Terrie's Take: Japan's Internet Wild West, Finding Bitcoins, Car Sales to Drop, FSA, SME, & DLE's IPO!

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on March 24, 2014

Feature:

  • Japan's Internet Wild West

Briefs:

  • Ermmm, we found some of those missing Bitcoins...
  • Car sales expected to drop 16% after consumption tax rise
  • FSA tells banks to ease up on SMEs
  • Animator DLE gets ready for March IPO

Japan's Internet Wild West
A rather sad and shocking event happened this week that will add to the calls for regulating business on the internet. An online babysitting agency's freelance sitter managed to let a two-year old toddler in his care die, claiming that medicine he'd (the sitter) taken knocked him out for 24 hours and he didn't notice the kid in trouble. The dead child's 22-year old mother apparently needed to do something over the weekend and left her 2-year old and an 8-month old baby in the care of a representative of the agency at her local train station on Friday night. The agency representative then shuttled the kids all the way to Saitama and left them with an unmarried 26-year old male sitter -- the guy who got arrested.

This event boggles the mind in various ways. Firstly, what would possess the mom to hand over her 8-month old baby and 2-year old toddler to a complete stranger? The world is full of people doing ugly things to others, and the capacity for child abuse, let alone murder, is unlimited. Then there is the fact that this agency is just one of dozens on the internet that does little more than match un-regulated sitters with naive parents. Crowdsourcing is fine as a concept when you are dealing with digital files, but another thing all together when it comes to looking after helpless human beings.

The tragic outcome is one more reminder that the Internet is not some magic panacea for the inconveniences of society. Rather, it is an open market where the players are both good and bad and where those that wish to prey on the vulnerable can do so with relative ease. The Internet was originally supposed to be a medium protecting the freedom of speech, and while we agree that this is still an important point to protect, there are so many new questionable businesses that duck and dive under the cover of that "freedom" we think it is only a matter of time before the Japanese government decides to become much more proactive in controlling such businesses.

This is a complicated topic and one that we have been thinking about a lot recently. There are many interesting new services that would not be possible if it wasn't for the protection of their existence by virtue of their being on the Internet -- and developed countries such as Japan do need the innovations the Internet makes possible in order to build a knowledge economy in place of manufacturing and agrarian ones. Nonetheless, among those innovations, some are highly likely to come under scrutiny in the near future. They include: online recruiting, online content, online currencies such as Bitcoin, online travel businesses such as AirBnB, online gaming, and even just regular sales of goods online. Let's look at a few of these, and how they probably skirt the rules normally imposed on regulatory bricks-and-mortar versions of the same thing.

1. Online recruiting. We were involved in Japan's first online mid-career recruiting service, www.daijob.com, and were confronted early on by claims from our physical-world competitors that we surely needed a recruiting licence. After all, we were providing advice in our newsletters, and effectively the outcome of our online matching was the same as what a licenced recruiter did -- the candidate would get a job. However, after getting legal advice, we were surprised to find that we could use the technicality that we were in fact a publisher and that our marketplace was just a function of information the users decided to share.

In the end we actually did get a recruiting licence, but the point is that we didn't need one. It was almost as though our being on the Internet helped to obfuscate our involvement in the recruiting process, to the point that we were legally detached from the outcome. We still think this is strange, because the outcome is the same, and the intention of regulating recruiters is to keep the profession safe. Now with online recruiting being expanded to crowdsourcing (Crowdworks.jp is just a modern-day version of Daijob.com), the matching of services by unqualified people means that probably the whole sector is likely to become regulated.

2. Online content. While online publishing is protected by the concept of freedom of speech, if you try to monetize that speech as an e-book and sell it online, then be careful. The Japanese publishing industry is both strong and influential, perhaps because it is so entwined with the ruling elite. So, woebegone any upstart entrepreneur who thinks he/she can circumvent the industry online, such as Hiroshi Mikitani of Rakuten tried to do when he took over Kobo of Canada and start selling Japanese titles from that country as a means of eliminating consumption tax for customers.

The government quickly decided that this was going too far, and they passed legislation which will take effect in 2015, and which will bring e-books and other content (but not physical products, which already get checked at Customs) under a self-reporting tax requirement for foreign vendors selling to Japanese consumers. We bring this example up because it shows that the government can and will take quick action on internationally-related Internet businesses when they want to. Now, just how they will enforce this tax regime for the millions of small sellers outside Japan and for "reluctant-to-report" industries such as porn is going to be interesting. But for a major Japan-based player like Rakuten, the writing is on the wall -- they are right in the crosshairs of the tax authorities.

3. Online gaming. Another form of content that is hard to control is online gaming. In the physical world, the rules are simple: no gaming or gambling for money, except for government-permitted concessions that in any case feed one or other government departments. OK, sure, there is a huge under-the-radar world of pachinko parlors, but even these are under the control of retired police officers and so is allowed. Another possible exception will be if Kasumigaseki permits Tokyo to start Japan's first legalized casino, something that is expected to pass parliament this year.

