Sony buys anime streamer Crunchyroll for $1.2 billion; here's my take

Three years ago, I asked Kun Gao, a co-founder and former CEO of anime site Crunchyroll, whether he thought the medium on which his company relied would ever go mainstream. We were sitting in what were then Crunchyroll’s headquarters on the seventh floor of the sprawling Westfield Mall building in San Francisco — a space once occupied by Microsoft. He smiled. “It’s still niche,” he said. “But it’s a pretty big niche.”

Last week, Sony took a big bite into that niche by purchasing Crunchyroll from American telecoms giant AT&T’s WarnerMedia for a cool $1.2 billion. The deal puts the company Gao co-founded 14 years ago with five other computer engineering grads (and self-professed “nerds”) from the University of California, Berkeley, at the very center of Sony’s push to become a direct-to-consumer player, joining the fray with behemoths Netflix, Amazon, and Disney. Entertainment, and anime in particular, will be its cornerstone.

To industry observers, Sony’s purchase, while likely overpriced according to some, is hardly surprising. Over the past five years, the company has been on an international anime buying-spree, acquiring distributor-streamers Wakanim (France), Madman Anime (Australia and New Zealand), Manga Entertainment (U.K.), and Funimation (U.S.), the last of which was Crunchyroll’s only direct competitor in the States (the two forged a 2016 partnership before Sony swallowed both) and a comparative steal at only $150 million. 

Still, one of the surprises of the Crunchyroll deal is that it has taken Sony so long to invest heavily in a lucrative entertainment business in its own backyard. Eighty-seven percent of Japan’s anime studios are in Tokyo, most of them a short train ride across town from Sony’s world headquarters. Yet the company’s anime ventures until now have been timid. 

Back in 1995, Sony Music Entertainment Japan established its own anime-management subsidiary, Aniplex, which, 10 years later, spawned the anime studio A-1 Pictures. While amply funded, A-1 has so far seen only limited success, primarily with its series “Sword Art Online.”

Japanese companies rarely appreciate the appeal of Japanese culture. Even the mighty Pokémon franchise was sold for a fraction of its eventual worth when it was first licensed through a contract that handed all subsidiary rights to its U.S. distributor. A “Galapagos syndrome” mentality, in which Japanese products tend to be developed in isolation and either fail in international markets or are never taken overseas, combined with the country’s notoriously risk-averse business culture can make foreign markets seem both alien and daunting.

With Crunchyroll in its grip and a newly branded in-house umbrella company, a joint venture between Funimation and Aniplex called Funimation Group, Sony is taking a bundled approach to anime’s “big niche.” But the sudden billion-dollar buy also looks a little desperate — a proverbial Hail Mary play late in the game with the clock ticking.

Tokyo-based consultant Larry Mahl, a former executive at both Sony Pictures Entertainment and Warner Home Entertainment, points out that as 2020 wound down, Sony was the only major media player without a seat at the streaming table. In a roughly one-year span, Disney had launched Disney Plus (and now owns Hulu), Warner HBO Max, Apple its Apple TV+ product, and NBCUniversal the Peacock platform. ViacomCBS announced in September that it would stream all of its content on Paramount+ in early 2021.

“In the VOD era, you need a distribution arm,” says Mahl, “or you’re out of the game.”

The world’s legacy media creators have been falling over themselves in a musical chairs–like scramble to a tune played primarily by Netflix and Amazon Prime — both of which have invested heavily in anime, with Netflix single-handedly transforming the Japanese industry through bidding wars and price bubbles. This October, Netflix entered into four more partnerships with major studios, including veterans Production I.G and Mappa, to raise its total to nine, and it has announced a slate of 16 new anime productions for release next year. 

Studios that only a few years ago were paid $150,000 to $300,000 to make an episode for an anime series are now routinely commanding $800,000 to $1 million for the same work.

But Covid-19 caused a spike in demand for online anime content that even the rosiest industry forecasts didn’t predict. The shuttering of live-action sets, combined with a stuck-at-home audience desperate for fantasy escapes, has meant that animation, with its low budget, safe-to-make product and unmasked characters, is now the go-to alternative for both producers and viewers. 

And not just in Japan. Los Angeles–based animation producer, writer, and consultant Eric Calderon, who oversaw the development of the transcultural joint-venture 2007 anime series “Afro Samurai,” whose main character was voiced by Samuel L. Jackson, says that the number of inquiries he received from U.S. entertainment executives skyrocketed this year. 

“People from the live-action world who have never made and know nothing about animation have called me asking about prices,” Calderon says. “The animation medium has been growing in audience acceptance for years, but the pandemic really accelerated interest on the creative side.”

Netflix has reported that the number of households worldwide watching at least one anime title in the year leading up to September 2020 grew by 50% to more than 100 million, and anime products are now among its top 10 titles in almost 100 countries.

For the single-product, anime-dedicated Crunchyroll, it took 10 years to hit the one-million-subscriber mark, in 2016, and two more to hit two million. But in 2020, Crunchyroll surpassed 3 million before the year was half over. Today, the company boasts nearly 90 million users and more than 800 employees based in Los Angeles, Tokyo, Paris, Lausanne, Chisinau and Berlin. 

“We have experienced a noticeable uptick in users and engagement throughout the pandemic,” says Joellen Ferrer, Crunchyroll’s vice president of communications. “We’re fortunate to be in this business this year.”

Before Covid-19 gave it a boost, anime hadn’t exactly struggled for attention as a global IP. Japanese media titles today account for 11 of the 25 highest-grossing media franchises in the world, a list that includes “Star Wars” and “James Bond,” with “Pokémon” and “Hello Kitty” in the top two slots. Those Japanese titles are the only ones from a non-English-speaking country on the list. 

It may have been another surprise hit that pushed Sony into buying Crunchyroll and finally embracing its homegrown medium of anime: “Demon Slayer” (Kimetsu no Yaiba). The anime feature film, co-produced by Sony’s Aniplex arm, manga publisher Shueisha, and anime studio Ufotable, opened in October in Japanese cinemas to a record $44 million, making it the biggest theatrical release in the world that weekend. 

At the time of writing, “Demon Slayer” had grossed more than $310 million worldwide. It is on its way to becoming the highest-grossing film ever in Japan, surpassing Titanic and the Academy Award–winning Hayao Miyazaki classic Spirited Away. It is also 2020’s highest-grossing film, something Sony can’t ignore.

Netflix’s chief producer of anime, Taiki Sakurai, a former creator of scripts for veteran studio Production I.G, tells me he welcomes the competition from Crunchyroll. No one should dominate the market, he says, and having more players involved, and thus more creative and financial opportunities, will help the industry grow. Covid-19 will continue to drive demand for subscription video on demand shows.

“Anime’s like sushi,” Sakurai said. “When I was a Japanese kid growing up in the U.K. 40 years ago, there were no sushi restaurants, and everyone thought it was gross: raw fish on fermented rice? But now, you can buy sushi everywhere. It may not be authentically Japanese, but who cares? It’s still sushi, and anime will always be anime.”