Surface Tension: The Threat of a Animation Bubble Burst

[Nosauz]

I mean if you look at the licensing industry doesn't really sell a product, its the whole buy direct that I want. If you look at games or movies, there is no licensing which just comes to show that as the industry matures the first thing to go is the inefficient cogs such as the licensing industry.

@tinyredleaf, the thing is the whole advent of highspeed broadband has changed the market share of many things, I mean just a 5 year difference and the internet has seen an explosion of traffic and content, of course its gonna take time to figure out how to effectively monetize the internet, and monetize it in away that doesn't restrict exchange of information freely. For all these industries, its gonna be trial and error for atleast the next 20 years, but the best places to look will be Japan and Korea, because their connection speeds are the highest compared to the rest of the world. I mean U.S. lines don't even come close, considering Fios is only offered in a select few cities, and current 5/1 lines don't even come close to generating that output unless your sitting on the damn amplifier. It's going to be bumpy but as you can see Steam has created a system where they are high profitable while also leading the way with digital distribution.

[Ryuou]

i would love to see legal digitized media from japan, i'm not sure how well crunchyroll works, its plus or minus points, but i think its a step in the right direction. hopefully something similiar will be set up in place in the future - i do believe that the licensing industry will fail though..

I believe it is inevitably coming, and this plays a big role in my ideas for the company I want to start. It's absolutely ridiculous not to take advantage of digitized media. It's low in cost for both production of the product and distribution. (It just needs to be proven cost effectively profitable before companies embrace it) Who wouldn't want to provide more products for the audience to purchase? Who wouldn't want more avenues to show your product to the audience in addition to TV? Who wouldn't want to eliminate the need behind fansubs? There are many reasons to embrace digitized media for anime, the companies just need to learn how to do it right.

Having said all that, I do not want to see DVDs disappear. I'm a hard product fan myself and would rather have that over the digital file. However, companies need to learn how to get their products to their fans in the various ways that they want it. And then effectively monetize each one.

[TinyRedLeaf]

Originally Posted by Nosauz

@tinyredleaf, the thing is the whole advent of highspeed broadband has changed the market share of many things, I mean just a 5 year difference and the internet has seen an explosion of traffic and content, of course its gonna take time to figure out how to effectively monetize the internet, and monetize it in away that doesn't restrict exchange of information freely. For all these industries, its gonna be trial and error for atleast the next 20 years, but the best places to look will be Japan and Korea, because their connection speeds are the highest compared to the rest of the world. I mean U.S. lines don't even come close, considering Fios is only offered in a select few cities, and current 5/1 lines don't even come close to generating that output unless your sitting on the damn amplifier. It's going to be bumpy but as you can see Steam has created a system where they are high profitable while also leading the way with digital distribution.

Producing top-quality media content is an intensely labour-intensive endeavour. And labour is expensive, especially for the top-quality talent we apparently desire for top-quality anime.

Sure, distribution is cheap in comparison, and it'd be even cheaper still with the introduction of high-speed optical-fibre broadband. But that's precisely the kind of economics that spells doom for the mass-media industry. It commoditises media content. Consumers refuse to pay the price needed for top-quality content.

Despite all its promise of lucre, I'm yet to see an online business model make sustainable revenue without some form of brick-and-mortar support.

[oompa loompa]

Originally Posted by TinyRedLeaf

Digital initiatives like Crunchyroll's will probably work as an idea. After all, people are already watching either downloaded or streamed anime, so we might as well try to make some legal money out of it.

However, here's the problem: I don't believe that relying on digital distribution alone would be a sustainable business model. The reason is simple: Online viewers will not be willing to pay anywhere near as much as what they would pay for a DVD or a Blu-ray disc.

This is a problem faced by the entire mass-media industry — newspapers, radio, movies and TV — and not just anime. We can all see that online distribution works, but converting it into sustainable revenue is an entirely different problem altogether.

that is the problem isnt it ? even with advertisement support.. and if you balance it with the far greater number of viewers you get.. i doubt it will be viable.. still, that is the only way i see that will work.. dont stop distributing physical media though, there still are dvd sales to be made - it wont die out just yet..

