The Rise of the New Guard?
Queens of a new dynasty?
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 There has been talk on the Internet of a “revolution”, a “changing of the guard”, in which old, outdated studios (Sunrise, Toei) are replaced with new generation animation studios like Kyoto Animation.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.
Afterthoughts:
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.
I think it’s comparing apples with oranges. Kyoto Animation is about animation, Sunrise is about animation and a whole lot more. Saying Sunrise is privately owned is outright wrong too…
I see you mean private corporation and not privately owned. My American instincts got the better of me. But anyways, seems like you subtly point out that they’re simply different enterprises.
Do your numbers on regular employees (I assume you’re translating “正社員”?) come from the Teikoku report? It’s interesting to see that Kyoani chooses that form of employment.
This makes me wonder about Key turning to P.A. Works to do its new show, Angel Beats. Was it because KyoAni costs more? Will it harm KyoAni by signaling the loss of one of its best sources of stories?
This does give me more respect for KyoAni, since it seems willing to lose money by keeping more production in-house, in order to keep quality up. But can it continue like this when costs for Korean or Chinese animators are so much lower (if they are)?
Does P.A. Works save money by having its head office in an even more out-of-the-way place than KyoAni? Or by outsourcing more?
Are you sure it would be “unlawful” to state specific numbers from the report that you have paid for? Is that in the agreement? Not that I’m asking for them. Just wondering.
It does strike me as strange you specifically compared Sunrise with KyoAni At first. But then I clicked on the link you provided and it became clear.
All this to me are incredibly moot arguments. Trends require studying a large sample of smaller companies, studying their fluctuation in earnings and looking for patterns. A comparison between Sunrise and KyoAni to me doesn’t show the trends. However you did raise a few interesting dot points about outsourcing, IPs and investments.
Also A-1 Pictures is a subsidiary of Aniplex which is part of Sony Entertainments isn’t it? Sure the Animation Studio is smallish and newish, but its very hard to gauge the success of the animation studio itself when all the big decisions are being made by HQ.
I’ve always believed that Sunrise isn’t going anywhere despite KyoAni’s rising name. KyoAni has been on everybody’s lips nowadays but it can’t solely contribute to a downfall of an incumbent entity such as Sunrise. If Sunrise were to experience a downfall, it also has to fail at something on its part. Sunrise has been around for decades, so I think they’re pretty wise to know a thing or two on how to stay alive in the presence of emerging rivals (although this isn’t always the case in all situations).
I find it funny that you chose a picture of the ED of K-ON since Kyoani’s first in house paraphernalia will be figurines of K-ON in those outfits.
I’m not horribly surprised that Sunrise makes more money than Kyoani since they’ve been around the block longer, but what I find unusual is that this difference is so much larger than I expected.
Sunrise has the advantage of economies of scale, and thus it would be quite hard for it to lose its market share within the span of KyoAni’s rise. As AC pointed out, Sunrise would have to make an egregious business error on its own end like what I think Gonzo did in order to have its profits come crashing down. KyoAni needs to expand until it has a certain portion of the market before it can even conceivably compete with Sunrise on financial terms.
And can anyone give me a quick summary of the post in the final link?
@hashi
That doesn’t really seem like the right line of reasoning for why Angel Beats was given to PA Works. KyoAni’s adaptations have been very highly regarded (or at least that’s the impression I get) and to sacrifice that consistency for a different studio that doesn’t have that background with Key VNs might result in backlash. I suspect it might be more of a problem with season conflicts; KyoAni signed up K-on season 2 first and thus couldn’t fit it into their schedule, so Key went elsewhere.
People who might assume that Kyoto Animation is on the same level as companies like Sunrise and Toei revenue-wise likely have an incomplete picture of the anime market. A company like Kyoto Animation may be a king of “late-night anime”, but that’s just one aspect of the market. (It also so happens to be the part of the market where home media sales are most important.) The two much bigger, much more lucrative markets are kids and primetime, because these blocks are often produced directly by the TV stations and funded by major corporate sponsorships/ad deals. Those are the playgrounds where Toei and Sunrise play predominantly. At any given time, Sunrise and Toei have multiple long-term projects on the go, in addition to smaller short-term projects, whereas Kyoto Animation is typically restricted to one small-scale niche project per season. That they generally do a good job at these niche projects is what gets them attention in the niche market they serve, but that doesn’t mean they’re all of a sudden one of the “big boys”. (It just so happens that a lot of the English anime fanbase focuses on that small niche part of the anime market, your big name shounen shows aside.)
You also mention about having in-house writers, and pitched that as a sort of advantage that comes with age. That’s not entirely the issue; it’s part of their business model. Sunrise’s business model is, basically, to either create new media franchises or to extend Bandai’s toy franchises into media. Kyoto Animation’s business model is, for the most part, to be hired to adapt existing third-party franchises for animation. Each studio has the staff they do because it follows their business objectives. Perhaps in time Kyoto Animation will want to expand and change that business model, but for now they seem perfectly able to find work doing what they’re good at. Hashi mentioned about P.A.Works being chosen for Angel Beats; their business proposition seems to be to pursue anime-original projects instead of adaptations, while still putting a lot of care into the art/animation of the works they produce. So in that case it may be just a matter of picking the right contractor for the job, and letting Kyoto Animation continue to focus on adapting existing works.
