You hear the international community ask this all the time, “why don’t anime studios focus more on the international market if they aren’t making enough money from the Japanese market?”
On the surface, it makes sense. There are a lot of foreign distributors for anime, and there are a handful of legal streaming services that the industry can tap into. What’s stopping them?
Money, my friend. It turns out, focusing on foreign dollars may not be worth the effort. Let’s look at why. To help explain this topic, we’ll be using the following imaginary names:
Doki-Doki Studio – our Japanese studio.
Doki Doki-chan and the 7 Broken Hearts – our anime series.
Gajin Studios – our American distributor
AniStream – an American anime streaming site.
Most anime studios rely on localization companies to bring their work to international fans. This is because they don’t have the money to form their own distribution companies, similar to how the movie industry works. Aniplex of America, Pony Canyon USA, and Viz Media are the rare exceptions.
Localization companies have no reason to reveal licensing costs to the public, so it’s hard to get a figure on this. We can try to guess based on the court documents from when Funimation sued ADV for breach of contract.
Here are some of the licensing fees that ADV paid:
- Air – $145,000
- Welcome to the NHK – $240,000
- Pumpkin Scissors – $780,000
- Kurau: Phantom Memory – $960,000
- Air Gear – $780,000
- Ah! My Goddess 2 – $516,000
These fees were from 2007, which was the height of the anime boom in the USA. Modern fees could be cheaper or could be more, we don’t have any solid numbers, but we can play around with the concept.
Licensing fees have six factors – minimum guarantee, video transfer fee, adjusted growth revenue, term, sell-off, and territory. Here is how each section breaks down, and what it means for anime studios.
Minimum guarantee is the up-front licensing fee a localization company pays for an anime, and is the most important part of the deal. This is how much money a studio will receive, regardless is the series is a bomb or is shelved.
Video transfer fee is what the localization company pays to receive video transfers.
Adjusted growth revenue is how much money the anime studio makes long-term based on international success. After Gajin Films makes their minimum guarantee back, paying staff members, and taking care of other expenses, they may have to send a percentage of future sales back to Doki-Doki Studios over the course of the license contract. Typically, it’s between 20% to 30% per copy sold. If the series is a bomb in the localized market, then the anime studio gets nothing in return.
Term is how long Gajin Films has the license to the anime. 5 to 10 years is the average for home video rights and 1 to 2 years is the average for streaming rights. Once the contract is up, Gajin Films has a chance to renew the license or choose to abandon it.
Sell-off only happens if Gajin Films chooses not to renew their license. Typically, they will have 6 months to sell any remaining inventory before Doki-Doki studios can allow a different company to purchase the license.
Territory is where Gajin Films can distribute Doki Doki-chan and the 7 Broken Hearts.
Okay, that’s a lot of information! How does that translate into money from home video?
Foreign Home Video
Let’s assume Gajin Films licenses Doki Doki-chan and the 7 Broken Hearts for a minimum guarantee of $240,000 and 20% adjusted growth revenue. This means Doki Doki Studios receives enough money to help produce 1 anime episode based on the licensing fee, assuming that an episode’s budget is $250,000.
Adjusted growth revenue is a little more tricky. Let’s say the series sells 500,000 copies at $60 per copy. That’s $30,000,000! But hold on…we need to deduct the minimum guarantee from that.
For dubbing, we’ll use the $8,000 per episode cost that the Skip Beat! Kickstarter showed. At 12 episodes, that’s about $96,000 to dub an entire series. It also costs about $40,000 to master a title for Blu-ray and $2.00 to print a single disc. Let’s assume 650,000 copies were pressed, putting the bill at $1,436,000 for dubbing and manufacturing costs. Distribution and marketing can cost the same, which is another $1,436,000. (2872000
That leaves $27,128,000 before paying any wages and bills, which can assume costs and extra $5,000,000. $22,128,000 needs to be taxed at 35%, which leaves $9,383,200.
Now you can take the 20% adjusted growth revenue that Gajin Film This means Doki-Doki Studios can potentially make $2,876,640 over the course of 7 years, which averages out to $410,948 per year. That’s enough money to make 1 1/2 episodes.
