Japan Toons Up

October 2007

More than a decade since Pokémon became a global phenomenon, producers and distributors of anime are still looking for the next breakout hit.

Thanks to a Nintendo video game and accompanying TV series, there was a time a decade ago when virtually every child in the developed world knew who Pikachu and the other “Pocket Monsters” were. 4Kids Entertainment in the U.S. had spotted the global potential of Pokémon, taking the Japanese show and placing it on leading kids’ channels worldwide. “Approximately 10 years ago, we witnessed the explosive growth of the worldwide appeal of Japanese anime, fed almost entirely by the Pokémon phenomenon,” says Brian Lacey, the executive VP of international at 4Kids.

The show remains on the air in a number of markets, and the Pokémon Company, which reclaimed the distribution rights to the series from 4Kids about two years ago, is starting to see renewed interest in the brand. “Feedback from local territories is that it’s on a comeback and is steadily growing [in popularity] again,” says Olivier Koji Marmillot, the TV and media manager of Pokémon U.K., which is handling the property throughout Europe, the Middle East and Africa.

The flurry of interest in anime following Pokémon’s initial rollout, however, was relatively short-lived. “I describe 2000 and 2001 as the bubble for the acquisition of Japanese animated series,” says John Easum, the president of VIZ Media Europe, one of the biggest players in the global anime market with a catalogue that includes InuYasha and Naruto. “There was a huge scramble to acquire Japanese series, with the hopes that they would repeat the success of Pokémon. Unfortunately, many did not, and some networks stopped acquiring Japanese series.”

Easum adds that the overall market trend toward gender-neutral titles has also not been kind to the anime genre. “This has been a difficult domain for Japanese series to break in to.”

“In the past several years, we have witnessed a general reduction in demand for Japanese anime content, driven by several factors,” says 4Kids’ Lacey. He cites a “lack of creative content that has legitimate kid appeal, and the reduction in demand by the worldwide pay specialty kids’ channels.”

Nonetheless, Pokémon opened the way enough that there have been a number of other success stories, thanks in part to the likes of Jetix, Cartoon Network—which operates the anime block Toonami—and Sony Pictures Television International’s global Animax channel, which in some parts of the world uses morning and afternoon slots for kids’ and tween-friendly fare.

In the post-Pokémon era, 4Kids has done well with Yu-Gi-Oh! and Yu-Gi-Oh! GX, which have scored slots on terrestrial kids’ blocks and 24-hour cable services worldwide. Lacey is hoping for similar success with 4Kids’ newest offering, Dinosaur King, an action-comedy series that combines traditional cel animation with CGI. 4Kids is launching the show at MIPCOM. “There is always room for an anime series that provides compelling characters and stories for kid viewers,” Lacey says. “In the end, kids do not care where a series is created or produced; they are only interested in the entertainment value of a TV program, and this usually begins with great storytelling.”

THE RIGHT STUFF

VIZ Media, owned by three of Japan’s largest creators and licensors of manga and animation—Shueisha, Shogakukan and Shogakukan Production (ShoPro Japan)—has fared well placing hit properties like InuYasha, Naruto and Bleach in the U.S. as well as in markets across Europe and Latin America. Indeed, bolstered by its worldwide success, the company, which has its headquarters in San Francisco, recently established a dedicated operation in Europe. “The good news is that, despite acquisition trends, the strongest Japanese series do continue to find enthusiastic TV networks,” Easum says. “We have enjoyed great success with our series such as Naruto and MĒ. Our new girls’ series, Kirarin Revolution, is also in great demand.”

According to Easum, VIZ’s key markets in Europe include France, Spain and Italy. “There are a variety of television networks currently enjoying success with Japanese animation and the demand is still strong,” he says. “We are now seeing increasing demand from the Middle East and Eastern-European countries.” The U.K. and Scandinavia, however, have been challenging.

As one of the giants of the Japanese anime industry, Toei Animation has been stepping up its international efforts as of late. The company has built a solid business in Asia with a sales office in Hong Kong and has set up operations in Los Angeles and Paris to roll out its catalogue. Like VIZ’s Easum, Kanji Kazahaya, the director of Toei Animation, cites France, Spain and Italy as Europe’s strongest anime markets. In Latin America, meanwhile, Toei has built strong relationships with terrestrials like Televisa, TV Azteca and TV Globo.

AMERICAN AMBITIONS

The U.S. has been one of Toei’s biggest priorities, particularly following its sale of Dragon Ball Z to Cartoon Network. “It created a great opportunity for us to establish that [show] in the global market,” Kazahaya says. “At the time, not many [Japanese] companies were bringing properties to the overseas market.”

Toei is also building its presence in the American market with Digimon, the fifth season of which, named Digimon: Data Squad, has been licensed to Toon Disney’s Jetix block in the U.S. The franchise has already been licensed to more than 40 countries and boasts more than 250 episodes. Oher key titles for Toei include Yes! Pretty Cure 5, the newest season in the hit girl-skewing brand, and Ge Ge Ge no Kitaro.

