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Open Letter from GDH International's Arthur Smith

by Arthur Smith,
An open letter/reply talking about fansubbing, internet file sharing, and the current status of anime industry
by Arthur Smith

Dear all,

Due to the large body of on-line comments based on a recent interview I gave on activeanime.com and on other articles on similar topics that have recently been published, I thought it might be useful to add further to this discussion with a detailed reply. I hope you all will find the below of some help.

There were so many comments that I am afraid I can't answer everything out there – although we (my team and myself) have tried to read as much as possible and hope the below will answer a lot of the questions and comments raised.

Please understand that I am not answering these questions on behalf of my company only. I have spent a significant part of the last 18 months discussing the various matters of fan subbing, file sharing (both legal and illegal) with other Japanese companies and with anime distributors around the world…so I am trying to bring an overall perspective to this. Of course, it is fair to say that I have more knowledge of what's going on in my company than in others….but Japanese companies share a lot of information between themselves and I am trying to reflect that in my views. Certainly, with regards to one of the main issues I was asked about in my previous interview - the problem of dropping DVD sales, I can state with certainty that this is an industry wide problem and is not just specific to any single company, nor is it limited to the US only – it is a world wide problem faced by the entire Japanese anime industry.

Also I'd like to note that I may not have expressed the full spectrum of my thoughts/views on this subject in the previous 'activeanime.com' interview as it was an interview not constructed by me and, I suppose, the questions were designed to explore the more negative side of the fansubbing issue. There were a number of follow-up comments to the interview saying “Mr. Smith is complaining about this but what is he going to do to help?”, “Mr. Smith talks about the negative side i.e. the ‘stick’ but where is the 'carrot'”? etc. I think those comments are totally reasonable – to put the record straight….of course I think a MAJOR part of any solution to illegal file sharing is to create a legal alternative, I also think we should release DVDs much earlier both outside of Japan and even inside Japan. I have been pushing for these changes as you will see from my other comments below. I think the overall solution to illegal file sharing is certainly both ‘carrot’ and ‘stick’ and I also think there is an element of making sure fans know the facts – anime fans are a tight community and I hope and believe that if the facts become more clearly available, fans will act as a positive influence on controlling illegal file sharing (some comments have said that is naïve but I still believe it to be true). This reply is meant to be taken in that spirit – to give you all the facts. Of course, my conclusions are also included below but I believe these to be reasonable and based on the facts and I know they are widely shared across Japan.

We identified a few questions which came up a lot in comments (as I say, there were many, many more comments out there….but I can't answer everything). I hope you will get something from my answers….and I hope the answers generate more debate and comment – I will try my best to feed a summary of all the comments from this and from the previous interview and articles on to all of the major Japanese companies, so that all of us in the industry can better understand the concerns and wishes of international fans:

1. An anonymous commentator (who apparently works in the anime industry) says:
“While, in a way, watching a fansub is like theft of iPhones before release, in another, more accurate way, it is like watching a show a friend taped/DVRd/etc for you.”

My answer: this is not a more accurate way of describing fansubbing, it is a VERY misleading analogy and here's why:

Setting aside the fact that we are referring to a program which has not yet been released in the US (so it couldn't be taped/DVDed), let me concentrate on the main issue…..I have two words for this commentator – DIGITAL and INTERNET.

Firstly, the fact that files are now stored and transferred digitally and the existence of the Internet mean that a fan sub is NOT seen by ‘a friend’. It is seen by 10,000+ ‘friends’ (because these fansubs will end up on all the major file sharing networks within one week of creation – in examples that we looked at, we would see fan subs in 10+ languages within the first month after broadcast in Japan).

Secondly, because it is digital, those 10,000 ‘friends’ can give it to their friends too with no loss of quality (and they can then fansub it into new languages). So, the analogy would not be that you watch a show which a friend has taped, but that your friend gives you a copy of the video AND gives a copy to his 10,000+ other friends AND some of them speak foreign languages so they alter the video to sub-title it in another language and give them to 10,000+ of their friends!!

Fyi – the reason why I use 10,000+ is that for the typical show we have researched there will be around 10+ copies of the show (i.e. 10 different fansubs) and at least 100,000 people will download….and that is for smaller shows, not Naruto, Bleach, etc. This data comes from direct observation of view numbers on YouTube and other video sharing sites and from successful download counts and stat reports from major bit torrent tracker sites so anyone can verify the size of the downloads for themselves if they feel the need.

