Tough Times For Manga and Anime Part 2

The current economic situation has taken its toll on the anime and manga industry. This 2-part series will take a quick look at the various parts of the industry. Part 1 looked at manga. Part 2 will concentrate on anime, primarily in Japan and North America.

ICv2 has not yet released their figures for North American anime sales in 2008. In a previous report (printed in ICv2 Guide #51) and in last year’s white paper presented at the ICv2 Conference on Anime and Manga, ICv2 mentioned that anime sales have been dropping almost every year since 2003 ($550 million in 2003, $450 million in 2004, $500 million in 2005, $400 million in 2006, and $275-300 million in 2007). Considering the state of the economy, it is likely the 2008 total will be less than 2007’s.

The only good figures for 2008 I have seen for Japan covers the first half of the year. In September 2008, the Japan Video Software Association released a report about DVD sales and rentals from January through June. Anime was the largest genre with 27.4% of total sales in the market. It was followed by Western TV Drama and Asian Films. DVD sales as a whole were down 6.6% from 2007 and anime had a 13.5% drop in sales. The report also mentioned that anime had an 11.9% decrease in rentals.

Actually, the market for anime and anime related merchandise peaked in 2006 according to a May 2008 survey by The Association of Japanese Animations (AJA). The survey said that the anime industry’s market (including revenues from television, film, video production and rights, video sales, distribution, merchandising, overseas business, music, and publishing) grew from 2003 to 2006. In 2003, the market was worth 167.4 billion yen (approx. $1.7 billion dollars US) and that figure grew to 258.8 billion yen (approx. $2.6 billion US). However, in 2007, the market value dropped to 239.6 billion yen (approx. $2.45 billion US). Although final figures for 2008 are not yet available, it is likely that they will be lower than 2007’s. Also, due to the current economic downturn, there is a good chance that 2009’s and possibly 2010’s figures will be lower than 2008’s.

The executive director of the AJA is Yasuo Yamaguchi. He said in a recent Japan Times article: “The financial crisis is forcing sponsors to cut down on television advertisement fees, and this in turn is shrinking the budgets for animations, pressuring everyone involved in the production.” As to the future, Yamaguchi-san said: “I think we’ll see a major decrease in the number of anime programs broadcast. Agencies dependent on television as a primary financial source will need to search for alternatives.”

One TV executive has tried to predict what’s in store for anime in the coming months and years. Keisuke Iwata, head of AT-X (TV Tokyo’s satellite anime channel) has a rather sobering view of the future. He believes that “the global marketplace for Japanese animation will shrink from 2010 onward“. Iwata-san made this claim at the “Anime Business Forum + 2009″ event at Digital Hollywood’s University of Digital Content in Tokyo.

According to Iwata-san, most of Japan’s animation offerings to the global marketplace before 1996 were “border-less animation” (i.e., the settings and themes were not Japanese) like Kinpatsu no Jeanie and Moomin. He believed this changed with the release of Neon Genesis Evangelion and “that Evangelion expanded the global marketplace’s willingness to accept animation that is distinctly Japanese in one broad stroke“. A year or two after Evangelion, Pocket Monsters (aka Pokémon) became a hit which was followed in the early 2000s by Yu-Gi-Oh!. A couple of years later Naruto became a worldwide hit and Japanese animation was a seller’s market.

However, Iwata-san believes that growth from this point on will be difficult. He listed several factors:

• Japanese animation has now reached the saturation point in the global marketplace.
• Due to the worldwide recession and illegal net distribution, the North American marketplace is battered, the European marketplace is in grave condition, and the Japanese companies cannot rely on the Middle East, Asia, and other regions as potential new marketplaces.
• The market saturation, the worldwide recession, various circumstances in each country, illegal distribution on video-submission sites, and the rising yen all had a deep impact on the declining anime export business.

Iwata-san also said, “as it stands, we may have to go back to the way it was in the past — back to selling Japanese animation only to the Japanese marketplace.”

