Answerman

Will the Recent U.S. Tariffs Affect Home Video and Collectible Prices?

The news asks:

Will the recent U.S. tariffs affect home video and collectible prices?

You are correct. On February 1st the new US administration announced its intention to implement a 25% tariff across a wide variety of goods and materials imported from Mexico and Canada. On February 4th, the administration suspended its plan to implement tariffs on Mexico and Canada for 30 days. We won't go into the details of the Whys, Hows, etc., of the new government tariff strategy here, but if you'd like to get a better understanding of the issue, The Verge has a pretty decent and unbiased explainer you can read.

I rang around some of my friends working within the North American anime distribution industry to find out what a 25% tariff on goods and materials manufactured in Mexico would have on the price and availability of Blu-ray, UHD, and DVD. The good news is that there is a consensus that, while unwelcome, the relative cost increases would be manageable and likely to be absorbed by the distributor. It is important also for home video consumers reading this to understand that Blu-ray and UHD pricing does not increase in $1 increments. If the COGS (“cost of goods”) did increase on the average Blu-ray or UHD, you would see this reflected in the SRP (“suggested retail price”), and that tends to slide up or down in $5 increments.

For example, Amazon is offering the brand new Frieren Blu-ray box set that consists of 3 Blu-ray discs and 2 DVD discs for the SRP of US$69.98. So! If they decided to implement a price hike, the SRP would be US$74.98. Don't worry! The SRP is generally always a guide price, and once you factor in the file discount the retailer receives and their own dynamic pricing, you'll generally be shelling out 60-70% of the SRP and up to 50% of SRP if you find a pre-order bargain.

The above example does provide an interesting window into the folly of tariffs in general. Even if the powers that be decided to implement them on a handful of specific foreign products or brands, it can have the unintended consequence of causing price inflation across the board. If all of Crunchyroll (one of the largest distributors) increased its Blu-ray products by $5, why shouldn't all of the other anime distributors not follow suit and increase their SRP to match?

In addition, we often forget that a tariff is a very blunt instrument that is applied to not just finished products and materials, but also the key ingredients that make those products, like plastics, which are derived from oil, and paper, which can come from mills and commercial logging suppliers in countless foreign territories. The provenance of the materials that go into your finished “Made in the USA” product all have a bearing on its cost. Let's quickly examine what are the different components of a finished Blu-ray and where they come from:

• Blu-ray Disc (Mexico) = 25% tariff
• Paper inlay (USA) = 0% tariff
• O-Card (USA) = 0% tariff
• Plastic BD case (China) = 25% tariff
• Plastic shrink-wrap (USA) = 0%

It is also worth underlining that the discs and packaging are not the most expensive part of your finished Blu-ray product. The highest cost by far is the content acquisition cost. That's the price the distributor has paid to license the anime series or movie you are purchasing. That accounts for more than 70% of the total COG. Thankfully, Intellectual property rights are tariff-free!

As mentioned above, the threat of tariffs on Mexican exports has receded for the moment. As a result, there is no immediate impact on the cost and supply of packaged physical media to US-based distributors. As a result, none of the major home video distributors have issued “official” communications to the trade or consumers regarding this issue, which, for the moment, is a non-issue. As such, there is no need for any of them to go on the record for Answerman at this time, which is understandable. The information I am sharing with you here is anecdotal industry information and information based on my own experience and understanding of home video manufacturing and distribution.

There are three North American Blu-ray replicators that I know of, and only one of them, Vantiva (formerly Technicolor), has its replication plant situated in Mexico. The other two are CD Video Manufacturing in Santa Ana, California, and Optical Media Manufacturing in Indianapolis. Other companies claim to have domestic replication services, but they outsource it to one of these three major vendors.

Vantiva is best known as a disc manufacturer because they do most of the replication for Studio Distribution Services (SDS), a third-party service and logistics provider that handles most of the major studio's home video manufacturing and distribution needs. I think that the only anime company that uses SDS directly is Viz Media. However! It is worthwhile to note that last year, Sony Pictures Home Entertainment (SPHE) signed a long-term deal with them as well. As you know, Crunchyroll is a wholly owned Sony company. I am not certain whether or not SPHE distributes Crunchyroll's Blu-ray for them. I recall that Universal Pictures Home Entertainment (UPHE) was the home video distributor for Funimation in the USA and Canada. I believe that it is likely that most of Crunchyroll's Blu-ray discs are being manufactured in Mexico by Vantiva, but I am happy to be corrected on this assumption.

