January 25th, 2010 
AstroNerdBoy Piracy Wars: Welcome to Freemium! Anime and Manga For Free
I read Author’s Ani-Note blog regularly and in a recent post, he brought to my attention a post by Robert from Robert’s Anime Corner Blog (he’s also the owner of Roberts Corner Anime Store) in which Robert R1 companies and their current online-digital strategies when he states, “R1 studios are not going to be able to build a future on paid downloads or advertising revenue shares.”
Apparently, Robert has not heard of the business model of the future — “freemium.”
Anyone who decides to go into business for themselves has my respect, including Robert. So I don’t want my words to be seen as attacking him but merely my commenting on the changing market. To that end, I’d like to quote from from the excellent Wired article by Chris Anderson,
Traditionalists wring their hands about the “vaporization of value” and “demonetization” of entire industries. The success of craigslist’s free listings, for instance, has hurt the newspaper classified ad business. But that lost newspaper revenue is certainly not ending up in the craigslist coffers. In 2006, the site earned an estimated $40 million from the few things it charges for. That’s about 12 percent of the $326 million by which classified ad revenue declined that year.
But free is not quite as simple β or as stupid β as it sounds. Just because products are free doesn’t mean that someone, somewhere, isn’t making huge gobs of money. Google is the prime example of this. The monetary benefits of craigslist are enormous as well, but they’re distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties β buyers and sellers β to a broader sense of an ecosystem with many parties, only some of which exchange cash.
So, what Robert is actually doing is in his rant is lamenting the loss of his own business model as things shift more to digital delivery. Unfortunately, this will mean an end to many such stores such as RACS, though I believe Robert is a good enough of a business person to make up the losses elsewhere. Companies like Viz and FUNimation are proceeding full speed ahead with the delivery of digital content, much of it for free. In the end, if they’ve played their cards right, they will make a bundle of cash (at least until the Japanese cut them completely out of the market, but that’s another article, should I feel like writing it).
Most people I’ve talked to believe that eventually DVD’s and Blu-rays will die and everything will be delivered digitally to your home. Thanks to Big Entertainment beginning to get the idea that DRM (Digital Rights Media) is NOT the way to go combined with home data storage being dirt cheap and bandwidth being pretty astonishing (assuming our glorious lawmakers don’t jack up everything with more laws), the entertainment centers of the future will have a Digital Video Player with however many terabytes of storage that are needed to have entire video libraries of materials recorded at HD-1080P. This will mean the death of stores like Robert’s but will be what consumers want.
Viz has been experimenting in the online publication of manga as well, starting with Takahashi-sensei’s (Inuyasha, Ranma 1/2, Urusei Yatsura) newest title, Rin-ne. Here, we have the equivalent of a legal “scanlation” as Viz posts the new chapters as they come out in Japan. I will say that based on Viz doing this, I have purchased the first volume of the manga because (1) I liked the story so far and (2) Viz is doing the adaptation up to AstroNerdBoy’s standards. ^_^ So by giving away the manga, they cut out the “pirates,” draw people to their own site, and possibly generate interest in their other works to say nothing of getting people to buy the actual manga.
TokyoPop is also experimenting with online publication of manga.
In addition to online manga publications, I can see people having e-book readers with manga being distributed digitally via that format (there are some limited titles being done for e-books, whatever the brand). Should the e-book market continue to grow, this will result in the loss of printed manga books. Providing publishers begin to understand the changes in the print market, e-readers be more reliable, backup copies be allowed on your personal PC (or other storage device), and DRM crap is dropped, having entire manga series in digital form may not be that far away. Should this happen, bookstore owners may start howling in a similar fashion as Robert is over anime shifting more and more into the digital realms.
Over time, we’ve seen businesses come and go. When the lightbulbs came into existence, those who made candles and lanterns couldn’t be happy to see their industry get all but nixed. Theater owners weren’t happy with the arrival of cable movie channels and Big Entertainment screamed at the arrival of the VCR because of all the money that would be lost on customers daring to demand things be done their way. Yet despite this, life has gone on and the end of the world has not come.