TV Tokyo has been planning on how to work in this difficult environment. They have already put some plans into motion, including putting shows like Naruto and Gintama on US video distribution sites like Crunchyroll. We will look into their plan of action in more detail later in this article.

The current economic downturn has also exacerbated a couple of existing problems with anime production in Japan. First, it is becoming increasingly difficult to become an animator in Japan. An apprentice can earn around 80,000 yen (approx. $795 US) per month working on “in-between cels” (the drawings that bridge the key cels to create a sense of motion). One example mentioned in a Japan Times article, looks at apprentice animator Yuko Matsui. She says that she is not able to save money nor pay her national pension fees with her salary even though she lives with her parents.

A study done by the Japan Council of Performers’ Organization showed that an average “in-between” cel earns 186.9 yen (approx. $1.86 US). It is not unusual for an in-betweener to work on 500 in-between cels per month for a TV animated series. The study says that, at best, this comes out to maybe 94,000 yen (approx. $934) per month with the animator working 250 hours on average. Masayuki Kawachi, a special effects animator at Toei Animation Studio and president of the All-Toei Labor Union, said in the article, “Drawing in-between cels is hard work and it sure doesn’t pay much, but it’s still an important skill that every animator should learn“.

Many of today’s key frame animators and storyboard artists got their start as in-between animators. However, those jobs have been increasingly outsourced to countries like China, South Korea, and the Philippines. The current estimate is that 90% of in-between work has been outsourced overseas. With respect to the remaining jobs in Japan, Kawachi-san said, “…with the recession eating away at production fees and forcing agencies to downsize or go bankrupt, young and aspiring animators can’t find places to work“.

The second existing problem was most recently brought to light by a report from the Japan Fair Trade Commission, which was released on January 23, 2009 in three parts (outline, part 1, part 2 in PDF format). It mentions that many companies commission and recommission production work to smaller agencies. Many times the smaller companies were forced to accept contracts with insufficient negotiations. Some of the complaints from these smaller agencies include:

• “We had to accept the schedule based on the production cost of a preposterously low budget for each animator without any consideration for holidays.”
• “The commissioning company canceled the order without explanation, and did not compensate us for expenses already incurred for the production.”

Another problem mentioned in the report was the lack of copyrights attributed to production agencies. The current practice is to split the copyright among the sponsors. This means the actual creators see little if any secondary use benefits.

Several trade unions (including Kawachi-san’s All-Toei Labor Union) appealed to the culture ministry in 2006 with a proposal for restructuring the animation industry including the main issues and possible solutions. However, there was no response from the government.

Image of ICv2 Guide #51: ©ICv2

ANN Stories: TV Tokyo’s Iwata Discusses Anime’s ‘Road to Survival’ (Updated), Anime Firms Say They Were Forced to Take Low Tenders

Japan Times Article: Future of ‘anime’ industry in doubt

How have the larger animation production companies reacted to the economic downturn? Here are three examples.

In November 2008, Gonzo’s parent company GDH made several announcements:

• The annual output of anime projects would be reduced from 8 to 4 in the next fiscal year
• Their four internal studios would be combined into one division
• They would sell off their GDH Capital financing subsidiary
• They were asking for about 50 GDH and Gonzo employees to take early retirement (excluding employees of Gonzo Rosso, their online game subsidiary)

On the latter announcement, 36 employees decided to take the early retirement offer, which included a severance package of one month’s pay.

In February, GDH announced that Gonzo would be restructured. Within the next 5 years, Gonzo would trim its creative staff from 130 down to 30. The reason given for this move was that DVD sales had slowed and put Gonzo in the red.

Later that month, GDH announced that it would absorb Gonzo and that GDH would take on the name Gonzo. Starting April 1, GDH moved its business offices from Shinjuku in central Tokyo to western Tokyo’s Nerima ward which was Gonzo’s former headquarters. The reason for this move was to reduce redundancies in business operations, cut costs, and increase efficiency.

