Gen Fukunagaby Christopher Macdonald,
Sometime last year Anime News Network sat down with Gen Fukunaga to discuss the past, present and future of Funimation Entertainment. Unfortunately the interview became eternally stuck in a "to-do pile" until it was recently rescued by our interepid associate editor, Bamboo Dong. Despite the long delay, the interview is still interesting, please enjoy...
Could you tell us how you came to found Funimation?
It was founded in 1994. I was a very entrepreneurial type of person, and I was looking for a business to start, which I assumed would be in the high tech industry since that was my entire background. I had seen all of this great anime when I was in eighth grade, since I had lived in Japan my entire eighth grade and went to a Japanese school.I remembered, “All that awesome stuff is still not here in the USA, I can't believe it.” So I looked into it, had a few meetings, found out Dragonball Z was available, and I said, “Hey, I like that show. Let me try that one,” and that launched the company. I had to find financing first, though. So, a couple of million dollars from the angel financiers, and then we launched the company.
How did you expand from being a company focused on Dragonball and a few other similar titles, to the company that you are today, with a much broader catalog of titles?
Well, certainly the upside is higher with those mass-market titles, but it was becoming increasingly clear that it was very much like the Middle Ages. A few earls had all the money and everybody else was a serf. If you didn't have one of those big brands carrying your shows, like Walmart or Target, then it was pretty difficult to make any money. Additionally, the competitive disadvantage of not owning our own TV network, like Nickelodeon and Carton Network, who were trying to push their titles, made it even tougher. So basically, we saw the writing on the wall, while at the same time, all the people we had, myself in particular, enjoyed older-skewing anime stuff much better than a lot of the children's stuff. I decided “That's where my passion is. If I can make a real business plan out of it, I'd rather just go down that path.” That's what took us into the rest of anime.
Do you think that Fruits Basket is the title that established Funimation as more than that core demographic?
Yes, absolutely. I think so. We did a fantastic job with that title. Fruits Basket was one of the very first anime titles that we picked up that was outside the boys action genre. I felt that title was just too good not to buy, even though it was totally outside of our core competence at that time. Everybody was shocked.
How has the acquisition of Funimation, by Navarre in 2005, affected the way that Funimation is operated?
Some key areas improved, to be honest with you, like all of the backend distribution, inventory control, and things like vendor-managed inventory. Basically, that whole backend of moving widgets around the country to lots of places, and properly keeping track of it all improved significantly. So that's been really good for the company. And especially in these areas of tight control, where the DVD market shrank, you'd better know what you're doing. Even things like inventory control, getting the titles not to be off shelf in any store, because you're not blowing up units everywhere and “just in time inventory,” those kinds of big thing.
How do you think Funimation would be different today if it had remained independent?
I think that we would have had to change our backend systems. So, we would have farmed it out to a whole other entity or really beef it up significantly with our own capital, which would have really hurt us, because then, the capital wasn't there. It wasn't going to buy shows, you know. So, it was really good; it could have really stunted our growth.
Some other parts of Navarre's publishing division haven't been doing as well as Funimation lately. How does that affect Funimation, if at all?
Ah, well yes, only in the sense that it affects the overall company's liquidity and the annual investment dollars it can make, because the more [money] you make, the more [money] you can invest in all your entities. So, yes, it affected the overall numbers downward.
So effectively you have less money to invest in new licenses?
You acquired a whole slew of titles that had previously been licensed by ADV Films, many of which ADV had already started production on. Can you clarify that the ADV licenses had lapsed before you took them over? Or did you somehow take them from ADV?
Well, it's not quite either of those, to be honest with you. It's more of a situation where ARM was the signatory on those contracts. They funded it, and then had decided to move it over from ADV to Funimation. So, they approached us and said, “Would you please take these titles?” And so we said, “Okay, sure,” and that's more how it happened.
So ARM approached you?
Yeah, yeah. Oh yeah. We didn't approach them. They were going to shut some of those titles off anyway. They were not going to allow ADV to continue releasing them. They were either going to get shut down and frozen out, or transferred to somebody else, and so we decided that we'd better pick them up or, else they're going to get frozen out of the market.
How did your deal with Geneon come about?
Geneon approached us, along with several others, and asked for a bid from multiple parties. They basically did an auction-style, multi-party bid. And we won.
The Funimation channel, what do you see in its future?
