The State of the Japanese Animation Industry, a Market Worth More Than 2 Trillion Yen (19 Billion USD)
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As both fans and producers alike could not seem to shake the anxiety of the future of Animation, it has come to light that the industry has grown into a behemoth. Appreciating more than a 100% – to be exact 108% based on statistics – compared to the year 2016. In 2017, the year saw a pleasant and much welcomed increment to the overall growth of the industry putting the market well over ¥2 trillion ($19 billion), a massive jump when put head-to-head with the years prior to this.
The industry recorded an impressive jump in the areas of TV Animation (100.9%), Internet Distribution (113%) and Live Entertainment (116%) whilst 5 genres have decreased, these include Movie (61.7%), Videogram (97.1%), Merchandising (93.0%), Music (91.6%) and Pachinko (95.8%). However, the MVP of the bunch is the Overseas market which achieved an astounding 129.6% growth, generating ¥994.8 billion in total revenue for the year 2017 (that is around $9 billion). When put them shoulder-to-shoulder with stats from around 10 years ago (2002) the numbers are even more staggering with Internet Distribution topping the whole group jumping 551.0% in revenue. In 2002, Internet Distribution generated only ¥0.2 billion of revenue, in 2017, the figure stands at ¥54 billion, which is bigger compare to the revenue brought in from theatrical animation and hitting almost 70% of the videogram market implying the underlying importance and potential of the internet platform as an effective medium of Animation product distribution. TV also recorded a jump compared to the slump it hit in 2007 growing 115.7% to ¥106.9 billion in 2017 after peaking at ¥110.7 billion in 2014. Movie on the other hand, showed a stronger year-on-year growth (at 193.4%) compared to the TV market bringing in ¥41.0 billion in 2017 although, previous years recorded better revenues (¥41.7 billion in 2014, ¥47.7 billion in 2015 and ¥66.4 billion in 2016). Merchandising, videogram and music all recorded a drop failing to impress though for merchandising it should be noted that the report did not take into account application games and digital merchandise which may contribute to a higher revenue. Pachinko did reach its peak in 2014 but, have been on the decline ever since whilst Live Entertainment a new genre introduced 4 years ago have shown tremendous growth (251%).
The theatrical animation, Your Name has been a worldwide success raking in ¥5.6 billion of sales in the year of its release.
The rise of the movie business in 2016 is said to derived from the success of several movies such as “Shin Godzilla”, “Your Name” and “In This Corner of the World” catapulting Japanese theatrical animation into the limelight shedding its subculture characteristic and helping the genre to embrace its mainstream film culture in 2016. Nevertheless, the production minutes of theatrical animation has remained steady for the past 3 years and the same could be said about TV animation (same for 5 consecutive years). As the Japanese government is set to change the working environment in Japan by shrinking working hours through its “Reform of Working Practices” agenda, the production methods for the two genres is set to undergo digitalization in a bid to maintain quality. Revenue is solid despite the exit of Your Name from theaters. The industry is not shaken by this thanks to a number of shows including the accomplishment of Sword Art Online for its theatrical release of Ordinal Scale in 2017. The momentum is set to remain steady.
The Japanese Government in 2018 has introduced a work reform to quell Japanese overworking culture by decreasing working hours whilst at same time increasing income of temporary and part-time workers . Picture from Banter Snaps.
One interesting thing to also take note of is the fact that Animations for kids and family have dwindled over the past few years. Production minutes of new kids/family animation was at 36,337 in 2001. The number has plunged considerably in 2016, with production minutes of 14,388 and again has fallen in 2017 where the production minutes recorded below 10 thousand min (at 9,790). This could be a result of the rise of Adult Animation taking the industry by storm. Back in the days, Adult Animation tend to land onto illegal video hosting sites but over the years, the industry managed to capitalize on these sites by monetizing their content. The trend started to change after 2001 where many adults show were pushed into the late night slots. This however, has been gaining traction when for the first time in 2015 the production minutes for Adult (60,800) shows overtook Kids/Family (54,733) production minutes. Late night shows has since recorded more production minutes as opposed to Kids/Family shows ever since then. That said, TV Animation programs has recorded a decline in the number of shows in the year 2017 where only 340 shows were broadcasted. In 2016, that number stood at 356 shows. Among those 340 shows, 230 were new works (271 in 2016) and 110 continuing works. According to the report, the decline was the result of short animation production and new kids/family shows that were broadcasted continuously. Moreover, more daytime animation shows were moved to late night slots and the contraction of daytime shows is also attributable to TBS and MBS suspending 5 PM animation slots on Sundays.
The Anime Shirobako is one of the best examples of an Anime that dives into the animation production in Japan. Picture from Shirobako.