In March, GDH announced that it would divest itself of its online game subsidiary Gonzo Rosso, even though Gonzo Rosso made a profit last fiscal year (which ended in March 2008) with 1.635 billion yen (approx. $16.4 million US) in sales and a profit of 36 million yen (approx. $360,541 US). GDH’s board of directors decided that rather than split their focus between animation and online games, the company should concentrate solely on its animation business. In a related announcement, GDH said it was also divesting itself of its minority share of Tablier Communications, a developer of net radio programs and merchandise related to anime and voice actors.

In February, NAMCO Bandai Holdings announced a reorganization of its subsidiaries. This reorganization included Bandai Visual. The plan for Bandai Visual is to take the three production departments from the content division and the advertising and sales promotion department from the business strategy division and create six new departments. These new departments are:

• The Gundam department…will be devoted entirely to the mecha franchise which is the most profitable of any of NAMCO Bandai’s franchises
• The high end department…will focus on the projects aimed at the most dedicated fans in the customer base
• The character department
• The anime department
• the film department
• the music department

NAMCO Bandai Holdings had a third quarter net income of 9.019 billion yen (approx. $90.33 million US) which was a 26 % drop from the same period in 2007.

Anime, music, and game production company Marvelous Entertainment (Gunslinger Girl and Mushi-Shi), in a similar move to GDH’s, has asked for about 20 employees to volunteer for early retirement. This announcement was made in late March. The company employs 120 people (as of Dec. 31, 2008). Those who opt for early retirement will receive a special severence payment. This move was due to lower than anticipated sales and the company expected to be 1.31 billion yen (approx. $13.12 million US) in the red at the end of the fiscal year (which ended in March).

ANN Stories: GDH Asks 50 Employees to Voluntarily Retire, Gonzo to Restructure, Reduce Staff Count from 130 to 30 (Update 3), GDH to Absorb Its Gonzo Subsidiary, Adopt Gonzo’s Name, Gonzo’s Parent Company to Sell Off Game Subsidiary (Updated), Reorganization of Bandai Visual Announced, Marvelous Entertainment Asks for 20 Employees to Retire

Meanwhile, in North America…even before the current credit freeze and recession, North American anime companies were having problems.

In 2007, Geneon Entertainment USA first laid off most of its marketing and sales staff, then a couple of weeks later they stopped the marketing, sales, and distribution of all their products. Still, Geneon USA remained a license holder and was able to work out a deal in 2008 with FUNimation where the latter would manufacture, sell, and distribute select DVDs from Geneon.

Another company, Bandai Visual USA was liquidated in 2008 and its content was absorbed by NAMCO Bandai Holdings’ other North American subsidiary, Bandai Entertainment.

The remaining companies have problems of their own.

Arguably, the shakiest company is ADV Films. After their parent company, A.D. Vision, had to layoff 13 employees in October 2007, ADV Films had a rather messy breakup with former investor/partner Sojitz in early 2008. ADV lost the rights to about 30 titles, most of which were acquired by FUNimation. They also lost the funding which had been provided by Sojitz. In an October 2008 interview with ICv2, A.D. Vision CEO John Ledford said:

“In the short term, the breakup with Sojitz forced us to reinvent our business. We’ve reached out to new partners and focused on our core strengths, localization and distribution. Our arrangement with Sentai Filmworks is an example of this. There are others we’ll be announcing in the weeks to come. It hasn’t been easy, but we’ve reached an equilibrium that works and is sustainable.”

Mr. Ledford spoke about partnerships with two other companies…Switchblade Pictures and Sentai Filmworks. Switchblade specializes in ‘Asian Shock’ live action pictures. Sentai is a licensor of anime. Most are older titles like Mahoromatic and Tsukihime, with a few newer titles like Clannad. ADV will be acting as distributor and service bureau for both of these companies.

