For the past decade, all Wall Street and the general public could talk about was streaming and the future of entertainment. TV was out, theaters were dying, physical media might as well have been dinosaur fossils, and unprecedented creative freedom was all anyone could talk about! At the forefront of this revolution/conversation was Netflix and how they were “disrupting” the entertainment landscape. They were re-writing the world to fit their vision of an all-digital future; one where people stayed home and binged as much entertainment as they wanted in the comfort of their own home at the low price of $9.95 a month. Why, the vision was so glorious we could even share our passwords (because dining is always more fun with friends, right?)!
As time went on though the cracks started to show, and on April 19th, 2022 the utopian vision of the future crumbled. Maybe not in a “the whole dam just collapsed and we’re all going to drown” sort of way, but in a “there’s a hole in the dam and plugging it up with a few rocks isn’t going to stop the leak” sort of way. To be honest, I’ve always been a cynic when I had discussions with my fellow Fandom Post writers about streaming and what it means for the future. Sure, I am old enough to now find myself in the stereotypical “in my days” old man persona (and I suppose every site has one), but that doesn’t mean that some of my concerns weren’t founded. As possibly one of the few people on staff who has a fairly massive stock portfolio and investments, Netflix as a business never made a whole lot of sense to me. Considering the costs of servers and bandwidth, how does $9.95 a month make money (this was the earliest flag waved, as the service now costs $19.99 a month for most people)?
How does one monetize a show (or movie) with hundreds of millions of minutes viewed without ads? What dollar value does a “viewed minute” even have? What sense does it make to spend $200 million on “The Irishman” or $39 million on “The Power of the Dog” and not even attempt to recoup those costs with a serious theatrical release? How does a company survive when it spends roughly 135% of the money that comes in? And (strictly speaking as an investor) are we being hoodwinked by the fact that Netflix (and all the other companies in all fairness) brag about how well they’re doing while they don’t provide numbers to back those statements up most of the time? I know the average person doesn’t think about things like this, but whether they realized it or not, by essentially using a product that offered a deal that was too good to be true (practically unlimited content with no ads, no restrictions, all for one low monthly price) they were contributed to a bubble that was eventually going to burst and affect them in ways that were unknown.
When Netflix announced on April 19th that they lost subscribers for the first time (and anticipated losing a lot more in the next quarter) the stock cratered a massive 35% and the future of the service was in real question since…well, since they announced they would be making and streaming their own content. To be fair (and practical) for readers of this site: No, this isn’t the end of Netflix. They still have millions of subscribers and a steady cash flow. What is happening right now will hurt them, but if they pivot how they do business I have no doubt that they will survive. Since their vision of being a “disruptor with unlimited growth” has now been shattered, Netflix is going to have to pivot in how they do business. The first thing they announced was that they would be (in their words) “splashing back” on spending and “reining in” future projects. On a level that might not affect you and me, layoffs have already begun at the company. For everyone else, it means more shows will be canceled (like Michael B. Jordon’s excellent “Raising Dion” and the no-longer-upcoming adaptation of Jeff Smith’s “Bone”).
For readers of this site, the bigger question is this: How will anime on Netflix be affected?
It’s no secret that – for better or worse – Netflix has become a huge player in the anime field. While American companies contributing to anime productions in exchange for exclusive rights is not a new thing (Crunchyroll and the now-defunct Funimation did this in the past), it could be argued that Netflix has invested more into the anime industry than any other company (maybe even Amazon). And sure, I know people have issues with Netflix being so involved: They gain exclusive rights to anime, they put series in ‘Netflix jail’ until the whole thing is ready to be dropped,’ they claim creation credit when these productions were going to be made anyway…I get all that. However, the harsh reality is that Netflix spends roughly $18 billion a year on new content. Of that $18 billion, a reported $1.1 billion is spent on anime!
$1.1 billion is NOT a small number by any stretch of the imagination!
Yeah, sure, it’s still a drop when you consider it’s coming from roughly $7 billion that has been set aside for animation in general, but the reality is Netflix and Amazon have spent enough money on anime productions that it has unquestionably improved the budgets and quality of many of the shows we watch (the animators are another story I’m sorry to say). Now with Netflix cutting back on spending money on content, how is the anime industry going to be affected? The answer is the industry WILL be affected…we just don’t know by how much! $1.1 billion is a lot of money to spend on anything, so I would be surprised if Netflix made no cuts at all. Honestly, it would probably make the most sense to cut the budget for anime at least in half. What does that look like for viewers?
Well, it depends. Netflix could cease pumping money into the productions of the anime shows themselves, and just contribute by buying the licensing fee for exclusive distribution in the west. That would be the most economical way to do this without cutting back on too many shows that they release. The biggest drawback to this would be that Netflix wouldn’t own a stake in any of the shows they released. Unless they have a hit show whose license they are willing to constantly renew, they would eventually lose these shows to competitors (something Netflix has largely been successful in preventing when it comes to their originally funded productions). So, while this would ensure that viewers still get loads of new shows to watch, it becomes a long-term drain on Netflix that they likely would not want.
