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Digital Distribution the Wave of the Future Panel Report

Is it a little wave or a tidal wave?

By Ron Quezon     July 08, 2009


© Crunchyroll

Anime Expo Industry Conference Panel- Digital Distribution the Wave of the Future

Anime can now be easily found legally online, what does the future hold for this new medium of entertainment delivery? Security? Will this be an answer to solving the industry’s issue with online piracy? Experts leading the way will discuss the evolution of anime in the digital world, the challenges they face and how they intend to move towards the future.

The panel opened up with introductions of the moderator, Mr. Hoinsky, and the panelists Mr. Gao, Mr. Sevakis, and last minute additions Ms. Vona, Mr. Lewis, and Mr. Allard.  (Originally on panel list, Mr. Sherman of Bang Zoom! Entertainment, Inc. was not able attend.)

Mr. Hoisky opened up with a three part question first directed to Mr. Gao.  What obstacles do you see with digital distribution?  Are you having trouble working with Japanese companies?  Where do you see room for improvement?
Mr. Gao responded that digital distribution still very new.  Everyone else only jumped in after seeing if things would work out for Crunchyroll.  As for Japanese companies, they are very conservative in their approach.  Things take some time to work out.  The honest answer is that no one really has it all figured out.  It will take a matter of time to educate them.  The key is to make money.  Once everyone sees you making money, they will be more interested.  Ms. Vona agreed that there are still a lot of obstacles.  Catalogs take a lot of manpower to make ready for digital distribution.  Japanese companies aren’t necessarily difficult, it’s just that they want to see a plan in place before moving forward to address things like security and other concerns.  Mr. Sevakis also said that a lot of older shows require going through a lot of red tape.  It could take years to clear through all the necessary property rights owners for a title.

Directed to Ms. Vona, Mr. Hoisky commented that it is difficult to obtain worldwide rights.  A common complaint is not worldwide rights for shows, anything being done to address this issue of worldwide rights?
Ms. Vona replied that a title should be released at once, worldwide.  The main problem is that it takes a lot of time to coordinate.  Mr. Gao concurred, and added that his audience numbers 5 million worldwide and would benefit from this.  However, Mr. Gao noted, licensors can make more money licensing local, say, to a TV station in France.  Mr. Lewis pointed out that it is about monetizing digital distribution, as content holders don’t quite understand digital distribution yet.  Mr. Sevakis observed that the ad model is not much of an option overseas.

Anime News Network streams anime that come from all sorts of sources.  Is there a difference between what people watch online and what people buy?  And are dubbed simulcasts possible or profitable?
Answering the moderator’s question, Mr. Sevakis started that his site caters to hardcore anime fans.  However, he has seen preference for dubs, and that Hulu prefers dubs as it caters to a wider American audience.  He did not see a possibility for a dubbed simulcast yet.  For a vast number of shows it is not profitable for the company after taking in to account the cost of dubbing.  In addition, it would be hard to do production-wise, as Japan is already used to a certain model.  Nevertheless, he does expect to see more dubbing, and dubbed simulcasts will be more viable in the future as well.

Naruto is on several websites.  Do you see those audiences acting differently than ones buying DVDs?  (--directed to Ms. Vona)
Mr. Vona says it is split down the middle.  It takes months of hard work to make the dubs.  Putting up dubbed Naruto episodes (early) has been good as well as fan reaction for subs.  Mr. Gao answered that he wanted both.  Anime fans skew to subs but Kurokami, as an example, is already done in dubs.

Replacing fansubs-- is this affecting piracy?  Do you have any data on whether digital streaming is cutting this down?
Noting it’s hard to measure in numbers, Ms. Vona mentioned that she has seen some positive reaction.  For Naruto, Dattebayo bowed out of subbing once her company started.  It’s important to get new fans, and mainstream sources such as Hulu, Jwired, iTunes, etc. help in this effort.  Mr. Gao quoted an Anime News Network study that illegal downloads went down by 74%.  Legal options are only going to help the industry.  Ms. Lewis countered that fans are not necessarily people who just want to do the right thing.  Fans will go to other places to find what they are looking for, as they are fueled by their passions.  Mr. Allard also saw an industry drop in piracy.

Are you seeing digital sites as a platform for selling merchandise?  In some cases, seen as a loss leader?
Mr. Gao replied that merchandising is very important to fans.  For merchants, it is a great outlet that they can plug into.  The platform the fan can relate to will be the one that fans will move towards.  Traditionally, Mr. Lewis added, media itself is already setup for this and is already seeing this.  Ms. Vona said that her company is using this platform to cross promote as much as possible.

Directed to Mr. Sevakis, what are the difficulties in selling ads on websites where content is given for free?
Mr. Sevakis highlighted the first problem is the economy.  Internet ads sales are down for the first time in history.  Digital distribution was already new and risky, and a lot of people who buy ad space, such as media buyers, don’t get it yet.  For example, one of the ways to monetize digital distribution is called the lower third.  The advertising is placed on the lower third of the screen.   The problem with the lower third is that the advertising is right where the subtitles would go.  Mr. Lewis mentioned that other platforms are addressing it.  For example, Hulu has inserted ads, and many people don’t mind these ads since they are in it for the content.  Mr. Gao suggested that acceptance is dictated by the format of the ad.  At Crunchyroll, they have advertising in the upper third.  He admitted that there is still a need to educate advertisers.  Anime is still niche, but that means companies need to educate advertisers about how passionate the fans are and what the payback looks like.  Mr. Sevakis is verbullish on ads.  Anime fans are split 50/50 male/female, and most are in the college, or just graduated.  This is a prime market for advertisers.  This market does not read newspapers or listen to the radio, and ads will become a hot commodity in the future.

