Recent reports have shown the anime industry has been in a slump for the last two or more years. This is interesting because no one has apparently told Gen Fukunaga, President and CEO of FUNimation Entertainment.
For those who don’t know, FUNimation is a division of the Navarre Corporation, a large distributor and publisher of independent DVDs and other home entertainment. It also owns the BCI and Encore brands. In his year end report, Navarre Chairman Cary Deacon reported the following:
“FUNimation demonstrated double-digit net sales growth and more than doubled its operating profit during the 2008 fiscal year and we anticipate ongoing growth in the 2009 fiscal year. Encore maintained its solid profit performance. BCI was a major disappointment in the last half of the fiscal year. Its recovery was slower than anticipated; however, we are seeing early signs of improved performance in our first quarter. We have issued conservative guidance for FY2009 based on the current state of the economy and rising fuel costs.”
While accounting procedures Navarre uses makes it hard to differentiate what part of the publishing stream comes from FUNimation in comparison to BCI and Encore, this is the fact that counts. Just about every report out there shows the anime industry down about 20% for 2008. Clearly, FUNimation successfully bucked the trends.
Then Fukunaga really raised some eyebrows at this year’s Anime Expo. He reported he had acquired an incredible number of titles from the now defunct Geneon Entertainment as well as the still operational ADV. In other words, where most anime distributors were consolidating and/or dropping a number of their titles, FUNimation was expanding.
Obviously, we had to ask Fukunaga just how he’s doing it.
For the record, Fukunaga formed FUNimation in 1994. Before that he got his bachelor’s and master’s degree at Perdue University before then going on to Columbia for his MBA. Before starting FUNimation he worked for Tandem Computers, Anderson Consulting (now Accenture) and IBM.
The company hit the big time in the late 1990s, when it acquired the rights to produce Dragonball Z. Now its roster includes a number of sterling titles ranging from Samurai 7, Afro Samurai, Yu Yu Hakusho and one of my personal favorites of last year, the anime version of Witchblade. The company is now moving into the live action arena, having scored a solid seller in the film Shinobi and hoping for even more this the September release of Genghis Khan. Don’t be surprised if there’s some major announcements happening in the delivery arena also. FUNimation is already exploring download-to-own and other avenues as you read this.
Here’s what Fukunaga had to say:
Newsarama: The most pressing question first, why take on all these titles from Geneon & ADV? FUNimation has a pretty fine library on its own.
Gen Fukunaga: One is that in the ADV case, they included digital rights and we’re making that a very big push and digital initiative. So it was important to beef up our portfolio with digital properties. The fact is that they are already dubbed also, and the cost to dub is more than to actually acquire the titles. So, it was a good price, in a sense.
In Geneon’s case, part of it was, of course, they had some extremely strong titles, like Hellsing and Black Lagoon. We certainly didn’t want anyone else to have them. Them and Ergo Proxy were certainly titles we didn’t want in anyone else’s hands.
NRAMA: You mentioned you are going into the digital arena, what do you mean by that?
GF: First, we are going into free, ad-supported internet VOD, digital assets and virtual goods. Along with that we’re going into central networking. We also have a healthy start into download-to-own. That is becoming a very important part of our revenue stream.
NRAMA: Speaking of revenue. In his annual report, Mr. Deacon, your boss at Navarre Corporation, reported that FUNimation is enjoying double digit growth. What do you attribute for that success when other anime news outlets report declining sales and financial issues?
GF: Primarily, and to be honest about it, by getting more market share. We also managed to get most of the good titles that came out last year. The ones that really can make a difference, obviously. A few good titles can really make your year. So the blend of those two things kept us growing.
NRAMA: One thing I have to commend you for is getting TV exposure for titles that normally wouldn’t get it through IFC. Was that important for you?
GF: Yes. IFC has been a great partner. They have been very productive for us.
NRAMA: Are there plans for more titles to show up on IFC in the future?
GF: Yes. For as long as they want to have us, we’ll keep sending them.
NRAMA: So it’s been a mutually beneficial relationship?