Blu-ray replication costs are, on a per-disc basis, not that expensive. A single disc with case, inlay, o-card, and shrink wrap costs around US$2 to manufacture. A 4-disc box set might cost US$5. A 25% tariff won't change things too much, but it might be enough for some publishers operating on more limited volumes of trade to change vendors. I doubt it would cause the biggest home video distributors to change vendors though, and to be honest with you, where are they going to go if there are only two domestic USA disc manufacturers to go to? I bet you there is very little cost benefit in moving to a domestic vendor immediately, and we don't know if they have the spare capacity to take on a much greater volume of discs. Nor do I know the price differential between these two domestic manufacturers and their Mexican rivals.

What About Chinese Imports?

Two different things are happening in USA/China trade relations currently. The first is the flat 10% tariff applied to all Chinese exports. The second, as reported this week by Richardson Handjaja in his consistently excellent Animenomics newsletter, is the suspension of the de minimise exemption, which had allowed for parcels of goods valued under US$800 to be exempt from import duty (aka “Duty-Free”). This will impact traditional imports by distributors that operate wholesale companies bringing in things like vinyl figurine blind boxes on small pallets.

The impacts of suspending the de minimise exemption will also affect individual consumers like you who import goods via e-commerce sites specializing in low-value purchases. You'll still be able to purchase your Good Smile collectibles, for example, but now they will cost you more because you'll also have to pay the customs duty and broker fees to the delivery company handling your goods (E.g., DHL).

I spoke to a close friend who works in the anime e-commerce business in the USA and specializes in selling figurines and plush. He explained to me that the current HTS Code (“Harmonized Tariff System”) for figurines shows a 0% duty, so at present, you'd be looking at the cost of importing that item to increase by 10% plus the added 10% tariff. At least for now. In addition, he has warned me that he expects to see transportation costs increase as well, particularly for those shipments from Asia directed to the United States.

I believe this combination of tariff and duty will have a noticeable impact on the retail price of anime collectibles and figurines, as the vast majority are made in China on behalf of Japanese brands. I won't be surprised if we see more Japanese toy manufacturers move part of their manufacturing out of China to other APAC countries with capacity. Vietnam will likely benefit as it has its own trade deal with the United States and is currently exempt from tariffs and duties. That could be a smart play, but of course, it will take time. Don't be surprised if we learn of more manufacturing being brought back into Japan as well. Bandai Spirits Co. announced in November that they plan to open a new plastic model production plant in Shizuoka later this year.

Another unintended consequence of these new importing rules, which I hadn't considered and which Richardson has kindly brought to my attention, is at what point will those duties be collected from consumers? The best case scenario would be that the seller collects the duties in advance as part of its shipping fees because if sellers and shippers rely on U.S. customs to charge those duties directly to the customer, it will substantially slow down processing times. This could mean a knock-on effect on how long it takes to receive your order.

As for Blu-ray, the 10% tariff primarily affects things like the premium paper parts, outer packaging, and hardbound art books we like to see included in our deluxe collector's edition box sets. China more or less has a monopoly on premium quality printing and special finishes like spot UV and gloss. They make high-quality parts at a reasonable price. I assume that distributors will simply absorb the added costs of these products

I'm currently living through Brexit over here in the UK, and that more or less eliminated frictionless trade with 27 neighboring EU member states overnight, including major exporters like France, Netherlands, Italy, and Germany. It has reduced our GDP by as much as 2.5% and has put many small and medium-sized companies that either import from or export into the EU out of business. It has also made buying from EU-based vendors much more expensive and time-consuming. Factor in the high cost of living these days and the sheer ass-ache buying from small online imports has become, I simply don't buy myself nice things as often anymore. Once consumers get into the habit of spending less on things that used to bring them pleasure, they don't go back to those things anymore, even if their economic circumstances may change for the better. Inflation alters our habits of consumption.

I can't help thinking that these changes to international trade and relations could derail some of the huge gains anime has made in the largest economy on earth. The United States is one of, if not the most significant markets for licensed anime products, services, and experiences outside of Japan and China, and it has witnessed explosive growth and investment from Japanese and Asian businesses eager to buy in and invest in the United States audience. It generates jobs, and it injects hundreds of millions of dollars into the economy annually. Will the coming years see even more barriers to trade with Asia, and will this have a material impact on the global anime economy? Could it cool it down, and if that were to happen, would it permanently impact the industry's growth?

What is an import duty? Import duties, also known as customs duties or import taxes, are a percentage of the value of goods imported into the United States. The rate depends on the type of product and the country of origin.

How are import duties calculated? The Harmonized Tariff System (HTS) provides duty rates for most items. The total value of the purchase, including shipping, insurance, and the cost of the goods, determines the duty rate. The importer is responsible for paying the duty. The U.S. government defines an importer as “a person or company that brings goods into the United States from another country for trade. This includes goods bought from online auctions or established businesses.”

How are import duties enforced? U.S. Customs and Border Protection (CBP) enforces import duties. CBP will notify importers if they need to pay import duty and how much. The method of payment depends on how the goods were shipped.

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