Production tune with simulcasting-- what are the quick turn around issues unique to the web as opposed to something more traditionally distributed?
Directed to Mr. Lewis and Mr. Allard, Mr. Lewis stated that time is a major issue, in terms of looking at the length of the episodes, and determining what will work.  In cases of shorter shows, there are only a bare minimum number of ads that can be shown.  Mr. Allard commented that you have to think about content in a different, innovative way.  This is a young industry, and the audience is not there yet.  Mr. Hoinsky answered the questioned he posed by noting that timelines and deadlines are the big thing.  Shows in Japan are sometimes not finished until the day before broadcast.  With DVDs, you have all the materials up front.  With simulcasts, getting the materials is a large challenge and you don’t always get them ahead of time.  Mr. Gao chimed in that it starts from the materials, and he gets materials about a week in advance now.  However, there is a lot of automation that goes into each show.  This is the only way to simulcast eighteen shows at a time.  In her experience, Ms. Vona gets the video only two to four days ahead of time.  However, there are always issues with things like naming lists or subtitle translations.  Even catalogs can be aggressive.  She has had 52 episodes that needed to be produced in one month as one example.  Mr. Sevakis pondered the fascination with physical tapes in Japan, sometimes sending tapes via FedEx overnight around the world.  There are faster, less expensive options like FTP, but it is an educational process.

In Shawne Kleckner's keynote speech from Anime Expo on July 3: 
“Some customers demand and require the shows as soon as possible - those customers we will need to address with streaming, quick turnaround, and providing an easy way to have access to the content, either supported in an advertising-based revenue model or an easy to pay for subscription model. However, as example, leaving the content up indefinitely will cannibalize sales of other mediums.”
Comments?  Is digital distribution a long term plan?  Do you need DVD?

Mr. Gao’s stance is that digital distribution is here to stay.  The issue here, in terms of digital distribution replacing DVD’s, is to find a new business model.  In case of Gundam, it is about creating demand for the Gundam models.  Ms. Vona did not agree with the keynote speech and believed there will be a market.  Viz is currently using digital distribution to promote their DVD sales.  Mr. Sevakis made the point that more anime fans are younger and not as interested in collecting DVD’s as their counterparts of years ago.  There has been a psychology shift and the fact is that DVD’s and physical media are not as important for these younger fans to own.  In addition, anime is competing against everything that came before.  You still have your video games, movies, etc. and competing with DVD’s isn’t easy.  Mr. Lewis illustrated that American companies are trying to use digital distribution in a hierarchy, where it is seen as a last option.  Typically, the first option is to go with a major network, then DVDs, iTunes, VOD, and lastly digital distribution.

To Mr. Gao, digital distribution-- security and ripping of streams.  A One Piece episode was stolen and put up early.  How secure is this?
Mr. Gao stated that Crunchyroll has had over a year’s experience and had no major problems.  At the core, you need to understand the technology, which is constantly adapting and instituting in process.  This matter is very important as a compromise by any company will affect the industry as a whole.  Ms. Vona remarked that any leak is disappointing and her company takes the issue of security very seriously.  Mr. Sevakis noted that many companies use Adobe Flash, putting the episode on pseudo digital lockdown.  He also admitted that sometimes all you can do is throw every security measure you can at the problem and hope it works.

The music industry is shifting to not using DRM.  What are the chances of this happening to anime, or is anime a different case?
Music is a different product, Mr. Gao argued.  There is a significant reuse value with music versus anime.  With anime content, it is a once-use type of product.

One common complaint with streaming is video quality.  Is HD that much more in demand?  How difficult is HD for streaming?
Mr. Gao contended that HD is very difficult.  Content cannot leave the TV station.  Many TV stations are not on the internet, and don’t know how to encode an episode.  Additionally, it is very expensive to stream (sometime 3x or 4x the cost.)  Mr. Lewis posed the question of where people are watching HD.  HD is a de facto designator of a premier website.  Mr. Sevakis rounded out the question with his belief that H.264 is probably better that DVD, and in the future you will see even better video quality.  The question is how to get HD streaming onto TV sets.

At this point the panel opened up for questions from the audience.  Among the ones asked were the following:

Curnchyroll, would you consider selling [entire volumes of episodes] on flashcards?
Mr. Gao responded that Crunchyroll’s focus is on streaming and subscription, and it is not downloading site.  In the end, he recommended the person asking the question go to iTunes…

Fansubs groups have a lot of experience with localization.  Do you look to fansubs for support?
Ms. Vona stated that they don’t utilize them.  Mr. Gao stated that there is a lot to learn from them, but not being legally compliant is a problem.  Mr. Sevakis had the most interesting answer.  Not everyone is willing to do things legally and unfortunately, some are the type who would want material to be leaked on the internet.  However, a number of fansubbers have changed their ways and are discretely working legitimately now.  (Some of these people may be in this very room…)

The panel started at 11:33am and concluded at 12:29pm.

Moderator:   
Ken Hoinsky, MX Media LLC-Managing Founder
Panelists:
Kun Gao, Crunchyroll-CEO
Justin Sevakis, Anime News Network-Director of New Media
Kevy Vona, Viz Media-Senior Manager, Digital Entertainment
Rob Lewis, DARE.FUSION-President
Josh Allard, DARE.FUSION-VP of Content

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