The loss of DVD’s and Blu-ray’s in the future will pass much the same way and folks like Robert will have to adapt or go the way of the dodo. As the saying goes, “the customer is always right.” The smart business owner will adapt and overcome to make money to boot. Just one of the great things about our capitalist system (while it still exists that is).
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In the end, even in our “all-digital future”, I don’t necessarily think that all physical anime merchandise will die. I even think there’s still a place for physical discs like Blu-Rays. But what’s almost certainly gone is the idea that people will buy physical media as their first form of exposure to a show. That behaviour was always a bit of an aberration compared to non-anime media industries; essentially, it was as if every show was an OVA series. Even in Japan today, it’s very rare to have an OVA that doesn’t also air on TV or online in one form or another (or doesn’t accompany an existing release as a bonus episode).
That aside, I don’t think it’s that Robert hasn’t heard of “freemium”, or that it’s apparently the “business model of the future”. But it’s also not as if it’s simple or trivial to make that leap into the unknown. How many dead startups line the road that lead to craigslist? Is Viz actually making any money off any of their online ventures? Even Crunchyroll, while giving money to the Japanese licensors, isn’t at all in the realm of profitability. So this idea that the future is giving everything away for free and that the money will come eventually seems an awful lot like the pot of gold at the end of the proverbial rainbow (and might remind us a lot of the last Tech Bubble, actually…). There are certainly some excellent success stories, but many people think that you have to be drinking the Silicon Valley Kool-Aid to believe that it’s a business model that will work out for everyone. Only time will prove whether they were right or wrong.
In the meantime, the big problem that Robert has is that the Japanese licensors are withholding the rights to content that the R1 companies would probably be able to sell today. Whether you do or don’t believe in our new digital reality, his perception is that money is being left on the table, and as a retailer that certainly impacts him — hence the frustration. Even if his business model is supposedly going to die eventually, there’s no reason for the industry to put all their eggs in that basket right now. And if, as in his case, you *don’t* believe the new business model is going to work out as planned, then the moves they’re taking today to kill what’s left of the existing market could potentially represent the end of anime in R1. I think that’s the spirit the original article was written in; his not believing in the download/streaming model is one thing, but he *does* believe that the physical media market isn’t necessarily dead yet. He’s in a pretty good place to know.
I do agree that the Japanese withhold rights. In fact, I know they withhold certain rights. That’s because they have their own bubble market when it comes to anime and manga. They fleece the otaku for every yen they can get at inflated prices. To keep that bubble from bursting, the Japanese create all sorts of limited edition items and other things to keep otaku collecting. Many of these things, like the pactio cards from the “Negima!” manga, will never be allowed to be licensed for outside Japan even though the Japanese companies could make a killing!
I’ve mentioned in various places that the Japanese are terrified of reverse importation of anime in Blu-ray form since Japan and the U.S. are now in the same BD region (whereas we are in different DVD regions). The Japanese now know without a doubt that the U.S. market will not tolerate these inflated prices thanks to Bandai’s experiment. We like our anime and manga, but we aren’t going to pay $50/episode to have it, nor even $25/episode. So, if the otaku start reverse importing it, well…
The Japanese certainly aren’t down for this “freemium” model though.
As to whether Viz is making money off their online ventures, I couldn’t say at the moment. As the Wired article pointed out, some things you give away for free to make money elsewhere. Viz did score a sale of Rin-ne because of their online venture whereas I wouldn’t have even given it a look-see short of seeing a scanlation. Even then, I would have had to have seen a physical copy of the manga before I decided to buy Viz’s release. With the online release, I saw Viz’s work, liked it, and bought it. ^_^
As to Crunchyroll, I can’t say there either. What I can say is that according to the Wired article, one premium subscriber of an online service can pay for nearly 100 free users (IIRC) because after the initial costs of setting up things (bandwidth, storage, etc.), the costs are fairly minimal. So, assuming they have enough subscribers combined with ad revenue, it is possible that Cruncyroll is making money. In fact, I’ve not heard that they aren’t.
As to Robert, it seemed like to me that he sees every free download, even legal ones, as being a potential lost sale for him. His attitude struck me as being identical to the RIAA, who did everything in their power to kill MP3’s and online distribution of music. The Wired article pointed out several bands who’ve done quite well when they gave away music online because they made up for it in other ways. What places like Napster did is force Big Music to adapt and instead of forcing an entire CD of crap down our throats just to get a single song, now the consumer can pick and chose what they want to buy for a reasonable price.
