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Animé and the Move to DVD: Simple Economics

By Chris Meadows     -

Author's Note: This article was originally published on August 8, 2000 on the now-defunct Themestream website, and subsequently saw discussion on the geek-news-aggregator website Slashdot.org. It received almost 5,000 unique views, and also got me an email of thanks from Robert Woodhead himself, noting that this was the first time AnimEigo had been "Slashdotted" and that it had already resulted in quite a few Macross box set pre-orders. Since Themestream is no longer around, Chris Beveridge has graciously agreed to host the article for me at AnimeOnDVD.



In the eleven months since it originally saw publication, the trends I noticed have continued. Fewer and fewer animé titles are being released to VHS, and more and more have started coming out on DVD. When animé are released to both VHS and DVD (for example, Cowboy Bebop or Sailor Moon S), the DVDs often contain more episodes than the VHS. Thus, it is now less expensive to own many series on DVD than on VHS, even ignoring that one would have to buy both subtitled and dubbed VHS to obtain DVD-equivalent content. DVD player starting prices have fallen to under $100; DVD has been hailed as the fastest-adopted consumer technology ever.



Save for the removal of a couple of defunct links, the text of the following article is exactly the same as that which appeared on Themestream. I hope you enjoy it.








After much consideration, AnimEigo has decided to stop releasing future titles on VHS. From now on, we will release exclusively on DVD.



So said an email received recently by VHS customers of the animé (Japanese animation) translation company AnimEigo.



This is only the latest episode in an emerging trend in the commercial animé community, in which the subtitled version (which many fans prefer) of series or movies such as Gundam Wing, Tekken, Sonic the Hedgehog, Tenamonya Voyagers, and Sakura Diaries have been or will be made available primarily on DVD, relegating VHS to dub-only (or even not at all). In the case of Sakura Diaries, a fan was upset to the point of starting an online petition which, at the time this article was written (over a month and a half since the petition was first posted), had received only six signatures.



Why is animé beginning to migrate from VHS to DVD? The major reason probably involves the animé industry's economy of scale.





A Scaly Economy



An economy of scale is defined as a "reduction in cost per unit resulting from increased production, realized through operational efficiencies." In layman's terms, this translates to the well-known fact that buying in bulk is usually cheaper, and so is making in bulk.



This is because almost all manufacturers have fixed costs--costs that do not vary with production level, such as insurance, rent, setting up assembly lines, creating masters, and so forth--in relation to their size. The larger an economy of scale, the more efficiently a manufacturer can crank out goods, and the larger quantity he can produce. The fixed cost is split among more units, making each unit that much cheaper to make.



The mass-market video factories have a huge economy of scale. Video releases of major motion pictures and popular television shows sell out in large quantities--even movies that flopped theatrically often make back their cost in video sales and rentals; some titles are even sold direct to video when the studios judge that they would cost more to promote than they would make in a theatrical run. Thousands upon thousands of copies of even the most worthless movies are produced, simply because they are economical to make and enough people do buy them to justify the expense. Even if people don't buy them, the studios simply notch the covers and sell them at a discount and still make back much of their cost.



Animé, like other niche markets, has a smaller economy of scale. Animé vendors' fixed costs make up a much larger proportion of their total costs; they cannot afford to make the giant production runs of major studios--nor could they sell all the tapes if they did. Thus, they have to charge more for their videos--and even more than that for subtitled videos, which have an even smaller audience--and try to make up the costs in other ways.



Economies of scale apply even within the animé industry, too. For example, fans have long complained about the price disparity between subtitled and dubbed videos. "But they have to do more to make a dub," the argument goes. "Why does it cost less?" The reason is that the more copies of a particular video are made and sold, the less each copy costs to make, because the fixed cost is divided among the higher volume. For example, if a dub has a $100,000 fixed cost and sells 20,000 copies, the fixed cost is $5 per tape. If the sub has a $20,000 fixed cost but only sells 2,000 copies, the fixed cost is $10 per tape, and prices are correspondingly higher.



But even these prices depend on having people willing to buy the tapes. Animé, especially subtitled animé, has a small customer base, even in these days of Pokémon and Dragonball Z. This is why animé tapes have been known to cost $30 and $40 for a one to one and one half hour OAV--not because animé vendors are greedy, but because this is their equilibrium price, where supply and demand are equal--that is, they can theoretically sell all of the tapes they can make at that price. At the volume they can make, they have to price them that high just in order to stay in business.