That’s not a whole lot of cash once everything is payed off – and this is the best case scenario!
But home video is the thing of the past! Legal streaming is where the money is, right? …No, it’s not. There is a reason why the anime industry has not thrown it’s weight behind legal streaming.
Licensing fees for streaming are lower than home video licenses. Online licenses range between $1,000 to $2,000 per episode, which works out to between $12,000 to $24,000 for the entire series.
That $12,000 to $24,000 license could be all that Doki Doki Studios gets, since they don’t have adjusted growth revenue to fall back on. Instead, they would have to fall back on proportional royalties.
Let’s say AniStream has 1.25 million subscribers paying a $7.99 fee to simulcast anime. That’s about $9,987,500 in monthly revenue before paying wages and server bills. Let’s keep it easy, and assume they have low costs and they earn $7,500,000 after wages and bills. That monthly revenue is split up in a proportional amount and sent back to Japan.
Let’s say you spend 15% of your time watch Doki Doki-chan and the 7 Broken Hearts, 45% on Ninja Lad, and 40% on Ragnarok: There Can’t Be War if I Love My Cousin Who Happens to be My Shield. That means only $1.20 of your subscription goes to Doki Doki Studios.
For scale, let’s say 50,000 people are watching Doki Doki-chan for a total of 30% of traffic for the Winter season (3 months). This would figure out to $359,550 over the course of a season (enough to make 1 episode and start storyboards for a 2nd).
And that’s only if the series is a moderate success. Most anime will make far less than $359,500 over the course of a season. This is one of the reasons anime studios have not rushed towards online streaming, since home video still provides more guaranteed money.
However, there is a chance that Netflix could turn the industry on its head. The company has already stated that they have plans to partner up with anime studios to produce original series.
Netflix is reported to have 83 million subscribers, which brings in $746.17 million a month! This amount of revenue allows them to work with big name movie stars like Kevin Spacey and Guillermo del Toro.
The amount of revenue allows Netflix to partner with huge names and native advertisers to create original series, which gives them and studios a lot of flexibility. Like most streaming sites, revenue is handed out proportionally. Unlike sites like AniStream, a series does not have to be a huge hit to make loads of cash.
Let’s say only 5% of Netflix subscribers tunes in to watch Doki Doki-chan and the 7 Broken Hearts. That doesn’t seem like a lot of people, but you know how much money the series just made? $37,308,500 million! Even 1% of viewers nets $7,461,700 million.
This is why we see Polygon Pictures, Studio Trigger, and Production I.G. strike up exclusive streaming deals with Netflix. Even if a small amount of subscribers watch their series, these studios still end up making more money through Netflix than they would from any other streaming source and international home video distribution.
Of all foreign distributors, Netflix is one of the few that has enough capital and legitimacy to change the production system of anime.
Currently, foreign distribution is not as big of a money maker anime fans would like to believe. While the little bit of money earned is better than nothing, it’s not enough to get Japanese companies to focus solely on the international community.
You should still legally support the anime you love! This is just painting a picture on why it seems like Japanese companies couldn’t care less about international tastes and money.
Update: 2/23/17 @ 2:11 PM EST
Senior Social Media Manager at Crunchyroll @MilesExpress999 retweeted this article and got in a discussion with Goboiano’s Twitter over the current state of the industry that ended with this.
International sales made up 1/3 of the anime industry in 2015, and there's been incredible growth since then https://t.co/I08RIzIxew (2/2)
— your friend miles (@MilesExpress999) February 23, 2017
We’ll investigate this article later this week and are excited that through discussion, we can see all the different perspectives in the industry and get closer to the truth.
Revenue data is hard to come by since anime companies are not public companies and don’t report finances yearly. The anime industry is undeniably growing so maybe a public anime company will emerge in the next 5 – 10 years. Crunchyroll itself is the largest of the international distributors and has grown since it’s start in 2006. The company was later acquired by Otter Media (owned by AT&T and The Chernin Group), partnered with Funimation in 2016, and recently reached the 1 million subscriber mark this February.