Anyway, I agree that DVD’s and Blu-ray’s aren’t dead yet, but in ten years, they may well be. We’ll see though.
All of what you’ve said about the Japanese market and the fears of “reverse importing” of anime are certainly true (and I collect Japanese anime merchandise, so I’m quite familiar with the pricing schemes and so on), but these are actually more the “root cause” of Robert’s concern: that the push on the still-unproven digital front is taking people’s attention away from the fight that needs to still happen to keep the customer base they have now.
Neither Viz or Crunchyroll are making any money off of their online ventures, at least based on numerous comments by industry representatives in recent weeks/months. In Viz’s case, it’s seen more as a marketing experiment, in a sort of “the digital future is here so we’d better be doing something” sort of way. As you suggest, it could be seen as advertising. In Crunchyroll’s case, it’s a Silicon Valley startup funded by venture capital, so they’re still at the “the revenue will come later” stage. People just hope they’re right. (And it’s not the cost of the streaming that’s the problem, it’s the cost of the licenses.)
But anyway, I don’t think Robert’s argument is about “lost sales”. That’s something you can read into his post, but not the central theme. In fact, his argument is that the concerns of downloaders should be ignored because they’re not actual customers. Instead, he suggests the industry should put its current paying customers first before going after lofty out-there business models that have yet to be proven. And in that sense, I think there is some logic to it.
Of course I personally wouldn’t be so extreme as to say that the downloader market should be ignored, as I’m also someone who bought nearly my entire collection after downloading some or all of it. But at the same time, I have basically stopped buying R1 DVDs now in favour of the Japanese releases, and the lack of compelling value (including Blu-Ray) is the primary reason. And other people who aren’t willing to invest in the Japanese releases may just drop out entirely and stop paying for anything (because if you’re a collector and that’s the main reason you buy, it’s hard to see any collector’s value in a download).
So, my main point is that I think both you and Author are looking at just one aspect of what Robert was saying, and in that one specific aspect I don’t necessarily think you’re wrong. I certainly believe there’s a future in the digital media market. But, at the same time, I don’t think he’s just an “old media fogey” who doesn’t understand that the future is going to put him out of business unless he’s willing to change his ways. Rather, he’s prudently pointing out that the success of the R1 Anime industry right now depends on them having product that people are willing to pay for. Otherwise, they won’t live long enough to see the future, no matter what it ends up being. If you replace a customer base who is still currently paying for product with a new customer base who may pay for something at some point, possibly… maybe he’s not as unwise as he seems.
Crunchyroll does have revenue but it may not have gone into the black yet. They have subscribers and ads so those are revenue streams.
Viz will be harder to gauge though, especially if they treat the free stuff as a loss-leader.
FUNimation, on the other hand, seems very keen to continue putting more and more anime up for free. If they didn’t think there was some money in it somewhere, I don’t think they’d continue to keep doing this.
Still, you’ve presented a lot of good stuff. ^_^ Thanks for taking the time to do that. ^_^
I wouldnt say that DVDs and Blurays would just -die- out. Honestly, the amount of people buying DVDs here for Anime and other TV Shows are pretty high. These DVDs contain blocks of episodes of Old Anime (I’m talking Astroboy and Mobile Suit Gundam with Amuro Ray) and recent animes at the cost of a 1$ (50PHP for Compressed 8GB disc containing at least 26-50 episodes per disc? or 30-40PHP per disc which contains 3-5 episodes at the quality you’d find most episodes on the internet are (MKV / AVI your pick) (Mind you these are Compilations of Anime downloaded from the net, burned nicely into a disc, and mass produced for consumers.)
I buy these, though some people might say i just got ripped off, not really. It’d be much more of a down if i downloaded these and just deleted it off my computer because of the lack of harddrive space.
