June 11, 2015

The sunk cost advantage

Thanks to the digital revolution, the business models of anime and manga distribution are converging.

Manga magazines in Japan function as loss leaders. Publishers use cheaply-printed magazines to "audition" series and artists. If successful, a manga series will be compiled into higher-quality paperback editions. From there, the cream of the crop become source material for anime, live-action television, and movies.

This explains why manga dominates the ebook market in Japan. Since publishers already have to electronically typeset any manga that makes it into the magazines, they can epublish everything in their backlists rather than try and winnow out the winners.

Unlike text-based ebooks, which originate with XHTML files (that are tricky to convert from typesetting files; it's easier to go back to the Word files), visual novels originate with PDF or image files, making ebook creation a far simpler process.

Anime series require more money, more people, and more time, but they eventually have to run a similar gauntlet.

Anime series (and movies) are produced with the backing of "production committees" (that often include the studio's "competitors"). Most are shopped to the networks using "brokered programming" (or "time buy") syndication agreements: they buy the air time and sell the advertising spots themselves.

The goal is to generate publicity among the fan base and then make an actual profit on DVD/Blu-ray sales and merchandising.

Anime series that get the DVD go-ahead get "cleaned up" in post-post production (TV series being cranked out at a pell-mell pace). The "cleaning up" includes what Steven Den Beste calls "Buy the Blu-ray!" scenes, gratuitous nudity obscured for broadcast television (fans know it when they see it).

With the exception of breakout hits and network-owned series, the studio (and the its financial backers) will be looking for any revenue stream to add to the bottom line. This makes the up-front licensing fees for simulcasting (over 40 titles on Crunchyroll) another plus.

Of course, simulcasting means that subtitling has to be done in-house before the broadcast date, rather than farmed out to the U.S. distributor at some future date. Which means that, like manga, almost all of the streaming costs will have been sunk by the broadcast date.

Thus the appeal of a distribution channel that can't rebound to hurt home-market sales, namely streaming video (and government export assistance programs don't hurt). The appeal is so great that Justin Sevakis fears we're seeing a repeat of the DVD anime boom and bust in the mid-2000s.

There is so much anime being released right now that Hulu has stopped taking everything they're being offered--old shows are being purged if nobody is watching them, and some new shows are being rejected if Hulu's anime team deems them unlikely to find an audience. They just can't handle that much content. We have too much anime, and there's simply no way for anybody to keep up.

The obvious downside is that irrational exuberance will again drive supply up and demand down and licensing fees over the edge. Expectations will collide with cold hard reality as they do in any marketing bubble.

This time around, though, there are no physical returns for publishers to worry about. Licensing fees can be adjusted on the fly. A title can be eliminated from inventory with the press of a button. As Sevakis puts it, "There simply aren't as many ways [as before] for the anime publishers to eat dirt."

And this time around, Japanese businesses may finally get that whole "Cool Japan" thing right.

Labels: , , , , ,

# posted by Blogger Joe
6/11/2015 9:47 AM   
I just noticed this on Netflix. For a while, they were adding new anime regularly and then just stopped. I don't mind, since most of it was subtitled, which I tire off, and all over the place in terms of all-around-quality.

Of course, this is happening to a lesser extent to all of Netflix. Digital streaming competition is heating up. On the other hand, I don't understand why Netflix and the production companies don't show more "classic TV" (even Hulu has seemed to reduce that. I would think the royalty rates on those would be tiny.
# posted by Blogger Eugene
6/11/2015 1:11 PM   
Maybe because "classic TV" licenses are getting grabbed up by cable and broadcast TV. There seems to be a kind of hierarchy. ION runs a couple of "original" syndicated shows, and then backfills with recent and still-airing reruns like Blue Bloods. Other OTA side-channels start with the 1980s and work back to the 1950s. Some cable channels carry the same lineup as OTA side-channels, suggesting they use the same distributors.

Ironically, some of those old shows shot on 35mm B&W look great in high-def, while M*A*S*H and Magnum P.I. look like they're pulled straight off videotape. It turns out that they were shot on 35mm but mastered on 525-line NTSC video. Star Trek: TNG was remastered from the original negatives, but so far M*A*S*H hasn't been. I guess there just aren't as many die-hard M*A*S*H fans willing to fork over the bucks for the Blu-ray discs.