JAV History: Faleno wants to topple the King-maker, not dethrone the King

In part 1, we reviewed the history of upstart studio Faleno, focussing on the most noticeable aspects which is signing of hot newbies, well-known idols and, especially, the poaching of top stars off industry leader S1.  In fact, between the time of the writting of part 1 and the publication of part 2, we already learned of one more major acquisition by Faleno, of the top idol Yui Shirasaka 白坂有以, this time targeting Moodyz.  Just as well we had a first significant "graduation" from Faleno, as Meimi Takashima 高嶋めいみ was not asked to continue with Faleno past August.  So she went to Prestige, hoping to continue her career so as to recover the 7 million yen she spent on cosmetic surgery.  Anyway I don't plan on keeping a running tab on Faleno's acquiring and losing talents.  Today we will look under the cover and figure out their unusual business model, how well it has worked so far and finally discover that Faleno is only tip of the iceberg and underneath a greater media war is being fought. 

For us outside of Japan, Faleno was initially a rather confusing proposition.  Some of their early titles came in multiple parts (Ayaka Tomoda 友田彩也香’s transplant video was released in four parts).  And Faleno’s titles are released with confusing video codes.  Faleno had initially four video codes: FLNA, FLNS, FADSS and FSDSS.  The first two are released on their own streaming-only service (U-Next and H-Next) and the latter two are regular release in both discs and download formats available on all major retailers.  Mostly the same titles are available on both the streaming and general releases.  But the streaming-only titles (FLNA- and FLNS-) are exclusive for a month, so if you prefer general release you have to wait.  Then their titles are simply divided into FalenoSTAR series (FLNS and FSDSS) for exclusive contract idols and general series (FLNA and FADSS) for freelance idols. 

The FADSS series has not been continued since July.  The entire cast of the whole series of 21 titles consisted of only three freelance idols. 

Next you will have to ask what’s U-Next? And H-Next.  Here the big game revealed itself, slowly.  Even industry insiders were trying to figure out what the deal is, as late as April this year, 10 months after Faleno’s launch title.  U-Next is a SVoD service, like Netflix, in operation for several years now.  SVoD (streaming video on demand) in Japan is still relatively small as customers are still used to watching network TV and buying DVDs.  On U-Next, customers pay a monthly subscription fee  (1990 yen) which grants a membership and 1200 “points” to spend on streaming titles. A typical new title (say mainstream movie made within 12 months) costs 200 points.  If the 1200 points are spent up in that month, more points can be purchased for roughly 1 yen/Point. 

In April, Faleno put out a video advertisement for the H-next AV subscription service.  (We searched high and low on the internet and couldn't find a version of CM with audio, if you know of one, let us know!)  While the ad promotes a very adult service, the CM itself is perfectly safe for general audience.  Even the wall of JAV covers (at 0:40 mark) were all carefully selected to be family-safe.  The CM were shown on all major media outlets to widespread audience.  With the S1 trio prominently featured, both fans and industry had to be impressed with the cast, the production budget (it was filmed in Okinawa) and budget spent on expensive ad time.  Industry insiders noticed a behind-the-scene thing, the TV spot was filmed around February, after Nene had announced her moved to Faleno but before Arina had even announced her graduation from S1.  So even before February Faleno had secretly acquired Nene, Arina and Moe and whisked them to Okinawa for the shooting of the spot.  The whole grand media assault on S1 was carefully planned and executed. 

It turns out the poaching of S1 trio was much more than a big promotion of a new studio.  It was for a new way to distribute adult videos.  New titles of the trio was to be released by streaming (FLNS) for a month before being made available for general purchase.  So it doesn’t matter at all if money is lost on the sales of each Nene/Moe/Arina title, the point is to build up sizable subscriber base quickly. 

Since U-Next is a general audience platform, some JAV fans might hesitate to sign up due to perception that they may be paying for services they don’t want.  So along with the April promotion, the adult-only H-Next is also launched, cutting out the non-adult contents from U-Next, at a slightly more attractive price.  The most high-profile face of H-Next at that time was a major promotion space on Amazon.co.jp.  Prompting some incorrect statement that U-Next is Amazon’s own push into streaming service.  But the truth is only that Amazon is cooperating with U-Next as the retail-outlet.  Similarly, U-Next appearing on Soft-on-Demand (SOD) web page also prompted similar misconception.