[Nosauz]

Again I point to STEAM, DoW II, was not carried by Gamestop, one of the leading retailers in the games industry, yet DoW II has already broken significant milestones based heavily on online marketing and digital distribution. This not even to mention L4D, which saw it sales spike 300% when its value was cut in half. Just the sheer volume it sold at was insane. Digital distribution is sustainable, the problem is the movie/anime/television/newspaper industry hasn't grasped it yet. Current B&M is battling with digital like crazy, but Steam and Impulse offer pretty much DRM FREE software with high support, servers that can support a day zero release, and offer a service that beats the B&M scene. Games have always been at the leading edge with technology because of their nature and incorporation of the internet, many industries should take a look at the model. I mean its clear why steam doesn't release the acutal figures for their digital distribution system, it would shock B&M and it would show how highly profitable digital distribution can be.

[Ryuou]

Despite all its promise of lucre, I'm yet to see an online business model make sustainable revenue without some form of brick-and-mortar support.

It doesn't need to sustain it; it needs to support it, instead of the companies ignoring it.

[TinyRedLeaf]

I can't speak for anime since I don't work in it, but I do work for newspapers and this is how its economics work: The economics of giving it away.

Also read: Micropayments won't save newspapers

NYTimes.com, the newspaper site with the most online traffic (18 million monthly uniques according to Nielsen) could ask users to pay US$19.99 a year, say, for access to the site. (You have to deal with the free-rider problem somehow.) But if 18 million people paid just U$19.99 per year that would represent US$358 million dollars. Total revenues in 2008 for the company were just under US$3 billion (circulation of hardcopy newspapers alone produced US$900 million).

The same problem extends to TV-content production and distribution, and I'd be a fool to think that video-game producers don't suffer similar problems. Sure, the distributor would make loads — with high-speed broadband, his operating costs are essentially zero. But what about the producer?

Unless, of course, the industry works out a way to earn royalties from online distribution. But I don't see that happening yet in anime.

Originally Posted by Ryuou

It doesn't need to sustain it; it needs to support it, instead of the companies ignoring it.

And, if all I can hope to achieve from an online business model is to merely support my company, rather than make it thrive, then why should I want to start the company? For love and passion? Well, all and good for you. Meanwhile, I see my potential talents channelling their efforts into more lucrative professions.

Passion alone doesn't feed a family.

[Ryuou]

And, if all I can hope to achieve from an online business model is to merely support my company, rather than make it thrive, then why should I want to start the company? For the love and passion? Well, all and good for you. Meanwhile, I see my potential talents channelling their efforts into more lucrative professions.

The support it provides to the company would help it...thrive maybe? The online element would help provide the companies with many avenues to reach their customers that they don't currently posses and would eliminate the plague known as fansubs. It's an addition to revenue not a replacement.

[Nosauz]

Actually with Steam, the service is offered to publishers/game makers, basically they recieve a royalty for selling your game. The reason this works is because Steam themselves support the infrastructure for their games. So instead of just wasting already created infrastructure they basically lease it out. Thats why that model is succesful. Also steam has promotional sales from time to time that allow product that is featured which may be on its last legs to get a boost in revenue via these sales. Its like selling all but 500 copies of a movie, then offering the movie for half off to get it sold, but with steam instead of being a limited amount it can then sell as much as the market demands. In the end with digital distribution supply no longer becomes an issue and service plays a bigger role.

[TinyRedLeaf]

Originally Posted by Ryuou

The support it provides to the company would help it...thrive maybe? The online element would help provide the companies with many avenues to reach their customers that they don't currently posses and would eliminate the plague known as fansubs. It's an addition to revenue not a replacement.

You'll never eliminate fansubs. There will always be people who want to watch for free and refuse to pay even the small sums that online distributors such as Crunchyroll ask for.

But then again, that demographic probably falls under the group that would never have paid for the programme in the first place, so it's misleading to count a "non-existent market" as "lost revenue".