Another possibility is that they still invest in the production of shows themselves, however, they would invest in fewer shows. This means getting in on the ground running, making a deal that would make the series “theirs” (for lack of a better word since the Japanese TV stations still have more sway than streamers do in Japan), and let other companies have other series. This would be the most practical, but it does mean Netflix will have to be more calculated in which shows they decide to back, as they now essentially have to bet on individual horses rather than owning the whole derby. If one of those horses loses and another show they didn’t back wins…well, it’s not the end of the world, but as gamblers will tell you it’s not a great feeling to lose money on a horse race. The third option is that they do a little bit of both: They become co-producers on shows that they really want for themselves and distributors for other shows they want…just not shows they want forever.
This third option seems the most likely to be picked, however, it’s also the option that may stretch them the most. There’s also an unlikely fourth option that could be chosen: Nothing changes. Even though $1.1 billion is a lot of money, it’s a mere 11% of their spending budget overall. It might not even be on Netflix’s radar just yet to change how they do business with the anime industry. From a practical standpoint, if something is going to be cut, chances are it will be their prestige Oscar-contenders first (when you need to tighten the belt, it doesn’t make a whole lot of sense to spend $75 million on “Don’t Look Up” when the potential financial return is murky at best).
I highly doubt that this will be the option they go with. While anime is an ever-growing community online, it’s ultimately still a niche product. Sure, $1.1 billion buys you a LOT more anime than it does most other types of content, but that content is still niche enough that it’s unlikely to move the needle on subscribers! Considering most anime fans value Crunchyroll’s library more than Netflix’s library, the suits at Netflix would need to look at anime see if it’s a war chest worth pumping up to take customers away from Crunchyroll or if their library sits in a sweet spot that doesn’t pull in subscribers (but at the very least they don’t cancel their Netflix accounts). On a side note, we also need to ask if Netflix is going to change their strategy on growing subscribers in the short term or maintaining them in the short term?!
If there is one unique aspect of anime is that the medium is still growing in America. Sure, it’s more mainstream than it was when I was a kid reading Anime on DVD during my spare time, but it’s still something where mainstream hits are fairly rare. The most recent one was “Attack on Titan,” where people at my local church luncheon were talking about how much they were enjoying it. “My Hero Academia” seems to have also struck a chord with the youth of today. If Netflix could find a few shows that hit the cultural zeitgeist like those shows have – and make a case for why the average person should subscribe to their service to watch it – then that could justify their continued $1.1 billion-dollar yearly investment.
“Shaman King: Flowers” is still coming, but similar shows may not be a priority going forward.
There are ultimately two cold hard realities we need to face:
- Netflix is almost certainly going to pump less money into the anime industry.
- We won’t know what effect that will have until other decisions are made first.
Less money going into the anime industry is unquestionably bad for all of us. It leads to fewer shows, and fewer quality productions, and those poor animators – underpaid and overworked already – will likely be squeezed more. Even if Netflix contributes just 25% less than they already are, it will be felt by those across the pond (even more so if Amazon and other streamers also cut their own investments in anime). It might be enough of a shift that we see the anime industry go through a crisis that we haven’t seen since Sam Goody and Borders Books decided to throw in the towel. It’s also true we probably won’t REALLY know until a year or two down the line! As much as we love our anime, the reality is Netflix probably isn’t prioritizing what to do with “Shaman King: Flowers” at the moment. No, they’re much more concerned with growing revenue while making cuts at the very top in terms of expensive projects and staff.
The first order of business for the company is to crack down on password sharing, which reportedly costs them $6 billion dollars a year in revenue. Then, they’ll likely start putting their major motion pictures in theaters for sixty days before the movies come to Netflix (this has proven to be an effective tactic to recoup costs for the movie as well as build excitement for the streaming service the movie will eventually bow on). You may also soon be able to purchase older Netflix movies on digital platforms like iTunes and VUDU. Physical media…well, that one’s still a tricky one. The format being niche itself, I expect an expanded partnership with The Criterion Collection and maybe a few retailer exclusives for particle well-loved shows, but this might not be a priority for them. Also, ads ARE coming! I’ve been saying this for years, but ads will come. It’s the only way a hit show can be profitable (it’s also how Hulu is able to justify the budgets on some of the shows they greenlight).
Finally, Netflix will have to address the fact that they are a movie and television studio and NOT a technology company (I believe they are already coming to this realization)! Once all of these issues are addressed, then Netflix will have a better idea of what their spending budget will be, and by that point we’ll know what the long-term future of their investment in anime will amount to. From my perspective, anime’s two biggest strengths are that you get much more product for your dollar than you do with other types of shows and that there is a massive subscriber base you can lure away from Crunchyroll (AKA: Growth)! Will these be enough to convince Netflix that it’s best to approach anime with a “business as usual” attitude? Who knows? Things will change…we just have to wait and see what that change looks like.
