If you opened up a copy of the Wall Street Journal lately or looked at any website on the United States economy, the big evil word everyone is talking about is recession. Between the subprime mortgage mess and the ridiculous prices for gas, you can’t seem to avoid the big evil word of doom these days if you are an American. As for amateur investors like myself, these are times that really test our souls. Amateur investors don’t have the time or experience to manage through these tough times nor do they have the financial capital to make up for mistakes. With all this going on, many are concerned about the current state of the United States economy.
So what does this need to do with anime? With all this talk about the anime industry (Geneon, fansubs, and whatnot…), I think some elements of the state of the economy in general will have an effect on the anime industry in the short term. Just like almost every other industry, the anime industry should be affected by the macro-economic events that occur around it. And using my amateur investing and economics analysis skills, I going to try to flesh this out a bit more. Both as an amateur investor and an anime fan, I feel that most anime fans (especially mainstream fans) don’t understand that their hobby is an industry and as an industry, anime is created to make money. With that said, I want to get this main point across:
Anime as an industry does not live in a separate world by itself. To completely understand the state of the anime industry means that one understands where the anime industry fits in the greater economic picture. Along with its internal problems, the anime industry will have to deal with the outside pressures from the overall economy.
I will preface this discussion/post/rant with a few caveats. One, despite the fact the a solid number of the anime companies in Japan are publicly traded, I will focus primarily the anime industry as it applies to the North American market. Yeah, I know. This is a bit of a cop out. But it would be just too hard to analyze at my level and I don’t need it for the points I want to make. Then again, the Japanese economy is a completely different animal than here in the U.S. and even the most seasoned American analysts can’t get the U.S. economy right. Second, most of the North American anime companies aren’t publicly traded which means most of the traditional means of industry measurements are not easily available. This why I hate most of the state of the anime industry discussions on blogs and in fan-run conventions. With the exception of Navarre SEC filings such as the required 10-K annual reports and things like the ICv2 White Paper (which is very limited in useful data), there just isn’t enough data from a financial analyst’s standpoint to make valid judgments on the anime industry in North America. Unless you are some kind of anime industry insider (which I am certainly not one), there just isn’t enough public information to judge where the industry is at.
Public companies have become really important into understanding an industry for an amateur investor. The Sarbanes-Oxley Act of 2002 requires all public companies report almost everything including their balance sheets and executive share trades. The act also requires companies to regularly report to the public with annual and quarterly reports and encourages companies to make reports more readily available with online documents and open-listen streaming public conference calls. Unfortunately for the regular anime fan, the anime industry does not have this kind of exposure.
The last caveat is somewhat of another cop out: Since there is limited public data within the anime industry, I going to focus simply on how the current economic situation applies to the anime industry in the short term, not the anime industry’s internal situation in the long term. Also, I won’t provide suggestions as to how the industry can internally right itself for the long haul. There are plenty of blogs, forums and podcasts that already cover the internal issues anyway. For me to bring that up again will just be another regurgitating of the same thing. And I also don’t have any more suggestions for what should the anime industry do in the long term than what has already been suggested in plenty other places.
The United States economy is an interesting creature. For such a large country and population, the economy relies quite heavily on the consumer industry. In fact, about 80% of the United States economy is dedicated to services. So the primary reason why the economy will fail is if something major happens to the consumer. Recently, all signs for the cause point to the subprime mortgage mess. Loans were given to people with questionable ability to pay them back. When the consumer misses payments, the mortgage lenders can’t payback their loans to the banks, then banks have to write-down the lenders’ loans and now there is a whole boat load of cash that just disappears from the economy. Combined with the rising price of gasoline, consumers are now hard pressed to payback their debt. And ta-da, we have the recipe for a recession.
So how does the anime industry fit into this? The anime industry technically fits under the umbrella of the entertainment industry. And just like any other entertainment industry, the anime industry is heavily dependent on the expendable cash of the consumer. The consumer will be less likely to make purchases not critical to their livelihood (ex: electronics and movies) when the consumer is pressured to keep up with the necessary expenses. The anime industry will also be somewhat affected as the consumer begins to tighten their belts. Anime will start to drop in purchasing priority as consumers heighten the need to reorganize their financial needs (unless you are like Madarame from Genshiken who spends his rent and food money for his personal anime happiness).