GF: Yes. They do get a good deal for some seriously high budget content, particularly for their target audience. To be real, we’re not selling to them for the prices a Hollywood studio would charge. Shows like Samurai 7 just hits their market right on the head. In turn, it became one of our biggest sellers.
NRAMA: A year back you announced distributing some of your titles through the Colours network. TO be honest, that was one network I was never able to get locally. Is that still working?
GF: That was meant to be a kind of temporary deal while we were trying to get other distribution. We are trying to be our own channel, not a segment in somebody else’s. What we’ve been aggressively pursuing is VOD. That’s what all the carriers really want. They don’t want a linear channel. They want VOD content. We are really close to closing a very important deal as far as getting a FUNimation VOD platform out. That will give us much wider distribution.
NRAMA: Do you have an ETA for this?
GF: It’s as fast as these carriers can sign a contract (Laughs). I hope by the end of this year we’ll have a few to announce.
NRAMA: Another thing I’ve noticed is you’ve added a few live action titles such as Shinobi and Hana. Is this part of your overall plan to expand FUNimation?
GF: Yes. Love & Honor and the upcoming Genghis Khan are also ours. And yes, this is part of our plan. It manages to hit most of our demo as well as breach into another demo of film lovers and Japanese culture. Yes, you lose some of the anime people who aren’t into these kinds of films, but that nice overlap really makes it nice and tight. It also doesn’t hurt that the films come from the same licensor.
NRAMA: Well, I can see films like Shinobi fitting in with fans of films like Rourori Kenshin or Basilisk.
GF: It’s a big overlap. I’d say 80% of the people who watch anime will also watch Shinobi, so you lose about 20% of the audience. Yet you gain a lot more because of all the fans of classic Asian drama. People who like Kurosawa or samurai films. They aren’t necessarily anime people. They are international film lovers. In fact, the sales of Shinobi have been pretty darn good.
NRAMA: So when is Genghis Khan hitting the market?
GF: Soon. It looks like it will street on September 2.
NRAMA: So do you see doing more films like that?
GF: Yes. There is a difference though. There are a lot of low-budget, more soap opera-like properties that are also available. They usually come from Hong Kong or China. We’re not really picking those up. We’re sticking to high budget, but not exclusively, Japanese epics or films with a reasonable budget but lots of critical acclaim. For instance, Love and Honor, the production budget wasn’t as high as Shinobi or Genghis Khan. Yet it was the third chapter of a trilogy and the first part was nominated by the Academy of Motion Pictures for Best Foreign Film. So artistically it truly was excellent.
NRAMA: Are you looking into other international markets, such as South Korea or India?
GF: No. We’ve looked, especially at Korea and China. To be honest, the content is just not competitive enough in comparison to what I’m getting from Japan. If I did, I would run out of money before I could get to everything I want to do. Besides, I’m originally from Japan. It’s better to buy smart than to just buy.
NRAMA: Now getting back to your core, which is still anime. How do you see the piracy issue right now? I’m sure it took a dent into your sales.
GF: It put a dent into the whole anime industry. The fansubs/download issue looks like it’s stabilizing now. What it did was it drove a lot of the casual, buy the first volume fan, out of the market. Those are the people who aren’t buying anymore. In the old days, the sales between first volumes and the rest of a series aren’t dropping off like they used to in the old days. You used to have a BIG drop between the volume one of a series and the second, then another big drop with volume three. While it’s nice to not have those drops anymore, you also don’t get those sales. Only the core collectors are buying now.
NRAMA: Do you see potential in complete series season sets like they do with American television shows?
GF: We’ve started that strategy with Aquarion. We are going that route. We have to see a pretty convincing jump in sales to justify continuing that strategy to make up for the lost revenue, of course. It’s a high risk level, so I don’t see many of our major titles coming out with that model. A lot of our other titles, even if they are real good, are just not that well known to justify season sets at the get go.
NRAMA: Would you say the anime market is just in a down cycle at this moment? Things will come back up in the future?
