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What Is Happening In the Anime Industry in 2020-2021? An Analysis of The Animation Industry Report 2021

by Tadashi Sudo,

The Anime Market Shrinks For the First Time in 11 Years

On November 4, the Association of Japanese Animations (AJA) released its annual “Animation Industry Report,” which details the latest information on the state of the Japanese anime production industry. The report compiles market statistics from 2020 and information on the state of the industry in 2020-2021.

The biggest news item of 2020 is that the global anime market, which was enjoying record-breaking growth for the past 10 years, contracted compared to the previous year for the first time in 11 years. The market size in 2020 was 2.4 trillion (or 2,426.1 billion) yen, a 3.5% shrink compared to 2019.

Nevertheless, the fact that it was a small-scale contraction can be actually seen as a positive surprise for the industry. Due to the spread of COVID-19 in 2020, the scale of economic activities was restricted; there were many who anticipated a bigger loss. Relative to the other industries such as music, film, and tourism, the 3.5% figure appears to indicate a smaller impact.

However, in reality, the 2020 numbers are not as fortuitous as they appear at first glance. COVID-19 actually had an enormous impact. There are two major factors making the numbers look magically lucrative: The first is that, while the domestic industry contracted, the global anime industry outside Japan grew. The second is that Demon Slayer: Kimetsu no Yaiba was an unprecedented hit that pushed the overall numbers up.

The Reversed Positions of the Japanese (Domestic) and Overseas Markets

The reality is that if you only look at the domestic market in Japan, its overall size was 1.18 trillion (or 1,186.7 billion) yen—a steep 9.7% contraction compared to the previous year. On the other hand, the overall anime market outside Japan experienced a 3.2% growth to reach 1.2 trillion (or 1,239.4 billion) yen. The overseas market size surpassed the domestic market for the very first time. Since 2012, the global anime market has been experiencing sharp growth; for years, it was expected that it would catch up to the Japanese market. Nevertheless, it took quite a while for the tables to eventually turn because the domestic market has continued to experience steady growth. The flip happened suddenly under COVID-19.

The domestic market can be divided into eight major sectors: TV, Film, Home Video, Streaming, Merchandise, Music, Amusement (Pachinko and Pachislot), and Live Entertainment. Among these sectors, streaming was the only one to experience growth. (It grew by 35.8% to 93 billion yen.) The Live Entertainment sector in particular saw a major blow, falling 65.6% to 29 billion. This is because fan events, exhibits, concerts, stage performances, etc. saw a consecutive string of cancellations, postponements, and scale-downs. 2020 was a very difficult period for domestic businesses.

The difficulties faced by domestic businesses can also be seen in the anime industry market if you calculate it separately from the retail market. When you consider only the revenue from anime production companies, the earnings in 2020 amounted to 274.4 billion yen, a significant contraction of 9% compared to the previous year.

Despite the slump in entertainment industries around the world, anime's global market expanded. A large factor behind this was online streaming. Streaming was one of the few areas in entertainment that grew under COVID-19; its expansion around the world is connected to the increased demand for Japanese anime. The post-2012 growth of the global anime market can be attributed to the rise in users of legal streaming services, which has increased the number of fans, which has then in turn expanded the consumption of anime-related goods and services. Even under COVID-19, this feedback loop has been continuing.

The Box Office and Merch Sales Supported by the Demon Slayer: Kimetsu no Yaiba Phenomenon

Another outlier in the overall numbers is the huge hit that was Demon Slayer: Kimetsu no Yaiba. Demon Slayer-related consumption propped up the entire market. Take, for instance, the box office revenue. Japan's domestic box office earnings dropped by 45.1%, nearly half the amount from the previous year, but Japanese anime films alone earned 61.7 billion yen (a 10.8% reduction from the previous year). They managed to maintain such a high standard that 2020 represented the third-highest yearly earnings for that sector in history. On its own, Demon Slayer – Kimetsu no Yaiba – The Movie: Mugen Train accounted for 38.7 billion yen (40.3 billion if you count 2021 as well), becoming the top domestic film of all time. 60% of the year's box office revenue for Japanese anime films came from just one title.

The box office in 2020 was not in a good state overall. Evangelion: 3.0+1.0: Thrice Upon A Time and Detective Conan: The Scarlet Bullet, which were both expected to be big hits, were delayed to 2021, and the Pokémon, Doraemon, and Crayon Shin-chan films performed well below their yearly average.

Demon Slayer also had a significant effect on anime-related merchandise sales. Even as stores and retailers reduced the scale of their operations and closed their shutters for extended periods of time, the anime-related merchandise market reported earnings of 581.9 billion yen, a mere 0.8% decrease from the previous year. This can also be attributed to the explosive sales of Demon Slayer merch. The title was supported by a broad slice of the populace from children to adults, and the merchandise encompassed a broad range of categories, including toys, apparel, snacks, foodstuffs, and accessories. If Demon Slayer was not included in the Animation Industry Report, then the anime-related merchandise market would probably have seen a major contraction.

