How Crunchyroll Is Building An Empire Of Anime

Last weekend, crowds of mostly younger fans crowded the San Jose Convention Center for Crunchyroll Expo, a celebration of the Asian (particularly Japanese) style animated content known as anime. They wore costumes celebrating characters from popular series like My Hero Academia, One Piece, Dragonball and Demon Slayer, and waited in line for announcements about upcoming series and insider details from VIPs flown over from Japan – all courtesy of the event’s sponsor, Crunchyroll.

These are good times for Crunchyroll, the independently operated joint venture between U.S.-based Sony Pictures Entertainment and Japan’s Aniplex (both part of Tokyo’s Sony Group) that specializes in all things anime. The company, which has changed hands repeatedly over the last decade, finally found a corporate owner that recognizes the value of a hardcore niche audience, and has invested significantly in strategic mergers and acquisitions that have consolidated its dominant position in the market.

“We don’t want to be something for everyone, we want to be everything to someone,” says Crunchyroll CMO Gita Rebbapragada, summing up the company’s deep and narrow focus.

Crunchyroll began life in 2006 as a barely-legitimate “aggregator” site that hosted translated and original-language anime from Japan unavailable elsewhere in the world, usually without the benefit of licensing arrangements with the content producers. The site’s popularity showed producers and distributors that there was a massive international demand for the diverse, high-quality material produced in abundance in Japan, and encouraged producers to open new revenue streams through licensing.

Over time, a series of owners cleaned up Crunchyroll’s act, turning it into a popular streaming service with a huge, fully legal catalog of anime series spanning a variety of genres and styles. In late 2020, Warner Media’s then-owner AT&TT
divested Crunchyroll along with several other sub-brands catering to specialty markets, which they presumably saw as a liability in its attempt to build HBO MAX into a unitary mass-market platform.

Sony, which was embracing the exact opposite strategy by pursuing niche markets with dedicated audiences, snapped the service up in a deal valued at $1.175 billion, and merged it with its own successful service, Funimation (founded in 1994), instantly creating the world’s largest dedicated anime platform. The market impact was such that the merger drew passing interest from the anti-trust division of the US Department of Justice, but anti-competitive concerns were assuaged in part by noting the increasing anime investments of streaming platforms like NetflixNFLX
, Amazon Prime Video and Hulu.

Over the past year, Crunchyroll has been working through the intricacies of combining content catalogs and subscriber lists to give users access to the full range of material on both sites, amounting to a library of more than 16,000 hours of programming and more than 44,000 episodes. In the meantime, mass-market streamers like Netflix have started to hit the limits of growth, raising questions about whether their levels of investment in licensed and original specialized content like anime are sustainable. That dynamic has left Cruchyroll ascendent in a fast-growing, influential corner of the market.

“There isn’t a stronger, more passionate community than anime fans,” said Crunchyroll CFOCFO
Travis Page. And if this is a “niche” market, it’s a fairly sizable one. While not disclosing Crunchyroll’s own market data internals, Page agreed that Netflix’s estimate of 100M anime viewers worldwide tracks with their own assessment, and said the market in North America numbers in the tens of millions. According to the Association of Japanese Animators, that adds up to a total addressable market of $25B worldwide in 2022 and growing fast.

Crunchyroll’s approach combines breadth and depth. Anime is a medium encompassing all kinds of genres, from fantasy and adventure to romance and slice-of-life. Crunchyroll’s catalog runs the gamut to satisfy existing fans and appeal to new ones. The company sees global growth in Latin America and Europe, and has been investing heavily to promote the service there, including recent price reductions to reflect the buying power of local currencies.

The company makes money through multiple channels: first-party streaming and theatrical releases of new anime content, sales of home entertainment products (DVD box sets and so on), merchandise licensing, and secondary distribution. Mitchel Berger, SVP of Global Commerce, says all four areas of the business are strong right now, and describes them as a “flywheel” that keeps the revenue engine humming. “We acquire rights from licensors and filmmakers out of Japan, some for direct distribution [through Crunchyroll] and some for theatrical release through Sony Pictures,” he said. “Anime is hot for a lot of reasons. The fandom skews younger, and young people are passionate about everything: merchandise, collectibles, action figures, and gaming. In fact, there’s a very strong overlap between anime fans and gamers.”

The company saw enough value in the collectibles side of the industry that, just last week, they announced the acquisition of Right Stuf, the largest retailer of specialty anime/manga merchandise with “great logistics and operational capabilities and the industry’s best packaging,” according to Page.

On the day the acquisition was announced, Right Stuf ended sales of adult-oriented merchandise , drawing criticism from fans of 18+ “hentai” content (which can get pretty intense). Asked about mature-themed material, Rebbapragada said it was important to make sure content was appropriate for Crunchyroll’s brand.

Page says concerns about market consolidation and monopoly influence are unfounded. “Lots of services are spending big on anime. It’s not just one or two others. It’s big players like Disney as well. And frankly, we welcome a diversity of providers in the market because it grows the audience, and sooner or later, fans will come to us because we have the most in-depth catalog.”

Page said Crunchyroll still has incentives to invest and innovate because Japanese licensors still control the content and renew licenses season by season based on which outlets can provide the best reach and revenue. “To maintain great relationships with the Japanese studios, we are trying to be a royalty-based SVOD service, so our success is shared back with them. It gives us incentives to continue to deliver for fans, because when content is successful on our platform, it goes back to Japan [and maintains our access to titles].”

Ironically, the former pirate site Crunchyroll sees piracy as one of the biggest competitive threats, not just to its own revenue but to the entire industry. “Our research shows that piracy accounts for a lot of views, and it will always play a factor,” said Page. “We work with Sony and our partners in Japan to create as secure an environment as we can for the content, and provide an affordable service so it’s not worth the risk to go to pirate sites.”

Whatever Crunchyroll is doing to expand the market in North America appears to be working. Anime conventions like Crunchyroll Expo were among the most popular category of fan events pre-pandemic, and the audience seems ready to return in force. Manga, the Asian comic book source material for many anime titles, has grown by triple digits in the US since 2012 and is a leading driver of the 60% year-over-year growth seen in comics publishing in 2021. Increases in manga sales track closely to the release of new anime seasons and titles.

Crunchyroll is now well positioned to ride this wave no matter high it crests. “We are laser focused on delivering great experiences for fans, growing the diversity of our content, and respecting the creators and the content,” said Rebbapragada. “This audience is special. They represent the future, and that’s important for all entertainment companies.”