2. One comment, with similar comments repeated many times:
“Yes, there are people who will never buy anime as long as they can get free fansubs online, but it seems to me that their word of mouth, plus the people like me who watch fan subs to decide what shows to support w/ their commercial releases, has to come close to balancing out there. It's really impossible to know, but Mr. Smith doesn't even acknowledge that there is a possible positive impact.”

My answer:
There is a lot to say here, but please bear with me and read the entire explanation I have made below.

Yes – there is certainly a VERY positive impact from fans sharing the ‘buzz’ for new titles and talking about them and sharing information. Up until 1-2 years ago, the industry in Japan was worried about such fansubs (having seen the damage caused to the music industry in the early days of file-sharing) but had no direct evidence to conclude that the negative impact was big enough to worry about (i.e. everyone hoped that the positive impact outweighed the negative). HOWEVER, now we know the truth….please check out these FACTS (all of which are easy enough for anyone to verify as they are all based on publicly available information in one form or another):

FACT 1 – Musicland was by far the biggest retailer of anime DVDs in the US and it has almost disappeared (see Wikipedia for details of their demise which has been really bad for the anime industry in the US).

FACT 2 – one major distributor has pulled out of the DVD business to concentrate on manga, one high quality distributor has closed down its business entirely except for existing titles, and other anime distributors have made significant lay offs of staff (I won't give further details as I am not sure what is public….but check out the Internet and ask any anime friends in Texas and Los Angeles….they will tell you the extent of the lay offs!!). Have a look at the new titles being published…there are not many different distributor brands left!!

FACT 3 – the OVERALL (i.e. for all anime titles) volume of sales for anime DVDs is down to around 50% of its peak of a couple of years ago. This information may not be publicly available in detail without a paid subscription, but Videoscan is a company which receives bar-code scanned sales data directly from all major retailers (except Walmart)….so I have a 100% fact based view on this drop since US distributors can also access Walmart's numbers…it is not guess work. The overall DVD market (i.e. US TV shows, Hollywood movies, etc.) has also fallen but by MUCH less than anime – around 15-20%.

FACT 4 – the general interest in anime (and manga) as evidenced by attendance at anime cons, number and length of news articles, ratings of TV shows etc. is showing that anime is of growing interest in the US even when compared to 2005 (the ‘peak’ year for DVD sales).

FACT 5 – use of file sharing technology and video sharing sites has grown massively since 2005, driven by various factors including the growth of cheap fast broadband access. It was only a couple of years ago that most people had slow speed internet access and video file sharing was a pain…..now it is cheap and easy!!

FACT 6 – the music industry suffered a similar problem a few years ago and the problem anime faces today seems to be remarkably similar (music sales dropped by 30% and then regained around 10% through on-line sales i.e. net-net sales dropped by 20% permanently). This happened much earlier with the music industry because file sizes for mp3s are much smaller than they are for video files and therefore were easier to download with slower internet connections.

FACT 1 + FACT 2 = please don't deny this is an industry wide problem…..it is not related to any particular production company in Japan or any particular distributor in US. The whole anime business has a massive problem

FACT 3 + FACT 4 = There is something weird going on…how can interest in anime still be so strong (and even growing), but anime DVD sales are falling much faster than the overall DVD market??

FACT 5 + FACT 6 = this seems to be the most likely explanation as to why FACT 3 and FACT 4 seem to be inconsistent….i.e. the reason why interest in anime is still strong but DVD sales are falling so fast is that there is a massive problem with file sharing which, in the case of anime, is facilitated by fansubbing.

I think the above logic is difficult to deny…..illegal file sharing is certainly happening in a MASSIVE way and its growth has certainly coincided with the fall in DVD sales. Maybe it is a coincidence and there is some other explanation.

I am very interested to hear what other explanations anyone might give? Is the entire anime industry making such bad titles that even though more titles than ever have been released in 2007, still fans are so unimpressed that they are only buying 50% of the DVDs they used to?? Maybe the TV broadcasts are actually not good for DVD sales since fans now watch all their anime on TV? I doubt that either of these is the major reason for the anime DVD decline although I don't dispute that they could be contributing factors. I am pretty sure it is not a coincidence that file sharing has grown massively just at the time that anime DVD sales have dropped!! And I'm pretty sure it's not a coincidence that the same thing we're seeing in anime happened to the music industry!!

Fyi - the anime industry in general in Japan is pretty much in line with the conclusions I give above. Of course, we are all interested in using on-line activity to promote our titles…but not to give fans the ability to take our shows for free.