He also spoke about the anime market in general in North America. He said that big titles are still selling well. These include any of the Final Fantasy titles as well as any Miyazaki film. Niche titles also sell well since the up-front licensing cost is low and there is a large enough fan base who will purchase the DVDs. He commented on the problem outside of these two areas:

“Where things get tricky is in between the big hits and the smaller niche titles. Series that are strong but may not be world-beaters. Viewership is larger than ever, thanks to the Internet, but fans just aren’t buying DVDs like they used to. And when the costs stay the same, you’ve got a lot of solid, quality productions that end up running in the red.

That’s why right now the best business to be in are the hits and the ‘super-niche’ [Mr. Ledford calls the niche anime titles, 'super-niche' since anime itself is a niche] titles. Anything in between can kill you.“

Mr. Ledford mentioned that A.D. Vision’s VOD (video on demand) service, Anime Network, has been a success and is making a profit for the company. As to ADV’s future, he said:

“I think diversity is the key to our future. We’re broadening our content mix–at least within genre entertainment, which is our strength. Don’t expect to see “How-To” videos or anything like that soon!

In a year’s time you should see ADV working with more outside partners like Sentai and Switchblade, providing the same sort of localization and distribution services to a broader array of clients. In particular I think Amusement Park Media, our independent production company, will continue to diversify its business beyond anime or even filmed entertainment. There are some exciting opportunities taking shape that should keep our actors and contract employees busy for years to come, and I hope to talk about some of that with you soon.“

An optimistic assessment, though only time will tell if ADV’s strategies pay off.

Another shaky company is Bandai Entertainment. Their problems have not been as visible as ADV’s. However, in January, the company announced that it was “re-evaluating its operations due to the worsening economy”. According to an ANN report, Bandai is finalizing its strategy for the next three years. For the near future, the company would be laying off some of their 19 full time staffers. Many of these staffers would remain as contracted consultants to finish current projects. When asked by ANN what brought about the restructuring, President Ken Iyadomi said, “The downturn in the DVD market sell through“.

Shortly after this announcement, Bandai Entertainment made another about delays with the releaseses of Gundam Seed Destiny Anime Legends Part 2 and Wolf’s Rain Anime Legends Perfect Collection. Both were originally scheduled for release in February and would instead be released in April. The announcement also mentioned that the Lucky Star Volume 6 Limited Edition DVD and Gurren Lagann Best Sound CD were under indefinite delay.

Three weeks later, Bandai announced that Lucky Star Volume 6 Limited Edition was canceled (thanks to Piroko for this heads up in the Anime Releases for March 2009 comments).

Then on April 6, Bandai Entertainment announced more delays, including additional delays for Gundam Seed Destiny Anime Legends Part 2 and Wolf’s Rain Anime Legends Perfect Collection now slated for May. There were also another set of cancelations…ZegaPain Anime Legends and Flag Anime Legends.

This instability in their release schedule along with their restructuring makes for an uncertain future.

According to Mania, Media Blasters also announced delays, with several titles listed as indefinite delays. Quoting the Mania article, “No reason has been given for the delays but the titles are spread across all their lines and there doesn’t seem to be a particular rhyme or reason for it“. Included among the affected titles are Voltron Fleet of Doom (The Movie) and Twelve Kingdoms Complete Volumes 1-10, Eps. 1-45. It’s too early to tell if this is signifies a major problem with the company or if it is just a bad hiccup in their distribution system.

FUNimation had its own restructuring in early January. Gen Fukunaga, president and CEO of FUNimation Entertainment made the following statement about the restructuring:

“This decision was not taken lightly and thoughtful consideration was given as to how this move would affect our customers, vendors and employees. However, we must anticipate and adapt to the current economic climate. This action is expected to streamline our processes as we manage our business for long-term growth.”

About 20 employees were laid off out of approx. 140 employees. According to Senior Public Relations Manager Jackie Smith, “The production department was not affected and fans should not be concerned about current or future productions of their favorite series“.

