John Ledford

Page 2

A similar question came up in an interview with Mike Bailiff, where, after fans constantly asked this question, we decided to answer it for them. They were always asking why the anime industry doesn't publish circulation numbers and the answer is because most anime companies are private companies. Going from that, there are really two questions related to you being a private company that I want to ask.

First off, is there a way for outsiders, fans with money, to invest in ADV?

They would have to be represented by someone who is a known investment banker or major power broker. We would not open our books to anybody who just has a big check. You have to understand the business, and on top of that, we have to know what their strategy is. Are they here to grow the business, or are they here to do something else? What's their plan? Are they a strategic partner or not? Because, quite frankly, when the market went down last year, I talked to 30 or 40 companies in the period of two to three months, and none of them were the right fit for us. They all had money, they all wanted in, especially in a downward market where share prices are low. But they didn't add any value. They had cash plus zero. Sojitz was cash plus context, cash plus relationships, cash plus content, etc.…. Cash only is not enough, especially these days. You need “cash plus.”

Long term, is there any chance of ADV ever going public?

I won't say no. There's a chance for anything. We have no specific plans at this moment that I can discuss publicly. We want to make sure this is the biggest and best investment that it can be.

Let's talk a little bit about how ADV started.

Before ADV, I had another company that was one of the largest video game gray-market importers. It was ourselves and another company called DieHardGameClub. Both companies were into business importing Japanese video games and Japanese game systems. That was between 1990 and 1994. In early 1992, I realized a lot of these games systems and video games were based upon storylines that had anime ties to them, but no one was bringing these types of films over to the US. So we looked at our best selling video game at the time, which was Devil Hunter Yoko; and that title had no releases in the States, and nobody was carrying it. So we said, “Let's make some phone calls and see what we can come up with.” I had one of my Japanese translators, who worked for the game company at the time, get on the phone and start making phone calls to Tokyo late at night. One thing led to another, and we actually got the answer to who owned the rights, and it was TOHO. They said, “Oh, don't talk to us in Tokyo, you need to talk to our L.A. office.” Oh, you have a L.A. office, great! So we picked up the phone and called L.A., and three weeks later we got a deal. August 15, 1992 was when the first deal was signed.

And Devil Hunter Yoko was released December 15, 1992. Quite quick.

So from beginning of negotiations to release it was less than 7 months. What's the worst example you've ever seen?

Some things take as long as two years.

Two years. I don't want to say the title because the licensors, when they read it on the Internet…and they do read the Internet.

Oh yes, some things take two years, and that's the longest, most drawn-out license ever. But the average can be anywhere from six months to 12 months. Depends on the licensor, depends on the timing, how much money there is, how much interest, titles from other companies. Lots of factors go into the decision-making process.

Where are licensing prices going now? Up? Down?

They're going back up, but I am 99% sure that they will never go back up to the days of 2002 - 2004. There's too much realization from everyone in the world, especially the Japanese side and the American side, that it was a big mistake to allow the prices to accelerate like that. When the market took a down turn, none of the companies based mostly here in the States were could weather the storm. So you had inflated prices [and] a deflated market, and you had companies become upside-down temporarily. It's not helpful for business, it's not helpful for the licensing company, it's not helpful for the market here in the States. Nobody wants to see that happen again, there's a vested interest, especially on the part of most of the licensors, to not let allow that to happen again. A lot of them are just saying, “Okay, you get one bid, and that's it.”

Market protection as opposed to profiteering…

If you make a lot of money in two or three years, but burn the next hundred, what's the point? You could destroy the entire industry by thinking short-term. I mean the Japanese definitely have a very intelligent view of how to handle the situation.

Okay, so you've been doing this for 15 years now…

Favorite moment. The things that you're the most proud of…

Seeing that first video tape come in for Devil Hunter Yoko, and seeing that first check coming in from Diamond and Capitol City, and the first time we got into Musicland was really good, and the first time we got into Blockbuster was really nice. Actually having announced Newtype USA was a big cheerful moment. Seeing the results of Lady Death and other co-productions we've done. Some titles are hit or miss, you know, but it's good to see, with the things we actually put money in, we were making the right decisions, we chose the right titles, we did the right thing internally, we went into the right market…seeing all those things are always good moments. Of course, The Anime Network, seeing it launch for the first time, you know, that was great. Hmmm…seeing the first books from ADV Manga come out, that was also really nice.

All the firsts.

And any particular thing that you're proud of?

Everybody and everything with this company. Everyday here, I'm proud that we're still here. You know this has been one heck of a ride from 1992 until now.

You're a happy business owner.

I'm a happy business owner. Very happy and very proud of our staff and what they've done—all their accomplishments. We ride everybody pretty hard up here, and most people, they like the ride.

From your point of view, as the guy who runs the company, what do you think the office atmosphere is like, and what do you want the company that you run to be like, and for your employees?

It's dynamic, eclectic. It's certainly unusual from an outsider's perspective. I mean, I've never seen a more collective group of individuals who come together in one place that have so many talents from so many aspects of the entertainment industry, and most of them are actually here in Houston. It's amazing what's happened over the last 15 years.

Most annoying thing about the anime industry.

Hmm…<laughs> Can't talk about that…<laughs> No matter how you put that up there, it doesn't bring any good will. Can't say that. Second most annoying thing, not the first most annoying thing…hmm, what's the second most annoying thing? Hmm, there's a lot of seconds, “When's this coming out on laser disc?” <laughs> I got one of those last year. I kid you not.

You spend a lot of time in Japan, right?

About half the year. We have an office in Ebisu, near Shibuya.

What do you do while you are there?

