New York Anime Festival 2008

State of the Anime Industry

Moderator: Roland Kelts (author: Japanimerica: How Japanese Pop Culture Has Invaded the US)
Panelists: Adam Sheehan (Senior events manager: Funimation)
Kevin McKeever (Operations coordinator: Harmony Gold)
Christopher Macdonald (Owner and Editor-in-chief: Anime News Network)
Ken Iyadomi (President and CEO: Bandai Entertainment)

The state of the anime industry panel confronted many of the fears that fans had about the market, and offered different solutions to the problems, primarily falling DVD sales. Moderated by author Roland Kelts, the discussion included three representatives from various anime companies, as well as ANN's Christopher Macdonald. Later on, fans were invited to ask their own questions.

Kelts started the panel on a light note, joking about the difference between the state of the anime industry, and the financial industry. The punchline? 700 billion dollars. While the anime industry is certainly doing better than that, DVD sales have been declining for several years. Kelts cited that DVD sales for the general home video entertainment have been dropping year after year, as well as CD sales for the music industry. Notably, however, the drop in anime DVD sales has been more precipitous, despite the ever-growing interest in anime in the United States. Anime DVD sales netted roughly $600 million per year in the early 2000s, but have since decreased by $250 million. One example he cited was the number of anime conventions, with almost one every weekend. He then questioned the panelists about the reactive responses to the sales drop, and also the proactive measures that they saw, or were taking.

One of the responses mentioned the difference in retail trends over the years. According to Iyadomi, as early as ten years ago, Bandai had a hard time trying to sell single discs to US retailers, but they were able to demonstrate a demand for their products. However, with the prevalence of US TV series being sold in sets, it's increasingly important to also sell anime in sets. Bandai is currently trying to find a price point to stay competitive in the US. To give examples, they've started shipping 13-episode series in two volumes. It would be preferable to sell full sets, but there is resistance amongst some of the licensors in Japan.

Macdonald emphasized that the anime industry was not just a DVD industry. Although boxed home media entertainment makes up the majority of a lot of companies' sales, this isn't always the case. Citing Naruto as an example, he said that DVD sales for that series are inconsequential, because of the large earnings from product licensing and merchandising. However, for the most part, the growing market outside of DVD sales isn't enough to overcome shrinking DVD sales. Macdonald said that Anime News Network's response was to become an internet broadcaster. The website wants to work directly with Japanese companies, so that new anime series can be streamed online for free simultaneously with the Japanese broadcast, with revenue being generated from ads.

According to Macdonald, one of the reasons the DVD market is shrinking is because of online competition. The presence of pirating, bootlegging, and fansubs means content that is not being monetized by the companies. Online ad-supported broadcasting would allow the companies to make money, while not costing fans anything. McKeever's response was to “always make good products” that people want to see. This means expanding into different distribution methods and products like iTunes downloads and live TV, and investigating new media distribution options like internet streaming.

Sheehan placed importance on the non-DVD market, such as those employed by the TV-on-DVD market, such as slimmer packs, iTunes downloads, and titles on Blu-Ray. One example he gave was their 13-episode boxset releases of One Piece, at a reasonable price point. He said it made it easier to appeal to hardcore fans, and also to people who just want to get into the series. Funimation is also interested in finding different, legal ways to let anime fans check out series for free, such as streaming the first few episodes of shows on sites like YouTube and Hulu. When prompted about the success of Funimation's DVD sales, he replied that, “It's still our bread and butter. We want to make sure we're always ready for the next big move.”

At this point, Kelts asked the audience whether they routinely or predominantly watched anime on the Internet. He then asked how many of the same group of people also routinely purchased anime DVDs.

McKeever responded that it was generational, and that for some generations, YouTube has always been there.

