Surface Tension: The Threat of a Animation Bubble Burst

[TinyRedLeaf]

Originally Posted by Nosauz

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.

Correct me if I'm wrong, but before you could even connect to Battlenet, you have to buy a "client" in the first place, ie, the game itself, be it Starcraft or Warcraft III. So, it's wrong to say Blizzard didn't receive monetary supplements to keep up Battlenet — it sunk in the investment, which is a fixed cost, and recouped the initial outlay through sales of game CDs/DVDs.

Was there ever a time when they gave away a game entirely for free and live off community goodwill? I think not.

And, again, to what extent does this model work for anime studios? Maybe it would, since no one has actually tried it yet. I'm just not as optimistic as many online-distribution evangelists are.

Originally Posted by Ryuou

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.

Revenues are falling today partly because consumers are buying less DVDs. Whether that's a case of competition from online distribution or the tanking economy is up for debate, but it'll be foolish to claim that online distribution doesn't have a downward effect.

So, in a way, I think you'd be cannibalising your own market by offering "free" to "very cheap" online distribution. The more it becomes available, the smaller the incentive to buy a physical product. Somehow, you'd have to make online revenues large enough to make up for the inevitable shortfall, or studios will be forced to downsize. Something will have to give, sooner or later.

[sa547]

Okay, to make things short, is it possible that the method of distribution used by gaming companies could be applied to the problem of distributing other media? Yes, there are many working examples abound. As mentioned earlier, Steam and game console DLCs gave gaming companies new ways to earn while reducing the problem of physical distribution.

But will studios be able to accept them? IMO, some of these would cunningly take advantage of the new avenues of distribution, provided that they have to learn how to use them, to market and price the titles, and how to bill the end-user/customer. Others will always resist such radical methods, insisting that their old business model works, that they must have the gross earnings, that they must protect their own interests no matter how much the cost.

Above all, as someone has mentioned it earlier, service and cooperating with the customer/end user also matters -- better service = better profits. No studio or distribution company or broadcasting firm would try to survive long in a niche industry unless they're willing to study their audience, and try to get into the mindset of their average target customer.

However, as much as good products and service matters, not all customers are willing to cooperate with a friendly attitude. There are nutters out there who will want unreasonable demands -- everything on the silver plate -- and even if the company provided some of their requests, some of these nutters could still declare dissatisfaction and will want more.

*scratches head* Hmmmm...

This might be a long shot in terms of distribution, but I can't rule out the possibility of a custom-ordered disc, most likely to be dispensed from kiosks (which add the media and desired subtitles or dubs, burn the disc, add the label and packaging, and then drop it into a bin) or electronically ordered.

[Ryuou]

As for Blizzard though, not everybody bought those games with intentions to play online. I really enjoyed Starcraft back when I used to play and only ventured online once. So I don't think that's the same thing. It’s a standalone product with online play as an extra (although some people would see the online as main).

Revenues are falling today partly because consumers are buying less DVDs. Whether that's a case of competition from online distribution or the tanking economy is up for debate, but it'll be foolish to claim that online distribution doesn't have a downward effect.

So, in a way, I think you'd be cannibalising your own market by offering "free" to "very cheap" online distribution. The more it becomes available, the smaller the incentive to buy a physical product. Somehow, you'd have to make online revenues large enough to make up for the inevitable shortfall, or studios will be forced to downsize. Something will have to give, sooner or later.

The reasons behind falling DVD sales are varied and really are a different debate in itself. But you do bring up a very good and valid point. There would probably be some drop in sales of hard products. But most of the people who buy DVDs now wouldn't switch over because a digital form is available. What they want is a hard copy. So I don't believe there would be a very large cut into numbers. Although that's a very valid worry, one of the main points of venturing online would be to capitalize on market that wasn't there to start with. (i.e. people around the world watching it via fansubs)

Edit: As for the gaming industry's model for online distribution, I don't think it'll be adoptable as is for the anime industry. Gaming could go completely online in the future with relatively no problem. For anime though, it wouldn't be as easy. As physical products would still be necessary for the foreseeable future, and the mindset behind the consumer of games and anime/other media is different.

