How Anime Companies Make Money in America and Moreover in Japan Explained

Wolf Girl and Black Prince Meme-How Anime Companies Make Money

March 21. 2015 Featured Meme Credit: Wolf Girl & Black Prince anime series from Fall 2014

The source for much of this information derived from Justin Sevakis from Anime News Network who brought to light how licensing anime works specifically between North America and Japan. Also in his 3 part feature he talked about which companies profited on what and how long it takes them to make profit back from initially pouring money into an anime.

The Anime Economy

The Basic Interpretation

-The Reason Anime Even Exists

Anime is borne out of a producer(s) from a company wanting to promote their particular interest. A popular anime series can be used to sell toys and model kits, or perhaps the company is really trying to sell a card game. Sometimes as Justin Sevakis mentions the producers might just be interested in making profit from selling as much DVDs as they can possibly sell. Though usually anime is basically used as an advertisement to sell and promote something. Anime production costs a lot of money and anime itself has a reason for existing. Not truly existing for anime fans to take simply pleasure from but as means to actually promote or sell something later on so in a way anime is much like advertisement. Not really a terrible thing since eventually this anime can be enjoyed by many people and then you have anime fans who simply consume it for the content itself.

-The People Involved with Investing Into Making An Anime Happen

Companies in Japan who work on anime usually form what’s called a “Production Committee”. The producer(s) meets with other companies that could also benefit from an anime being made, and tries to convince them to chip in some money. This pretty much helps to lower costs. So to make an anime happen basically a lot of companies must put in money into an anime originally. Though in the end, they must all make back all that money if possible or at the very least cover back the costs it took into producing “said anime”.

-A Success or Loss

Only a handful of anime series are actual successes. Initial sales are a good indicator of whether a show will make back the Production Committee’s investment, but in truth, most shows take several years to make back their money. It happens over sometimes a few years TV reruns, back catalog DVD sales, and re-releases internationally (yes international anime fans your money matters since once the licensing fees and dubbing costs in your native language gets returned to the anime company in your country then sells afterwards start going back to companies or more like the producers in Japan who made that anime). The process can take a while to take off due to a property having little fan interest or promotion.

-How Anime Companies Make Money: First North American Companies and The Companies in Japan

If an anime company like FUNimation Entertainment or anime company not in Japan decides to license rights for an anime, they first pay an up-front license fee, known as a “Minimum Guarantee” (MG). This can range from a few thousand dollars per episode or even more. These fees are treated like net revenue — basically royalties are paid which goes to the production committee. Kind of like the production of the anime, paying a license fee up front is basically a bet: essentially the distributor is wagering that they can sell enough copies to recoup that license fee. And in fact, until they do, they don’t have to pay anything more to the licensor. In other words, the companies in Japan do not get paid anymore besides getting that initial money paid from licensing to a foreign anime company. Wait though! If an anime makes a lot of money in a foreign anime market through disc sales, the licensors which are the anime companies in Japan and thus the producers of an anime get a royalty after that — typically 20-30%. Though an anime would have to sell lots thus this anime series would have to be pretty popular and enough anime fans must be buying in their country once an anime series/movie releases legally on DVD or Blu-ray. And so, for the first few thousand copies sold, money from a DVD doesn’t go directly to the producers of the show, but instead goes towards refilling what the distributor: FUNimation Entertainment already paid for it, as well as their production costs (Example: which can range from a few hundred dollars for a barebones subtitled DVD, to over US$10,000 per episode to produce a dubbed Blu-ray.) Every show that never recoups its money makes it harder for them to pay the Minimum Guarantee for the next series.

-Japan is Not Convinced Streaming Can be A Success, Still is Willing to Try Crunchyroll Streaming Premium Service

In the beginning of anime streaming, licensors as in anime companies in Japan began getting royalty checks smaller than the price of a soda making licensors pretty quickly realize that this whole “streaming” thing was a whole lot of work and expense. With the North American DVD market drying up at the same time, a few of them were ready to write off the American market entirely. Their biggest customers — FUNimation Entertainment, Sentai Filmworks and even Crunchyroll still believed that anime fans were just beginning to engage and suggested that anime simulcasting might still be the future of anime. And so, licensors (companies in Japan including producers and even production committees) have asked foreign anime licensing companies such as FUNimation Entertainment to basically prove it. Now, each anime costs a licensing fee (or “Minimum Guarantee”) when it comes to simulcast internet streaming rights. Not much but it still contributes to an anime’s overall profitability.

-Legal Anime Streaming Merely A Small Profit 

Legal anime streaming even through free memberships does makes money for anime companies but it is still so very small since those ads and the money from those ads only ads up so much as long as let us say an anime series is really popular. Since more people are seeing and thus activating more ad and thus revenue. That is if your average anime fan is not using adblock. Come on anime fans, patience, is key. Still sites like Crunchyroll realized the best way to bring in profit through streaming is if members pay for the service through a premium memberships and such. This proves more of a profitable venture for everyone. Them as the company that licenses anime from licensors in Japan and for everyone. And, yes, through free or premium memberships everyone is getting some money but with free memberships it is way little but with premium user memberships much more. Though overall all this revenue is very little.

-How Anime Could Possibly Succeed

The most reasonable way for anime to succeed and thus companies involved with it is how to make it something more and more people discover it. After all, if more people, discover anime the more piece of the pie more of the producers involved and anime companies can actually obtain and thus keep producing more of the anime. The real question is how do you get the fans- the not so passionate ones engaged in newer anime? With a dedicated anime-only site like Crunchyroll or, it’s pretty hard. Justis Sevakis pins it down exactly, “The only people going to those sites are the ones who already know what anime is, and are actively seeking it out”. Actually, it’s almost impossible to do any sort of marketing for a simulcast anime series at all. Thus anime’s success lies with the very engaged anime fan -the sort of fan- that reads Anime News Network pretty much daily and stays on top of every new release. If not an anime series or project can slip by completely undetected.

The Anime Economy is available on Anime News Network (USA & Canada): Part 1, Part 2, and Part 3. This piece on The Huge Anime Fan blog was merely created to do a quick run down of the basics. Still I recommend reading the complete written pieces by Justin Sevakis particularly Part 2: Shiny Discs.