Over the past few years, we’ve seen the meteoric rise of several fairly small-name animation studios such as A1 Pictures, Brains Base and, most famously, Kyoto Animation, among others. Certainly, KyoAni has enjoyed unprecedented attention both domestically and abroad with very well-received series such as Lucky Star and Haruhi. There has been talk on the Internet of a “revolution”, a “changing of the guard”, in which old, outdated studios (Sunrise, Toei) are replaced with new generation animation studios like Kyoto Animation. Are the old guard truly being replaced? The answer lies, naturally, in statistics…
…and the statistics say no. Not even close. Sunrise‘s revenue is one order of magnitude larger than KyoAni‘s. This may come as quite a shock to many fans and observers of the industry, but many people are not asking the right questions: often, people gauge a studio’s “success” by using DVD sales as a general benchmark, the assumption there being that DVD sales represent a major part of revenue. While this may be true, it is wrong and misleading to gauge studio success through the use of sales statistics. As a result of my research into Gonzo‘s collapse, I’ve discovered that animation studios do make quite a bit of revenue: Gonzo didn’t fail because its sales were severely hampered. As a matter of fact, Strike Witches sold quite well. It failed because of poor management and bad investment choices. Too often we forget that animation studios, especially large one like Sunrise, are more than animation studios; they are corporations, often owning millions of dollars’ worth of securities and equities. The key difference between Sunrise‘s massive financial success and Kyoto Animation‘s lack thereof lies in smart management and investment. Sunrise has a team of great businessmen; KyoAni does not.
Let us quickly examine the similarities between the two studios. They are both private corporations, and both compete in the same industry. The similarities end there. Sunrise‘s corporate structure can only be described as deathly efficient. Comparing employment figures across companies, Sunrise has one-tenth the number of regular employees of Kyoto Animation. One-tenth. Most work is outsourced to Koreans or freelance animators on a contract basis. Kyoto Animation, on the other hand, employs in-house animators for most of the work, significantly increasing costs. While some may doubt the impact of Sunrise‘s contract-based system of employment, statistics show that it works: Sunrise‘s total revenue over the past few years was greater than Toei Animation‘s, who outpaced Sunrise two to one in terms of sales revenue, which is further evidence that sales is not the key determinant to financial success within the industry.
In addition, Sunrise invests smart. Revenue reports from 2009 indicate that both companies suffered a loss of profit in 2008, with KyoAni‘s loss being far more pronounced. Some observers have attributed this loss to poor sales as a result of the recession, but this is not plausible, as Sunrise would have also registered a similar loss in revenue; after all, its products are subject to the same market forces as KyoAni‘s. Another theory postulates that KyoAni did not produce any successful titles during 2008. As 2008 saw the production and airing of both Clannad series, I don’t buy that theory, either. Rather, I believe the answer lies in the investment portfolios of both companies, with the KyoAni picking bad investment targets. It could also be possible that KyoAni simply had more money invested in equity and securities; Sunrise, as a subsidiary of Bandai, can afford to place lesser focus on investment and pull funds from the parent company. Naturally, this is only a theory, as I do not have insider access to the investment portfolios of either company. I do think it is something worth discussing.
Finally, Sunrise has a unique advantage of Kyoto Animation. As an old, established studio, Sunrise has a number of in-house writers, who can churn out original anime series. Kyoto Animation, possessing no such staff, must rely on securing animation rights from outside sources, such as manga authors or game companies. A lot of money goes into this; Gonzo‘s losses were mostly in the licensing department. The ability to produce in-house original work significantly cuts down licensing costs, and naturally increases profits. As a result of Sunrise‘s size, it holds a vertical monopoly on the production process: series are designed in-house, produced in-house, goods are made by Bandai, the parent company– in short, 100% of profits from any given anime series goes right back into its own pocket. KyoAni, on the other hand, does not have such a luxury, and therefore, much of its profit derived from goods must be given to third-party manufacturers and contractors.
Naturally, even without all of this complicated analysis, one can intuitively divine that Sunrise makes much more money than KyoAni. After all, Haruhi doesn’t even come close to touching Gundam in terms of visibility and popularity. KyoAni is no more than a mom-and-pop shop in the industry, unable to compete with Sunrise‘s efficient industrial machine. The old guard isn’t going anywhere.
This article is concerned mainly with revenue and profits, and not artistic merit or quality. Just because Kyoto Animation isn’t as profitable, does not mean that it should change its business practices. There are those who believe that KyoAni‘s throng of in-house animators produce some of the highest quality animation in the market, and no statistical numbers can express such sentiments, nor the pleasure that one potentially derives from seeing such smooth animation.
A lot of this data is gleaned from the Imperial Data Bank. Since I paid for the information, it would be unlawful for me to freely disseminate specific numbers. I apologize for the inconvenience, but if you are interested enough, you can also spend roughly 10 – 15 US dollars and obtain the information for yourself here.
The original inspiration behind this post can be found here. I expand on his ideas and refute some of his theories and explanations.