Well, the carriers are very interested in VOD right now, and anime is a perfect VOD vehicle, so we're really aggressively going after VOD right now. That's how people want to see their content, and we started making significant progress in that area once we switched to that kind of thinking. Hopefully sometime this year, we will be announcing several major deals for carriage in that area.
So there is a shift in focus?
Yes, we started off all linear, just 24/7 linear. But starting a new network linear, that's almost impossible right now in the US market.
Has the market changed since you started or if you could have seen the future would you have gone with VOD from day one?
The market was changing and we could have seen the future when we started. But in hindsight, right now… The linear deals we were making are actually generating all the revenue, and it's not revenue to run operations. In actuality, if we had gone the other way to begin with, we're not sure we would be making the money we're making now. So those few linear deals are actually paying for much of the operation of the business right now, so in some sense, it was a mistake, and in some sense, it worked out because of it. It's hard to say how bad that actually is.
Your sales are up year after year, not just your market share, but gross revenue. Is this because you're getting a bigger piece of the pie, or is the pie actually growing?
It depends on how you define the pie. If you define the pie as DVD revenue, which was the bulk of how most companies made their money, then it was a shrinking pie over the last couple of years, but we've seen it stabilize now, finally, and in fact, increase a bit. We know what the pie size is. What we're trying to do is create more pies, and monetize off of ad-supported VOD or the channel or social networking or other things. That's how we're seeing it. If the pie is people who like to watch anime, well that pie is growing. There's no doubt that the viewership of anime is growing out there, and more and more casual fans are entering, and that sort of thing. That's very good news for the industry. It's just a question of how you monetize it, and that's really the issue. So if you sit back and just become a DVD guy, now that the market has stabilized, you can make a nice little business out of it, but that's not enough growth for us. So, we need to be working all these areas.
How does merchandise work into the overall revenue?
Unless you have a mass market hit like Dragonball, the merchandise dollars are not worth more than 5% contribution, so it's just not that big.
What about the potential of Dragonball? How big could that be?
Yeah, that can be huge. At some points, it could be almost the same as all the other methods of monetization. It could be 50% merchandise and 50% everything else at some points. I mean, it isn't now, but because the title is now a catalog, then people want to buy the DVD and the video game. The video game itself is still popular. It's very popular.
You said that anime DVD sales have been down a bit overall. What do you see happening in the next couple of years in the North American anime market?
Well, clearly, what we see in general in the North American market is that DVD is the standard and that Blu-rays will start replacing it. But Blu-ray may give a kick-up in general to DVD sales, therefore we see some reasonable potential, like 10% type growth in DVD sales over a couple of years. The standard market has also stabilized for us, which is good, so what's really happened is that the core people who really buy the DVDs are buying and collecting regardless of all the illegal downloading. What it did was flush out all the people that were the next layer of that onion with the illegal downloading. That's where we saw the shrinkage and it looks like we're back down to the core at this point in time. And that's stable. What we see, though, is like we were saying, a lot more action on the Internet and mobile, and those kinds of things. Now in two years, mobile may not be a significant percentage of overall revenue. It's going to be less than 5%. Merchandise will probably be less than 5%, so the rest has got to be things like DTO (Download to Own), which will be 10 to 20%, ad revenue, which is maybe 10%... it depends. Nobody's really gotten them all to work right yet. Even the major studios don't know what they're doing right now. Myspace doesn't know what they're doing. Youtube doesn't know what they're doing, so we certainly don't. But it's got that kind of potential, that 10% range. Then we think that things like digital access, virtual goods, other social networking-type services, premier subscriptions, and those kinds of things could make up another 10 to 20%. Those kinds of things could be happening. We won't hit those numbers over a 12-month period. Those numbers might be achieved about two years from now at that rate.
Speaking of social networking, Navarre previously had a venture in that area called AnimeOnline. Do you have any plans to bring your own social networking service back? Or do you see yourselves working with third party partners?
We're looking at all the options. I very, very seriously doubt that we are willing to fully finance our own full social networking site by ourselves. That's just not probable right now.
You think the market has more of a focus on “A-List” and “Crossover” titles? Or do “B” titles have a chance?
We think there is enough of a future in digital to continue with it. If we were depending only on DVD sales, the answer would be no. Since Funimation is investing for a five-year future right now, we'll see other rights as being a part of it. We're willing to take that hit right now with the B titles, knowing they won't fully proof off the DVD, under the assumption something is going to happen. You'll need more hours of content, because there are other areas you'll need more hours if you do DVD. That's how we're approaching the market.
