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Crunchyroll CEO: Making Online Anime Pay
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Posted 12/17/08 , edited 12/22/08
The ICv2 retail news source has posted a two-part interview with Crunchyroll CEO Kun Gao. Gao discusses the origins of the website, the company's plans for legalizing its content, and his perspective on the industry-wide trends:


http://www.icv2.com/articles/news/13922.html

Crunchyroll CEO: Making Online Anime Pay
Interview with Kun Gao, Part 1
Published: 12/15/2008 12:46am

In a little over two years, Crunchyroll.com became the number one anime Website by offering a multitude of user-uploaded anime videos, many without the permission of the licensor. Now it is making a major change by offering only licensed videos on its site beginning in January, including some, such as Naruto Shippuden episodes, almost immediately after the initial broadcast of the new episode in Japan (see “Crunchyroll Goes Legit”). In Part 1 of this two part interview, Crunchyroll CEO Kun Gao talks about how his site will transform into the newest legitimate channel for distribution of anime. In Part 2, Gao argues that Crunchyroll is the new Toonami for a new generation of anime fans.



Maybe you could start out by giving us a history of Crunchyroll.

Crunchyroll started in the middle of 2006. Three other founders and I were friends. We met at UC Berkeley. We’re all electronic engineering and computer science majors. Back then anime was really picking up everywhere--in the dorms, on campus, people were watching it. We got really into animation.



After we left college in 2004 we all went our separate ways, some of us going to grad school, others working in industry, mostly on consumer facing Websites. Eventually we all met back again and we decided to work on anime as a nights and weekends passion project. We still had work during the day and we were sinking quite a bit of our own money in and maxing out credit cards because the bandwidth bill was so high. It eventually got to a point around the middle of 2007 when all we could do was keep the site up. There were so many things to do.



We voluntarily quit our jobs. It was really a very scary moment because we didn’t know how things were going to turn out, but we had a lot of faith that because we were servicing a lot of passionate fans and were building a site that fans can enjoy, it would turn out for the best.



After that we started talking to venture capitalists. They became very interested because there were so many passionate fans on the site--they were not just into watching content, but also community and the full social networking experience. We received funding from Venrock (that’s the venture arm of the Rockefeller family), in December of 2007. From then on we’ve been very aggressively licensing content, and taking down unlicensed content.



We’ve set up an office in Japan. We actually have a subsidiary now in Japan talking to all the license holders and licensing all the content that we can get our hands on. That’s pretty much where we are now.



You mentioned Venrock, and a month or two ago we did a story about Gonzo also being an investor. Are those the only two investors?

Venrock is the only institutional investor. We have a number of other strategic investors including Gonzo.



What was the original monetization strategy?

I don’t think it’s changed. There haven’t been too many external factors that affected our business plan. What we’ve always looked for are ways to monetize online digitally. Once we monetize we look to revenue share with licensors. That way they can tap into this audience that they’ve never been able to monetize before. The three ways we’re doing that now are:

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With ad supported free streaming. That way people can watch content for free but we can serve an ad and we revenue share that with the publishers.
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The subscription plan which we’re launching January 8. This includes the hit shows that we’ve licensed such as Naruto Shippuden, Gintama, Skip Beat, Shugo Chara. People can, if they pay a few dollars a month they can watch one hour after it airs in Japan. It’s never been done before. It’s a very exciting time.
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We also offer other options such as DTO and also we’re starting to explore virtual merchandising.

We offer a lot of different options for publishers to monetize their content.



How many videos are on the site now and how many will there be on the site after the changeover in January?

How we see it, it’s not really that abrupt a process. The reason is because we’ve actually been transitioning—we’re in the middle of this transition—for the last six to nine months. It really started in April when we put up the first licensed simulcast content. Right now there’s really not that much licensed content on the site, particularly in the United States. In January we hope to have upwards of a hundred, a hundred and fifty titles licensed for the site.



Is there going to be a change in the number of videos available on the site because of the new policy in January?

