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As the global streaming business underwent a surprise, secular reassessment last year, Sony’s anime service Crunchyroll found the whole industry suddenly contemplating the same strategies it had been prioritizing for years. Out was the gusher approach to content spending in pursuit of limitless subscriber growth. In were financial discipline, multi-tiered subscription options and a more diversified approach to revenue generation.
The Crunchyroll of today is actually a merged service comprised of two former U.S.-based entities: Funimation, an anime platform founded by industry pioneer Gen Fukunaga in 1994, which Sony snapped up for $143 million in 2017; and Crunchyroll, the then-second-largest dedicated anime service, which the Japanese entertainment giant bought from AT&T in 2020 in a deal valued at $1.18 billion. Sony once was thought to be paying a steep premium in the latter acquisition, but given the success and opportunity the company has created for itself in consolidating the anime niche, many analysts would now argue it was a bargain.
“A couple of themes have emerged in the latest iteration of the disruption that streaming has brought to the entertainment space — the focus on profitability and the flywheel effect, or having a mix of mutually compounding revenue streams,” says Rahul Purini, a Funimation veteran since 2015 who was appointed as Crunchyroll’s president last year. “And these are the things we’ve always been focused on — not that we knew this was coming, but simply because Crunchyroll and Funimation spent many years as startups that needed to grow profitability to survive, and because a 360-degree flywheel approach is how the anime community actually wants to be served.”
Anime fans are a uniquely passionate community and Crunchyroll has long described its business as meeting its audience wherever they might be. At the core of the service is a streaming platform boasting the largest online library of new and catalog anime content, with subscription options ranging from a free, ad-supported tier to three paid tiers (from $7.99 to $14.99) offering ad-free viewing and varying degrees of perks. Cruncyroll reported earlier this year that it had 10 million paying subscribers and Purini says the streaming operation is “solidly profitable” (although Sony doesn’t break out details). The company is also the leading theatrical distributor of anime movies in North America, where it has released ten of the top 20 all-time highest-grossing titles in the category (more on this later). It also hosts a growing number of regular live events — mostly in the U.S., including anime fan conventions, expos and an awards show — and is expanding its merchandising operations, catering to anime fandom’s penchant for collecting (in August, Crunchyroll acquired Right Stuf, the top online retailer of anime goods and manga in North America). Nascent mobile gaming and an anime music streaming service are also gaining momentum on the service — business lines that will only benefit from further integration with Sony. The perks that come with the priciest Crunchyroll subscription span all these categories (special access to Crunchyroll events, screenings, merch, etc.).
But this solidly diversified business ecosystem would mean far less to Sony if anime culture weren’t undergoing a global explosion of popularity — and it most certainly is.
“We have made internal estimates of how big the anime market will be, and we’ve underestimated its growth every year,” says Purini.
In 2020, the Association of Japanese Animators reported that the international market for Japanese anime surpassed the domestic Japanese market for the very first time (about $11.5 billion vs $11 billion). The growth is most readily visible in the outsized sums anime titles have been earning at the box office, even in the pandemic era. In 2020, Crunchyroll released Demon Slayer the Movie: Mugen Train (2020), earning $50 million in the North America out of the film’s $453 million worldwide total. Other successes have included 2021’s Jujutsu Kaisen 0 ($34.5 million in NA, $166.7 million worldwide) and last year’s Dragon Ball Super: Super Hero ($38 million/$48.5 million). Crunchyroll’s next major theaterical outing will be anime hitmaker Makoto Shinkai’s Suzume, which has already earned $103 million in Japan. It opens stateside and in Europe on April 14.
Crunchyroll says its internal research shows that about 300 million people around the world watched Japanese anime in some form or another in 2022 — which is double 2020’s total viewership. The company also says that its user base — primarily centered in the U.S., followed by Western Europe, Mexico, Brazil and Australia, with plans to expand in Southeast Asia — is growing meaningfully across all age groups, but it’s exploding in the 13-17 and 18-25 age segments.
“If it’s a niche, it’s a pretty huge niche nowadays,” Purini adds.
At this point, the trajectory anime is tracing is probably most similar to hip hop, an art form and encompassing lifestyle that emerged from very specific cultural and geographic origins to become a mainstream category of universal global appeal. But much like hip hop, anime’s currency remains its authenticity and connection to the source — in this case the singular sensibilities of Tokyo’s anime artists and studios.
But the corporate interest in those sensibilities has never been greater either. Observing the same trends as Crunchyroll, and also keen to grow their services within the large Japan market, the major streamers — Netflix, Amazon, Dinsey, et al — have been spending aggressively on rights to top anime titles. Research firm Media Partners Asia reports that anime currently comprises 12 percent of all premium subscription video viewing hours in the Asia-Pacific region — the one part of the world where the streamers are still adding subs at a significant rate. Netflix launched 40 anime titles on its service just last year, while Disney inked a deal last November with Japanese publishing powerhouse Kodansha to boost its anime originals output. The cost of licensing exclusive anime content has climbed accordingly.
Cruncyroll’s executives believe they have a few advantages over the major streamers that will help them maintain their steady flow of desirable titles from the source, Japan. Their deals often span relationships across streaming, theatrical, merchandising and gaming, offering anime creators — among the scene’s most diehard fans themselves — multiple touchpoints with their audience. Their deals also entail back-end revenue and data-sharing agreements, ensuring that the biggest hits on the Crunchyroll service are shared wins (something Netflix, notoriously, never does). And the company also happens to be owned and supported by one of Japan’s most esteemed corporate brands, a relationship that opens doors and carries myriad cultural benefits in Tokyo.
Whether Crunchyroll can come to occupy more than just a niche within Sony Corp.’s sprawling global business portfolio remains to be seen, analysts say. The conglomerate’s bold bet over the last past half decade to consolidate the anime category outside Japan now looks just as prescient as its parallel decision to be an “arms dealer” in the streaming wars, rather than shelling out the billions that would have been required to launch a general entertainment platform of their own.
Adds Vivek Couto, executive director of Media Partners Asia: “Sony’s strategy of owning and operating anime IP is clearly playing out very well. Can they now scale the Crunchyroll service on a meaningful global basis — without breaking the bank? That’s the next significant challenge.”
This story appears in the March 16 issue of The Hollywood Reporter magazine. Click here to subscribe.
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