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Monday, September 06, 2010

Posted by Arcady in Industry News July 14, 2009 at 07:06:17 PM

It cannot be said enough. The internet has revolutionized the exchange of information, advanced the realm of entertainment, given us a new window to the world, and has forever changed how we spend our time. In a world of growing technology, video cassettes are slowly becoming obsolete. DVDs, though currently prominent in the consumer eye, may face the same threat of extinction in the near future. From network to network, YouTube to Hulu, TV shows and movies are pouring into the new wave of media distribution, whether it be by downloading or streaming. What does this mean for the anime and manga industry?

Mr. Kun Gao, CEO of Crunchyroll, opens the discussion at Anime Expo 2009. During his keynote speech, Mr. Gao explains how the value of the internet is changing anime. He begins his presentation by describing how disruptive technologies can create new and unexpected markets by applying different sets of values. Mr. Gao breaks down the internet by listing five converging aspects: networking, the personal computer, open source code, mass storage, and fiber optic communications. These aspects bring new values to the internet. Mr. Gao then continues to relate how the internet affects anime by dissecting the following sets of values.

1. The Value of Entertainment

The consumer has a variety of options. Everyday individuals are bombarded with various choices, ways in which they can choose to spend their time and money. These options are extremely competitive, and it is all about providing the best option at the best price. Mr. Gao compares a number of entertainment outlets, looking at how many hours an individual is entertained against how much they paid for that entertainment. Using movie tickets, video games, DVD box sets, and mass multi-player online subscriptions, Mr. Gao illustrates how Crunchyroll easily competes with even the best, more-for-your-money options.

A movie ticket costs an average of $7 for 2 hours of entertainment. An anime
DVD box set costs $40 for 10 hours of entertainment. For a $20 video game, one can be entertained for up to 50 hours. Blizzard’s World of Warcraft blows away all these competitors with an astounding $15 for 80 hours of game play a month. With a subscription costing $6.95 a month, averaging $0.26/hour against World of Warcraft’s $0.19/hour, Crunchyroll believes it can evenly compete with an MMO on the level of consumer choices. To remain competitive, it is necessarily to have as many options open to the consumer as possible.

2. The Unit Cost

Although it is important to provide the cheapest option to consumers, the distribution of anime itself is not cheap. According to Mr. Gao’s estimates, it costs $10,000 for dubbing, $2,000 for mastering, and $1,000 for subtitling. These are the costs for physical media. While the fixed costs of physical media can reach staggering proportions before profit can be generated, the set-up costs for digital distribution are considerably lower, costing a few thousand. This fundamentally changes the business model by allowing lesser known anime to have the same exposure as bigger titles. As a result, consumers have more options and profits can increase more over time.

3. Economics Over Time

Mr. Gao informs us that approximately 80% of Crunchyroll’s viewers watch a new anime 30 days after the show becomes available. Fans want to view new anime immediately, hot off the air from Japan. Traditionally, companies wait 2 months to see if a show is even good enough to license, and even when a show is approved it can take up to 10 months for the licensor to recover from production costs after the show has aired in Japan. For fans, the wait is simply too long, and the potential profit diminishes quickly. Mr. Gao argues that licensors can earn money immediately with digital distribution, as exemplified with the large amount of viewers active on a new episode in one month. Licensors and creators can actually save money, and generate more profit through fast online distribution, rather than relying on the costs of marketing and promoting a show that was first introduced 10 months ago.

The digital distribution of anime has much potential to impact the industry positively. It gives the consumer a wide range of options at the best value. Not only will this financially relax die hard anime fans, it also has the ability to reel in new people to the anime industry. Digital distribution allows smaller titles to play on an equal level with bigger names. It gives consumers more choices in what they want to watch, while allowing companies to generate more profit over time. Finally, digital distribution allows anime to be shown hot off the press, giving licensors and creators a chance to make money immediately without the heavy burden of production, marketing, and promoting costs.

All of this helps the anime industry, not only in keeping and acquiring interest, but also gaining the trust of Japanese companies. Japanese companies are still traditional and conservative in practice, and digital distribution is still a new concept. It is important that companies such as Crunchyroll are distributing anime legally, as this can open more doors and lead to a more efficient way of digitally distributing anime in the future.

Digital Distribution of Anime Q&A Panel Overview

What kind of obstacles does digital distribution face?

Crunchyroll: The biggest hurdle is newness. People don’t really think digital distribution as a first option. Also, Japanese companies are very conservative and can be difficult to work with.

VIZ: Cataloging, content, time, man power, production, everything. Also, Japanese companies always want to see things in place, which can be hard to show. Older shows produced a long time ago can take years to get net rights to.

Is there anything being done about world rights for certain shows?

Crunchyroll: There is a lot of red tape. Also, half the audience is not in America. Websites are driven by the ability to monetize with advertising.

Anime News Network: Internet advertising is virtually non-existent to the rest of the world, one reason being English barriers.

Are dubs on the net viable?

ViZ: Not yet, but will be. Dubbing costs a lot and it takes months of work.

Anime News Network: Also, research shows that there is a very strong preference for subs.

Is replacing fan subs affecting piracy?

VIZ: There has been a lot of positive responses. People and fan sub groups are accepting licensing. When VIZ and Crunchyroll released the Naruto Shippuden movie, piracy went down 74%. Overall, this supports the industry.

How have companies used digital distribution for selling merchandise?

Crunchyroll: While a fan is watching a show, they can see merchandise as related products on the page. This can get them into the brand. The big focus is to make the site into that huge platform.

Are there any difficulties in selling ad space?

Anime News Network: The economy has affected internet ad sales. Internet ads went down for the first time this year. Steps need to be taken to educate the advertiser about anime, because it is not mainstream yet. We need to educate them about the passion of the fans.

What are the biggest production issues?

VIZ: Translating, subtitles, spelling ,timing. Sometimes only having a day or so to do it. Once, a company wanted us to complete 52 episodes in just a few weeks.

Do you think DVDs will survive?

VIZ: Yes, fans like to collect things. It is important for them to have a physical copy, something they can touch. This is especially the case for the younger fans. The demographics are shifting to a younger audience.

Are there any security issues?

VIZ: Always. Japanese companies freak out if content is leaked, it means digital distribution is not safe to them. It is also very disappointing for everyone who worked on that production. We must look at distribution from a holistic view.

Sources: xorsyst, VIZ, Crunchyroll

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