I wish tax rebate checks were that big… There are several ways to bring an economy out of recession. For the consumer oriented nature of the United States economy, most of the common techniques require jump starting the consumer’s buying habits such as reducing the interest rate, giving tax breaks or sending rebate checks to the consumer. I find this very funny. The consumer who might have overspent their excess cash which sent the economy into recession is the same person who needs to spend more in order to get the economy out of recession.
But the average anime fan is relatively young (in the teens or twenties). They shouldn’t be as easily affected by these recent events, right? That is somewhat true. At least from my perception from the anime cons I went to this past year, the anime fanbase is becoming younger. And yes, the teenage consumer is less affected by these specific events that occurred recently. But the teenage anime fanbase just doesn’t have nearly the financial capital to continuously pump money into the anime industry. Anime fans in their twenties, while more liberal with their spending, will be somewhat affected by the harder-to-get loans and gas prices.
If not directly affected with pressures on their wallets, anime fans should still see the effects indirectly. With the consumer as a whole not spending as freely, the retailers are being put into a pinch. Some signs of this can be seen with retailers missing their quarterly expectations due to a poor holiday season. And yes, anime DVD prices will drop in stores as retailers will attempt to remove their outstanding stock that they didn’t sell during the past holiday season. However, retailers will be more stringent on what to restock when the consumer is less inclined to buy. And considering where anime stands in the mindset of most retailers, anime isn’t on the highest priority to get restocked and we could see less anime on the shelves. For the hardcore fan like me, we are still going to get what we want. But for the mainstream, less anime on shelves means less compulsion to buy and less buying from the regular consumer means less organic growth for the anime industry.
Recession does a number of things to an industry. Some of these things such as M&A and consolidation may occur in the anime industry. We saw a bit of M&A recently when Geneon tried to deal with ADV before the deal failed and Geneon pulls out of the distribution business. Consolidation is more likely especially in product releases. There was approximately about 500 anime DVD releases in 2007 alone which is still a fairly large amount with respect to the average anime buyer. With the anime fan being more picky with his/her purchases and the retailers requesting less from wholesalers, more consolidation is expected in various forms. Consolidation could range from less licenses to less titles on shelves to less DVDs produced. This is something to consider as an anime fan. You may have the free cash to buy anime but there just may be less product to purchase.
Even Tohsaka Rin laughs at the U.S. economy… There was an anime DVD sale at my local Fye recently where Geneon, Funimation and Bandai titles went for $10 less if the original price was >$20. I ended up finishing my Shana collection and got all the harder-to-find volumes of Fate/Stay night (~$130). I decided against catching up on my School Rumble and Mushishi volumes since I already spent enough. Along with ~$110 of anime related purchases earlier this month, I’m already well over the hard quota for this month that I set for myself during the new years and I still couldn’t get everything I want. Even with clearance sales, anime is still quite a substantial investment for fans.
So this is my stab at the anime industry and the somewhat special situation it finds itself in. Will there be a “anime recession” in 2008? The question is really whether the anime industry will consolidate so much so quickly that we can call it a recession in this year. My answer to all of this: Probably not. I can see anime being consolidated but not to the point were anime becomes significantly smaller than it is now. If it does, then I feel this is a result of the anime industry’s current business model and the internal problems that come with it. And not from the possible collapse of the American economy. I feel that anime fans like me will still find ways to feed our hobby even in tough financial times. What is apparent is that the anime industry has plenty of issues to deal with and needs to progress through these times with care.
So what do you think? I’m really interested hearing more sides of this. I tried my best fleshing this side out as best I could with my understanding of business (just to note: I work full-time as an engineer but I have business plan making experience from college and more than 2 years of amateur investing experience). So is this valid or invalid? Is there something I didn’t consider? Let me know what you think.