[Nosauz]

Originally Posted by TinyRedLeaf

Correct me if I'm wrong, but before you could even connect to Battlenet, you have to buy a "client" in the first place, ie, the game itself, be it Starcraft or Warcraft III. So, it's wrong to say Blizzard didn't receive monetary supplements to keep up Battlenet — it sunk in the investment, which is a fixed cost, and recouped the initial outlay through sales of game CDs/DVDs.

Was there ever a time when they gave away a game entirely for free and live off community goodwill? I think not.

And, again, to what extent does this model work for anime studios? Maybe it would, since no one has actually tried it yet. I'm just not as optimistic as many online-distribution evangelists are.

Ok again you fail to see my point. Server maintenance costs money, no matter how you project it you can never actually say how much that maintenance will cost in the long run. The thing is from the money Blizzard made from Starcraft, they could have shut off Battlenet at any time, once the game sales did not match up to the cost of server maintenance. What I mean is that every disc sold had a portion of it ear marked for server maintenance as part of the cost, but that amount of money is finite where as server maintenance is not. So the longer a server runs the more it drains from the maintenance pooled cost. At one point it will be unprofitable to maintain running the servers but they still did, even while they sunk in large sums of money into ips. Blizzard is a business which means that not all money goes toward development, it also goes to pay the people, so when you think about having battlenet up longer than the shelf life of any battlenet game was economically detrimental to Blizzard, yet Blizzard did continue to support the service. If that wasn't an attempt to foster community out of good will then I don't know what is. This applies to TF2 from new games, when EA won't even give a roster update to a game they have a monoply on just shows you how much good will there is between different developers. Team Fortress 2's development cycle ended nearly 2 years ago yet Valve continues to update the game adding substantial content to the game free of charge to the customer, if they didn't people would still play the game, but they did out of appreciation to the fans. I don't understand why its so hard for you to see that fostering a community is just as important as producing a good product. These things go hand in hand.

[TinyRedLeaf]

Originally Posted by Nosauz

I don't understand why its so hard for you to see that fostering a community is just as important as producing a good product. These things go hand in hand.

Perhaps Ryuou can give you a better explanation on the economics of the business than I can, since he actually intends to run one. You didn't seem to notice when I made a distinction between fixed costs and operational costs, for a start, so you probably don't fully grasp all the associated costs of running a media business. And, if you like to think that the guys at Blizzard are such great guys rather than businessmen first, then that's also your prerogative. I happen not to believe that propaganda, that's all.

Originally Posted by Nosauz

Server maintenance costs money, no matter how you project it you can never actually say how much that maintenance will cost in the long run. The thing is from the money Blizzard made from Starcraft, they could have shut off Battlenet at any time, once the game sales did not match up to the cost of server maintenance.

Sure, servers cost money to maintain, but that's part of the overheads you have to pay anyway. However, the fixed cost of that investment goes down as you produce and host more games with them, making it a viable business model in the long-run, provided you can continue making profitable games.

To its credit, Blizzard made great games, from Warcraft II through Starcraft and Warcraft III. But as Ryuou pointed out, people bought them as standalone games first, and not for its Battlenet services, which was seen largely as an added bonus.

I won't be surprised if Blizzard studied its online numbers closely, and hence decided to monetise that volume with an MMORPG product. They took that risk, a calculated one, and it paid off handsomely. Now they don't have to worry about cashflow again for the immediate future.

And now, here's the question again, would this model work the same way for anime? I think not. It's a different industry, involving entirely different products. I'm not optimistic it will generate the kinds of revenue for an anime studio as you claim it would. But hey, if you start such a business and it works, more power (and money) to you.

[Nosauz]

Of course the video game model doesn't fit the anime model, but there are similarities. Like anime, games that single player with no possibility to monetize the multiplayer aspect also share the nature of being stand alones. These games haven't suffered due to digital distribution. The system will have to change but the low overhead to widely distribute anime and get it to the masses is better than the current system. Of course there would need to be a centralized distribution system, with standard use user agreements that help protect media distributed, this of course could work like the current protected blue ray protection installed in windows vista and windows 7. The main problem would be for collectors. This is the most difficult aspect for digital distribution, but giving a service that was better than what dvd's offered would some how alleviate this? Would it not? Again this future my only be possible once the technology has been fully immersed into everyday life. I admit the hardest part would be to monetize the collector crowd but at this time and stage I don't understand the fascination of physical media, because I always found it to be cluncky and obnoxious.

well to be fair, the publishing industry has taken to digital distribution too. Think Amazon Kindle. I mean the new kindle pretty much states that online distributions of novels is succesful business because R&D for the kindle 2 would never have been green lit if amazon didn't think it would be profitable.

