Anime Expo 2008
Keynote Address: Vu Nguyen, Crunchyroll

by Mikhail Koulikov, Jul 5th 2008

Over the last year, Crunchyroll, the San Francisco-based video-sharing website has been one of the most controversial companies in the North American anime industry - especially when it was announced that it had secured an initial round of funding from venture capitalists. It was no surprise, then, that the Saturday morning keynote address presented by co-founder Vu Nguyen was awaited eagerly.

Over the next half-hour, the crisply-dressed Nguyen went through a set of Powerpoint slides that explained to attendees his company's basic philosophy and specific plans. Overall, Crunchyroll's goal is to push anime in America forward to reach as large an audience as possible. It did start out as a site without any sort of business infrastructure underneath, but is now working actively to transition to a proper revenue-sharing model. This goal, though, will take time, and to succeed, Crunchyroll will need the help of the anime industry both in Japan and in the U.S.

In the two years that it has been in operation, Crunchyroll has seen a rapid growth of its user base, while spending nothing on advertising and promotion. As of April, it has some 4.5 million members, and 65% of the site's visitors arrive at the site by directly typing in its Internet address. The most figures are that visitors spend an average of 15.5 minutes on the site and conduct 5 to 6 "user activities" (such as posting in the forums) per video watched. The more broad goal of Crunchyroll is to be an interactive experience built around content, not merely a venue for anime or other videos.

To promote itself to entertainment companies, the company has produced extensive statistics on its users. They are split fairly equally by gender (54% male, 46% female). The average age is 22, and 99% of all users are in the 13-34 age range. Seventy percent are in the 18-34 demographic, which advertisers and broadcasters have traditionally emphasized pursuing.

Thus, an average Crunchyroll user is a high school or college student who is tech-savvy, influenced by the interests of his or her peers and friends, with an average annual income of around $16,000 - and with more time on their hands, than money.

For a customer like that, the standard methods of getting access to anime in the U.S. by purchasing a DVD from a physical store may be awkward and even unintuitive. Japanese animation is still not easily available in stores, but both plentiful and easy to find on the Internet. Especially for a generation that has now been found to spend more time online than watching television, the Internet may be the first place to turn to in the search for any entertainment.

The current or potential Crunchyroll user is disappointed by the long period between when an anime series is announced for U.S. release and when it is actually available in the U.S. What is most interesting to them is what is popular right now, and the "cool factor" of many anime series does have a relatively short shelf life. At the same time, in the U.S. anime generally lacks any kind of "try before you buy" functionality that is offered by Japanese television.

To take advantage of these factors and expectations, Crunchyroll is planning a full-spectrum strategy for bringing anime and other media to customers. The first of these is digital distribution of anime without being tied down by having to create DVDs and ship them to stores. This removes the distribution and retailer middleman and is the easiest way to reach a highly fragmented market in which only a relatively small number of people, compared to the overall population of any given area, may actually be interested in purchasing anime in stores. In addition, Crunchyroll has noticed that only about 36% of its users are from the U.S., while the Philippines, Singapore and Malaysia combine for 37%.

Placing first episodes of anime online at the same time as they air in Japan obviously resolves the issue of excessive wait times between licensing and release. Interestingly, as Crunchyroll legally premiered episodes of the anime series Blassreiter and Tower of Druaga on their website, the number of users downloading these series illegally dropped by a significant percentage.

As Crunchyroll develops further, it will strive to find a balance between the desires of its audience and advertisers' requirements. Generally, these extend to a combination of high-quality content, an engaged audience, and better ways to track them. Crunchyroll has identified at least three business models for digital distribution, and plans to participate in all three. The first is on-demand streaming of low-quality content, funded by ads. The second is subscription-based high-quality video-on-demand. The third and final features excellent-quality video content, no digital rights management limitations, and individual per-episode pricing. Of these, the ad-supported model should prove the most popular, but all three will be viable to some extent. In any case, radical as they may sound, the three models are also not particularly different from traditional ways of distributing media on broadcast television, subscription cable, and DVD.

Other features that Crunchyroll is working on include a dedicated anti-piracy tool to remove unauthorized content from the website, a way for fansub groups to participate in the site by creating subtitle tracks for its shows in languages other than English, and informing potential advertisers about the kinds of products that Crunchyroll's users are most interested in - especially as some 80% of all revenue in the anime/manga market is actually derived from toys and secondary items, rather than actual content.


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