In the meantime, online, gaming and outright gambling is rampant. In 2012, the whole concept of "kompu gatcha" games by Gree, DeNA, and others came under scrutiny and the Japanese authorities called a foul -- the concept is online gambling pure and simple. As a result, the industry was given six weeks to kill off the games or be fined, and all the top players took the games down -- well, modified them at least, and took a major financial hit as well.

But even as Gree and others have pulled back (a little) from the grey zone, Japanese consumers continue with their love affair of online casinos (abroad, but where everything is in Japanese) whose servers are outside the reach of Japanese laws and law enforcement. Given that the betting amounts are in the billions, we feel that it is only a matter of time before the government starts monitoring internet usage much the same as the Chinese do. No doubt they will use a socially acceptable reason for doing so, such the need to track down illegal casino operations, but given the rightist swing of government, it will be very tempting for them to insert a Japanese great firewall to limit other activities as well.

There are plenty of other examples of unlicenced web businesses that couldn't exist in the physical space, such as in travel, education, health, and even in selling second-hand goods (yes, you need a licence from your local police to do this -- we have one). The fact that they are allowed to exist is a mystery probably best explained by the phobia older regulators have with technology, especially if that technology comes from and is allowed by your favorite big brother, the USA. Still, in years to come, we expect more incidents such as the babysitter manslaughter case will force action, and we will look back on this era as a kind of Wild West that offered both opportunity and threats in equal measures.

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Lastly, we [Terrie's Take] would like to remind readers that with last week's passing of the third anniversary of the Tohoku earthquake, the resulting Fukushima nuclear disaster is by no means over. Kids are being diagnosed with thyroid cancer at an accelerated rate and a whole generation of toddlers don't play outside any more. About 18 months after the disaster, locally-based author, Larry Knipfing, released a novel called "Horace" which has the Fukushima disaster as its setting and creates an alternative future for those kids. Perhaps those parents who feel trapped by their childrens' vulnerability to lies and cover-ups of the nuclear industry will want to read this novel and wish that they took the actions Larry's protagonist did. It's a good read and available from Amazon.com, at http://amzn.to/1geRO8n.

Ermmm, we found some of those missing Bitcoins...
Maybe the Mt. Gox team got threatened by the Yakuza or something, because they just happened to "find" 200,000 missing coins in a wallet thought to be empty. This at least reduces the initial suspected theft of coins from 850,000 to 75% of that number. The re-discovered Bitcoins are worth about US$116m. Mt. Gox is embroiled in a range of online accusations, including a March claim by hackers that the company itself stole the Bitcoins it originally claimed missing in fraudulent withdrawals. (Source: TT commentary from time.com, Mar 21, 2014)

Car sales expected to drop 16% after consumption tax rise
Recognizing that the current 15% year-on-year surge (in February) in auto sales is being stimulated by the looming consumption tax increase, the Japan Automobile Manufacturers Association says that they are expecting sales to plummet 16% in FY2014, starting April 1st. Thus the number of cars expected to be shipped this coming year is likely to drop to 4.75m units. Even so, Japan is still the world's third-largest auto market. (Source: TT commentary from japantimes.co.jp, Mar 22, 2014)

FSA tells banks to ease up on SMEs
After the Kamei Moratorium on bank loan repayments by small companies ended in 2013, we predicted a rash of bankruptcies due to the fact that more than 300,000 companies were struggling just to pay interest on their loans, let alone the loans themselves. However, we were proven wrong by virtue of the fact that the FSA issued banks with instructions of a defacto continuation of the moratorium. That will change come April, where the FSA is now saying that the banks should actively help those companies that can be revived, while on the other hand "encourage" those that can't to shut down. What's interesting is the wording in the Nikkei where it says that the company founders will "...not be held accountable too severely." Sounds to us like the FSA is going to let a bunch of companies go under without dragging the owners down as well. If so, this will be a very significant move towards normalizing bankruptcy in Japan. Right now going bankrupt as a company means the owner has to go under with it and lose everything in the process. (Source: TT commentary from asia.nikkei.com, Mar 19, 2014)

Animator DLE gets ready for March IPO
If you like Japanese anime, you may be familiar with the Secret Society Eagle Talon. The company behind this hit series, DLE, is about to list on the Mothers market of the Tokyo Stock Exchange. The company is listing with sales of JPY1.6bn and JPY328m in Net Profit -- proving that media companies have a lower hurdle to hit to list on Mothers than do most other industry sectors. DLE is saying that they expect to use the listing cash to make a push overseas, particularly in Asia. (Source: TT commentary from asia.nikkei.com, Mar 18, 2014)

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That was Terrie's Take.

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