Funimation takes anime to new media

CEO plans to tap into youth market

By SAM THIELMAN

Gen Fukunaga has a great idea for a business model: illegal downloading.

No, he doesn't want to compete with Limewire -- Fukunaga is the president and CEO of Funimation, the largest anime distributor in the U.S., and he has learned how to tap into the youth market by studying it wherever it goes.

With a lot of careful research and some impressive flexibility, Funimation is leading the $300 million anime DVD industry -- a huge draw for the coveted, tech-savvy 18-34-year-old male demo -- with a 27% market share. And it's hoping to do even better now that it's venturing into new media territory.

Anime programming is popular in blocks like the Sci-Fi Channel's AniMondays, which shows anime series and feature films late Monday nights, and especially Cartoon Net's venerable Toonami, a 9 p.m. -11 p.m. block of half-hours like the faithful "Dragon Ball Z" and newcomer "One Piece."

"We look at a lot of data points," Fukunaga says. "We look at Japanese ratings, sales of the manga (Japanese comics) and the DVD; fan polls in the various magazines. On the U.S. side, we look at the Internet chatter anecdotally, but there are ways of counting what people are downloading illegally. There are sites that'll rank the counts of downloads, and then we look at fan polls. So there's lots of data."

There are a number of reasons fans will pay for a DVD title when they already have it on their computers -- better video quality, extra features, a good dub or subtitles without typos -- but data provided by scofflaws helps Funimation supply upstanding (or merely scam-wary) consumers with legal content, as well.

The Funimation business model is counterintuitive in almost every respect: Networks like Cartoon, and IFC love the company for its inexpensive broadcast licenses (Fukunaga refers to these as "a nice little revenue source"), which make up less than 10% of the company's annual revenue. But Funimation is also the only American distributor of the hugely popular "Dragon Ball" franchise, as well as "Afro Samurai," a heavily promoted Spike TV event with a celebrity dub by Samuel L. Jackson and Ron Perlman -- properties Fukunaga would much rather use to sell DVDs than broadcast rights.

Next up, in May, is feature-length film "Vexille," which has screened at several film festivals, including Toronto.

Fukunaga is also confident in the company's pay-per-download system, which is basically an HTML-based iTunes, but for anime. "There were a lot of rights issues, and we couldn't monetize it fast enough last year," he says apologetically -- anime sites that don't bother with copyright laws, like the recently reformed Crunchyroll.com, have become must-visit web destinations for anime fans. Now that Funimation is getting back its piece of that action, Fukunaga predicts that the download sales will soon exceed the company's second-biggest asset, merchandising (t-shirts, backpacks, toys, etc.)IFC's exec VP and general manager Evan Shapiro counts himself a pleased customer. "This is the only series content that we acquire," Shapiro says of the cable net's anime programming, which plays in both primetime and latenight. "We could never afford this kind of material if it wasn't for this partnership, and the only way we have it (so affordably) is that it gives them such a boost on DVD."

The content, including swords-and-sorcery skein "Basilisk" and the upcoming horror series "Hell Girl," has opened the door to some lucrative advertising prospects, too, including videogame companies like UbiSoft.

The problem with Funimation's model, as far as a larger, less flexible company is concerned, is that the intellectual property issues Funimation has to navigate for every deal look like Excedrin headache No. 1,000,000.

"They're very limited," Fukunaga says of the deals he cuts with the Japanese studios. "They won't give us videogame (rights), or if they do, it's got all these restrictions on it." It's the same for toys and other peripherals -- all part of the collector-centric anime cash crop. "And every single thing you change, it has to go back to Japan for approval."

So if you're Disney, you probably won't bother with anime acquisitions unless you can get something high-profile with a good chance of performing well in a public forum, like the library of celebrated animator Hayao Miyazaki, who directed "Spirited Away" and "Princess Mononoke."

The Mouse gave those films the royal treatment -- celebrity dubs and limited theatrical releases -- but for now, DVD is the bread and butter of this industry. (Both films have done well on DVD.)

A title such as Funimation's "Trinity Blood," which only hardcore anime fans will know about, still sold 18,000 copies on release. "Dragon Ball Z," by contrast, sold an estimated 55,000 copies of the pricey season 1 (at a sticker price of $49.98) in its first five months, and continues to sell more seasons, more spinoffs, and DVD-direct feature-films that do even larger numbers. And those figures don't include sales at big-box retailers like Wal-Mart, where anime does a very brisk business.

Milton Griepp, CEO of anime trade-mag publisher ICv2, notes that anime is slowly coming into the mainstream, and that the gold rush may be ending for smaller companies trying to compete with Funimation and Viz, the second-place distributor.

"There is a good business there, but it's undergoing rapid change," Griepp says. "What seems to be the trend is larger size and better access to large merchants -- Wal-Mart and Best Buy. There has also definitely been a drop in sales in the last year or two for the core anime-fan titles."

And with things moving mainstream, expect more of the big guns to start shifting toward the growing, tech-centric market.

Something on which Griepp, Shapiro, and Fukunaga all agree is that the industry is bigger and more pervasive than people outside the demo realize. "It's still perceived as a niche market," laughs Fukunaga. "They really don't get how popular it is in the underground in the younger demos."

Griepp concurs. "The anime audience tends to be very early adopters of technology," he says. "This may be a picture of what the DVD business itself looks like in the next few years."