As of now, U-Next has over 70,000 JAV titles in their catalog, mostly made up of older titles from the 35+ JAV studios who have a co-operation deal with U-Next.  However there’s a huge piece of the pie missing.  Many of the well known studios like S1 are missing from U-Next offer.  The thing is, one new studio (no matter how well funded) is hardly a major threat to the incumbent top players of the industry.  However, if SVoD takes hold in Japan, it could change Japanese consumer behavior from network TVs and DVD purchase to digital streaming on-demand.  This is existential threat to not one or two studios but the single biggest player in the whole industry: DMM/Fanza.   

Faleno STAR remains the primary focus of the studio in terms of both the number and budget of productions. The last three titles show that Faleno do make a few titles with some plotlines.

So this is a much bigger war.  It’s an all-out media war, not just between JAV studios, not even between JAV distributors H-Next and Fanza, but a war between general audience media distributors upstart U-Next and reigning king DMM.  And Amazon, competitor to DMM/Fanza, made a deal with U-Next to sell subscription on their website.  A miniscule investment for Amazon and potentially a big win. 

So of course DMM/Fanza circled the wagons, all the studios in the WILL family (formerly known as CA Corp, formerly known as Hokuto Corp) are joined together against Faleno/U-Next.  These include some of the most well-known studios: S1, Moodyz, Idea Pockets, Kawaii, Madonna, Attackers, Premium and Goro Tameike. WILL owns some of these studios outright, the rest were spun off from WILL.  They all take marching order from WILL and rejected H-Next's offer to stream their contents. 

So from a JAV fan point of view.  H-Next proposition is pretty weak.  With WILL’s side, you have some freedom of retailers (DMM, Amazon etc) and modes of purchase (physical, download, subscription or PPV), you have access to all the studios, except Faleno’s offering are late for one month.  With H-Next, you get Faleno exclusive a month early, but you are committing to a monthly fee, you are missing out on some of the top studios (all of WILL family), and not necessarily the newest titles of the other studios (mainly SOD and Prestige).  Add to that, Faleno’s exclusive JAV’s are reportedly sub-par.  Both premium titles (S1-ish) and planning titles (like Madonna and Attackers) are at a level lower in terms of film-making quality.  Faleno is facing a very difficult struggle. 

However, it seems to be an inevitable trend.  Physical purchase is going to give way  to digital subscription, sooner or later.  DMM is a big fat fish to catch.  According to industry insiders, for every 100 yen that a customer spend, DMM (only talking about the retailing operation) retains a whopping 70 yen or even more.  Leaving only 30 yen to be split between studios, agency, crew and cast.  So no matter how much it may hurt to fight the giant, U-Next/Faleno is sure to see it to the end. 

Faleno TUBE series (with code FTHT-xxx and FTBL-xxx) are amateur videos

So when U-Next looked at the battlefield, all the studios are divided into two camps.  One camp is not against me (not for me, but at least there's some level of business cooperation) and the other camp is against me, their parent company wants me dead.  So when U-Next gave Faleno a big piggy bank, and say "Give me contents, give me splashy buzz, and give me subscribers!" the choice of target is pretty obvious.

One party to watch is SOD.  Soft-on-Demand is quietly playing a smart little game.  On one hand, SOD is helping U-Next on technical and business operations (in addition to providing contents), on the other hand, SOD had set up a little label エモい女の子 (emo-girls, translation is tricky for both machine and human) which is streaming-oriented.  So far エモい女の子 is being offered on Fanza, but there’s nothing stopping it being offered on U-Next as well.  SOD can potentially go on their own (they do have a retail division), or co-operate with Fanza and/or U-Next.  Playing three ends of the stick.  

In the long term, I am a bit concerned about the future.  If what’s happened in Western porn is a peek in the crystal ball.  Remember the pizza delivery man?  Western porn used to have plots and twists, betrayals, revenges, passions.  Now Western porn is dominated by individual scenes with no stories and only a brief foreplay.  JAV might shift from selling full-length movies (120 minutes being standard) to renting (or subscription) of individual scenes.  Gone will be elaborate plots and complete stories.  Hopefully that won’t happen (soon). 

Faleno's Best are compilation videos with code: FCDSS-xxx

Every industry watcher or insider agrees on one thing, what Faleno has done is not sustainable.  There is no way Faleno is making enough income from the JAV titles to balance all the "offer she can't resist" they made to top idols and hot newbies.  U-Next's bet is to attract so many subscribers for either H-Next (adult) and U-Next (general) over the long term to justify the initial loss made by Faleno.  The strategy could work, but is very high risk.  No matter what, at some point Faleno will have to come back to reality and compete in the market place for both talents and fans.