Analyzing the State of the Anime and Manga industry in 2012

Someone asked me via a personal message what would be some good ways of thinking about the anime and manga industry and how to improve things. My response grew quite long, so I thought I’d share it with everyone.

1) Revenue is decreasing. Piracy is often cited as an issue, but the two other issues may be just as important or even more important–Shrinking demographics and overall economic recession in Japan.

2) Profitability is concentrating on big winners and few others. You probably know that there are hundreds of anime series made every year. Manga is just as active. Every year, at least 10,000 titles of different manga compilations are published. That’s just compilations. It helps you appreciate just how diverse and widespread manga is in Japan. But as the market is contracting, only the top titles are making lots of money. The lower tier titles are hurting very badly. This wasn’t the case in the past–i.e. you didn’t have to be a top-tier manga author to eek out a living. Now, many manga authors have become part time authors and take on second jobs. Income from doing doujinshi has become increasingly more important for others. Many authors are moving out of Tokyo simply because they can’t pay for the rent. This is bad in a number of different ways, but simply put, as the minor leagues grow less robust and more feeble, innovation tends to stagnate and fewer stars will arise, making the big leagues more boring with the same old faces sticking around forever.

3) Anime and manga is a local product. While a lot of talk has been devoted to overseas expansion of anime and manga, the reality is that overseas sales of most titles do not help the creators and companies very much. Most titles get very little income from the overseas market. Anime and manga are not one size fits all industrial products. What is entertaining for a Japanese many not be entertaining to a Russian or a German. Creators have a hard time just trying to meet the demands of the Japanese market, they really don’t devote a lot of thought into the foreign market since they know so little about them and they get so little money from them.

4) Market size and structure matters a lot. People have cited online distribution as a killer idea for anime and manga. If only the companies would do more online distribution, the thinking goes, more people would be exposed to good stuff and companies could make money off of advertising. The reality is, online distribution does not offer much money for anime and manga. There already is a lot of free stuff on the web and trying vie for the hearts of people on the Internet is a lot harder than you might think. Recall the subject about winner takes all I just mentioned before. When there is a huge amount of material available, people tend to gravitate toward titles they already know about.

The magazine model, often cited as archaic, actually does a great job of exposing people toward new titles. People would buy a magazine for Naruto and then they would flip through the rest and they might find enjoyment from another title, helping to boost the chances for new stars to arise. But this magazine model only works if the market is large enough to support it. My hunch is that the US market is not large enough to support this model while the Japanese market is still large enough. The difference between the market size is about a factor of 7~10. That’s total revenue size of the two respective comic book markets. I worry about what would happen when the Japanese market shrinks to a point where this extra baggage cannot be supported.

Digital distribution might work better in Japan if a standard format could be devised and people could have faith in a system, but many parties in the publishing side don’t like the digital distribution system because they can’t make money off of it. Amazon has become increasingly aggressive in trying to market Kindle in Japan, but they are demanding a lot of money and, more importantly, requiring creators to hand over a lot of their rights to publishers who are to be their sole representative regarding intellectual property issues. In effect, Amazon wants to Americanize how manga is managed in Japan, but this is meeting very stiff resistance for a number of different reasons. Many manga specialists look at how things are done in the US comic book industry and they don’t see something very promising.

4A) Advertising specific issues. A word about advertising. My belief is that advertising can be broken down into two groups, general and niche. If you are selling hamburgers and deodorant, its hard to make money off selling a small number of items. These are mass market items, so they need to be advertised to a mass market. On the other hand, if you are selling specialty goods, such as plushy Cthulu dolls and bullet reloading equipment, you want to reach a specific market. The market might not be very large but if you can establish a good reputation within that small market, it can be a reliable source of income.
Anime and manga, generally speaking, falls into the niche market category. You really can’t expect anime and manga titles to match audience numbers of network television.

Any online distribution model of anime and manga that originates from Japan will have to be supported by Japanese advertisers. Even if the audience might be global, their main target audience will have to be local, simply because they can’t make enough money off of foreign sales. There is no questions foreigners who watch anime and manga can be a reliable and faithful market for some items. The problem is that the Japanese advertisers can’t reach the overseas niche market as easily. Niche markets don’t generate a lot of volume, so you need to keep your costs down, so they don’t want to advertise to a foreign market that they know very little about.

Imagine your local comic book store. Many larger comic book stores in the US run advertisements, but you tend to see a lot ads from your local retailer more than a retailer that might be on the other coast of the US. I know there are exceptions, but I believe this generalization isn’t absurd. Local advertising is cheaper and you can measure its effectiveness more easily. That’s crucial for a specialty product provider who has a tight budget.

5) Reducing cost is important, but many people don’t want to reduce cost any way they can. The anime and manga industry is considered to be one of few bright spots of the entertainment industry, so a huge number of people, many of the non-creator types, are trying very hard to get a piece of the action. Simply put, the reputation of anime and manga being huge industries is leading many to make unrealistic business models.

A few years ago, I took an American friend of mine to the offices of Khara before they moved. My friend could not believe Evangelion was being made in a cramped small office with low ceilings and no personal office rooms. Even Mr. Hideaki Anno does not have a his own room. And yet we do what we do and we don’t complain much. And by the way, Mr. Anno still does not have his own separate office space.

Just because you might think the stuff that comes from Japan is top-notch, its doesn’t mean we secure top-notch compensation. Most US TV and cable program producers would burst out laughing if they heard what kind of budgets we work under, so reducing our cost any further on the creative side would be very difficult.

6) Treating all members of the audience as being the same is a bad idea. Things have changed quite a bit since the days when manga started out, when there was very little cheap entertainment around. Go back in time 30 years and you’ll realize that many people were reading manga just to kill time. Video games, the Internet, and cell phone specific entertainment all compete for people’s attention now. Some people are willing to pay top dollar for a product they feel strongly about. Others don’t want to pay anything and they’ll switch over to something that is free rather than pay for something.

Unfortunately, with shrinking market size, there has been a pressure to race to the extremes of both markets. Many DVD/BD releases in Japan are expensive, but they are packed with extras that would impress many devoted fans, some of which are willing to pay for it. Many releases overseas are cheap, but their quality can be highly suspect. I personally don’t think you can make one product that satisfies both markets, but since anime itself is a niche market, it is very difficult to come up with multiple releases of a given title.

PS: I’m still working on The Witches of the Sphnix 5.