Lots and lots of business meetings. Sun up, 7 a.m., go to work. Have meetings all day, have dinners at night, and then get home at around midnight and then midnight to 4 a.m., talk to Houston. Then go to bed, wake up at 7 a.m., repeat. Very simple.

Not a lot of sleep at all. That's what we do for anime.

How many people do you have in Japan?

About ten, not counting the Sojitz staff, which is immense.

So those 10 people work mostly on licensing and dealing with the licensors and whatnot.

Correct.

What do you see from this industry in the next couple of years?

Well, I think the initial consolidation and market shake-up will continue on the side of the domestic companies, and across Europe, you'll see a lot more of what's happened in the States will probably happen to the European groups in the months and year to come. So there's obvious consolidation over there. The question can be really broad, and I'm thinking globally.

Because of the market hiccup in the last two years, you're actually going to see a lot less production initially, in the short term, until they see that the US market has picked up. I believe you can probably already see that happening now. The fall / spring line-up of anime titles is lower than it's been in several years. I think, thanks to the market corrections that have quickly taken place in the US with regards to the companies that buy the most titles, there is renewed interest on the part of a lot of the production companies to rebuild or continue projects that were put on hold a year ago. There are a lot [of] series that I've heard about that have been put on hold until they saw the market change in the States. There are properties that will not necessarily sell so well in Japan, so they need most of their money to come from Europe and America; those properties were put on hold. That affects everybody; if there's thirty titles in one season versus a hundred, there is not a lot of property to pick from. If there are 20 titles or a hundred, you're only going to have 10 percent or 15 percent be considered marketable. A lot of stuff might be very oriented to the Japanese domestic market; other things might simply be just B or C grade titles in today's market. They may have sold 5 years ago, but thanks to the download business, most people buy their A titles and they download their Bs and Cs. There is no market for B and C titles anymore.

A few years ago, on our site, whenever people were asking us, “Is this title going to be licensed?” At that point, we were getting to the point where we were saying, “It's not a question of if, it's just a question of when,” but now you think we're kind of going back to not licensing everything anymore.

It's an unsustainable business. The market will not sustain it. Five years ago, three years ago you could buy anything and almost anything would sell, not everything but almost. Now you have to be a sniper. You have to snipe the good titles, that's all that will sell. Everything else, the stores don't want it, the fans will download it. Where does it have a home? Maybe on mobile, maybe on internet but certainly not on video; the home video market will not take it. There's simply not enough shelf space and the product doesn't turn fast enough. So I think that's what you're going to see. A much lower quantity of titles, but you'll see a better quality. Perhaps some silly company will put some Bs or Cs out there, but that'll come back to them.

In the future, when you buy licenses, will you look to own all the rights to the property?

We've always done that. We've always tried to buy everything. We take what we can get, but we always ask for everything. A franchise cannot be a franchise unless you have all the rights. Without it, it's just a title. If you only have the video rights, if you only have the TV rights and you don't hold the master toy and the master game rights and the master interactive rights and any type and every type of consumer product possible, and every right possible, how can you build a franchise? You can't. You need all these rights. We always try to get that over the years. Most companies that we buy the licenses from, they don't own those rights. They're just an agent, or they're just holding the TV rights, and the video rights. And so you take what you can get.

In North America, what do you see occurring at the retail level?

We're looking at more positive retail trends for 2007. I know a lot of times when anime fans are saying, “Oh the business is terrible,” they're responding to an eddy. It's like a pebble in the water, and a ripple effect. They might be responding to a handful of titles or some tittle-tattle at a convention.

The big thing the fans need to know is that the business is different than the market. The anime fandom is still growing. And demand is still growing. The problem the market faces is that some of the established channels for reaching those people have disappeared.

The good news is that the places that are left are healthy, number one. Number two, anime retailers have been chasing a moving target, a target that they've helped make move by having the stuff retail. But we simply know a lot more about how to manage inventory and so forth than we did earlier when no one knew how high “up” was. So sometimes when there's a topic or discussion talking about some of the negatives of the market place, it seems to perpetuate itself, “The sky is falling,” when in fact, the overall business is growing. There's more anime on the shelves now than ever before. And that's not likely to change in a substantial way for a little while, if ever. Because the market is correcting itself and it is vibrant and people are still buying the stuff. We'd like that they bought more, but that's it.

Look, blowing up the Alaskan pipeline doesn't cut off the demand for oil. It just cuts off the pipe. People still need oil. And it screws a few guys who are sitting and waiting for their oil. Like the Musicland bankruptcy.

Looking at what you just said about the market, not the market but the fan base is still growing.

Certainly, and in other areas as well. Cosplay is really growing the last few years. Manga's grown quite substantially in six years. There are little segments of what we call the anime market, and the concentric circles around there have been growing rapidly.

But also do you see there's a different kind of fan and a different kind of consumer? Do you see that there's a different kind of people coming out?

Absolutely. The types of people that were at conventions in today are completely different, for the most part, than the guys who were around in 2002. Fans are much younger, and there's an equal balance of males to females. They're more mainstream. There are less core fans and more mass people. I mean, let's face it: The core fan group is “x” sized. I don't know how big “x” is, but that size has been kind of growin,g and you've got the fall off. When new people come on board, they're not so much of a core fan, they're not stuck in their basements subtitling stuff, like in the Eighties and Nineties. They play video games, and they have regular lifestyles that aren't so manic for anime per se. They have a separate group of interests.

I think anime's become a lot less exotic. People have grown up, they're familiar with the iconography even before they encounter anime for the first time because it's so ubiquitous. We have a broader base; anime is holding onto its older fans longer. That's the truly interesting thing over the last five years.