[Ryuou]

Haha, this thread is fun. I have to thank you guys for the debate (especially TinyRedLeaf as without him there wouldn't be one going on) as this is much more stimulating for my in-training business mind than my college classes: which makes the money that had to leave my family very sad (they were sad to leave anyway though).

I'm definitely no expert on business yet as most of all I know is self taught through observation and readings. If I happen to sound like one though that's great as that means my future might be bright.

But I feel like I'm being turned against my own distant ally here. I actually want to set up a business of a bunch of great guys. I agree with Nosauz on the importance of culturing a loyal fan community, but you do have to be practical about it. You can't let the costs run you into the ground, but I absolutely believe it's worth the expense. I can't stand companies that don't care about their customers.

But it's the fact that Blizzard's online offers are just extras to the game that make it so amazing. They didn't really have to maintain that option for their customers.

And then for that last question-

Originally Posted by Ryuou

Edit: As for the gaming industry's model for online distribution, I don't think it'll be adoptable as is for the anime industry. Gaming could go completely online in the future with relatively no problem. For anime though, it wouldn't be as easy. As physical products would still be necessary for the foreseeable future, and the mindset behind the consumer of games and anime/other media is different.

[TinyRedLeaf]

Originally Posted by Nosauz

I admit the hardest part would be to monetize the collector crowd but at this time and stage I don't understand the fascination of physical media, because I always found it to be cluncky and obnoxious.

If you ever do start a viable business distributing anime the way you suggest, or if you do find a company that actually manages to thrive without some kind of brick-and-mortar by-product, I'll be happy to eat humble pie.

Until then, we'd just have to agree to disagree.

Originally Posted by Nosauz

well to be fair, the publishing industry has taken to digital distribution too. Think Amazon Kindle. I mean the new kindle pretty much states that online distributions of novels is succesful business because R&D for the kindle 2 would never have been green lit if amazon didn't think it would be profitable.

Yes indeed. I'm watching the Kindle experiment very closely myself. The Economist published a pretty good article (March of the Kindle) describing how it may just help to save newspapers (and hence my job).

[cyth]

Originally Posted by TinyRedLeaf

So, in a way, I think you'd be cannibalising your own market by offering "free" to "very cheap" online distribution. The more it becomes available, the smaller the incentive to buy a physical product. Somehow, you'd have to make online revenues large enough to make up for the inevitable shortfall, or studios will be forced to downsize. Something will have to give, sooner or later.

I'm confused. In one of your earlier posts you argued that online distribution is inexpensive compared to broadcast TV, but now you're saying online distribution has a tendency to drive content prices down, thus something to avoid? I think you're missing one huge fact about the entertainment industry in general - it has ALWAYS depended on the goodwill of its customers, be them games or anime or movies. As was established earlier, simply producing an anime product and making it available doesn't mean it'll sell. In fact, making it available on broadcast TV only keeps expenses high and prices up. Case in point, they HAVE to rely on the goodwill of their customers to be able to sustain themselves. The product is available on broadcast TV, so they get to watch it either way. What exactly would kill sales of late-night anime if they decide to switch to online distribution? Absolutely nothing. I doubt exposure would suffer that much, considering the late-night nature and all.

I'd also argue that nobody is forcing consumers to buy their games. I haven't bought one for the longest time because I was too busy buying anime instead, I just happen to value anime more (I'm only thinking about buying Warcraft III now so I can play DotA with my girlfriend orz).
The main difference between buying games and anime is value. I know that value is a purely a subjective construct most of the time, but if we look at consumer trends and the mediums themselves, many games have a shot at successfully selling to mainstream consumers while anime doesn't. In Japan, it's been so for the longest of time, even before Internet became big.