However, this price point balances on a razor's edge. If some factor causes demand for VHS animé to decrease even slightly, their price has to fall as well, to entice more people to buy...but the price can only fall so far until it goes below the total cost to manufacture and market the tape, and VHS becomes a money leak.



Enter the DVD player...





The Subtitling on the Wall



Animé fans have a long tradition of being early adopters of new technology, ever since the genlock first made home fansubbing possible. They made early use of laserdisc and SVHS (high quality media from and to which to fansub, respectively), inexpensive editing decks (to duplicate fansubs and make music videos), and even the Internet (with the USENET newsgroup rec.arts.anime alive and going strong at least as early as 1989, when colleges were still almost the only source for Internet access). It was only natural that when a new high-quality, low-price point medium such as DVD arrived, the same animé fans would flock to it in droves.



By now, many of these fans have sworn never to buy another title on VHS. Some extreme examples have even started buying DVDs months before they know they will be able to afford a player, tallying toward its cost what they save by buying from discounted online vendors. Each fan who makes this decision means one fewer sale for VHS and one more sale for DVD, multiplied by each title that he buys.



Since DVD also offers advantages for manufacturers and retailers as well--lower fixed costs (since sub and dub are on the same disc, they only need to make one video for both preferences), less shipping and storage cost per unit, more units per inch of shelf space--it should not be surprising that chain stores are cutting back on the quantities they carry of both dub and sub VHS.



AnimEigo President Robert Woodhead echoes these points in his response to questions over AnimEigo's decision. He notes that most upcoming AnimEigo titles will be subtitled-only "special-editions," which already have a smaller market than dubs. "Subtitled VHS sales have died in the last six months," he says. "Retail outlets (the big chain stores in particular) will not buy them anymore."



Making an additional VHS run worthwhile would require 500 to 1,000 VHS unit sales per title, and that figure is being made increasingly difficult to reach. The fans who have filled out AnimEigo's surveys have indicated a preference for DVD by margins as high as 10:1. Also, Woodhead suggests that many fans who prefer VHS would still buy AnimEigo's selections on DVD if this were the only format available.



Mr. Woodhead concludes by saying that AnimEigo needs to anticipate the state of the market in six to twelve months, not just the present-day. "DVD has destroyed the laserdisc market, and is making large inroads in the VHS markets, especially in the animé genre." What does this bode for the future?





I'm a 21st Century Digital Boy...



There is a saying that "as California goes, so goes the nation"--referring to the tendancy of new fads and trends to originate on the more liberal West Coast and then sweep east. One might also say, given its early-adopting nature, that "as animé goes, so goes the video industry."



The animé marketplace is now undergoing a dramatic shift. Within twelve months, I believe that few, if any, new animé titles will be produced on VHS, save for mass-market breakthroughs like Pokémon or Dragonball Z.



Because mass-market video companies have larger production runs and greater economies of scale, relatively fewer early DVD adopters, and deeper pockets, they will not be affected as soon, and will probably be able to afford to keep cranking out VHS and lowering prices for some time. Even so, they are still keeping a close eye on the market--I am almost positive that the early rumors that The Matrix would only be released on DVD and priced-for rental VHS were a "trial balloon" to see whether the public was ready. Since The Matrix is now fully available in sale-priced VHS as well as DVD, the answer seems to be "not quite yet."



However, with DVD players becoming more affordable, and with new recordable DVD formats just around the bend, VHS will soon come under siege like never before. I predict that within the next three to five years, VHS sales will dwindle until it is used only for cheap repackaged video productions (e.g. dubbed Jackie Chan movies) and low-budget home recording.





Implications for Fandom



The animé market is moving inexorably toward DVD and away from VHS, impelled by the body of fans who either have already switched to DVD or else soon will be. The greatest implication of this change is that all animé fans will have to go DVD sooner or later, or else accept that the market is leaving them behind. For better or worse, this is inevitable.



The expense of a new player seems to be the most-often cited complaint against upgrading; however, prices have declined substantially from their first introduction. New DVD players start at around $150; new DVD-ROM drives start at $100. That is less than some fans spend at one time, or at conventions; it is certainly less than the cost of an entire series on VHS. Add to this the facts that DVD offers much better quality, content, longevity, and ease of storage than VHS, and even those fans who hate having to change may realize sooner or later what a bargain they are getting.



Progress marches on. In time, the rest of animé fandom will have to march with it.



This article is copyright © 2000 by Christopher E. Meadows, and appears at AnimeOnDVD by his permission. All rights reserved. Readers may not modify, publish, transmit or in any way exploit any of the contents of this site, in whole or in part, without the express prior written permission of the copyright holder.

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