3. Various commentators said: they don't like to wait so long after release in Japan

My comments:
This is totally understandable and I agree this is a valid complaint. I can give a brief explanation of why this happens and what I am trying to do about it:

Explanation –
  1. Appointing a US distributor - US distributors (FUNimation, ADV etc.) can't license shows until they see the show (at least 5-10 episodes usually) and Japanese production operates on a ‘just in time’ basis i.e. the episode is only finished a few days before the Japan broadcast date. Once the US distributor has made an offer, then the Japanese company needs to decide WHICH distributor to choose and may well go back and renegotiate with several US distributors. This all takes time so deals with US distributors could easily not be finalized until 6 months after initial broadcast (which is already 3 months after first DVD is released in Japan).
  2. Marketing and translation – once a deal has been done, the US distributor needs to build up its marketing ideas for a show and also translate the show. Sometimes the Japanese production company wants to be heavily involved in the translation and dubbing process (e.g., I have heard of some shows where ALL the voice actors are auditioned by the Japanese director….). This takes several months
  3. Selling to the retail stores – this takes some time as well and since anime is still a niche product is not an easy job. Product releases sometimes need to be delayed to avoid quiet periods (e.g., in the UK, releases in October are best and summer releases are normally poor sellers)
  4. Overall – it can easily be seen that it can be at least one year between Japan TV broadcast and release in the US.

My promise – I will continue to push for earlier release in the US and elsewhere (and I have been working on that for several years now – e.g., my company has historically made deals with US distributors even before the first episode is broadcast in Japan e.g.2., 18 months ago, I presented to various of the major players in Japan the idea of releasing a sub-titles only version of new programs for Internet-streaming one day after broadcast in Japan). As a result of various industry people including myself lobbying all who will listen, the Japanese government is also now recognizing illegal file sharing as a major problem and we have recently gained their direct backing on various initiatives we are trying to push – watch this space for further announcements.

4. Various commentators commented on the high price of DVDs and on the quality of the shows being produced

My comments:
I do understand the price of anime DVDs is not looking like good value sometimes when set against low priced box sets of entire seasons of Friends or Lost or the like. I know that distributors in the US are trying to address that issue but please be reminded that Japanese anime is usually FIRST seen on DVD in the US….so unlike Friends or Lost, it does not have a rich TV network paying for a big chunk of the budget and this means that Japanese producers need to try to get a decent return from DVD in the US otherwise they're going to have to cut the budgets of the shows themselves and quality will obviously drop (in case you are wondering, Japanese TV companies do NOT pay a big share of the production budget for shows like US TV companies!!).

On the AVERAGE quality of anime shows distributed in the US….I think that is a valid complaint but there is an important reason for that – there are MORE shows now released in the US than there were a few years ago. Obviously the best shows are always released…so in the old days maybe only the top 50 shows from Japan were released, but now maybe the top 100 are released. That's good for the fans as they get to see more variety of anime BUT it does mean that the extra shows being released on DVD are more likely to be the number 51 to 100 best shows in Japan – so they are not as good as the top 50!! I can't say whether there is a decline in the quality of anime for the top 50 shows….but I would like to refer you all back to an earlier comment – popularity of anime is INCREASING in the US (from anime cons, PR articles, TV ratings etc.), so it seems that an overall decline in quality is hopefully not the case.

5. Various comments:
why not cut out US distributors to allow Japan to move faster to release (and make more profit)?

My comment:

I think more than any one, the US distributors have served the US fans interests (similarly for French distributors in France etc.). ADV spent years developing the anime market and convincing retailers to take anime, FUNimation spent many years making no money at all until they eventually got Dragon Ball onto TV etc. They feed comments back to Japan and push for lower pricing and act on the fans behalf in many ways. They also do all the dubbing and sub-titling and deal with all the approvals necessary to give respect back to the original creators and publishers when needed – all these roles are vital to keeping the US fan base satisfied. Of course, there are always complaints, but—overall--I think they do a great job.
Cutting them out would really hurt the communication link between the Japanese producers and the fans. I really hope they continue to survive and hopefully flourish.

6. Am I scaremongering/exaggerating?

If you believe the above, I hope you already believe that I'm not exaggerating…but here's another scary couple of facts: the Japanese anime DVD market is doing even worse than in the US and Europe isn't doing great either. Imagine how that hits the whole industry….

Thank you for listening and reaching the end!

Arthur Smith
December, 13, 2007

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