[TinyRedLeaf]

Originally Posted by Toua

I'm confused. In one of your earlier posts you argued that online distribution is inexpensive compared to broadcast TV, but now you're saying online distribution has a tendency to drive content prices down, thus something to avoid? I think you're missing one huge fact about the entertainment industry in general - it has ALWAYS depended on the goodwill of its customers, be them games or anime or movies.

The argument was a works in progress so, yes, I can see why my message sounded contradictory.

Again, I can't speak for Japan's anime industry since I don't work in it, but I do work in media so I feel confident about extrapolating certain conclusions. When it comes to newspapers, every publisher today has an online equivalent by default. They know they can't avoid it — readers are flocking online for all kinds of alternative new-media content, from homebrew videos to amateur blogs. If a newspaper publisher doesn't establish some kind of Internet presence, it risks losing consumer mindshare. That's very bad news, because then it loses its value proposition to advertisers, who want their advertisements to reach as many eyeballs as possible.

So, newspaper publishers go online. Luckily, online production and hosting costs are low, so they can afford to charge less for advertising space. Even then, newspapers are bleeding torrents of red ink, because we are already seeing the rise of online classified listings that are selling at almost-zero rates. How is a full-scale newspaper publisher supposed to compete against such rates? It has journalists and printing presses to pay for that a full-scale online classified ads portal doesn't have to. Meanwhile, "free" online newspapers are cannibalising their print cousins, because if the content is available for free on the Internet, why should anyone pay for hardcopy?

So here's the problem: Let's say newspapers manage to convert every reader to its online content. Would they still be able to earn as much revenue to support the its current newsrooms and foreign bureaus? Sadly, the numbers say no. Dwindling revenues say that heads will eventually have to roll.

The rules of distribution has changed the game, yes, but the new rules of Web 2.0 present more threats than potential opportunities. That is the dilemma facing all old-media establishments today. Anyone can see the potential of online distribution. The trick, however, comes from finding ways to convert that volume into sustainable revenue streams.

Originally Posted by Toua

The main difference between buying games and anime is value. I know that value is a purely a subjective construct most of the time, but if we look at consumer trends and the mediums themselves, many games have a shot at successfully selling to mainstream consumers while anime doesn't.

Yes, in the end, that's true. Whether you're a newspaper publisher or an anime studio, as long as you produce top-quality content, someone would be willing to buy them. But the economics of Web 2.0 has driven both costs and revenue streams downwards, which means that unless lower prices somehow manage to drive up readership/viewership numbers, you'd never again see the same amount of revenue from online distribution as you would once have seen from hardcopy sales.

What does that mean in the long run? Unless some killer application turns up to change the rules of distribution radically, sooner or later, all old-media companies would either have to consolidate (ie, mergers and acquisitions) or downsize to survive. Basically, it means several media professionals are at risk of losing their livelihoods for good.

Web 2.0 empowers amateur producers, but whether amateur quality would match full-time professional quality remains to be seen. Judging by the kinds of homebrew videos I see on YouTube, I'm not confident that the empowerment of thousands more amateurs will automatically provide "quality" entertainment that people would pay for. But one can always hope that more talented anime-makers such as Makoto Shinkai would emerge out of the woodwork because of lower production and distribution costs today.

[Nosauz]

The problem really is that the digital crowd has been gorged on free services of the internet like Digg, a news aggregate. Good reporting costs money but so many users are now enjoying free news with RSS feeds that are free that makes monetizing what they once considered free into a cost structure plan some what hard to swallow. This is exactly the problem Microsoft ran into when they developed Games for Windows, at the time they had Xbox Live Service which charged a nominal fee for matchmaking and online play, but when they try to port the system to the PC they basically sawed off their legs. The PC crowd could not accept the fact that on top of buying the stand alone game you had to pay an additional fee to play online when all these other games had no strings attached. The biggest problem for newspapers is changing the mindset of the people and to let them know that the news isn't free. Unfortunatley one of the solutions becomes a bidding waresque type of situation where there are tiered levels of news which would only be a quicker step to absolute chaos in the sense that information flow basically come stagnant and the news itself would be come another way for the rich to become more wealthy. The issue is very very complex, I mean there are so many factors to thing about, but one thing is for sure blacklash from charging for something that was once "free" will turn off a large proportion of online viewers. Of course news/games/anime/movies/television all have their nuiances and probably news would be the black sheep but for all the other sectors, they share so much in common that it would be a waste to not look at the failures and succes and aggregate that knowledge. The reason I'm so adverse to putting a value on news is because free exchange of ideas how been one of the single greatest reasons for innovation and ideas are basically information that we store, so putting a value on it makes it pretty scary.

