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Japanese Label Avex Looks to Conquer U.S. Market From New L.A. Hub – Billboard

October 14, 2022 - Uncategorized

Japanese record labels historically haven’t felt the need to venture beyond their country’s shores to boost revenue. Japan’s recorded music market, the second largest in the world, has been big enough to sustain companies like Tokyo-based Avex Inc., considered a fourth major label in Japan.

But a rapid market shift in Japan — along with South Korea’s surge onto the global scene with K-pop —have created new impetus for Japanese music companies to try to penetrate the toughest of markets: the United States. 

Last year, Japan’s sales of physical CDs and vinyl still made up 68% of the 283.2-billion-yen ($2.46 billion) recorded music market. But digital sales jumped 14% to 89.5 billion yen ($624 million) — the fourth-consecutive year of double-digit growth in the category, which is now 83% streaming, according to the Recording Industry Association of Japan.

Avex, an entertainment conglomerate founded in 1988, has developed legendary J-pop talents like Ayumi Hamasaki and Namie Amuro, and forged a live-music partnership with AEG Presents to co-promote artists in Japan. But it has struggled to create new superstars, or to successfully expand to the U.S. and China. 

A 2016 effort to set up a U.S. operation fizzled after about two years. Now Avex is trying again. This time, the brass in Tokyo have turned to Naoki Osada, an 18-year company veteran with an M.B.A. from UCLA, a passion for West Coast hip-hop and several years of familiarity with the U.S. music business. 

The new entity, which features a publishing arm, a record label and an investment fund, is based in Los Angeles, where Osada holds sway at the Avex House, a recording studio and artist-producer hangout, which has an infinity pool and a rooftop deck with 360-degree views of West Hollywood. During the pandemic, Osada oversaw extensive renovations to the five-bedroom house, which the company says it is renting. 

“One of the reasons why we weren’t successful in our past endeavors to expand into China and the U.S. was that we didn’t have a clear mission, an agenda that we shared across the entire company,” Katsumi Kuroiwa, Avex’s CEO, tells Billboard from Tokyo, adding “we weren’t able to pick the right person to expand the business outside of Japan.”

This time Kuroiwa believes the company has gotten it right — and he has given Osada, who serves as president of Avex USA, a longer runway: five years to make the U.S. entity a success. 

Avex House, Naoki Osada

Naoki Osada the Japanese exec is leading the project/entity Avex USA.

Caity Krone

Avex started its latest U.S. effort with publishing. The initial focus is on building U.S. intellectual property with U.S. and Canadian songwriters through songs that can be placed with U.S. pop stars like Justin Bieber, and Japanese – and even Korean – artists. Osada created a publishing joint venture with Brandon Silverstein, manager of Normani and Brazilian star Anitta. Silverstein was looking for financial backing for his S10 Publishing and says he bonded with Osada over his vision to make the Avex House into a creative hub. Osada also hired Lucas Thomashow, 29, a Google-trained data and social media marketing specialist, to run Avex USA’s new label, SELENE, which is named after a Japanese spaceprobe that orbited the moon in 2007. 

Avex has 13 writers on its U.S. roster, including six signed jointly with S10 Publishing: HARV, who co-wrote Bieber’s hit song “Peaches” (before S10 signed him); Jamaican dancehall artist Shenseea, who shared the stage with Anitta in Las Vegas during the Billboard Music Awards week; Cxdy (Internet Money), who works with The Kid Laroi; Toronto-born David Arkwright, who co-wrote “Build a Bitch” with Bella Poarch; Belizean artist Kosa; and Declan Hoy.

One challenge is working both globally and locally. “There’s that double edged sword where we’re always thinking strategically about how to bridge that gap [between Asia and the U.S.], because there’s a lot of cross over,” Thomashow, Avex USA’s senior vp, tells Billboard, sitting with Osada by the Avex House pool one morning. “And that’s whether it’s our U.S. writers and producers putting together hits for some of the biggest Japanese or Chinese artists, or how do we think strategically about Japanese artists.”

In one of the publishing arm’s biggest overseas successes, Arkwright and J. Que co-wrote a debut single for Japanese-American singer CAELAN (real name: Caelan Moriarty), “Forever With You,” which went viral with CAELAN’s sprawling Asian social-media fanbase, hitting No. 1 in China on the Weibo Asia New Songs Monthly ranking in September of 2021.

SELENE, meanwhile, has signed five artists so far, notably Austin George and 19-year-old singer-songwriter Sadie Jean, who had a TikTok open verse challenge hit with “WYD Now,” which counts over 200 million aggregate world-wide streams across all DSPs (she has more than 88 million on Spotify). The label says Zach Hood’s three singles on SELENE have generated more than 150 million aggregate streams. Sophie Holohan’s “Butterfly Effect” has 120 million hashtag views on TikTok, and the artist has more than 322,000 monthly listeners on Spotify. In finding rapid streaming success for newer artists, the label, says Arkwright, “is doing something that major labels, in my opinion, kind of wish that they could do with that kind of efficacy.”

(Sadie Jean is the only SELENE artist with any Billboard chart history. She spent seven weeks on Billboard’s Emerging Artists chart, peaking at No. 35 on the Dec. 25, 2021-dated chart. “WYD Now” spent a week at No. 91 on the Billboard Canadian Hot 100.)

Avex House, Lucas Thomashow

Lucas Thomashow the American exec leading the new U.S. based Avex label, SELENE.

Caity Krone

Silverstein has built a relationship with Avex founder and chairman Masato “Max” Matsuura back in Japan, but credits Osada for the initial progress out of Los Angeles. “We’ve gotten our successes based on [Osada’s] support from Japan, given the writers that we’ve signed,” he says.

