What Happens to a License When a Publisher Goes Under?

by Justin Sevakis,

Robert asks:

What happens to shows (or manga) that are licensed and then for some reason, something happens to the company? Shows like Gosick (which was licensed by Bandai) or manga like Alive: The Final Evolution (which was licensed by Del Rey). And in Alive's case, why doesn't the company that took over from Del Rey (Kodansha Comics) keep releasing it? Do they just hold onto the licenses because they may release it one day? How does that work?

When licensing contracts are drafted to allow a publisher to translate and print an anime or manga in North America or another territory, a standard part of the contract states that if the publisher files for bankruptcy or at any point becomes legally insolvent, then the contract is immediately terminated and all of the rights automatically go back to the licensor.

And that ends up becoming a problem if that publisher ends up in trouble. Note that there are two different kinds of bankruptcy for businesses in the United States (and most other countries). There's "Chapter 7" bankruptcy, which ends the company and, under court supervision, sells off all of its assets to pay creditors (banks are first in line, typically). Then, there's Chapter 11 "bankruptcy reorganization." In that case, the company stays in business, but a court basically takes over the company's finances, and works out a way to pay its debts out of its cash flow. Some debts are reduced or forgiven as part of this. After all the debts are paid or refinanced, that company can then exit the supervision of a court and be considered healthy again.

Chapter 11 bankruptcy reorganization exists to allow companies that are in financial trouble to stay alive. But since taking advantage of bankruptcy would immediately kill off all of the rights that company took so long and spent so much money to acquire, it's simply not an option for an anime or manga publisher: without anything left to sell, that company would be dead in the water. Therefore, a publisher will do everything it can to avoid actually filing for bankruptcy.

Now, if that company owes a lot of money to several different creditors, and has a track record of not paying its bills, those creditors can file to force the company into bankruptcy, but that rarely happens. If the company is really that broke, having a court sell off its used office furniture and old computers isn't really going to do much to recoup their debt.

Without bankruptcy as an option, this means that anime and manga publishers basically will keep themselves on life support indefinitely, because as long as they can hold out, they'll still technically keep the rights that they have until they're up for renewal. The company will technically stay in business and never file for bankruptcy, but will otherwise basically stop doing business. The licensor may be owed thousands and thousands of dollars, but most of them aren't so aggressive, and won't really do anything to terminate their agreements forcefully (although some are). Most will just opt to never do business with that deadbeat company ever again.

AD Vision, Tokyopop and Urban Vision were/are all examples of zombie companies that held on for a long time despite not actively selling product. Central Park Media, on the other hand, was forced into Chapter 7 bankruptcy by Bank of America. Media Blasters was forcibly dissolved by the state of New York due to unpaid taxes (which is basically the same as chapter 7), but the company later re-incorporated in New Jersey. Since it was not legally the same company, that meant that they lost almost their entire catalog. (A few shows like Kite and MezzoForte, they had partial ownership of, and an ownership stake doesn't get terminated.)

But companies like Del Rey Manga, Bandai Entertainment and Geneon Entertainment USA were another story entirely, because they didn't legally go out of business at all! Their parent companies still exist and still function, and had simply decided to close down those divisions. So with no actual bankruptcy taking place, the parent companies still got to keep all of the rights they had, for as long as those contracts lasted.

In most cases, as those divisions wound down business, the people left paid what royalties were still owed, and worked with the licensors to end their licensing agreements early. The licensors then had the rights back, and could sell them to another publisher (or put the shows or manga online themselves). Sometimes this is easy, but other times there can be legal complications. There can also be political complications -- the show or manga's creator (gensakusha) gets to sign off on any and all deals, and having to sign off on the FAILURE of their show/manga to get distributed can be a difficult pill for them to swallow. They may be unwilling , or be such a pain in the butt that the licensor has deemed it pointless to even approach them. In such a case, they'll just wait out the contract.

Got questions for me? Send them in! The e-mail address, as always, is answerman (at!)

Justin Sevakis is the founder of Anime News Network, and owner of the video production company MediaOCD. You can follow him on Twitter at @worldofcrap.

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