Anime Expo 2008

Keynote Address: Gen Fukunaga, CEO, Funimation

From a company once known for not much other than dubbed VHS tapes of Dragon Ball Z, FUNimation Entertainment has climbed to a dominant position in the North American anime industry. This has been made especially clear in the last several days, as Funimation's catalog expanded significantly after deals were signed to distribute anime series that had previously been licensed by Geneon Entertainment and ADV Films. It was no surprise, then, that a closed-doors, press-and-industry-only keynote address presented by Funimation CEO Gen Fukunaga was one of the most eagerly awaited events of the convention.

Over the thirty minutes of his speech Fukunaga outlined his strategic vision for the company, and made clear his thoughts on where the anime licensing and distribution market in the U.S. is going overall. It is certainly in a state of flux, with old strategies and ways of doing business on the way to becoming outdated and irrelevant. At the same time, the underlying anime content that the market is built on is still excellent, and as long as the content is there, companies will be able to find ways to monetize it.

The Japanese market for animated television, in Fukunaga's opinion, is the most competitive in the world, and gives rise to the best and highest-quality works. The reason for this is two-fold. The status of anime in Japan, as a widely accepted accepted form of entertainment and a prestigious segment of the overall media space attracts the best creators, directors, and other staff, the kind of people who, were they working in America, would not even consider animation as a viable career. At the same time, Japan's manga industry serves as an extremely effective way to inexpensively produce content that can be adapted into animation while also providing an extremely wide pool of talent and serving a filtering function. The best and most popular manga are likely to make for the best and most popular anime - which would already come with built-in audiences. There is simply nothing akin to this in the U.S., although down the road, sites for user-generated content may serve somewhat of a similar function.

The number of anime fans in the U.S., especially casual fans, is exploding. Convention attendance keeps going up, and Internet viewership numbers are skyrocketing, although a significant percentage of those viewers are doing so illegally. Hollywood filmmakers are also beginning to look at anime more seriously than they ever have, with Speed Racer now released, Dragon Ball set for next year, with options on Ghost in the Shell, Akira and Robotech, and anime renditions of American projects also coming to the fore. The Animatrix paved the way for these, Batman: Gotham Knight followed, a Terminator anthology is in development, and several others are being discussed. One of these, the Witchblade anime series, which was actually not particularly popular in Japan, actually wound up to be the top-selling anime of 2007 in America.

This, of course, raises a question. If the content is so great, and the fan base is exploding, why are people talking about issues and difficulties in the first place? The fact is, Fukunaga claims, that to date, 95% of anime companies' profits have relied on sales of DVD's, which are now beginning to drop off. For Funimation, then, the future lies in moving beyond DVD, and embracing a "triad" of anime distribution via broadcast and digital, in addition to home-video. "If you do not have these three pillars, you will not be able to compete in today's market," he cautioned. Keeping this strategy in mind will also be key to how brand-management and licensing activities will be undertaken in the future.

Another important concept for Funimation is "brand engagement." Expecting anime fans to simply buy DVDs because they are there on store shelves is not a sound strategy. Promotion, but also providing fans with access to the media they want using technologies they want will be crucial.

In the broadcast arena, Funimation already has a great relationship with Adult Swim and IFC, and there is every intention to continue these, but there is no way around the fact that timeslots for any new anime on television are limited, and competition is intense. One solution for this situation is video on demand, which Funimation has been actively pursuing. Deals for VOD with more and more providers are now in discussion.

Despite the gloom-and-doom predictions, the North American DVD market is actually beginning to stabilize and even climb. Anime sales in the first quarter of 2008 and for the year to date are up slightly from last year's figures, and over the next year, will benefit even more as Blu-Ray begins to become popular. For anime, Fukunaga expects that Blu-Ray sales will compose up 10-20% of the total for most titles, with some reaching as high as 30%. Overall, in anime, Blu-Ray is spreading much faster than in the market for Hollywood films.

As far as pricing and release schedules are concerned, bringing out season sets at price points between fifty and one hundred dollars will generally continue. However, for years to come, some particularly prominent anime will be released as single volumes first, generally at the insistence of their Japanese licensors. And overall, if season-set packages do not lead to immediate and significant increases in sales, they will not be justified and Funimation will return to single-volume distribution of titles that do not perform in season-set form.

In the digital distribution area, Funimation is exploring a wide range of pathways. Under the rubric of anime distribution to mobile phones, a partnership with AT&T is already ongoing, and a second one with Sprint has just been launched. At this point, revenues from both of these are not significant, but Funimation is committed to these platforms and sees a long-term future in them. The most popular digital distribution platform, of course, is the Internet. Possible delivery methods include download-to-own, video on demand, sales of "digital assets" (virtual goods), and social networking. With download-to-own, sales of Funimation's anime series on sites like iTunes and the XBox Live service are rivaling those of major Hollywood releases. In the future, Funimation also plans to begin moving away from working with these third-party providers and use the Funimation.com website as the hub of its download-to-own offerings. Regarding Internet video-on-demand, viewership numbers are excellent, sometimes as high as the numbers for linear broadcasts. Plans are to roll out up to 1,200 half-hours of ad-supported Funimation anime content, if possible, day-and-date with the Japanese broadcast times. Since no single video-on-demand website offers the mass exposure that Funimation demands, plans are to partner with a select group of sites that would be able to establish Funimation "channels" or "areas." One issue that is yet to be resolved, however, is the difficulty of buying either digital or actual hard-copy versions of anime videos directly after watching them on one of these sites.

Funimation's Lance Heiskell addressed the company's approach to illegal distribution of anime at an earlier panel. Fukunaga though reiterated the three-pronged strategy of fan education, enforcement, and providing viable and legal anime downloading alternatives. In terms of enforcement particularly, Funimation is now able to sometimes get the right to order fansub sites to take down shows it has licensed or contributed to the production of even before they are aired in Japan.

As Anime Expo was taking place, the news broke that Funimation will be working to continue distributing various anime that had previously been licensed by Geneon and ADV. In the Geneon case, season boxes will be considered where a full season has already been completed. For anime that Geneon dropped in mid-release, Funimation will go ahead with more individual volumes before any season box sets are looked at. For the former ADV licenses, that company will be retained as a sub-contractor to handle dubbing and production duties, with Funimation as the distributor, similar to the arrangement that is already in place for several series.