How Crunchyroll is building an anime empire

Last weekend, crowds of mostly younger fans swarmed the San Jose Convention Center for Crunchyroll Expo, a celebration of Asian-style (especially Japanese) animated content known as anime. They wore costumes celebrating characters from popular shows like My Hero Academia, One Piece, Dragon Ball and demon slayerand lined up for announcements about upcoming series and insider details from VIPs from Japan – all courtesy of event sponsor Crunchyroll.

These are good times for Crunchyroll, the independent joint venture between US-based Sony Pictures Entertainment and Japan’s Aniplex (both part of Tokyo’s Sony Group) that specializes in all things anime. The company, which has changed hands several times over the past decade, has finally found a business owner who recognizes the value of a hardcore niche audience and has invested significantly in strategic mergers and acquisitions that consolidated its dominant position in the market.

“We don’t want to be something for everyone, we want to be everything for someone,” says Gita Rebbapragada, CMO of Crunchyroll, summarizing the company’s deep and narrow focus.

Crunchyroll started life in 2006 as a barely legitimate “aggregator” site that hosted translated and original-language anime from Japan unavailable elsewhere in the world, usually without the benefit of licensing agreements with content producers. The site’s popularity showed producers and distributors that there was a massive international demand for the diverse, high-quality material produced in abundance in Japan, and encouraged producers to open up new sources of income through granting of licenses.

Over time, a series of owners cleaned up the act of Crunchyroll, turning it into a popular streaming service with a huge, fully legal catalog of anime series spanning a variety of genres and styles. At the end of 2020, AT&T, then owner of Warner Media
J
divested Crunchyroll along with several other specialty-market sub-brands, which they presumably saw as a liability in its attempt to make HBO MAX a unitary mass-market platform.

Sony, which was taking the exact opposite strategy by pursuing niche markets with dedicated audiences, secured the service in a deal valued at $1.175 billion and merged it with its own successful service, Funimation ( founded in 1994), instantly creating the largest service in the world. dedicated animated platform. The impact on the market was such that the merger attracted passing interest from the United States Department of Justice’s anti-trust divisionbut anti-competitive concerns were allayed in part by noting the growing investments in anime from streaming platforms like Netflix
NFLX
Amazon Prime Video and Hulu.

Over the past year, Crunchyroll has been working on the intricacies of combining content catalogs and subscriber lists to give users access to the full range of material on both sites, representing a library of over 16,000 hours of programming and over 44,000 episodes. In the meantime, mainstream streamers like Netflix have started to hit the limits of growth, raising questions about whether their levels of investment in specialty licensed and original content like anime are sustainable. This momentum has left Cruchyroll ascendant in an influential and fast-growing corner of the market.

“There is no stronger and more passionate community than anime fans,” said Crunchyroll’s CFO.
CFO
Travis Page. And if it’s a “niche” market, it’s pretty big. Without disclosing internal Crunchyroll market data, Page agreed that Netflix’s estimate of 100 million anime viewers worldwide is their own assessment, and said the market in North America is in the tens. of millions. According to the Japanese Animators Association, this represents a total addressable market of $25 billion globally in 2022 and growing rapidly.

Crunchyroll’s approach combines breadth and depth. Anime is a medium encompassing all kinds of genres, from fantasy and adventure to romance and slice of life. Crunchyroll’s catalog runs the gamut to satisfy existing fans and attract new ones. The company is seeing global growth in Latin America and Europe, and has invested heavily to promote the service there, including recent price reductions to reflect the purchasing power of local currencies.

The company makes money through multiple channels: first-party streaming and theatrical releases of new anime content, sales of home entertainment products (DVD sets, etc.), merchandise licensing, and secondary distribution. Mitchel Berger, senior vice president of global commerce, says all four areas of the business are strong right now and describes them as a “flywheel” that keeps the revenue engine running. “We acquire rights from licensors and filmmakers outside of Japan, some for direct distribution [through Crunchyroll] and some for theatrical release through Sony Pictures,” he said. “Anime is hot for a lot of reasons. The fandom is younger, and young people are passionate about everything: merchandise, collectibles, action figures, and games. In fact, there’s a very overlapping strong between anime fans and gamers.

The company has seen enough value in the collectibles sector of the industry that, just last week, it announced the acquisition of Right Stufthe largest anime/manga specialty merchandise retailer with “excellent logistical and operational capabilities and the best packaging in the industry”, according to Page.

On the day the acquisition was announced, Right Stuf ended sales of adult-directed merchandise , drawing criticism from fans of “hentai” content over the age of 18 (which can get pretty intense). When asked about mature-themed material, Rebbapragada said it was important to ensure content was appropriate for Crunchyroll’s brand.

Page says concerns about market consolidation and monopoly influence are unfounded. “A lot of services spend a lot on anime. It’s not just one or two others. They’re also big players like Disney. or later, fans will come to us because we have the most in-depth catalog.

Page said Crunchyroll still has incentives to invest and innovate, as Japanese licensors still control content and renew licenses season by season based on which outlets can provide the best reach and revenue. “To maintain great relationships with Japanese studios, we try to be a royalty-based SVOD service, so our success is shared with them. our platform, it goes back to Japan. [and maintains our access to titles].”

Ironically, former pirate site Crunchyroll considers piracy to be one of the biggest competitive threats, not just to its own revenue, but to the industry as a whole. “Our research shows that piracy accounts for a lot of views, and it will always play a role,” Page said. “We’re working with Sony and our partners in Japan to create as secure an environment for content as possible, and provide an affordable service, so it’s not worth the risk of going to pirate sites.”

Everything Crunchyroll is doing to expand the market in North America seems to be working. Anime conventions like Crunchyroll Expo were among the most popular fan event categories before the pandemic, and audiences seem ready to come back strong. Manga, the source material for Asian comics for many anime titles, has seen triple-digit growth in the United States since 2012 and is a key driver of 60% year-on-year growth. on the other observed in comic book publishing in 2021. closely to the release of new anime seasons and titles.

Crunchyroll is now well positioned to ride this wave, no matter how high. “We are focused on providing exceptional fan experiences, growing the diversity of our content, and respecting creators and content,” said Rebbapragada. “This audience is special. They represent the future, and that’s important for all entertainment companies.

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