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Anime Expo 2009
Keynote, Day 3: Kun Gao on Anime on the Internet

by Mikhail Koulikov,

The basic theme covered in the third and final address of the SPJA Industry Conference held in conjunction with this year's Anime Expo was the effect of the Internet as a disruptive technology on the business of animation and anime. The keynote speaker for the topic was Kun Gao, Crunchyroll CEO and co-founder.

Gao began by alluding to the Ford Model T car, an innovative product that affected not only transportation, but people's values and behaviors. The Internet, he argued, is no different - it completely changes the playing field of entertainment business, and demands an entirely new way for entertainment producers and distributors to interact with their audiences. And a key factor is that the success of the Internet as an entertainment platform does not exist in isolation. Rather, it is based significantly on several other disruptive technologies in the areas of networking, open source software, mass storage, and fiber optics.

The specific ways in which the Internet has made an impact on entertainment producers can be grouped into three areas. First, it has made clear the value and cost of any entertainment. For their price, films and episodes on DVD provide simply a far smaller amount of content that would a single-player videogame, to say nothing of an MMO or online environment. The major reason for the decline of the anime industry in the North American market, in Gao's opinion, is not fansubbing or piracy, but simply the ease of access to cheaper entertainment online.

A second effect of the Internet on entertainment has been a radical decrease in the cost of actually delivering entertainment to customers. With traditional media on DVD, it is not uncommon to see up-front costs of up to several hundred thousand dollars before the first disc is ever sold. With digital distribution of entertainment, on the other hand, these costs can be as low as only a few thousand dollars. What this means specifically for the anime market is that while some series will be popular enough to warrant distribution both on DVD and online, smaller, more niche titles that would not be popular enough to justify an attempt at DVD distribution can now get a "fair chance" to reach audiences.

Finally, digital distribution changes the basic economics of anime sales. The traditional timeline of anime distribution is a process that takes up to a year to complete, from when a new anime series finishes airing in Japan to when its overseas release begins. Even in a best case scenario, an American company that is licensing and distributing a new anime series will not be able to recoup its investments until about ten months after the end of its Japanese run. Until that point, no profit is generated, and to survive, companies need significant amounts of operating capital and staggered release schedules to survive. On the other hand, with digital distribution, research has shown that over 80% of viewers watch new anime episodes within thirty days of when they first appear. Thus, revenue generation for both licensors and creators is almost immediate while the costs of promoting, marketing, and even simply storing the content are significantly reduced.

As an example of a company that is working to take advantage of the Internet as a force for disruptive innovation, Crunchyroll's goal is to attract audiences by providing as many options to find entertainment as possible, both in terms of the range of shows that are available, and in terms of ways of accessing them. The company is acutely aware of the range of products and services that are vying for the time and attention of potential watchers of anime. And if this process works as it is intended to, Crunchyroll is a more effective way of funneling profits to anime creators and producers than traditional distribution can ever be.

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