The worry is, however, that an entire generation of media consumers is getting used to the idea of "free content". Most of my friends routinely download Hollywood movies and TV serials from Chinese websites, without paying a single cent for them. When I tell them I buy anime DVDs, even after I've downloaded them, they look at me funny. It's as though they're telling me: "What's your problem? You've got too much cash to spare?"

And as for Steam, if it does indeed work the way described, then we're essentially saying goodbye to distributors. Producers should start taking on the resources to distribute their own content, and hopefully make money out of sheer volume of sales, rather than from high premiums per sale.

You'd still have to deal with the free-rider problem though. We all know that, in the end, people want to buy good content just as much as they would want to buy a good car. The thing is, a good car cannot be instantly replicated and resold, cost-free.

Anime, and all other media content, can.

[Nosauz]

The problem that say anime fans who download and don't buy, well that goes on with television sereis too. how many non us viewers of illegal rips of television series actually go buy the boxset dvds?

steam basically eliminates the middle man, servers cost a but load of money to upkeep but since they use them to host their multiplayer, and distribute the games, the investment is written off as developmental cost, not only do they focus on fast delivery but they also provide excellent service, they never try to sell you something you don't want to buy, and digital distribution pretty much destroys the used market which is good, because used sales do not feed back into the pockets of the developers.

[TinyRedLeaf]

Originally Posted by Nosauz

The problem that say anime fans who download and don't buy, well that goes on with television sereis too. how many non us viewers of illegal rips of television series actually go buy the boxset dvds?

steam basically eliminates the middle man, servers cost a but load of money to upkeep but since they use them to host their multiplayer, and distribute the games, the investment is written off as developmental cost, not only do they focus on fast delivery but they also provide excellent service, they never try to sell you something you don't want to buy, and digital distribution pretty much destroys the used market which is good, because used sales do not feed back into the pockets of the developers.

Let me put it to you this way. If Steam is as lucrative as you claim, why then have MMORPGs become so prevalent of late?

Blizzard charges US$14.99 per month for a single subscription. They claim to have over eight million subscribers. Do your mathematics: that means a revenue of around US$120 million a month! In the end, money talks. And the smart money in the gaming industry is on MMORPGs, hence the relative dearth of standalone PC games today.

As you pointed out, the hardware needed to operate Steam pays for itself because gaming companies use it to host online games. To what extent does this model work for anime? I'm not so sure.

[Ryuou]

You'll never eliminate fansubs. There will always be people who want to watch for free and refuse to pay even the small sums that online distributors such as Crunchyroll ask for.

Not everything available online has to cost money. Online needs to become the new TV, and it'll be able to broadcast to the world unlike TV stations in Japan. They probably won't disappear completely but they'll become practically obsolete. By providing for the reasons behind the existence of fansubs, you can just sit there and scratch your head while laughing at the people who still go about creating and viewing fansubs.

The worry is, however, that an entire generation of media consumers are getting used to the idea of "free content". Most of my friends routinely download movies and TV serials from Chinese websites, without paying a single cent for them. When I tell them I buy anime DVDs, even after I've downloaded them, they look at me funny. It's as though they're telling me: "What's your problem? You've got too much cash to spare?"

Which is why a desire to pay for and support quality products needs to be fostered. (A crucial part to this is a quality product) "If you build it, they will come." I firmly believe that a majority of people would pay for a quality product if it's priced reasonably and accessible. For those that simply won't pay, well they can watch it stream for free and the company can recoup a bit via ads and the advertisement that person potentially will provide.

[Nosauz]

Originally Posted by TinyRedLeaf

Let me put it to you this way. If Steam is as lucrative as you claim, why then have MMORPGs become so prevalent of late?

Blizzard charges US$14.99 per month for a single subscription. They claim to have over eight million subscribers. Do your mathematics: that means a revenue of around US$120 million a month! In the end, money talks. And the smart money in the gaming industry today is on MMORPGs.

As you pointed out, the hardware needed to operate Steam pays for itself because gaming companies use it to host online games. To what extent does this model work for anime? I'm not so sure.