In addition, FUNimation’s parent company, Navarre Corporation also laid off about 30 people or 7%-8% of the workforce. The affected departments were finance, information technology, and operations.

Navarre also announced their third quarter financial results in early February. The company had $171,6 million in net sales which was a $46 million drop (21.1%) from the same quarter the previous year. This resulted in an operating loss of $32 million. In the same quarter the previous year, the company had an operating income of $8.6 million. If restructuring costs are taken out, then there would be an operating income of $2.6 million. Navarre blamed the economic downturn as the main cause of the decline in revenues.

As mentioned in Part 1 of this series, Viz Media has started to restructure which included some layoffs.

ANN Stories: Funimation Restructures with Layoffs in Several Departments (Update 2), Funimation’s Parent Navarre Confirms Staff Reductions, Funimation’s Parent Announces Third Quarter Results, Bandai Entertainment to Restructure with Staff Layoffs, Lucky Star 6 LE Cancellation Confirmed

Mania Articles: Bandai Delays and Cancels More Titles, Media Blasters Plays the Delay Game

ICv2 Interview: Interview with John Ledford, Part One, Interview with John Ledford, Part Two

Now for a little positive news…

First, as mentioned earlier, TV Tokyo has developed a plan of action to keep them competitive in the current and future markets. In late February 2009, TV Tokyo President and Co-CEO Masayuki Shim announced at a press conference that TV Tokyo will create a new department which will oversee its anime business. The working title of this entity is the “Anime Department” and it will concentrate in particular to overseas sales. All of the existing anime units will be consolidated into three sections…operations, production, and business matters.

The goal of the new department is to increase revenues from sources outside of broadcasting. Currently, TV Tokyo makes 15% of their revenues from outside sources. With the new department, they hope to increase that number to 20% and, eventually, to 30%.

ANN Story: TV Tokyo to Establish New Anime Departmen

In August of 2008, Kadokawa Holdings started an experiment. Instead of filing lawsuits to prevent people from posting videos on YouTube which contain material from one of their franchises (The Melancholy of Haruhi Suzumiya, Lucky Star, Strike Witches, etc.), Kadokawa decided to sponsor some of the user submitted video on their YouTube channel (which Kadokawa opened in early 2008). These MADs (also known as AMVs in English) would have ads placed directly in the video using the inVideoAd system. The hope was that this would generate a profit. In an interview given at the Creative Commons conference in the northern Japanese city of Sapporo (from a Businessweek article), Tsuguhiko Kadokawa, chairman and CEO of Kadokawa Holdings said of the experiment, “I think a lot of people are watching to see whether we will succeed. If we can do something they haven’t been able to do up to this point, they may follow suit.”

So far the experiment has been paying off. The three months from September through November 2008 saw the company average an income of over 10 million yen (approx. $101,000 US) per month. Kadokawa expected to spend around $1 million US on the experiment. Assuming their monthly income stays at the 10 million yen mark, they could recoup their investment costs within 10 months.

Image © 2006 Nagaru Tanigawa / Noizi Ito / member of SOS

ANN Story: Kadokawa Gets Over 10 Million Yen Monthly from YouTube (Updated)

Businessweek Story: Japanese Anime Studio Embraces YouTube Pirates

In March 2009, Japanese production company Lucent Pictures Entertainment (Squad, an upcoming collaboration with Masamune Shirow) announced that they were forming a strategic alliance with Studio 4°C (Steamboy & Tekkonkinkreet). The result of this alliance is a new studio called Lucent 4°C (L4C). An announcement of the studio’s first project will be made at the end of 2009. The planned schedule is to eventually release 2-3 titles every year.

L4C recently showcased their “next-generation video techinques” at the Tokyo International Anime Fair 2009. The technical demos featured included Sachiko, a project that has been under development since 2005 by director Koji Morimoto (Studio 4°C). The demo highlighted L4C’s combination of “animation footage + three-dimensional video techniques”.

