A New Age For Perestroika

A New Age for Perestroika
By Drew Sutton
Published in Akihabara Renditions

Last year I opened 2007 with a report I titled “State of Classic Anime in North America”, where I reviewed the news of 2006 and posted an outlook for the future. In retrospect for 2007, the licensing and release issues for classic anime that Akihabara Renditions focuses on were minuscule. The big news; however, was the discussion and growing discontent amongst industry professionals and the consistent decrease of sales and economic shrinkage in North America. Starting in the final months of 2007 with Justin Sevakis’s Open Letter to the Industry, quickly echoed by Chris Beveridge from Anime on DVD and by AnimeNation’s John Oppliger, and responded to by GONZO/GDH's Arthur Smith in Japan, the groundwork was laid for more fan speculation and press releases about disrupted release schedules, cutting back on staffing, and even ADV eliminating their NewTypeUSA publication in favor of a new magazine, PiQ.

In the past several months, the fan communities have been in uproar over re-hashed topics like 'can and does fan subbing hurt the industry', 'can there be responsible fan subbing', and circular questioning such as ‘how can the industry expect to compete with free?’. Indeed digital piracy is a problem within the anime community – to the licensors in North America, to producers in Japan, and even to the fans who do not want the industry to die. This “chicken little fandom” mentality, where everyone is convinced that the sky is falling, may not be as artificially manufactured by arm-chair CEOs as one might think. News since Sevakis's Open Letter hasn't been encouraging. Geneon USA has gone out of business. ADV has experienced financial woes after Sojitz has pulled some of their capital. Illegal video hosting and streaming site, CrunchyRoll, received four million US dollars of venture capital, causing FUNimation and Bandai Entertainment Inc. to balk about illegally hosting content and then be publicly embarrassed by GONZO/GDH when they announced that they were in talks with CrunchyRoll about hosting Tower of Daruga, which is now streaming. Speaking of Bandai Entertainment Inc., the most recent news is that their parent company, Bandai-Namco has decided to fold expensive niche-product subsidiary, Bandai Visual USA, into BEI causing some organizational restructuring. All may not be rosy, but its far from lost.

Sevakis’s article describes the industry he works in and it portrays them as being tied in the whole issue. They can’t undertake more digital distribution options because the Japanese licensors won’t allow them to, or, at least not for more money. GONZO's deal with Crunchy Roll coming to actual fruition is promising news, but it can hardly be considered becoming a new standard business model. What's needed is a concept that is a throw-back to the 1980s. A concept that shook the world equally hard as it was needed by those affected by it. The anime industries need a restructuring – perestroika.

There are a host of issues that should be contentious between the legal teams of both the American and Japanese companies when negotiating licenses. American companies are struggling to get any return on investment with their DVDs being as high priced as they are. The Japanese are afraid of reverse importation and due to many production teams counting on approximately 30% of foreign investment (15% is North America alone), creates even higher licensing fees, which the American company has to pass onto its customers. Japan, you may own the rights to the series, but you need to realize that there is global demand for your product – you should compete globally for it. Making use of global distribution through the Internet will reach a wider audience and give fans a much better opportunity to preview series and see where they will vote seriously with their cash. It will also reduce the attractiveness of piracy through fan subbing.

So here is where restructuring begins – Perestroika for the Anime Industry. Japanese companies need to re-evaluate business models: traditional television and home video/DVD sales can still have a place, but ignoring or limiting Internet distribution simply isn’t an option. Likewise, American distributors should be pining for producing the official translations on these online video transfers. Of course, why limit it to just Americans – get French, Spanish, and any other language firms to finance their own versions, coupled with home video rights in their respective lingual territories. These deals can be worked out through an expedited licensing process which reduces the single-point-of-risk associated with licensing a single title after it has been “proven” in Japan. Instead of contract negotiations limiting how American companies release series in their territories, shouldn't the language be modified to allow the content to be release in any and all formats which will generate revenue for all parties involved?

The North American Industries are not without their own need for perestroika. First and foremost, North American distributors need to realize, because it seems many haven’t, that they are in competition with other mainstream media outlets and activities. Seeing anime as special is what makes many of us fans but it does not equate well into getting people to purchase product. Higher price points for what casual fans or the generally curious are more likely to scare people off. Pricing accordingly and making use of more and more rental and broadcast outlets are the keys to getting more sales. Secondly, not only are you in competition with other mass entertainment but you’re in competition with each other. Perhaps the seemingly equal pricing on most products are due to each company spending seemingly equal amount of production costs in bringing those products to market; but pricing outside of the MSRP of $25.99 or $29.99 USD is a lot less common than I would think for companies who compete. It is one thing to know “everyone” in your industry when it is so small but that doesn’t alleviate the fact that business is still business. Finally, intellectual property is arguably only worth as much as the defense put into it. Cease and Desist letters are a start but they shouldn’t be the end result of a legal solution. Without the ability to adapt, more resources should be put forward to defend copyright infringements.