[npcomplete]

So don't know if you guys have discussed this already here but one thing that was mentioned in the article though not focused on was how the rights were carved up among the sponsors/business investors while the actual staff get nothing. Even in the US, staffers get residuals from DVDs, and other sources of income. They mention how many animators and other staff had to struggle to make a living and how high a turnover rate that industry has (sans exec and management), yet these issues won't be solved by simply eliminating fansubs or piracy as much as some folks (e.g. ANN) would like to think.

It seems to me that the industry could definitely lean out and move towards a more effecient and meritocratic system (this includes many US companies as well). I hate to say this, but there seems to be a lot of unnecessary bodies involved and that only a tiny fraction of the total volume of money goes towards those who actually deserve it. This is why an increasing amount of artists and authors in the US are moving towards self-publishing, utitlizing local services, or less signing more fair, less parasitic contracts and becoming more independent overall.

I know it's more difficult with anime because of production costs but I do have some pie-in-the-sky, pulled-out-of-my-ass ideas for reforming the system where I'm even willing to invest my own money into though I'm too lazy to detail them here..

[oompa loompa]

Originally Posted by TinyRedLeaf

So here's the problem: Let's say newspapers manage to convert every reader to its online content. Would they still be able to earn as much revenue to support the its current newsrooms and foreign bureaus? Sadly, the numbers say no. Dwindling revenues say that heads will eventually have to roll.

The rules of distribution has changed the game, yes, but the new rules of Web 2.0 present more threats than potential opportunities. That is the dilemma facing all old-media establishments today. Anyone can see the potential of online distribution. The trick, however, comes from finding ways to convert that volume into sustainable revenue streams.

I can imagine that.. even if a company downsizes a lot AND reduces production costs a lot i still cant see it being economically viable.. It doesnt help that the anime industry is going through a slump ( not a crash as yet.. cant say the same about the US industry though..).. I certainly hope they do try something innovatie with the web, while still distributing hard copies.. mmm it will definetly increase viewership, even if there are still 'why should i pay if i can get it for free' - if my small personal observation about a small group of people is anything to go by - in the gaming industry.. all games are available online for free, many many great *and* successful games dont have good multiplayer support.. yet the majorty of people who still say 'no, i dont really want a pirated version, i want an original'.. i suppose the lag time between japan and the US is a large factor. but, if a substitute can be given to most animes online fast, hopefully people will adopt the same attitude about anime - not that im saying that even increased viewership will generate the required revenue.well anyways, thats a small observation of a small group of people, in a different industry, just a small rant

[sa547]

Just after dinner, I watched some news over and had a jawdrop after they announced that Nikkei went into a sharp downturn at about 88 points low; a strong yen (99 against the US dollar); then for the first time after 26 years Japan's imports had exceeded their exports; an exploding unemployment rate, many business closures, coupled with a growing number of NEETs; people are now dining at Yoshinoya and buying clothes at Uniqlo (no fine dining anymore or shopping at Louis Vuitton), and finally the government is giving away handouts for about $120 per person -- citizens on welfare.

*cough*

Now, in the next few months, and maybe for a few years, we'll be watching how the anime and manga industry will survive in such grave conditions: who's gonna be standing, who would fold up, those who would have to merge with another, and those who will rise out of the wreckage.

[Nosauz]

Eh, just look at the us market, its even worse, 12 year all time low, surpassing the lows of the great depression. First time the dow has dropped below 7000. Unfortunately the world economy is in a slump and not just nations are being affected, the whole world is. Doesn't bode well for anybody, but hopefully with the intervention of governments they might be able to stymie the bleeding.

[oompa loompa]

Originally Posted by sa547

Just after dinner, I watched some news over and had a jawdrop after they announced that Nikkei went into a sharp downturn at about 88 points low; a strong yen (99 against the US dollar); then for the first time after 26 years Japan's imports had exceeded their exports; an exploding unemployment rate, many business closures, coupled with a growing number of NEETs; people are now dining at Yoshinoya and buying clothes at Uniqlo (no fine dining anymore or shopping at Louis Vuitton), and finally the government is giving away handouts for about $120 per person -- citizens on welfare.