There’s definitely going to be less videos at the very beginning. But the difference is that the videos we’re going to have are going to be really the best content. Naruto, for example, is the number one anime online. That’s going to be on Crunchyroll. The only place to access it one hour after airtime is to purchase the subscription plan on Crunchyroll.com. Right now we really have a lot of long tail content. Some of this content, it’s a shame, but there are really no more committees for it. There’s no more approval process. There’s really no way for us to get the license sometimes. Unfortunately that will be lost but we’re replacing that with much more quality content going forward, and hopefully that will draw a lot more audience to our site.



How much is your subscription fee?

Normally it’s about twelve dollars. Right now because it’s pre-order we’ve discounted it to about six dollars. So six dollars a month, you can lock in that price if you order now, between now and January 8 when we start the program. We’ve only announced a handful of shows but in the next few weeks we’re going to announce many more shows, much deeper coverage of the content that you’ll be able to watch early as well as high definition.



What are your plans for hi-def—are you going to be delivering any hi-def content?

Yes we are. That’s one of the value propositions that we bring to our subscription plan. People who pay a few dollars a month the not only watch Naruto Shippuden and a number of other shows one hour after it comes out in Japan, they also get it in hi-def. For us hi-def is 720p currently. But we also offer other options—if the bandwidth is not fast enough or the computer might not be able to handle 720p. Some demo clips that we’ve posted online, if you go to the pre-order part of the site you can see what the quality’s going to look like come January. And it looks great.
See next post for part 2.

http://www.icv2.com/articles/news/13923.html

In Part 2 of this two part interview, CEO Kun Gao argues that Crunchyroll is now bigger than TV as a way of distributing anime. In Part 1, he talked about how his site will transform into the newest legitimate channel for distribution of anime.



We’re curious about your perspective on two other means of delivering content to fans, DVDs and television, and what the impact of online delivery the way you’re doing it will have on them. What do you think the impact will be of increased online delivery on those two distribution channels?

In terms of DVD, I would classify that as more physical media, physical merchandise. I firmly believe that having more audience, having more people watch your show, getting more exposure is going to drive more purchase of physical media as well as physical merchandise. That’s not just me; there’s a number of people in the industry that feel the same way. For example, I read an article on your site with a spokesperson from Viz saying exactly the same thing. There are people in Time Warner and so forth who have said this as well.



In terms of television I think the one really significant event that happened was Cartoon Network dropping the Toonami service, which is very unfortunate. I grew up watching Dragon Ball, Gundam and other shows on Toonami when I was a kid. What I think is very significant for us and it really positions us in a great way is that Crunchyroll is now the number one way for people to watch anime for free, not just online but on television as well. There’s really no other way for people to watch the breadth and depth of content that we have on our site. We hope to drive more audience, and grow the anime fan base. I firmly believe that will converge into more people who want to buy the physical merchandise, buy the DVDs, and so forth.



So you see the online delivery as sort of replacing what has been lagging a little bit on television, giving fans an opportunity to see content in more ways?

Yes, definitely. It’s a little bit funny because everyone complains, “Oh. I guess the kids in Japan can watch anime for free on television. They just turn it on. Why can’t we watch it?” Hopefully with Crunchyroll we can bring that to them. We see ourselves as replacing Toonami as the number one portal for people to watch anime both online and on television.



We see you’re starting to put your toe in the water in manga. What are your thoughts on manga and the future of Crunchyroll?

Manga is something that we will continually explore. It’s definitely a different type of medium for us. Things are very initial right now. I can’t really make promises on how far we’ll get into that. It’s going to be a little bit different monetization strategy mostly because you can monetize a lot better on print. Print is a very good format for people to carry. So initially it will probably start online as more of a promotion and going forward we’ll have to explore different business models to monetize the manga segment.



We do see some parallels in the sense that there are a lot of illegal scanlations out there of manga. It’s the same kind of situation as anime. It appears in Japan, a day later it’s available translated online free. License owners aren’t making any money.

Definitely. These are things that we’d love to explore. Right now we’re very focused on bringing the video part of the business and really building audience and revenue sharing and giving a good value proposition for publishers.