There is one conundrum though. The production cost has increased. Whilst it is not mentioned in the report by how much exactly it has increased, but Japanese Animation studios have indicated that in order to meet the demand for higher quality Animation products, it is difficult for studios to maintain the current production cost. There are cases where some studios could not adapt to the Japanese Government’s new policy of Reform of Working Practices where they were late to optimize their production method leading to low Animation quality. Others have pointed out that, it is due to the entry of new players such as Netflix, Amazon and Chinese businesses that have pushed up the cost of doing business as they request for more shows. It is the result of cheap production cost and the competence of Japanese studios that have pushed them into the overseas market, and as the operating cost is set to increase, Japanese studios should do their very best to maintain their competence in order to stay relevant in the market place. It is also important to remember that due to the Anime bubble which hit the nation in 2006, many Japanese studios could not bear the production cost, and as a result companies have decided to outsource their work outside of the country because production costs were much lower. Thus, some of the revenue that could have gone to Japanese studios have landed at the hands of these foreign studios.
Videogram has since been in a decline worldwide as many turned to internet platform. Picture from AnimeForums.
In spite of the fact that TV, Internet Distribution and Live Entertainment had an impressive run in 2017, the sales of videogram products have soured over the years. The market has continued to lessen reaching its highest point in 2005 (¥138.8 billion), and in 2017 the genre generated a revenue of only ¥76.5 billion. This downtrend could not be stopped even with the likes of Your Name though video package makers are trying their hardest to establish new business models including the addition of bonus materials in existing video packaging. The report also highlighted that the videogram market itself will undergo major changes in the next 5 years.
Despite all that, as mentioned above, overseas market has been very encouraging. Although in 2009, the market outside of Japan hit a massive decline, it was only in the year of 2013 where sales started to pick up. And in 2015, revenue almost doubled from the year before. Sales remain strong ever since with the market reaching almost ¥1 trillion yen for the year 2017. I expect it to reach that figure this year, although there may be some resistance over the purchase of Japanese products from South Korea due to latest events. Much of the success of the overseas market is attributable to the success of the internet being a gate-away to Japanese Animation products, this includes swelling demands from Chinese consumers, the ever increasing presence of multinational corporations and high-earning business models. The industry sees the Asian market contract dominating the market share with 40.2% of the total market while Europe and North America lag, accounting to only 24.5% and 20.9% of the total market respectively. Seeing the amount of revenue generated however, the market still remains huge for all three continents. Number of contracts is the highest in United States and South Korea is the second whilst music royalties from soundtracks from Dragon Ball Z, Attack on Titan and Pokemon are the Top 3 from the overseas market.
Tokyo, Japan has the highest concentration of Japanese animation studios. Picture by Sven Scheuermeier.
This brings us to the number of Animation studios in Japan where Tokyo remained the highest accounting 87.1% of all Animation studios in Japan with a total of 542 Animation studios. The reason for the high count is because of the accessibility to other studios in the area. There are still Animation studios outside of Tokyo that are still successful despite the lack of convenience (being close to other studios for instance) such as Kyoto Animation and P.A. Works. As Japanese Government presses on with their policy of revamping the Japanese work culture and as many studios adopt digitalization, we may see more studios being established outside of Tokyo. Some studios have also taken the liberty to provide convenience to its employees with one such example is White Fox which has a dormitory to allow employees to live together and at the same time receive training as animators.
The Japanese Animation has shown resilience and most importantly potential over the years to grow into something bigger. There are some concerns that the industry itself may become over relying onto foreign markets to generate revenue in the future as its overseas market continues to inch closer to Japanese domestic market. Part of the reason is related to the decline of birthrates in Japan leading to a drop of consumption in kids/family shows. The reduction may be more significant in the future if Japan could not improve its birth rates leading to smaller domestic consumption. And since foreign market is sensitive to geopolitical issues such as the recent tension between Japan and South Korea, it makes sense to be wary of the reliance onto foreign market. But, it does not mean that Japan should disregard the potential existing outside of its borders. In fact, this is the time for Japan to seize the opportunity to grow its market overseas. A good example would be the success of Webtoon where digitization has helped the Koreans be it individuals or companies to garner recognition worldwide. Internet of things will help Japan to grow and be more efficient in delivering their products. Platforms such as Netflix and Amazon have allowed Japan to reach even closer to their audiences. The convenience of being able to watch your favourite shows at the tip of your fingers are just something that should not be ignored, it should be something to rejoice. People love convenience, and convenience will lead many Japanese companies to success. Hopefully, a balance can be struck between both foreign and domestic consumption. Nevertheless, seeing that the market has continue to improve is sure to bring lots of joy in the hearts of many fans around the world.
For the full analysis and report please visit AJA or the Association of Japanese Animations the body that compiled data from stakeholders across Japan. It is a great report, so do take time to digest all the available information.
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Tokyo, Japan has the highest concentration of Japanese animation studios. Picture by Sven Scheuermeier.