Following up on that, Kelts gave an anecdote about Russ Solomon, the founder of Tower Records. He faulted his own industry for not teaching a younger generation about the pleasures of record/CD shopping. When 45rpm singles were only $2, young teens could afford to buy and sample music. With that, young kids learned to go into record stores until it became habitual, and when they had more money, they would buy LPs. With CDs, however, the higher price point discouraged younger generations from buying albums.

With that, Kelts questioned the panelists on how to monetize free streaming content for producers, and asked what kinds of models could be used to make it happen. Also considering a younger generation that habitually watches anime for free, he asked how companies were going to get them to pay to watch the same content.

According to Macdonald, it's hard to compare the anime industry in Japan to the anime industry in America. Fans often raise the point that the Japanese get to watch the anime for free, but the counterargument is that Japanese viewers are paying for the cable or satellite providers, and the series they are watching are ad-sponsored. When Japanese fans buy DVDs, they buy them because they love the show and are willing to buy the DVDs for something they've already seen. This is analogous to the US TV-on-DVD market.

He mentioned that ANN won't charge readers for any of the streaming content, and that it's all about getting the right advertisers. The money then gets split between the licensors and the creators, and others. Then, even if viewers choose not to buy the DVD, because of the ad-sponsorship, they still give something back to the industry. Ideally, a new system for distribution would deliver profit up front from free broadcasts, then deliver more profit on the back end with DVD sales, then merchandise.

Iyadomi said that Bandai was currently at a learning stage. Airing anime on TV has the benefits of exposing wide audiences to new products, but there are more upsides to streaming on the internet, which allows companies to advertise to more people. However, there are many challenges standing in the way. There are more opportunities to put anime on the internet, as it's easier than broadcasting, but there are issues that they haven't found the answer to yet. Bandai's goal is not so much to make money, but to break even.

Because Funimation is a public company, they are more for profit, said Sheehan. Their plan is to let anime fans sample series before buying them by putting the first few episodes of each show on YouTube, iTunes, XBox Live, PS3 market, Hulu, and others. As far as broadcasting goes, Toonami is gone, but Cartoon Network will probably keep airing anime. Other channels like Sci Fi and IFC are stepping up, as well, and there are other companies who still want to get into the game.

McKeever then posed the rhetorical question, “How do I make money off free streaming?” He said that outside of that, there were also other places to look, like releasing films theatrically and going to film festivals. Companies could approach fans in different ways, and also get money out of it. He said that people were usually very willing to pay to go to anime in theatres, and it gives people something else that they don't normally get from downloads. “It's all about butts in seats,” he joked.

There were also other venues to introduce fans to classic films. Kelts brought up the Anime Masterpieces screening series, which had its inaugural event at UC Berkeley earlier in September where they showed Grave of the Fireflies. These events are typically followed by a panel discussion with notable academics and journalists like Susan Napier, Frederik Schodt, Ian Condry, Charles Solomon, Brian Ruh, and Kelts himself.

Although the mainstream media market is having many of these same sales challenges, Macdonalds stressed the importance of not waiting for them to figure it out first. One reason is that the situation is more dire for the anime industry. Another reason is that anime fans are early adopters, and have more to benefit from trying new things. “We have to be trying new things,” he emphasized.

At this point, the moderator took a question from an attendee, who brought up the time lag that occurs between a Japanese show's broadcast date, and its eventual US release. He asked what the companies have thought of for doing their own subtitling. He also asked whether or not they would seek out global sponsorship for anime titles, similar to the local examples of Pizza Hut sponsoring Code Geass. He also asked about contextual advertising for free online streaming.

Responding to the subtitling question, Iyadomi said that Bandai was in discussions to try to find a way. Namco-Bandai Holdings are working with a company that could make subtitling easy in earlier stages of production. In conjunction with the Bandai Channel, they're still trying to find a way to do simultaneous Internet distribution. However, there were still things to worry about, like contracts with TV stations.

