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Why Are Funimation And Crunchyroll Getting Married?

by Justin Sevakis,

Anonymous asks:

The recent news that Crunchyroll and Funimation are partnering up sure seems like a really good thing for fans (we only have to subscribe to one service now, unless we want dubs). But why did it happen? Is consolidation like this a bad sign for the anime market?

I wouldn't call it a bad sign, but it's almost certainly a reaction to recent events in the business that have made life a lot harder for anime publishers.

Let's take account of what we already know: First, we know that license fees have been absolutely out of control for the last few years. Bidding wars between Funimation and Crunchyroll, as well as occasional violent disruption from Amazon, Hulu and Netflix have pushed the fees for some shows well over the US$200,000 per episode mark -- $2.6 Million for a 13-episode show. Sales, while healthy, have not gone up anywhere near that much, and this was clearly not sustainable for anime publishers.

Secondly, we know that Hulu was a very important revenue source for publishers like Funimation, Sentai Filmworks, Viz Media and others. For years, Hulu worked by simply hosting just about any anime, and sharing its ad revenue with the rights holders. However, over the course of the last year the company changed its business model almost entirely. A significant amount of the anime on the site was removed (the less popular ones, presumably), and the service went subscription-only. (Most of its free catalog is now available at the new Yahoo View site, which few people know about and doesn't appear to have been marketed at all.)

Instead of revenue sharing on nearly every series made available to them, Hulu now pays a set license fee for a select few shows. So while anime companies still do business with them, the revenues coming in from Hulu are nowhere near what they once were.

From that, it's not hard to figure out what happened. Licensing spending was out of control. Hulu's change in strategy cut into Funimation's revenue. With that in mind, working together seemed like a better idea than continuing to try and kneecap each other.

It is interesting that, in spite of years of fierce competition, both Funimation and Crunchyroll became companies that complement each other quite well. Crunchyroll is one of only a half dozen or so successful (and apparently profitable) streaming providers, and markets their service incredibly well. Funimation's dubbing department is the fastest and one of the best in the world, and they're extremely good at individually marketing titles and selling them on disc -- a segment of the market that's still growing. Both companies were trying to attain the abilities of the other: Crunchyroll had just announced plans to get into dubbing and disc sales, while Funimation's streaming service just relaunched in January. But neither one was really there yet.

Short-term, Japanese licensors will not be happy about this arrangement. They can no longer play one against the other, and can probably expect a significant drop-off in license fee prices -- hopefully down to more sane and healthy levels. I expect them to put more investment into Daisuki and possibly other alternative services and publishers, as it's not in their best interest to have only one single anime publisher in the US. The other anime publishers in the US may not immediately see the partnership as good news, but I'm sure some licensors will want to work with them more in order to prevent CrunchyMation (FuniRoll?) from having a total monopoly. While Hulu, Netflix and Amazon drop in every once in a while to bid a ludicrous amount on what they perceive to be a really big title, they are not interested in 90% of the shows being made, and can't be counted on.

It's also important to point out that this is a partnership, not a merger. The two companies are staying separately owned and controlled, and both will likely have different agendas going forward. This partnership may last for a decade, or it may last for a single season. But in the mean time, having nearly all of the anime in one place sure is a big win for the fans. (The ones in North America, anyway.)

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Anime News Network founder Justin Sevakis wrote Answerman between July 2013 and August 2019, and had over 20 years of experience in the anime business at the time. These days, he's the owner of the video production company MediaOCD, where he produces many anime Blu-rays. You can follow him on Twitter at @worldofcrap.

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