An Avid Demand For Anime and a Spike in Production Budgets

The 2020 statistics might be out, but where are things headed in 2021 and beyond? One can expect more positive results for the anime business climate in 2021 compared to 2020. This is because, although COVID-19 is still continuing, new business structures have been laid to account for it. In the survey about how they feel about the current economic climate, there is a growing number of responses among AJA's member businesses indicating a more optimistic outlook about their results.

The number of film and TV anime productions was also part of the decline in the domestic market in 2020. However, this was not due to a loss in demand for anime, but because productions were temporarily suspended and/or had their broadcasts delayed, meaning that they took longer to submit the product. The demand for anime productions is still huge.

Japan's major anime studios all have their production lines fully booked for the next several years. Business is booming to such an extent that there is hardly any room to slot in new projects. This state of affairs was no different before COVID-19. Some might say that there are too many titles, but streaming, game, film companies, TV stations, etc. both in Japan and abroad are actually pitching more anime projects than ever. The large quantity of productions will continue for the foreseeable future.

Labor Shortages and Production Studio Reforms

The keen demand for titles causes another problem: Production costs are rising steeply, and there are not enough workers to keep up. In the business survey of the Animation Industry Report, many studios indicate that their production budgets have been escalating.

Because the specifics of anime production budgets are industry secrets, very little of it becomes public. Furthermore, the criteria for determining budgets differs depending on the type of the title, so there are significant fluctuations between kids titles and late-night titles aimed at adults, as well as between 2D and 3D productions. Nevertheless, it has been said that around 10 years ago, the production committee would pay around 12-15 million yen for a single episode of a late night anime. In the blink of an eye, it became 18 million, and now at least 20 million yen is a prerequisite these days. It is not uncommon to find titles that cost over 30 million or even 50 million yen per episode.

Despite the ballooning production costs, however, there are many anime production companies that are in a difficult position. Teikoku Databank reported that 37.7% of anime production companies were in the red in 2020. The reason is because the actual production costs climb at a faster pace than the raise in budgets can account for. When the businesses and the production committees foot the high budgets, they expect a high-quality title, and because of this, they need skilled staff and even more people.

Due to the labor shortages, the wages for skilled animators, CG creators, background artists, etc. have been increasing. There has also been a rise in investment in digital workflows. The recent push to improve the work environment in order to secure more manpower might be good news for the staff, but those are additional expenses for the company. The schedule delays on short-staffed productions and incessant retakes are also factors that make costs go up. As a result, studios have not been seeing much increase in profit.

To resolve this problem, budgets need to expand even further, and a stable system must be put in place to address labor shortages. Long-term training courses for new staff are being established one after the other, including Sunrise's “Animation Cram School,” MAPPA's “New Animator Training Joint Project,” Studio Ponoc's “'Principles of Animation' Program (PPAP),” and Wit Studio's “WIT Animator Academy.” However, only prominent studios with robust operations can take on this kind of initiative, while small and mid-sized studios can't quite muster it. I expect to see the divide in pay and work environments for animators and production assistants to become more extreme in the future.

Beyond 2022: Anime Becomes Even More Global

Currently, a great deal of the demand for anime titles is coming from overseas. Original anime projects from companies such as Netflix and Crunchyroll are pouring new capital into the anime industry. Along with North America, which has large streaming companies, China with its mammoth population has played a big role in creating the recent foreign capital. North America and China are the two biggest foreign markets.

However, looking past 2022, it appears that the global market's growth pattern is set to change. Due to strengthening regulations in China, it has been getting riskier to develop titles there. On the other hand, the demand from North America is strengthening. In October 2021, Disney+ made a new announcement that it will begin streaming Japanese anime worldwide. Furthermore, services such as HBO Max, Peacock+, and AppleTV+ are trying to get access to Japanese anime. It is highly possible that Japanese anime will depend even more strongly on North America. In order for Japanese businesses to avoid one-sided business and maintain balance, I expect that going forward they will seek development across broad regions such as Europe and Southeast Asia.

There are signs of change when it comes to the competitive value of Japanese anime overseas. Because of the shortage of Japanese anime studios, there have been movements to produce anime-style titles in South Korea, Taiwan, China, and even Thailand. Within China in particular, there have been unique anime-style properties based on Chinese source material. These titles have entered the market and have started picking up popularity. The strengthened barrier for entry for Japanese anime within the Chinese market will enforce the growth of home-grown anime titles in China. In the mid-to-long term, it is quite likely that Japan's monopoly of the anime style will end, and the production and consumption of anime will become even more global.

Tadashi Sudo is a journalist in the field of Japanese and international animation industry, as well as a professor at the Japan University of Economics Graduate School, Entertainment Business Institute. After working in a securities firm, he launched the daily web magazine "Anime!Anime!" and "Anime!Anime! biz" in 2004, where he served as editor-in-chief. In July 2016 he left "Anime! Anime!" to work independently. His major writing works include "Who makes the future of the Anime Business?" (Seikaisha Shinsyo, 2017). He is also the co-author of the "Digital contents white paper" (Digital Content Association of Japan) and the "Animation Industry Report" (The Association of Japanese Animations).

Translation by Kim Morrissy.

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