least," according to a spokesman.

Itochu plans to open 15 new local cable operators serving 200,000 homes each starting next year. The cable systems would provide video on demand, education, healthcare information and a karaoke-on-demand service via fiber-optic networks.

With Itochu serving as overall coordinator, Toshiba would supply the hardware, while Time Warner would assist in designing the networks and developing interactive services. U S West would offer technological support for telecommunications experiments using cable networks.

"The needs both for technology know-how and investment go beyond what any single company can provide, so there'll be more opportunities for foreign investment and partnerships," said Mr. Osha of Baring Securities.

Three other large trading firms, Mitsubishi Corp., Mitsui & Co. and Nissho Iwai, are also planning to get involved in the growing industry. A sixth, Tomen Corp., planned to work with Nynex Corp. to test interactive services in Yokohama. But that project has an uncertain future.

"Nynex has not reached a decision. Our relationship with them and their possible involvement in the Japanese cable TV market are both pending matters," said a Tomen spokesman.

Fujitsu, Japan's leading computer maker, plans to start testing interactive TV services in Yokohama, Hachioji, Akashi, Nakano and possibly other locations this December.

"The goals of the new service trials will be to evaluate new technologies for offering multimedia services, determine what sort of services are feasible and to build management know-how for future generations of cable-delivered services," a Fujitsu spokesman said.

The new services will include near video on demand, TV game software, karaoke, local community information and communications services for telephones, fax and personal computers.

The trading companies may face tough competition from Nippon Telegraph & Telephone Corp., Japan's largest common telecommunications carrier.

NTT is a passive partner in a test of video on demand that TCI and Microsoft Corp. plan to start in Seattle by yearend. The telecommunications giant also is working with both Microsoft and Silicon Graphics to develop TV set-top boxes and servers.

NTT next summer will start an interactive TV trial in Tokyo, Chiba and Kanagawa, offering video on demand and phone service through fiber-optic cables. The project is expected to run through March 1997 and will involve three local cable TV operators.

Ironically, the wave of new investment and deregulation came too late for Japan's first interactive cable system, Nagoya's Central Cable Television Co., which closed down in March.

Founded in August 1983, CCTV never posted a profit. Its two-way transmission cables, using older technology than that planned for the new services, allowed customers to use their remote control units to respond to quiz shows and surveys and to order pay-per-view programs.

Still, some in Asia are confident the region can meet the challenges of interactive TV.

"I believe, like a number of areas, Asia will progress faster because of the entrepreneurial spirit and leapfrog [ahead] in technological application," said Andre Nair, managing director of Ogilvy & Mather Media, Hong Kong. "Asians tend to be early adopters when it comes to technology."

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