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Crunchyroll CEO Keynote Address

“When the winds of change blow, some build shelters, others build windmills.” – Chinese Proverb

By Ron Quezon     July 05, 2009

© Crunchyroll

Anime over the Internet-- “When the winds of change blow, some build shelters, others build windmills.” – Chinese Proverb


Mr. Gao opened his talk with a slide of a Ford Model-T and a discussion about disruptive technologies.  That is, an innovation that creates a new and unexpected market by applying a different set of values.  In this case, not only how the values of anime are changing the internet, he commented, but how the values of the internet are changing anime.  The internet itself is a convergence of five separate disruptive technologies.  He broke them down into networking, the personal computer, open source code, mass storage, and fiber optic communications.  Each of these disruptive technologies is bringing new values to the internet.  In turn, there are three main values that the internet is applying to anime.


1. The value of entertainment.

Mr. Gao had a bar graph slide of consumers’ choices for entertainment, approximate prices and number of entertaining hours for each one.  Movie theater experience $7/ 2 hours, DVD box set $40/ 10 hours, video game $20/ 50 hours, and online MMO $15/ 80 hours.  He made the point that the industry is hurting not primarily because of piracy, but because of consumer choices.  His next slide added a line for Crunchyroll subscription $6.95/month and converted the other choices into $/hour entertainment rates.  His conclusion?  For consumer entertainment choices, at $0.26/hr a Crunchyroll subscription is on par with an online MMO at $0.19/hr.  It is also well below the $3.50/hr or $4.00/hr pricing for a movie or DVD box set, respectively.  It’s all about keeping more options open to the consumer.


2. Unit cost of delivery.

The next slide that Mr. Gao had bar charts with fixed costs comparing physical and digital media.  His estimate for physical media included $2000 for the master, $10000 for dubbing, and $1000 for subtitling.  On the digital bar chart side he had $290.  Mr. Gao then showed a variable cost slide comparing physical and digital media, with digital media at a significant price advantage.  He conceded that big anime shows will always be on DVD.  However, he pointed out, the internet changes anime’s fundamental business opportunities.  It gives all content equal exposure and chance to make money.


3. Economics of anime over time.

Mr. Gao fired up a slide with dollars plotted against months with a caption labeled physical media.  He highlighted that many companies don’t decide to release physical media until five months after the anime airs.  It’s not until ten months later that the DVD is released that consumers see the product and the company sees any money.  From months five to nine, the company is spending money on production as well.  The following slide had anime views plotted over time.  Using his index finger, Mr. Gao traced a large spike in the graph and observed that more than 80% of anime views are within the first 30 days that the anime is available.  Consumers want fresh content was his conclusion.

Starting to wrap up, Mr. Gao had a slide of simulcast digital cash flow over time.  In comparing digital to physical media, he argued that licensors can make money much faster.  He also mused that there is no problem with shelf space.  Titles today make thousands of dollars per simulcast episode on Crunchyroll.  Under the assumption that consumers want fresh content or will move on, Mr. Gao believes that not simulcasting is causing distribution to loose money.


The speech portion of the keynote ended with a slide of windmills and the words from a Chinese proverb: “When the winds of change blow, some build shelters, others build windmills.”


The floor then opened with questions from the audience.  Mr. Gao answered a total of five questions and here are a couple selected questions:


How did you calculate the $0.26/hr consumer entertainment rate?

Mr. Gao answered that this number was calculated by actual usage.  Showing the breakdown would be difficult as the actual use of the content has a bi-nodal distribution.  Some subscribers focus on one show and all its episodes, whereas others choose watch only a couple episodes among variety of shows.


What do you spend (on average) for marketing?

Mr. Gao responded that marketing online is fundamentally different than marketing in real life.  In general, Crunchyroll tries to make marketing more social, and likes to get the fans involved.  Additionally, the company works more on initiatives.  The problem is not being able to compare similar elements between marketing online and marketing in real life.  One example is the cost of customer acquisition.  Ideally, the online cost to acquire a customer is $0.  The economics of email and such are that the cost to reach 1000 consumers is about the same as to reach 10000 consumers.  This is not the case in marketing in real life.


Mr. Gao started at 11:08am and concluded at 11:28am.


Kun Gao, CEO-Crunchyroll

Mr. Gao is the CEO of the number one online video service and community that offers full-length episodes and movies of the very best in Japanese anime and Asian entertainment. Crunchyroll’s content is provided by Asian media leaders including TV TOKYO, Shueisha, d-rights, Fuji Creative Corporation, Pony Canyon, Yomiuri Telecasting Corporation, Toei Animation, Gonzo, Munhwa Broadcasting Corporation America and many others. As one of the founders of Crunchyroll in June 2006, with offices in both San Francisco and Tokyo, Crunchyroll has become a pioneer and innovator within the Japanese anime industry and the only video service in the world to offer hit programs like NARUTO SHIPPUDEN, GINTAMA and many others online to its subscribers within one hour of their Japanese broadcast.


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