With your recent acquisition of titles from ADV and Geneon, you've significantly increased your market share. Do you expect more market consolidation, whether it is at Funimation or other companies?
Our feeling is that there is not a lot left to consolidate, so no. Viz and Bandai aren't going to be consolidated. Obviously, they're great companies and are going to be fine. Really, it's going to be a three-man race in a sense, but in some sense, it's cooperative, because we're all looking more at the long term impact of the industry and so we tend to cooperate. I think that's a good sign that we're pretty strong players in the marketplace right now.
Viz and Bandai both have Japanese parents, whereas Funimation is a US based company with a US-based parent. Do you feel that makes any difference to the way you do business?
Absolutely. Without any question. I feel it's made us much more nimble in the marketplace. We just don't have layers and layers and layers of committees, or approval back to Tokyo, or any of that stuff. You know, we just sit in a room, make a decision, and go. I also think that having a Japanese parent imposes Japanese management on those companies. We don't have Japanese management, in terms of the traditional culture of Japanese management. Of course, I'm Japanese and I was born in Japan and everything, but I've learned the American management style all my life, so I think that provides more of what I would consider an attitude of flexibility. I think it fosters the creativity and the new initiatives we do, and things like that, which keeps us nimble and reactive to such a fast-paced market. This market is so fast-paced, you've got to be nimble. It's not like a lot of industries where you can be a little slower and survive fine. I think that's making a big difference in our competitiveness, to be honest. That's the main core of that statement right now.
A few years ago, a number of anime companies (ADV, Bandai, Media Blasters) started manga divisions. Had you ever considered such a move?
We looked at that business as well, the last several years. The reason we did not get into it is because three, four years ago, we predicted that, unlike the anime business, the manga business is driven by a few big publishers that have enough critical mass on their own to go direct to the US. We felt that they were all going to go direct to the US eventually, and therefore there would be no supply of titles, unlike anime, where everything is done in committees. There are pieces of rights in 40 different companies, 40 different licensors all over the place. Somebody had to consolidate the market so we could look at the overall business infrastructure and realize that anime is very different than manga. That brought a view from the supply side. Therefore, we needed to focus on anime, which was fragmented, and consolidate that as necessary. With manga, we felt consolidation was not necessary because those guys will eventually go direct. Kodansha will go direct, Shueisha will go direct, Shogakukan will go direct. We knew. That's what we predicted, so that's why we stayed out. That continues to be the reason we stay out.
What do you see coming out of the recently released and upcoming live-action anime-based movies?
I certainly wish Speed Racer had done better, but that was for various other reasons. I think that that particular movie was not a real good example of real anime, you know what I mean? The true test will be things like Akira or Ghost in the Shell. That'll be the real test. I think it's going to again put anime one more big step up in level. Hollywood has a bandwagon mentality business, and rightly so. They don't know if anything's going to be good enough, so they try to find some way to create predictability. It's what they did with comic books, when one worked, they were suddenly like, “Oh, we'll just make them all—Spider Man, Batman, Iron Man, Hulk, you name it,” you know? “Hey, that thing works, so let's bang them out.” I can see that same thing happening in anime. Just have one of these things pop $100 million at the box office in its first week or something, and suddenly see Hollywood go after every single anime title they can get their hands on, and another gazillion movies. That'll put anime on a whole other plane, just like it did comic books, I think. That's what I see as the effect if the first one pops. One has to pop, though.
Editor's Note: This Interview was conducted before the theatrical release of Dragonball: Evolution
What is the one aspect that annoys you personally the most about this industry?
Without question, it is how entrenched the Japanese licensors are, and policies that, if they were more nimble, they would have changed and seen that, “oh hey, of course there should be downloads, of course we should be doing VOD, of course we should be doing this, of course we should allow Internet in, of course we should allow Blu-ray right away.” I mean, their lack of knowledge about the US market, and then their stubbornness to think that that the American distributors don't know better about their own market is probably the most annoying thing.
What is the one accomplishment you are the most proud of?
Well, I think without question it's actually going in without any knowledge of the entertainment industry and taking a title like Dragonball Z and having the perseverance to make it into something. Even though all these Hollywood guys said, “Oh, Japanese anime will never work in the US. It's all garbage, worthless stuff; who wants it?” and all that stuff. Never taking “no” in the beginning and actually making it and pulling it off definitely makes me proud. That's something I'm the most proud of.