*cough*

Now, in the next few months, and maybe for a few years, we'll be watching how the anime and manga industry will survive in such grave conditions: who's gonna be standing, who would fold up, and those who would have to merge with another.

while the anime industry has been doing good in the last decade despite recession, i find it hard to believe that it couldnt be affected by the economic conditions in the country.. it might be 'out of their hands' so to speak.

[Slice of Life]

In 12 months the recession will be over, people will demand more anime again, and somebody will produce them. (Actually there will be demand the whole time but not necessarily the capability or will to pay for it - that's the problem).

Or the crisis will last much longer in which case we all will have other problems to worry about than a constant supply of anime, I fear.

[cyth]

lol, surely it won't last only 12 months (Obama isn't a miracle maker, and by the looks of it, it's not happening), but otaku aren't very practical to begin with when it comes to spending, so I doubt it'll have THAT big of an impact. At least in Japan, the U.S. market was artificially inflated anyway. That's also where the economic downturn will hit the hardest.

[TinyRedLeaf]

"Come writers and critics
Who prophesise with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'
For the loser now
Might be later to win
For the times they are a-changin' "



^ I couldn't resist. Blame Watchmen if you must.

=============

Since I've been mainly singing a doomsday tune in this thread, it's time for me to add some much-needed perspective to my earlier arguments. More specifically, I'd like to follow on from this comment:

Originally Posted by TinyRedLeaf

Web 2.0 empowers amateur producers, but whether amateur quality would match full-time professional quality remains to be seen...one can always hope that more talented anime-makers such as Makoto Shinkai would emerge out of the woodwork because of lower production and distribution costs today.

How much lower are we talking about, actually? Happily, it turns out that a Makoto Shinkai fan has done some of the homework for us. Given the frequent comparisons between Shinkai and anime-god Hayao Miyazaki, he decided to compare the budgets of some of their movies.


Credit: Nick's Anime Weblog (Oct 13, 2008)


The Y-axis represents US dollars, adjusted for inflation. Caveat: He got his figures from IMDb, so they are by no means authoritative. Nonetheless, an important point is still served: New computer technologies are both enablers and destroyers of future anime content.

Makoto Shinkai and his small team of amateur collaborators independently produced a roughly 60-minute animated movie, of comparable quality to a Ghibli film, on the most raggedy shoestring budget you could possibly imagine: around US$220,000 in 2007.

With costs that low, you don't really need that much to break even, now do you?

So, yes, the times are a-changin'. Amateur or professional, if you're talented enough to produce top-quality content that someone is willing to pay for, you're in business. Then and now, necessity will always be the mother of all invention.

[oompa loompa]

Originally Posted by Slice of Life

In 12 months the recession will be over, people will demand more anime again, and somebody will produce them. (Actually there will be demand the whole time but not necessarily the capability or will to pay for it - that's the problem).

Or the crisis will last much longer in which case we all will have other problems to worry about than a constant supply of anime, I fear.

Originally Posted by Toua

lol, surely it won't last only 12 months (Obama isn't a miracle maker, and by the looks of it, it's not happening), but otaku aren't very practical to begin with when it comes to spending, so I doubt it'll have THAT big of an impact. At least in Japan, the U.S. market was artificially inflated anyway. That's also where the economic downturn will hit the hardest.

well... most economists do predict it will take no longer than a year or a year and a half actually ( well.. thats from talking to my economics professors).. well, for it to reverse atleast ( that doesnt mean till things are 'normal' again - depending on what 'normal' is to you that is.) japans economy on the other hand.. is a whole different story.. the main threat to the industry will and does always come from japan - sales to the rest of the world are important, but not nearly as much

edit:
speaking of which ( i dont live in the US.. just moved here a little earlier in the year solely for college - no relatives etc) how much of the US licensing business depends on dvd/merchandise sales? from what i can surmise the majority of it right? if thats the case - wouldnt it be expected that they would be hit very hard? as always, correct me if i'm wrong