Macdonald discounted the benefits of contextual advertising, saying that it was a Band-aid solution for situations when a provider doesn't have the time to put into real advertising sales, or when they want an extra chunk of revenue. If one is willing to put time and effort into selecting advertisers, however, he said that it's better to sit down and think about what the readers or viewers want. In the case of simultaneous broadcasts, there can be problems with the different contracts, as they all have different goals. To give an example, he said that what's best for Partner 1 might not be the best for Partner 2. Partner 1 might want a property to air in the US as soon as possible, but partner 2 might be worried about losing Japanese viewers.

As a follow-up question, another audience member mentioned the diversity of anime audiences, saying that there were fans of everything from Speed Racer to Naruto to Pokémon. Given that diversity in one's audience, he asked the panelists to describe how to best know one's audience, and how to exploit that knowledge.

Sheehan answered that the entire Funimation marketing department is based on that. Most of their marketing department is made up of fans, or those with experience in entertainment industry distribution. With their brand manager system, one person is assigned to each show. Extensive research is conducted, including the target age group for each show, their psychological traits, where they shop, and all of this information feeds into the branding. Based on that knowledge, the covers are designed to attract a certain person, and are introduced into starts to attract a specific type of fan.

Agreeing with him, McKeever added that companies have to make sure they do things to appeal to different audiences. “What appeals to a Pokémon audience won't necessarily appeal to a Cowboy Bebop audience,” he said, adding, “Do things that are right, and the audience will follow.”

Another audience asked for the panelists reactions on the loss of Toonami, as it was a big entry point for many fans. He also asked for the panelists reactions on the loss of Geneon, and whether it was a warning sign for other companies, or the industry as a whole.

Iyadomi cautioned that one has to be careful about how one does business. In the past, it was much easier to get a lot of series to break even, but it's becoming more difficult. Everyone gets information through the internet, now, which contributes to it.

Macdonald brought up the point that Toonami hasn't been a dedicated block for a long time—rather, it was a demographic block. It started off as something for Japanese animation, but focused on a particular age group. He said that anime didn't always bring in the most viewers, and productions made in-house also made more money. Therefore, it was a better business decision for Cartoon Network to focus on more than just anime.

As for Geneon, Macdonald said that they were not gone—they've just changed. Geneon USA, as fans knew them, was a subsidiary of Dentsu, a large Japanese advertising firm. Their overall anime sales are more than the entirety of the anime industry sales in the US; however, things didn't really work out in the US. Currently, Dentsu isn't really interested in the sales aspects anymore, because of the risk involved. Instead, they'd rather keep Geneon as a licensing firm. There are many other licensing firms in North America, but consumers don't generally deal with them or hear from them.

McKeever said that with the case of Toonami, it was just a simple matter of something else taking its place. As with Geneon, it was within the natural order of things on how businesses operate. He said it wasn't a good thing, but in the end, there will be other companies to take its place. “In the long run, the industry will survive,” he said. Sheehan agreed with the previous panelists, adding that he hated to see Geneon go, because having competition was good for the industry.

The last fan question referenced the so-called “podcast generation,” and said that there were hundreds of amateur podcasts out there that review anime. He asked whether or not any of the companies had thought about utilizing amateur podcasts as additional venues for promoting their products.

Sheehan said that Funimation was very aware of the growing of the podcast generation, and would gladly provide clips, information, and screeners to these podcasts through their PR division. McKeever also mentioned his willingness to work with podcasters, saying that it allowed marketers to hit audiences that normally wouldn't be reached. It was a low cost way for them to hit anime fans.

Macdonald disagreed, saying that, “One of the keywords is that there are a lot of amateur podcasts.” He said that companies wanted maximum returns, and would prefer spending their resources on a few “really good and really popular” podcasts. He also mentioned that he was a big believer in the modern online world, saying that the podcast generation was the same as the Wikipedia generation, and that there were a lot of opportunities for small podcasts to become a lot more.

Kelts summarized the discussion by saying that many proactive measures were being taken within the industry. There is a lot of activity focused on what's happening online, and efforts are being taken to see how to use that medium to finance future projects.