Osada, who was previously in charge of corporate venture capital for Avex back in Tokyo, also oversees Avex USA’s Future of Music Investment Fund, which has $25 million to spend on seed and Series A startups, mostly music-tech companies like WaveXR, a VR music platform that created Bieber’s 2021 avatar concert. (The fund has also attracted investment from Bieber and his manager, Scooter Braun.) He sees his Avex USA role as “half investor, half music executive.”  

Trying to Catch The Koreans 

While Avex executives say they don’t see the Korean labels as direct competitors, they nevertheless want to emulate their formula for success. With a much smaller domestic market than Japan, the Korean music industry naturally had to look outside for growth, which led acts to work harder to create global fanbases. “The Korean companies are at this stage more superior and advanced in terms of breaking global artists,” says Kuroiwa. “Unfortunately, Japanese artists haven’t been able to gain fans around the world like South Korea…and that’s where we have to learn.”

The Koreans labels have also been making moves in the U.S. over the past few years. JYP Entertainment and HYBE, home to BTS, have set up offices and entities in Los Angeles, and even created joint-venture labels like HYBE’s imprint with Universal Music Group’s Geffen Records, which plans to launch a girl group together.

Back in 2014, Avex surprised the industry when it beat out Sony Music for the largest mid-year share of the recorded music market in Japan at 16.1%, according to the Soundscan Japan. More recently, however, Avex held an 8.6% share of the Japanese market in 2019, placing them in third place behind Sony and Universal Japan. The Japanese company’s total assets have been declining in value for four straight years, according to company filings.

Among its challenges, sales of the company’s biggest J-pop artists, Hamasaki and Koda Kumi, peaked more than a decade ago. “We’re in the middle of trying to create a next generation of artists,” says Kuroiwa.

The pandemic also hit the company hard. Avex recorded a net loss of 1.1 billion yen ($10 million) in fiscal 2020, which led Avex to downsize staff and sell its 18-story Tokyo headquarters. The sale price of more than 70 billion yen (more than $673 million in late 2020) generated a profit of 29 billion yen ($279 million), a company spokesperson says.

Sales rose 20.7% to 98.4 billion yen ($686 million) in fiscal 2022, while net income fell 92.8% to nine billion yen ($62.7 million). The income drop-off followed a surge in net income to 128 billion yen ($892.6 million) in 2021, which related to the sale of the building.

Escaping the Past

Avex’s previous foray into the U.S., in 2016, involved Universal Music Japan executive Kimi Kato, former Warner Chappell Music Chairman and CEO Richard Blackstone and Avex executive Ryuhei Chiba. The trio spent about $30 million buying content, including a worldwide publishing deal for a Bruno Mars album, two people familiar with the matter tell Billboard. Matsuura, upset the group had blown through so much money, rallied the board to fire Chiba and then shut down the U.S. entity, the sources say. (A spokesperson for Avex says the $30 million was not restricted to buying content and noted that “the strategy in the U.S. didn’t change because Matsuura got angry, but Avex did decide to change its approach in the U.S. to [a] lean startup model.”)

Osada says the previous team was “trying to do too much at the same time,” including bringing U.S. artists to Japan and launching local businesses. “At that time the company was more about aiming for support to the headquarters’ [Japanese] artists,” he says. “We had a dream, but we didn’t actually try seriously to be successful as a U.S. company. I was like, ‘Why don’t we try to expand the business here because that eventually supports the global operation of Avex?’”

Osada, who started at the company in 2004 as a newly minted J-pop A&R manager fresh out of college, had a front-row seat on the legendary tussle between Matsuura and Tom Yoda, Avex’s co-founder. Yoda wanted to expand Avex into other entertainment-related ventures, including movie production. He accused Chiba, then the company’s executive director and president, of pursuing personal profit from some of the label’s biggest artists, according to Japanese media reports.

The Avex board backed Yoda’s bid to get Chiba to resign. Matsuura resigned along with Chiba, who denied any fault. Osada recalls a staff meeting with about 300 people where Chiba and Yoda were screaming at each other from across the auditorium. “I saw the battle [play out] in front of me,” he says. 

But with the support of the staff and artists, including Hamasaki, who said she would leave the label (a declaration that led Avex’s stock price to dip by 16% in one day) – and the threat of bankruptcy looming – Yoda resigned. Matsuura and Chiba later rejoined the company.

A few years later it was Matsuura who gave Osada his instant blessing to study business administration in Los Angeles, at a time when the physical music industry was still in freefall from piracy site Napster. Not only did he avoid the chaotic company restructuring happening back in Tokyo, Osada says he was able to immerse himself in Los Angeles’ music and startup cultures, and inadvertently train himself for his current assignment.

Avex House, Harv

Harv at Avex House

Courtesy Avex

At the Avex House, Osada holds lunch for writers and producers, and his Friday night dinners have drawn an eclectic group of artists and industry types. Thomashow fondly recalls the night Normani‘s cousin cooked authentic New Orleans food for a small group. Events there have drawn the likes of A$AP Rocky and James Blake. Harv hosted Bieber’s “Peaches” release party at the house. (On one evening, Billboard met DJ Richie Hawtin and Dean Wilson, Deadmau5’ manager, along with music executives from Meta.)

The house has also become a magnet for artists, writers, managers and A&R execs to connect and collaborate. Blake, Normani and Anitta have worked on songs there. Arkwright says he’ll sometimes grab an acoustic from the wall of Gibson guitars hanging in the living room and head up to the roof to jam with artists like Austin George, and then pop down to one of the three studios to lay down a track.

“It’s just like this beautiful hang spot that you don’t get very often,” Arkwright says.

Additional Reporting By Rob Schwartz





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