GF: It depends on how you look at the picture. I think the DVD market has probably bottomed out. It’s not because there’s a lack of fans though. Actually, the fan base has been increasing year after year. It’s things like the piracy issue has driven DVD sales down.
I honestly think another reason why anime sales have gone done is four years ago, the television industry really didn’t put too many classic American TV shows on DVD. Now they are putting out boxed sets of entire series at dirt cheap prices. Now you’re seeing all these shows like Battlestar Galactica, 24 and Lost at extremely good prices. That competition wasn’t there before. Here we were selling our DVDs at $30 for four episodes, so you can imagine what that has done to us.
I mean every con that I know of has experienced serious growth over the last few years. I don’t think there’s been a con out there that hasn’t. I think the huge cons haven’t experienced quite the same jump, but the local ones have. There’s also no question that the download numbers have hit the sky.
I think the trick is learning how to market anime in a different way.
NRAMA: So what you’re saying is there’s been a paradigm shift for lack of better words and compensating for it.
GF: That’s how we see it.
NRAMA: So, overall, how do you see the future at FUNimation?
GF: I’m very optimistic. I think we got a great digital strategy in place. We’ve got several other growth strategies in place that I think are also going to work. They are low risk, good upside. With the anime fan base continuing to grow I think we’re in good shape. We’re just in that place of figuring out how the anime base is going to be monetized during these transition years. That’s starting to flip over right now. We’ll see the growth.
NRAMA: Do you see yourself doing something like what I think Viz is already doing, which is as soon as an episode shows in Japan, it’s available for download over here?
GF: Absolutely. That’s the long term plan. No question about it. The biggest reason anime suffers while Hollywood does not is the gap in time between Japanese release and the release of anyone who has the rights in the American market, which traditionally has been many months later. That’s when these fansub titles occur. That gap is what hit the anime market particularly hard. If there’s no gap, the piracy would be a fraction of what it is.
NRAMA: So you say it’s more American fans wanting the latest and greatest yesterday than the price issue?
GF: They just want it. They really want it. Waiting for a DVD 9-12 months makes them use any legal or illegal method possible.
ANIME NETWORK ADDING 7 NEW SHOWS
While ADV may have lost an incredible number of its titles to FUNimation, it looks like its ready to plow on with the Anime Network.
They have teamed up with fellow distributor Right Stuf and will be adding seven more series to their VOD service. The shows added are:
• Boogiepop Phantom TV: Some urban legends are terrifyingly real. Horror meets anime in Boogiepop Phantom. 12 Episodes. Episode 1 available beginning August 7th
• Gravitation: Shuichi always dreamed of becoming a pop star. A chance encounter with a mysterious stranger changes both his career and his love life for the better. 13 episodes. Episode 1 available beginning August 7th
• Shingu: (US TV Premiere) When a long-held secret begins to unravel, Earth’s future will fall into the hands of the unlikeliest of heroes. 26 episodes. Episode 1 available beginning August 7th
• Boogiepop Phantom and Others: (US Premiere) Five students try to piece together the puzzle of a new drug and recent disappearances among the student populace. Episode 1 available beginning September 3rd
• Piano (US Premiere): Miu is an 8th-grader who has been playing piano since early childhood. She grows up gradually while her friendship, kinship, and love affairs evolve around her, but those relationships inevitably affect her piano performance. 10 Episodes. Episode 1 available beginning September 3rd
• To Heart (US Premiere): Life flies by for two high school students. And a childhood friendship turns into something more. 13 episodes Episode 1 available beginning October 1st
• Gravitation OVA: (US Premiere) Love trouble causes Bad Luck’s Shuichi to fall into a writing slump and the band can't even hire someone else to write the lyrics for them. 2 episodes. Episode 1 available beginning October 2nd
For the record, when asked about the recent FUNimation acquisition, ADV had no comment. An inside source did say the company is “just working, not talking.”
NEXT COLUMN: According to the song, there’s 104 days of summer, and we’re catching up with Dan Provenmire and Swampy Marsh on how they spent it with Phineas & Ferb.