In an unrelated development, not long after the formation of L4C, Shouji Murahama (co-founder and former president of Gonzo) announced he had left Gonzo and had started a new company called Lambda Film. He will be serving as the representative director for Lambda Film’s board of directors. No details were given for the company’s future plans. This isn’t the first time Murahama-san has done this. In 1992, he left Gainax to co-found Gonzo with directors Mahiro Maeda and Shinji Higuchi .

Image of Lucent Pictures Entertainment/Studio 4°C Alliance diagram courtesy Lucent Pictures Entertainment, Inc.

Image of Shouji Murahama: blog.murahama.jp

ANN Stories: Lucent Pictures, Studio 4°C to Launch L4C Anime Studio, Former Gonzo Head Shouji Murahama Launches Lambda Film

The current economic situation has caused many governments to take action. Japan is no exception. In early April, Japanese Prime Minister Taro Aso held a press conference. There he outlined a plan which would increase Japan’s gross domestic product (GDP) by 120 trillion yen (approx. $1.22 trillion US) and add 4 million jobs. The plan relies on three pillars:

• The “low-carbon revolution” which would boost the country’s use of solar power, electric cars, and energy efficient appliances
• A “society of health and longetivity” which would seek to build a society friendly to the elderly and would create 300,000 new jobs in the nursing care industry
• Exporting Japan’s “soft power” in fields like fashion and anime

Of course, we are most interested in that last pillar. At the press conference Aso-san said:

“The word ‘manga’ has entered the global lexicon… Japan has materials that attract consumers around the world such as animation, games, fashion — so-called ‘Japan Cool’…By linking the popularity of Japan’s ’soft power’ with business, we wish to grow it into a major industry worth 20-30 trillion yen (approx. $204-307 billion US) and create 500,000 new jobs by 2020.“

It helps that the Prime Minister is a self proclaimed manga otaku. He is said to be an avid reader of the Rozen Maiden manga and is sometimes called “Rozen Aso”.

But, there is a caveat to this optimistic plan. Aso-san’s government will be facing elections later this year and his popularity numbers have been low almost since taking the premiership last September

Press Conference Image of Taro Aso: Xinhua/Reuters Photo

ANN Story: Prime Minister Aso: Anime, Manga Are Part of Japan’s Recovery

AFP Articles: Aso pledges two million new jobs in three years, Manga could rescue Japan economy: PM

China View Article: Japanese PM vows to lift GDP by 120 trillion yen by 2020

Finally, positive North American anime news was rather slim. Most companies were undergoing some sort of restructuring. However, there was one story which caught my eye.

There is a new company, Zakka Films, whose mission is to release early and lesser known Japanese titles on English subtitled DVDs. Their first release is called The Roots of Japanese Anime: Until the End of WWII. It features 8 cartoons from 1930 to 1942 and includes 1942’s Momotaro’s Sea Eagles, a 37-minute wartime propoganda piece. The DVD includes comentary tracks by scholars of Japanese film, a gallery of promotional placards for Momotaro’s Sea Eagles, a pair of songs meant to be played with the two pre-sound animated shorts, and comes with a 12-page booklet on the history of pre-Tezuka anime. Zakka Films’ website says that they are focusing primarily on anime and documentary, but as time goes by it should expand to other genres so long as it meets their criteria of filmmaking excellence and historical significance.

The company was brave to launch in such an economic climate. Perhaps they will be helped by John Ledford’s belief that one of the best businesses to be in is ’super-niche’. He also said in that ICv2 interview:

“Like any home media, anime DVD sales are fairly recession proof. A downturn might keep you from going on vacation, but that’s all the more reason to pick up the boxset you’ve been thinking of for the last few weeks.”

If both his assessments are correct, then Zakka Films should be successful.

ANN Story: New DVD Company to Release 8 of the Earliest Anime