How do you see the situation developing—you’ve got Crunchyroll which is targeted at a particular portion of the audience. Then you’ve got competing sites like Hulu or Joost that are trying to deliver very broad content. Do you see those coexisting? Or do you see one or the other model prevailing?

Definitely coexisting. The reason is because we see ourselves as a little bit of a different audience, like you said, versus Hulu. For example we see ourselves as the core anime fans in the U.S. and the rest of the world. The reason I believe that is that people on our site prefer to watch it sub-titled rather than dubbed. Hulu is targeting a little bit more of a mainstream audience who might not be the anime fan but may like a certain show or a certain genre. Really it starts at the core. You have to really build your core audience and then you can start growing your brand to become broader.



On the download to own side, who’s your competition and how do you differentiate yourselves?

On the download to own side we just offer one option, one possibility for licensers to up-sell their videos via download to own. We’re definitely very happy working with publishers if instead of driving the traffic to our download to own they want to drive it to iTunes or Xbox, or some of the other proprietary platforms. That’s something that we’re totally fine with. It makes licensers more money and just because people watching the shows for free or for subscription want to download it on a different platform doesn’t mean we shouldn’t be working with those guys.



What’s your view of the coming months?

I think the winds of change are upon us. It’s really happened a lot quicker than I think anyone really anticipated, even us. I’m really excited about being able to offer our subscription plan. It took a lot of effort and energy to put together but being able to bring the content one hour after it airs in Japan for a very low fee, a few dollars a month, for people to enjoy everywhere else outside of Japan is really exciting. Hopefully people will really embrace this.



Thoughts? Comments? Something random?
Posted 12/17/08
I find this article freaks me out. Because it confirms almost all of my earlier predictions about crunchyroll.
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Posted 12/17/08
Hopefully this will stop some of the Generic "Oh my god CR is ****" threads.
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Posted 12/17/08
I LIEK PIE!
...
Now with that out of the way, hooray for CR, it's going to replace Toonami! Which died a few months back
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Posted 12/17/08
wayy to lazy to read the whole thing xD
wanna summarize? :x
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Posted 12/17/08

philosophia wrote:

Hopefully this will stop some of the Generic "Oh my god CR is ****" threads.


There's been a lot those recent, huh.
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Posted 12/17/08
I like that they are going to have up to 100 to 150 titles when the switch happens, better chances a series or two I like makes it on the list.(Crosses fingers for Michiko to Hatchin, and Casshern Sins, to be streamed).
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Posted 12/17/08
Will they have SUBS??? That's the question...
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Posted 12/17/08

confuser987 wrote:

Will they have SUBS??? That's the question...


Yes. I think that that was the whole point of this site.
If you are talking about FANSUBS, then that is a different story.
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Posted 12/17/08
Sounds very cool what they are trying to do.
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Posted 12/17/08
very interesting oh well doesn't matter what we say we can't really stop CR from changing anymore
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Posted 12/17/08
So if you don't pay you can still watch right
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Posted 12/17/08

dragonking360 wrote:

So if you don't pay you can still watch right


Yes.
The membership is just to get the premium stuff, like early viewing and HD-quality. For the free account, we would just have to wait a week to watch the show, which is not so bad, considering that it is still somewhat free.
Posted 12/17/08 , edited 12/17/08

soccerscot15 wrote:

very interesting oh well doesn't matter what we say we can't really stop CR from changing anymore


If you want to keep watching whatever that you watch why not let CR knows what series you like to watch and ask if they can bring it back legit. The new CR is going to mirror the old CR except that it is a legit site with downloadable option for some anime content. I hope that CR will show Jdrama and Kdrama along with Asian music videos and songs. What I would really like is to buy downloadable songs of Japanese and Korean music like iTunes. Also, I hope they will license manga and be able to read legit manga like what Go! Comi offers on their site for 25 cent per chapter.
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Posted 12/17/08
As long we wait a week we can watch the shows for free...sounds sweet to me. ............although some crazy fans cant wait for a week......not mentioning names here
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