LOLOLOLOL

sorry but the game industry isn't that simple. Blizzard has always made quality products, they patch WoW every 3-4months that doesn't include constant tweaking. Not only do they offer an insane service but they also create a community. The content is good thats why people play. Unfortunately in the landscape of mmos there arn't that many succesful ones as wow. Just look Tabula Rasa just died, Lotro is dieing because the fanbase now consists of die hard LoTR players, Age of Conana has pretty much killed the developer and is constantly shedding realms, and Warhammer Online is in the midsts of barely surviving. The only other really profitable mmo is probably ffxi which has scene hits to its total suscriber base. Now the reason for WoWs success? Service, I stress this a lot, Just look at Blizzards games, Starcraft, Warcraft III, Diablo 2 all have online play enabled no matter how few players play, that server upkeep is basically lost after the initial copy of a game is sold, why do they do it, because their loyal to their fans, jsut look at EA, and take a look at Madden 08 online play has already been axed. WoW is different from all other mmos. I mean I played for a good 4 years before I recently quit, they really created an extensive game world and gave copious mounts of EXTRA content FOR FREE. Justifying the 14.99 payment per month, and they even add reward programs to refer a friend.

[TinyRedLeaf]

Originally Posted by Ryuou

Not everything available online has to cost money. Online needs to become the new TV, and it'll be able to broadcast to the world unlike TV stations in Japan. They probably won't disappear completely but they'll become practically obsolete. By providing for the reasons behind the existence of fansubs, you can just sit there and scratch your head while laughing at the people who still go about creating and viewing fansubs.

TV programming isn't free. It's paid for by advertising and radio-and-TV licences.

Online distribution, that is making your PC your next-gen TV, wants to be free. If it isn't, your consumer will go elsewhere. If it carries advertisements, your viewer can install ad blockers. And also, because of the intense competition in online advertising, most websites don't make much money from ads. You can look at Facebook to see the predicament.

Let's face it: Google is about the only web portal today that makes good money out of advertising. Everyone else is left with the crumbs.

sorry but the game industry isn't that simple. Blizzard has always made quality products, they patch WoW every 3-4months that doesn't include constant tweaking.

I'd beg differ. But, of course, we're all entitled to our own subjective opinions about Blizzard's "great service".

Look, tell me how much the hardware costs, and then you'd see why a typical MMORPG doesn't even need one million subscribers to be profitable. For many smaller ones, even a relatively small base of 100,000 monthly subscribers might suffice.

Can anime studios count on such locked-in loyalty? Perhaps yes, perhaps not. No one has tried yet, so who can say for sure?

[Ryuou]

sorry but the game industry isn't that simple. Blizzard has always made quality products, they patch WoW every 3-4months that doesn't include constant tweaking. Not only do they offer an insane service but they also create a community. The content is good thats why people play. Unfortunately in the landscape of mmos there arn't that many succesful ones as wow. Just look Tabula Rasa just died, Lotro is dieing because the fanbase now consists of die hard LoTR players, Age of Conana has pretty much killed the developer and is constantly shedding realms, and Warhammer Online is in the midsts of barely surviving. The only other really profitable mmo is probably ffxi which has scene hits to its total suscriber base. Now the reason for WoWs success? Service, I stress this a lot, Just look at Blizzards games, Starcraft, Warcraft III, Diablo 2 all have online play enabled no matter how few players play, that server upkeep is basically lost after the initial copy of a game is sold, why do they do it, because their loyal to their fans, jsut look at EA, and take a look at Madden 08 online play has already been axed. WoW is different from all other mmos. I mean I played for a good 4 years before I recently quit, they really created an extensive game world and gave copious mounts of EXTRA content FOR FREE. Justifying the 14.99 payment per month, and they even add reward programs to refer a friend.

Yeah Blizzard has a track record of some excellent service that isn't seen much these days. I hear that they still provide help and patches for Starcraft I that came out some 10 years ago. As for other successful MMO's, I hear the market is huge in Korea.

TV programming isn't free. It's paid for by advertising and radio-and-TV licences.