Another note, those Anime Stores in a Corner usually have overpriced goods… which is x-x but they’re kinda worth to buy i guess, because of their cuteness value π
I read Robert’s blog, but I’ve never bought from him, and I probably never will. His attitude seems to be that he’s entitled to my money, and frankly, I’m the only one entitled to my money. Robert cares about Robert, and hey, if he isn’t going to, who else is? Nevertheless, the hell with the middleman. They can always get honest jobs like the rest of us used to be able to get.
The real concern is the creators, the guys making the art. You can disintermediate every paycheck out of the supply chain, and transmit anime and manga from brain to brain, and you’d still need to find a model which provides enough financial incentive to bring the supply necessary to meet demand. Right now, we’re all effectively freeloading off of a subculture of insane Japanese social failures who seem to be willing to pay more for random goofy ancillary crap than for food and rent. Assuming they’re paying their own rent…
I have to admit, I don’t understand how the Japanese consumer economy *works*. Everything seems so damned expensive, and yet they’re measurably poorer than we are. What’s getting neglected that makes up the difference in the cost structure?
BTW, I’m not a “won’t pay for anything” guy, just be clear. I haven’t added up my TRSI purchases recently, but it’s probably northwards of 2-3k a year.
@Sarah — The general thought among some is that the physical medium for video (DVD’s and Blu-ray) will eventually go away in favor of digital delivery through your TV. When that will happen, who know for sure but I wouldn’t be surprised if in 10-years, most folks get their movies digitally.
I take it you are getting bootlegs from your comments. I’d rather buy more hard drive space and download than give bootleggers money. Hard drives are rather cheap these days and you can pick up a 1TB drive for just under $60 (on sale I believe, but still…).
I’ve never purchased anything at Robert’s store because I’m always looking for bargains and there are certain places I use on a regular basis.
@Mitch — Right now, we’re all effectively freeloading off of a subculture of insane Japanese social failures who seem to be willing to pay more for random goofy ancillary crap than for food and rent.
Have you read the manga “Genshiken?” The otaku attitude of buying the goods and doing the minimum when it comes to food, rent, and clothing is spelled out pretty well there. *lol*
TRSI is pretty good place to pick up bargains, especially when they have a sale.
@Mitch:
In terms of the difference in the cost structure, I think one big area of potential savings is car ownership. I estimate that, even in North America, you can save maybe ~$500/month by not driving. And given that the target audience for anime merchandise is mostly young adult single males, they’re not people who have family commitments to worry about. Rather than a house, a car, fancy clothes, or tricking out their place with the latest stuff, they spend their money on this instead. If you’re working full time at a semi-decent job (a big assumption in this economy, granted…) and don’t have to worry about car payments and insurance, you can accumulate a fair bit of spending money. In North America, though, a lot of people consider it unthinkable to not have a car of their own. So I think that’s at least part of it.
That aside, I certainly agree with your argument that the primary concern is making sure the creators are able to make enough money to continue their work. I think it is a bit concerning that, effectively speaking, the “perceived monetary value” of anime content in North America has dropped to the point where it’s marginal at best. Even if 100,000 people became Crunchyroll subscribers today, you’d still only have enough money to fund a few anime each year, if that. It’s nowhere near enough to sustain the industry by any stretch. So even we preach “freemium” as the way of the future, we do need that business model that makes it all possible. We’re clearly not there yet.
I’ve been meaning to make a post on my blog about digital media, but I haven’t gotten around to it. Needless to say, I think the idea that physical media will disappear soon is far-fetched. I’ve seen a lot of things that were supposed to be the wave of the future never actually materialize. While digital media is here to stay β which is to say it’ll fare better than VR and flying cars β and has its uses (previewing something before you buy it, for example), there are numerous obstacles that will keep it from ever replacing physical media, at least in the forseeable future. Maybe in a few generations after you, me, and everyone who grew up before the internet age have departed from this world, but certainly not in 10 years. I’d say 100 years is a safer bet, but even then I think there will always be a market for physical media. I can tell you one thing: not a single penny of mine has gone or ever will go towards a download if I can get a physical copy.
As for the whole “freemium” thing, I too have my doubts that it is a feasible business mechanism for distributing anime, movies, or whatever. The entertainment and publishing businesses are different monsters than the search engine or online want ad businesses, after all.
And now SJ is an online mag, too…