Thoroughly interesting article, can’t wait for part two.

Cue the advent of mass appeal games like Rock Band, and major consoles like the DS and Wii actively engaging the casual market. Hardcore gamers said it was a fad, games for grandmas, babies, and the brain dead, but in truth the industry was finally coming out of it’s decades long self-induced niche-dom. Now that’s the big push by all 3 primary console makers, family-friendly, simple, approachable, and all signs point to that being the profitable trend continuing into the next generation.

Is the current anime industry in need of a major shake up? There might not be the one iconic company, with sizable market share power, to enact the big Blue Ocean strategy like Nintendo did for video games, so what force can pull anime out of it’s self-imposed niche?

@Akira
Anime as premium goods? Unfathomable for my sensibilities. Anime as drugs? Makes more sense.

Market Elasticity is an indicator of a given market’s “resilience to change.” Elastic markets change quickly, with a rise in prices quickly lowering demand; inelastic markets are the opposite. Thus, inelastic goods are not necessarily staple goods; though, because of their absolute necessity, goods such as salt, sugar and cereal grains are usually inelastic, because a change in price will not affect consumers’ willingness to pay for the good.

Now that being said, luxury goods can be highly inelastic. Looking at drug markets such as heroin, cigarettes and cocaine, one can see that all three of these represent highly inelastic markets, because an addict is ready and willing to pay higher and higher prices for drugs.

I claim that anime is an inelastic good because fans are willing to pay exorbitantly high prices for DVDs, merchandise, et cetera. Even if these prices were to go higher (as they have in the past), consumers of anime would not be deterred to consume more. In fact, one could argue (dubiously) that certain goods’ demand rises when prices rise; this effect is due to the perception that said good is premium, rare or highly desirable, thus driving up demand. Looking at rare doujinshi and special first-press edition goodies for eroge and anime DVDs, this is most likely true.

@Kadian1364
This is starting to get off-topic, but I’ve been thinking recently that otaku’s willingness to fork out so much money for anime products is almost as much about them having “ownership” of a part of the media as it is about owning the products themselves. Anime is, to a large extent, niche and otaku tend to be insular. If otaku make themselves a visible driver of the economics of anime (as they do) it gives them a pretty big influence in the types of anime that get made and the direction the culture goes in. I think this is why otaku encourage each other to pay high prices and owning DVDs is a validation of fandom… being seen to be prepared to pay the price is kinda like a having a vote in the anime plutocracy.

In other words, otaku probably like the idea of anime being niche because it’s their niche, and they can have their say and call it their own.

There’s a line I want to bring attention to, the second sentence under Risk Management: “anime is an extremely inelastic market.” Is this true in Japan, and is that a reflection of the Japanese otaku? I was taught that inelastic goods were the bare essentials: food, soap, gas, etc. Anime being a highly luxury good, I’m bewildered that anime goods, like DVDs, are 2-3 times as expensive in Japan as to what Americans pay, considering that North American DVDs typically have twice the episode count, a dub track, and overall considerably less variety available than in the Japanese market. Yet anime DVDs in North America are still more expensive than other DVDs of movies or TV shows, and the lower market demand shows.

Wouldn’t anime goods in Japan also have to compete with other entertainment related products for the yen of the Japanese consumer? The sensible answer I’m thinking of doesn’t seem to apply to the otaku market there.

In other words, their failure began after the initial three episodes of [insert Gonzo TV series here, with the exception of Gankutsuou and possibly Last Exile].

Certainly, shoddy productions aren’t the only thing that did them in, but I do honestly believe it to be the most important. They were right to realize the value in expanding out into the non-otaku market, but their attempts at doing so–Transformers Galaxy Force, GI Joe: Sigma Six, Origin: Spirits of the Past–were all their typically sub-par efforts. By the time they declared their intention to revise their “high-quantity, low-quality” output philosophy, it was too late.

Great post, though. I look forward to Part 2.

Also dividend paying stocks are usually associated with companies with steady, predictable cash flows first and growth is nice but not necessary. If Gonzo consistently demonstrated that it could grow its business by, say, 10% per year or better, I would rather they not pay a dividend.

Share issuance is not the only method of financing expansionary activity. A company can issue preferred shares, or convertible debentures, or bonds.

But in light of where Gonzo was in 2005, it would appear as if they didn’t need the extra capital/debt. They had reasonable organic growth, projects were paying for themselves in short order, etc.