And incidentally, even when looking at DVD sales for late-night anime, those aren’t published or distributed by the anime studios anyway. How much of that revenue goes back to the studio depends on contracts and involvement in the production committee. So I guess it all sort of goes to show that individual data points do mean something, but it’s much more complicated than most people generally bother to figure out (or, really, can easily figure out from the outside).
@Eli
I think relentlessflame’s hit the nail on something. KyoAni can try to expand and become the new incumbent ala Sunrise but that won’t necessarily go well with niche viewers and KyoAni purists. Expanding may involve what Sunrise’s business model is like (having Korean/freelance animators and such) and this may change KyoAni’s original flair.
Echoing some of the other comments, it’s not so much the fact that Sunrise is more profitable that’s surprising, it’s the extent of the difference between the two companies. That’s a massive difference. I daresay it throws a bit of cold water over the arguments that mecha is no longer a viable genre and that KyoAni’s moe machine at all threatens the existence of a company which has been a mainstay in the industry for decades.
What you say about bad management of human resources strike my chord the most, because I’m witnessing it firsthand.
HEAPS of worker-bees as well as supervisors are required to finish a project within ‘cramming period’ (it’s always never enough people), but that amount of work force are most of the time not needed, even during early stages of a project. A company can end up paying full salaries to many permanent employees, who are mostly useful only during those really needed period. So I can definitely see the advantages of Sunrise having 1/10th of in-house compared to Kyoani, because you’d only need a relatively small amount of people who are talented/resourceful/experienced to work on the project at conceptual and planning level, and seek external workforce when you need them.
Thank you all for reading my article. Responses:
@omo: It’s not like comparing apples and oranges, because I am comparing Sunrise, the animation company, and not any of its affiliated sister corporations.
@kransom: Yes.
@hashi: Elineas is correct. In addition, I think there was a bit of drama about Little Busters!, which is why Key decided to produce (what I assume) is more or less the same show under a different title and use a different animation house.
@Cosign: Very valid criticism. Perhaps I was unclear or outright wrong in my article, but I think that we can look at Kyoto Animation and Sunrise as case studies. As you say, we should be carefully when drawing generalizations with such a measly number of data points. At the same time, I still believe that this case study is a valid and useful endeavour.
@AC: Sunrise is wily. It also has a lot more money than KyoAni could ever muster. Naturally, they’re not going anywhere.
@Shadowmage: It’s all about business practices.
@Elineas: The post is more or less my post, with a few omissions. The gist is the same. And yes, Sunrise does have more capital and greater market power than KyoAni, substantially more.
@RF: The issue is not age, but rather, capital. I think the ability to feed and farm in-house writers is pretty important in lowering costs in the long run, for reasons stated in the article (licensing fees being the big one). In addition, I believe you are correct in your identification of the root cause of Kyoto Animation’s perceived rise, namely, that we commentators often focus on the late-night anime block. I personally do not believe Kyoto Animation will ever overtake Sunrise in terms of market power or revenue, to be honest. Regarding your point about PA Works, I will discuss original anime works in a future post, so look out for that.
@Sorrow-Kun:
Let’s not forget that Sunrise also dabbles in niche-y shows. Yakitate Japan, Code Geass, anyone? (Well, an argument can be made for calling Geass a mecha show, I guess…)
@gaguri:
Work sucks.
I think this article just gave me an orgasm.
Though in all seriousness I don’t think the comparison is a fair one since Kyoto Animation is many years too young to be competing with an institution like Sunrise on equal footing. Maybe once they’ve defined a few genres, branched out beyond the moe demographic, are capable of pointing at a demographic/genre and saying “I want that” and then taking a successful profit and new audience from the endeavour, are capable of directly exerting pressure and influence on the Western hemisphere’s market (they are currently reliant on Sunrise’s parent company Bandai for this)….maybe then the comparison on a full scale will be a fair one.
Anyway you’ve also illustrated why I have such a tenacious desire to support Sunrise and to condemn Kyoani beyond the simple fact that the former always seems to be making shows that I really enjoy (and has been consistently for about 30 years) while the latter is about 3 for 14 in only 5 or so years. The former has always struck me as the epitome of clever, smart and resourceful with a desire to win and win big (I value all of these traits highly) in any field that they can exert influence on while the latter keeps up as a repeat offender on how to appear ambition-less and how to limit oneself by placing needless caps on their own ability to expand and make a name for themselves beyond a niche market of anime.
And yet the latter for some reason is often looked at as a huge defining force that does everything right all the time, to which I regularly say “no not really” in my own infamous way. The bigger picture…it’s always important, so thanks for providing it. Though I would still kill for a direct look at the statistics if there is some easier way to get at them.
@hashi: “This does give me more respect for KyoAni, since it seems willing to lose money by keeping more production in-house, in order to keep quality up. But can it continue like this when costs for Korean or Chinese animators are so much lower (if they are)?”
Hmm…I don’t know, Sunrise works regularly look quite fantastic and a cut above many other studio’s productions even though they do a lot of outsourcing, they’re shows are typically planned as 2 to 4 cour versus 1, and they are doing a lot more work per season than almost anybody but Toei. To me it perhaps even gives me a little less respect for Kyoto Animation since that many people are often coming up par (or at least not a class above) versus smaller teams of animators under separate management that are operating out of entirely different countries. If the improvement isn’t defining then that just seems a little…well stupid as a business model.
[...] and it becomes obvious that those that can offer the full brand, from animation to toy, are the most lucrative. Applying this methodology to western anime companies raises a problem, one which [...]