Okay? Which is another benefit to online distribution. It comes at no cost to the company (other than computer/server related expenses). This will be extremely beneficial to companies who can't afford to get there anime onto TV. This is an inexpensive way to get your anime onto a screen for viewers to see (legitimately and thus under your control).

If it isn't, your consumer will go elsewhere. If it carries advertisements, your viewer can install ad blockers. And also, because of the intense competition in online advertising, most websites don't make much money from ads. You can look at Facebook to see the predicament.

Again, there would be free options available to the viewer. Ads would be a difficult part to implement but they should be looked at. (I'm currently thinking that I wouldn't put them on my company's streams) If you look at online streaming as a replacement for TV, then you are getting more out of it at an incredibly reduced price.

Everyone else is left with the crumbs.

Last I checked, this is better than nothing as long as it's cost effective which it would be.

[Nosauz]

Originally Posted by TinyRedLeaf

I'd beg differ. But, of course, we're all entitled to our own subjective opinions about Blizzard's "great service".

Look, tell me how much the hardware costs, and then you'd see why a typical MMORPG doesn't even need one million subscribers to be profitable. For many smaller ones, even a relatively small base of 100,000 monthly subscribers might suffice.

Can anime studios count on such locked-in loyalty? Perhaps yes, perhaps not. No one has tried yet, so who can say for sure?

The thing is the MMO landscape is actually littered with dead corpses of failed MMOs. We choose to ignore them and point out the successful ones. Anime has always been about the product, and in the changing climate it should also encompass some sort of service. The reason why Valve and Blizzard have high retention rates for customers is because they go beyond what is necessary, I'm glad to purchase a Valve game because I know 10 years down the road it will still be updated and there will still be online play accessible to me. When we talk about anime having it digitally distributed would be awesome, selling the base show, adding features like index-tan/ jc dvd stuffers, directors commentary, and stuff like that support fandom and get fandom more involved with the scene then just selling the dvds and then moving on. Or at least if its a sub, fix the script when a mistake is detected, these small things would make me seriously consider buying a product then pirating knowing that if the translation is off when the mistake is found it will be fixed. It all about how you connect with the customer and make them a repeat buyer.

[TinyRedLeaf]

Originally Posted by Nosauz

The reason why Valve and Blizzard have high retention rates for customers is because they go beyond what is necessary, I'm glad to purchase a Valve game because I know 10 years down the road it will still be updated and there will still be online play accessible to me.

You don't get my point. The reason why Blizzard can afford to continue providing support for 10-year-old products is because they're milking a huge cash cow called World of Warcraft. It costs money to produce those patches, to rewrite content and tweak gameplay mechanics. If it didn't have a hugely successful online product to pay for those costs, you'd think the company will still do such charitable "good service"?

In the end, it's really very much a chicken-or-egg problem. A studio might want to provide good service to draw and keep customers, but if it doesn't have a profitable product to begin with, it can't afford to do so.

Let's not forget also that online games offer recurring content on persistent virtual worlds. This is a type of content that justifies monthly subscriptions. Unfortunately, an anime programme is a one-time-consumable product. You pay once and, however many times you watch the programme, it doesn't change. You won't pay for it a second time.

For an anime studio to make money out of online distribution, what are its options? It can either charge a microfee for a single copy of its programme, or perhaps try to get is viewers to subscribe to its streaming service. Two problems: (1) Micropayments alone won't pay for production costs, unless the revenue steam somehow grows phenomenally large (perhaps it could, if it charges the right price; it depends on which studio is daring enough to make the first experiement; only then will we know for sure); (2) No anime studio alone will produce enough content on its own to justify a monthly subscription service. If it did, then the production committees Toua spoke about wouldn't be necessary.

Distributors are not the money-grubbing middlemen leeches that most people make them out to be. They charge the fees that they do because they provide a valuable service: Aggregation.

This is the same kind of service that web portals such as Google provide, hence their ability to draw in advertisers from across all industry sectors.

Originally Posted by Ryuou

Which is another benefit to online distribution. It comes at no cost to the company (other than computer/server related expenses). This will be extremely beneficial to companies who can't afford to get there anime onto TV. This is an inexpensive way to get your anime onto a screen for viewers to see (legitimately and thus under your control).

