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Free Anime: Providers Bear Losses to Build Business

12, 21. 2005

   Free anime for viewing on PCs are gaining popularity among fans of the genre. The number of subscribers to such services, which are driven by advertising revenues, is already believed to exceed 4.9 million, and the distributors are aiming to raise that figure to 10 million by August next year. Although this business is a loss-maker at the moment, the companies involved say the rise in their stock prices justifies the pricing policy.

Advertising Expenditures by medium (1996-2004)

   According to a survey conducted by Dentsu Inc., advertisers in Japan last year spent 181,400 million yen, up 153%, on Internet advertising, putting this category ahead of radio advertising (179,500 million yen) for the first time. Internet advertising is now the fourth-largest category by expenditure, after television, newspapers and magazines. Spending on online advertising is expected to reach 560,000 million yen in 2009.
   With a three-fold increase in advertising spending expected over the next five years, the question is, what kind of content will underpin such growth? The company people are watching is Usen Corp. In April, it launched GyaO, a free Internet TV broadcaster. This is the first totally free service of its kind in Japan. It offers about 500 titles, including not only previously screened (on TV or in cinemas) movies, anime and sports programs, but also original productions. The program schedule is changed daily. Operational costs are covered by advertising revenue as with private TV stations.

GyaO's Fan Base: Anime Fans in Their 30s

   First aboard the GyaO bandwagon were anime fans in their 30s, lured by the nostalgia appeal of titles such as Gacchaman and Hakushon Daimao (The Genie Family). GyaO has yet to make a profit on this business, but does not seem too bothered for the time being. The reason is that Usen's share price has kept rising since GyaO was launched.
   The year 2005 saw several much-discussed attempts by Internet companies to take over established television stations, with Livedoor Inc. targeting Fuji Television Network, Inc. and Rakuten Inc. Tokyo Broadcasting System, Inc. (TBS), in what has been called 'the fusion of broadcasting and (Internet) telecommunications.' Ostensibly, this would mean boosting the page view rate through supply and ownership of good quality content-in other words, drumming up advertising custom. But Livedoor only held its large stake in Nippon Broadcasting System, Inc., the parent of Fuji Television, for 3 months. All three companies saw their share prices continue to rise, and Livedoor made a 200 billion yen killing by selling its Nippon Broadcasting stake.
   Growth at Japanese Internet companies has been based on share-price building through devices such as stock splits and on market-value-driven takeovers, rather than actual business performance. They have behaved more like investment companies or stock traders.

Usen's Roots Lie in Cable Network

   Usen was originally a provider of music to shops and homes using its own cable networks. It has used this strength-its own cable networks-to launch itself into the Internet business in recent years.
   President Yasuhide Uno was born in Osaka in 1963. In this youth-dominated sector, the 42-year-old is called 'elder brother' by younger bosses in the business. He still serves as an external director for Rakuten, his former employer.
   Although GyaO is popular because it is free, there have been complaints that its programming is outdated and its commercials too long. Some TV executives also doubt that PCs are the ideal platforms for anime and other such programs. Nippon Television and other TV companies have launched similar services, but at charges like 99 yen per program. They doubt that the business can survive on advertising revenues alone, and do not want to compete with regional affiliated broadcasters.
   Can GyaO turn a profit? It does seem that the strategy of focusing on share price, the measure of corporate value for Japanese Internet firms, is working right now.

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