Does Bandai know something Netflix doesn't?

About a week ago I posted that 2011, for all its problems, was a stable year for anime. It turns out that stability was short lived. In an interview with Justin Sevakis and Chris Macdonald on AnimeNewsNetwork, Bandai Entertainment President and CEO Ken Iyadomi announced Bandai’s decision to stop licensing and releasing shows. Some bloggers (including Charlie Maib from Kotaku via Japanator) have suggested that piracy killed Bandai. But if you look at what Iyadomi said, I think it’s more likely that Bandai Japan is to blame. And not blame in a bad way, blame in the sense that Bandai Japan (full name: Namco Bandai Holdings) made a rational business decision. It decided, maybe prematurely, to protect its profits and let mainstream fans get anime digitally.

We'll miss you Bandai

Iyadomi provided two partial explanations for the parent company’s decision, both suggest that it was Bandai Japan’s plan to pursue a new business model rather than piracy that led it to close its American subsidiary. First, Iyadomi stated that Bandai Japan was disappointed by Bandai USA’s poor economic performance over the past 5 years. Even with these results, Iyadomi thought Bandai USA could have survived another few years. If Bandai wasn’t doing great, but was still well enough to keep going, that suggests it was making enough to at least cover its costs and eke out some small profit.  Would it have been profitable enough to continue if piracy wasn’t an issue? At best, maybe. Some people would have bought DVDs, others would not have. In any event, if Bandai USA was profitable, why did the Japanese shut it down? The answer is that cheap DVDs threatened Bandai Japan’s profits at home while producing little profit abroad. Even if some of those pirates bought DVDs, the profits in Japan would have dwarfed what Bandai made in the US.
This conclusion is supported by the other reason Iyadomi cited for the shutdown: Japanese unhappiness with cheap US boxed sets. The price of anime in the US continues to decrease as the fan base shrinks. That threatens the profits Bandai Japan made at home. Those profits, based on expensive Japanese DVDs, are what sustains Bandai worldwide. Anime companies have long been worried that Japanese fans will stop buying anime at home and import American releases. With Bandai America’s profits already low, Bandai Japan realized the risk wasn’t worth it. It knew it could make some money from the US, without any risk, by selling its Japanese discs directly to US customers for Japanese prices.
All good things must come to an end

Again, from Bandai Japan’s perspective this strategy is a win-win. It still makes some profits in the US, with little risk to its Japanese business. It can even continue to target more mainstream fans unwilling to pay $50 per disc by providing region locked streaming or rental options. It already does so with Gundam Unicorn on PS3. This streaming strategy parallels what the US media market is already doing, moving away from physical discs to streaming from the cloud. But, unlike Netflix’s widely panned moves towards streaming, Bandai’s move is defensive. Bandai made its decision to protect profits in Japan, not pursue them elsewhere. With the high cost of anime production, it would seem like the Hollywood strategy of increasing foreign profits would be a better bet. Hopefully Bandai will have better luck with this strategy than Netflix did.

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