More than just computer/server-related expenses. There are also overheads to consider, and system administrators to hire. But, yes, I'd agree it's still a relatively inexpensive option compared to broadcast TV.

The question is whether it can draw in a comparable amount of revenue to make it completely viable. Like it or not, online distribution will force some kind of downsizing in anime and all other media companies, not because it's expensive to sell, but because it doesn't bring in as much money as physical products.

Incidentally, your Internet access isn't free either. You pay an ISP for that service. Which makes me wonder if the day will come when ISPs become today's TV stations.

[Ryuou]

A monthly subscription is not the answer for single anime companies venturing into this for the reason you listed. But it would be for a video site (like Crunchyroll) that offered content from all companies. This is something that needs to develop and what I was talking about that would replace TV.

More than just computer/server-related expenses. There are also overheads to consider, and system administrators to hire.

Yeah I know, I just didn't want to start detailing it out. But most of those expenses would be there anyway to maintain a company website whether it offered online content or not.

The question is whether it can draw in a comparable amount of revenue to make it completely viable. Like it or not, online distribution will force some kind of downsizing in anime and all other media companies, not because it's expensive to sell, but because it doesn't bring in as much money as physical products.

Again though, online is supplemental, it's not going to replace anything (except maybe TV). Physical products will still remain an important part of revenue.

Incidentally, your Internet access isn't free either. You pay an ISP for that service. Which makes me wonder if the day will come when ISPs become today's TV stations.

But we pay for internet for other reasons anyway so this plays no part into it. But it's possible for ISPs to usurp TV’s position, but I don't see it happening for a while. Stations will probably just hop over when the situation looks too dire.

[Nosauz]

Originally Posted by TinyRedLeaf

You don't get my point. The reason why Blizzard can afford to continue providing support for 10-year-old products is because they're milking a huge cash cow called World of Warcraft. It costs money to produce those patches, to rewrite content and tweak gameplay mechanics. If it didn't have a hugely successful online product to pay for those costs, you'd think the company will still do such charitable "good service"?

In the end, it's really very much a chicken-or-egg problem. A studio might want to provide good service to draw and keep customers, but if it doesn't have a profitable product to begin with, it can't afford to do so.

Let's not forget also that online games offer recurring content on persistent virtual worlds. This is a type of content that justifies monthly subscriptions. Unfortunately, an anime programme is a one-time-consumable product. You pay once and, however many times you watch the programme, it doesn't change. You won't pay for it a second time.

The thing is Valve doesn't charge a monthly fee. Starcraft servers and Bnet.com have always been supported by blizzard even before WoW so this automatically debunks the notion that its only because of WoW we still have Diablo II, Starcraft and Warcraft III servcers. Take a look at Team Fortress 2, we have had 5 game changing patches for guess what? FREE. ZERO MONETARY COST. Online play is free, voice chat is free, just look at the Games for Windows intiative, completely broken and the games that do support it, don't sell very well at all. Even if you want to continue to say that Blizzard supports previous generations from revenue thats fine because now they do but in the past they didn't, they recieved no monetary supplements for keeping up battlenet before the advent of WoW, they did it because the fans wanted it, they provided a service that was far better than just pirating the game, they incentivized the power of purchase. The same goes for valve. In your theory, the entire games industry would have shifted to monthly fees for services, but when you think about the game industry has always valued community first though that has changed greatly there is still a sense among good developers that a strong community keeps gaming a float. When you have a physical product distributers are need to actually move your product but when the product is digital the whole scheme for distribution changes dramatically.

I'll tell you now, of the best multiplayer/online games, the only one that charges a monthly fee is WoW, Counter Strike, Counter Strike Source, Team Fortress 2, Call of Duty 4, Red Alert 3, Supreme Commander, Sins of a Solar Empire, Total War: Empires, Side Meyer's Civilization 4 all support FREE online play, with zero monthly fee. In your gaming world the only way to survive would be a monthly fee but that just is not the case. Again I emphasize the service aspect, I suggest you read my suggestion of the services they could provide to the anime community.