Something curious is happening in the Western anime market. Namely, Crunchyroll seems to be in the process of attempting to forge its own Standard Oil-esque monopoly over the Western anime and manga market. Most recently, it was announced in September of 2023, that Crunchyroll would be acquiring RightStuf, one of the oldest distributors of anime and manga paraphernalia in North America, shutting down their storefront and merging it into the Crunchyroll store.
This merger came only roughly a year and half after arguably the biggest shock to the Western anime streaming ecosystem, namely that Crunchyroll and Funimation, the two biggest anime streaming platforms and licensors of anime would be merged into one. Of course, this was not an especially surprising announcement, if anything it was inevitable after Sony, which acquired Funimation in 2017, also acquired Crunchyroll from ATT in 2021.
The writing on the wall here is evident. Crunchyroll, and by extension its parent company in Sony, is attempting to monopolize the Western anime market from video streaming, to physical sale of anime related goods to even the publishing of anime style mobile gacha games. This is not particularly surprising from a business standpoint. The popularity of anime and manga outside of Japan has exploded in recent years, a phenomenon I documented in my previous award winning video on the manga section of Barnes and Noble, so it makes good business sense to double down on this growing market.
Not to be hyperbolic or anything, but the idea of Crunchyroll horizontally integrating the Western anime market like some kind of nightmarish weeaboo Disney frankly scares me shitless as a consumer. One of the bedrock principles of economics is that competition between firms is good for consumers. In a competitive market, where consumers have choices between relatively similar goods and services, firms must compete to differentiate themselves. They might strive to provide superior customer service, higher quality goods or lower prices. The entire reason why monopolies are bad is because once an entire market for a good or service has been cornered by one firm, they can now engage in anti-consumer practices like raising prices or reducing quality.
Crunchyroll is a textbook example of how lack of meaningful competition leads to a lower quality product. For its entire existence, or at least until it transitioned to solely hosting legal content in 2009, Crunchyroll has been the premier online platform for watching anime legally. As a side note, the moralism from some Crunchyroll defenders about “supporting the industry” is rather amusing for a company that got off the ground by quite literally stealing unlicensed fansubs from people and profiting off them, but that’s neither here nor there.
Since Crunchyroll has always effectively been the “go-to” platform for Western anime fans looking to watch anime legally, they’ve never really had any meaningful competition in this niche. There have been a couple of half-baked attempts at launching competitors like HIDIVE or Anime Strike, but they all had extremely limited success. I don’t think it’s a coincidence that Crunchyroll has always essentially reigned as a near monopoly on Western online anime streaming and that the service has long been plagued by complaints about antiquated technology and a general lack of innovation.
For a few examples of what I mean by this, Crunchyroll didn’t roll out a “skip intro button” until 2022, something Netflix has had since 2017, something that’s especially frustrating when you consider that the openings of most Western TV shows are like 30 seconds compared to the minute thirty for most anime. For whatever reason, the service used to categorize every language a show was dubbed into as a separate season. Crunchyroll’s UI UX is frankly so bad that I could probably find college students who could design a better website. The fact that pirate websites have UIs that are leagues better than Crunchyroll makes you seriously wonder what on Earth Crunchyroll’s engineers and designers are doing. And these are just complaints for the video streaming, the core aspect of Crunchyroll’s business. The situation is even worse for their other business lines.
On the subject of atrocious web design, Crunchyroll’s web based manga reader still relied on Adobe Flash all the way until 2020 — the same year Flash was completely discontinued. It also apparently had security so bad that one of my college roommates was easily able to read the manga without a subscription, not that there was much worth reading anyhow. Crunchyroll Games, the division that publishes mobile anime gacha games has basically become a joke among gacha game players for their uncanny ability to run games into the ground, with no better example than the absolute boondoggle that was their handling of Princess Connect.
Rightstuf is one of the oldest fixtures of the North American anime fandom, dating all the way back to dinosaur times when buying physical media was the only way to watch anime. The company is generally well liked for their pricing, customer service and packaging. Crunchyroll’s store on the other hand? Not so much. The Crunchyroll store has been derided as something of a joke among collectors of physical anime merchandise for their awful customer service, shipping times and packaging.
As much as I hate Crunchyroll, the veritable middle finger that streaming companies have been delivering to consumers for years is a problem that isn’t just limited to Crunchyroll, it’s a problem that’s been increasingly plaguing the entire streaming market for years. This video isn’t merely about my distaste for Crunchyroll, but also a general lament on how the online video streaming marketplace has evolved. This is going to involve a fairly detailed dive into the history and business practice of streaming video on demand writ large, so strap I guess.