The restructuring of anime industries to compete and cooperate globally is just the beginning. Release schedules for many titles between Japan and North America are getting better and better but the allure of “gotta have it now” presented by fan subbing is yet another factor hurting sales of distributors. Following the theme of perestroika, the anime industries need Gorbachev's second reform to maintain the ability to remain competitive: uskoreniye – acceleration. The business threats that fan subbing represent are free products, distributed without geographical boundaries and with a rapid time frame. Amateurs on different ends of the United States can now collaborate easily to create a fan sub product, with digital files downloaded from people in Japan, in a matter of a week. North American companies can be capable of releasing an identical product, if they were so permitted. Why can't a revenue-generated-by-advertisers, streaming video service be implemented for all titles in a company's library exist? Why not market DVDs to fans who really want DVDs and let individuals see content so they can be aware of whether or not it is worth actually putting money into the equation? The fact that these models aren't being pursued, as a fan who wants the Industry to survive, makes me beat my head against the wall. If I worked for an anime licensor in their negotiations, there wouldn't be a wall – I would have beaten a large hole through it and brain matter would hang, dried like raisins in the sun, from the edges.

If fan subbing is such a threat to the business, then why aren't companies reducing the attractiveness of it by replacing it with their own product? While restructuring is needed to pursue the venture, it also plays into the acceleration of the business. If amateurs can provide the product within a week, if not days or hours after it is available in Japan, then why aren't more North American companies trying to pursue the same avenues? Elimination of piracy is a noble venture and a right of property holders but trying to compete by treating it as an elephant in the room is equally idealistic. And stupid. Legal issues aside, there are market forces which drive piracy, usually from the supplier's price not meeting demand's price plus the want and desire for said product coupled with availability at demand's price point. North American companies, as well as Japanese licensors who are now feeling the pinch of illegal online distribution, should be crushing the competition by making it obsolete or unattractive. If amateurs can do it in their free time, why can't professionals?

Saying “the Japanese won't let us” shouldn't be an excuse anymore – hard negotiations are needed to gain competitive advantage in dim financial times. And that means that the Japanese will have to wake up and realize their business model doesn't work here. The liquidation of Bandai Visual USA is proof of what I said last year concerning their announcement for a business model – Japanese Keiretsu system business practices are designed to fail here. Bandai Visual USA seemed to have the uskoreniye principle going for them; they provided near simultaneous releases for new Bandai Visual products in North America as were released in Japan. The problem was that they tried to play protectionism with their home market, which hasn't evolved much since the boom of the 1980s when home video became big, and American fans refused to support such products. Acceleration is important to maintain competition (or to once again become competitive) but it does little if you're not going to meet your consumer demands, which for BVUSA, would have involved perestroika as well.

Finally, there comes the third and final reform that Gorbachev introduced to the USSR – glasnost. This openness that was highly lauded in the West was meant to provide not only more individual freedom to citizens of the Soviet republics but also a means in which the Soviet government could strengthen itself by improvement. Glasnost for the anime industries doesn't quite have the same methodology though a similar goal. Understandably, North American anime companies have certain secrets, as do all industries, that they cannot divulge to people who are not permitted access to such knowledge. However, if true restructuring is to take place for both the American and Japanese companies and how they do business together, then more openness is needed for why suppliers cannot meet consumer's demands. And from there, pressure can be applied to improve quality and availability of product to meet consumer demands.

But, the need for perestroika, uskoreniye, and glasnost aren't only the problems of Japanese and North American industries. Anime fandom is going to have to undergo some changes of its own. Firstly, anime fandom, if it is going to make demands, needs to support those products that meet those demands. Purchasing for the sake of purchasing sends mixed messages. There needs to be a shift in the fan sub community back to the original goals of fan subbing – getting fan support behind a title to get licensed or getting access to a title because it is the only means possible. Fansubbers should ask themselves every time they think about fan subbing something 'what are the chances of this getting licensed'? If its slim to none, then it might be worth it. If its really high, then why bother? If someone else is subbing a title, why should you too?

This article may be damning for Japanese and North American companies and might look like it is giving anime fans a pass at their responsibilities in the overall relationship. That might be a fair assertion, though it is not the way I see it. The reason that rampant fan subbing of even popular series exists is because companies are clinging to out-dated business models and trying to survive in the world of twenty-first century economics. That is what is damning. Globalization means having to meet global demands for products and the old way of doing business, especially when your consumer base is continually getting younger and younger, simply isn't acceptable anymore. As a fan and as a consumer, the writing is on the wall and plain as day to me. What is still a mystery to me is why it seems I am the only one, or others like me are, able to read it. If a company, Japanese or American, is going to turn a blind eye to the issue and expect business as usual (or to not meet market demands), then they should not expect to succeed. The opposite is true – even if it means that business is not as usual, companies should be working to provide customers what they want, need and desire through competition and market norms of those from which they are trying to solicit business - and they will succeed. A healthy and profitable industry cannot exist right now with American companies playing to the interests of Japanese protectionism, business models reliant on old technology and whining about (and like) spoiled brats. Instead, the companies should be acting in the interests of generating the most revenue (turning as much into profit as possible) as they can and exploiting technology to their own competitive advantage.