Another Japanese major, TV Asahi, which represents the popular Doraemon, has been encouraged by the recent European success of Shin Chan, particularly in Spain, where the TV rollout was followed by a host of merchandise, according to Takahiro Kishimoto, of the international-sales division at the company. The series does, however, illustrate a significant challenge for anime distributors; what can work as a kids’ series in Japan or even in several European markets is often considered too mature for children in the U.S. Shin Chan, for example, is positioned as a kids’ series in numerous international markets, but airs in the U.S. on Cartoon Network’s late-night block for older viewers, Adult Swim. A similar situation applies to VIZ’s InuYasha. While Japanese producers have certainly been attempting to age down their properties to target 5- to 12-year-olds—illustrated by Doraemon, Mew Mew Power, Hamtaro and Mirmo!, among others—many anime distributors do concede that the genre tends to skew older outside of Japan.

Ross Hair, the senior VP of international networks at SPTI, says that the Animax service in Japan targets viewers across the board, from 4-year-olds up. In Europe, meanwhile, it is more focused on the 15-to-29 demographic. “They set trends, they are able to communicate with each other quickly. A lot of people find out about Animax through that social network they have.”

“In the past two to three years, a variety of older-skewing channels have grown their anime offerings,” says VIZ’s Easum. “Music channels and other teen/young-adult channels have found their audiences gravitate to series such as Bleach or Death Note. More and more young teens are reading manga. The U.S. and France are the biggest manga markets outside of Asia. Reading manga in turn inspires them to watch anime.”

STOCKING THE SHELVES

Comic books are just one part of the anime merchandising market. Another is video games, which help drive awareness of a brand and boost viewers’ connection with the show. Pokémon’s Marmillot partly attributes that series’ resurgence to the Nintendo video game on which it is based. “There’s a whole new generation of youngsters who are joining the franchise,” he says. Toei’s Kazahaya has had a similar experience with Dragon Ball Z. “One of the beauties of Dragon Ball Z is it’s a great saga, which has created very interesting video games.”

“The merchandise-licensing business associated with Japanese anime programs outside of Asia is largely influenced by two factors,” says 4Kids’ Lacey—“broadcast exposure and audience appeal. It is increasingly difficult to secure deep broadcast exposure in markets that are highly [fragmented] by competitive media platforms. But if one can secure such exposure, the opportunities for a significant merchandise-licensing business remains very healthy.”

Trading cards have been huge for Pokémon and 4Kids’ Yu-Gi-Oh!, while VIZ has done solid business on toys, apparel, collectibles and back-to-school items, among other product categories, on Naruto.

DISC WARS

Ancillary revenues from DVD sales have become more challenging, according to many anime distributors. “The last few years have witnessed a precipitous decline in the worldwide DVD market, as consumers now have access to content through so many other distribution platforms, including VOD, SVOD, Internet streaming and other new media,” says Lacey. “This trend will only continue to accelerate.”

Some companies, however, have built substantial businesses on the anime DVD market in North America. “We’ve seen dramatic year-over-year growth and a significant increase in market share, despite a sometimes overall weak market,” says Gonzalo Ferreyra, the VP of sales at VIZ Media. “Fortunately, the continued strength of our key properties and a stronger-than-ever back catalogue have us positioned very well.”

ADV Films, this year celebrating its 15th anniversary, is a leading producer and distributor of anime outside of Japan. Its parent company, A.D. Vision, also operates the Anime Network, a video-on-demand service available on select cable operators. “We have the largest library of dubbed anime in the world,” says John Ledford, the founder, chairman and CEO of A.D. Vision. ADV’s popular U.S. releases have included Neon Genesis Evangelion and Full Metal Panic!

“Most of our revenue is from home video,” says Takenari Maeda, the VP of Bandai Visual USA, a division of the Japanese producer Bandai Visual. Looking to expand its home-?entertainment business, Bandai this summer released its anime feature Freedom in dual DVD and HD DVD formats.

The company is also active in the new-media space, having recently launched an English-language version of its Dot-Anime website for North America. The site in Japan offers more than 400 titles and 4,000 episodes of anime, as well as song downloads and the ability to purchase CDs and DVDs. “So far the new distribution opportunities have not made much impact in terms of revenue streams,” Maeda says. “They don’t enable a shift away from the traditional business model. We will, however, keep trying to integrate the old and the new.”

Indeed, most anime players now have a firm eye on the new-media space, which has seen the emergence of destinations like Gong, a purely online and mobile anime service.

Toei’s Kazahaya says that he is looking to the digital sector to supplement home-entertainment revenues that are bottoming out. He notes that Toei Animation recently established a new division to ensure that its properties can be taken into the mobile and broadband spaces.

At VIZ Media, Daniel Marks, the senior VP of strategy and business development, cites the success the company has had with its broadband streaming site Toonami Jetstream, operated in conjunction with Cartoon Network. “We have also made several of our properties available for download-to-own. In the future, we expect to see much of our animation content available online, whether through www.viz.com or through other sites.”

“The challenge,” notes Lacey from 4Kids, “remains in effectively monetizing these opportunities.”