Once upon a time, if you wanted to watch a TV show or movie, you had essentially one of three options: you could A, watch it while it aired live or in a movie theater, B in the case of TV you could record it to watch later, or C you could rent a physical copy to watch on VHS or DVD from a store like Blockbuster.
Out of these three, while movie theaters and live TV still exist, renting physical media has gone the way of the dodo bird. At its peak in 2004, Blockbuster operated over 9000 stores and employed over 80,000 people. Only six years later, the company would declare bankruptcy and effectively cease to exist by the mid 2010s. Nowadays, only a single Blockbuster remains in operation in Bend, Oregon.
As you’re probably aware, the decline of Blockbuster and physical media in general was a direct result of streaming, or what they call in the industry “streaming video on demand” or SVOD that was pioneered by Netflix.
Founded in 1997 by Reed Hastings and Marc Randolph, Netflix was originally founded as a mail order DVD rental company, a business line that the company continued all the way into 2023. Unlike Blockbuster, which forced you to drive to a physical location and would smack you with a hefty $40 late fee if you forgot to return your movie, Netflix instead offered a convenient service where for a fixed monthly cost, you could make a list of the movies you wanted to watch online. Netflix would then mail you a DVD at no additional cost. You could then keep that DVD for as long as you want and once you were finished you slotted it back into the included return envelope and Netflix would mail you the next movie on your list. No late fees. No leaving the house. As much as you could watch for just $20 a month.
Eventually Blockbuster got wise to how Netflix’s mail order business was eating their lunch. In 2004, Blockbuster launched Blockbuster Online, a DVD subscription service similar to Netflix. By the end of 2006, Blockbuster Online had grown to 2 million subscribers. That same year, Blockbuster introduced an additional service that allowed subscribers to return DVDs to a physical location and check out a new one for free.
This competition was a huge problem for Netflix, which started to see subscriber growth come under major pressure in 2007. The company simply did not have the same resources to go head-to-head with the 800 pound gorilla in Blockbuster. Faced with this new competitive reality, Hasting and Randolph realized that they would have to change Netflix’s business model to differentiate it from Blockbuster.
While Netflix had long envisioned the possibility of directly providing movies to customers via the internet, it was only in the mid 2000s that consumer internet speeds had finally reached the point that doing so was technologically viable. Originally, the focus at Netflix was delivering movies in the highest quality as possible, as such the initial idea for internet distribution was to provide some kind of physical peripheral that would download movies overnight for users to watch.
However, at around the same time, YouTube burst onto the scene in 2005. The rapid success of a platform limited to 480p convinced Netflix to change course, scrapping their plan for a physical movie downloading peripheral and instead retooling it into an online video on demand streaming service. Youtube’s success demonstrated to Netflix that users were perhaps not as invested in watching video in the highest quality possible and instead preferred the convenience of being able to instantly watch content of their choosing.
Of course, you’re probably familiar with how this story plays out. It turned out that this pivot to online streaming would prove highly fortuitous for Netflix, skyrocketing the company from a tech start up to one of the largest and most profitable businesses in America. As of writing, Netflix is currently the 30th largest publicly traded company in the US by market cap.
During its initial growth trajectory in the 2010s, Netflix forged deals with legacy media license holders like Disney, NBC Universal, Warner Bros Discovery and Sony Pictures to provide their movies and TV shows on the platform. The mid 2010s was, in many ways, a kind of golden age for streaming for the consumers. Netflix essentially functioned as a one stop shop for a huge catalog of some of the most popular and well-known TV shows and movies. You could watch the entire Disney catalog, alongside hit sitcoms like Friends, Seinfeld, the Office or Parks and Recreation. At one point, Friends and the Office alone accounted for over 10% of all the views on Netflix.
At some point, all of these legacy license holders realized that they were basically being swindled by Netflix. They were being paid essentially pennies on the dollar to provide their content to Netflix while the company grew its user base parabolically off the backs of their content. As such, towards the end of the 2010s, we start to see this huge explosion of new streaming services come into the landscape, many of which were backed by legacy media giants who once partnered with Netflix. Disney removed all of their content to create their own service in Disney plus. NBC pulled the Office and Parks and Rec to form Peacock. Paramount formed Paramount Plus. Warner Bros Discovery rebranded HBO Now into HBO Max and finally into just Max, a transition I still don’t fully understand. The streaming landscape has turned into such an absolute clown show that none other than Videogamedunkey made a video detailing the ridiculousness of how fragmented and siloed the industry has become.
In retrospect, this development isn’t particularly surprising and was probably inevitable. Investors love software based businesses like Netflix for a couple of key reasons. First, the marginal cost of providing a streaming service to each additional customer is virtually zero. Compared to the sale of physical products, software businesses have essentially zero marginal cost for each unit they sell. No matter how much you streamline your production and capitalize on economies of scale, each box of cereal or pair of shoes is going to have a much higher marginal cost than than the pennies worth of bandwidth and server space required to accommodate each additional Netflix subscriber. As a result, the net profit margin for a business like Netflix is upwards of 15% while A retailer like Walmart has a net profit margin of around 3%.
Second, have you ever wondered why it seems like literally everyone is trying to sell you a subscription these days? It’s because subscription models provide consistent, predictable, recurring revenue. In the media business, which can be extremely cyclical and boom and bust based on how well different movies and TV shows perform, having a consistent cash flow from a subscription service to buttress their revenue is highly appealing to corporate big wigs and investors. It’s not exactly a surprise then that Disney, NBC, Warner bros discovery, Paramount, etc all looked at the massive success of Netflix and thought they could do that too. Hell, even YouTube tried to get into the game with YouTube Red. After all, how hard could it be? This wasn’t some unknown frontier, it was a well established business model at that point.
As it turns out, the answer was that forming a new streaming service was not that easy, even if you had powerhouse media licenses to work with. While the launch of Disney Plus was initially met with excitement from investors in 2020, it quickly became clear that the service was not generating the user growth and revenues that Disney had originally imagined, instead the service became a veritable financial nightmare, marred by cost overruns, inefficiencies and underperformance. After reaching a peak in 2021, Disney stock has sunk down to its lowest point in 10 years. ATT, the telecom giant that originally owned Warner Media, and by extension HBO Max, must have realized that their entertainment division was ailing, so they spun off Warner Media with Discovery and stuck investors with a steaming turd of a company that has lost over 50% of its stock price since the spinoff was finalized in April of 2022.
It wasn’t just the new players that were getting burned by this increasingly crowded streaming market. In 2022, for the first time since introducing their streaming service, Netflix reported that subscriber numbers had actually declined, a trend that continued into the second quarter of 2022. This news shattered investor confidence in the company, sending the stock price spiraling down 70% from all time highs in the first half of 2022. It wasn’t uncommon to hear commentary from investors and industry analysts at the time that Netflix’s business model was, at best, under serious threat, and at worst completely doomed.
In order to combat declining subscriber numbers, rather than invest in improvements to the service or trying to shore up profitability by not doing things like pissing money away on Netflix originals one likes, Netflix instead has decided to try and nickel and dime its consumers to reinvigorate growth. The company started by cracking down on password sharing, restricting the number of households that could use the same Netflix account. Furthermore, they abandoned founder Reed Hastings’s long standing promise to never introduce ads, creating a cheaper ad supported subscription tier while bumping the price of the subscription most users were used to. This turn of events never ceases to amuse me, considering that as recently as their 2019 earning call, Hastings derided advertising as “exploiting users.” Both of these practices are objectively anti-consumer. Netflix is making their service worse for users while not providing anything in return. In the short-term at least, Netflix’s finagling to boost subscriber growth has worked, after a rocky 2022, subscriber growth started trending in the right direction and the stock price has largely recovered.
In most industries, competition is good for consumers. It provides customers more options and forces all of the players to improve their service, quality and prices to stand out from each other. Netflix’s arrival on the mail-order DVD scene forced Blockbuster to scrap its late fees and introduce a mail order business of their own. The arrival of new fast-casual dining establishments like Chipotle, Panera or Cava has forced legacy fast-food chains to revitalize their menus. The resurgence of AMD has forced Intel to invest serious money into capital improvements to stay competitive in the chips business. However, the problem with this new streaming landscape is that it hasn’t led to better quality services or even particularly better content, rather it has just created a horrid anti-consumer nightmare. If I want to watch all of the parts of one media franchise, I shouldn’t need to subscribe to four different streaming services to just watch it.
The problem is that the market for video streaming is what economists refer to as a “monopolistic competition.” In monopolistic competition, the goods or services being provided are not perfect substitutes. Watching Better Call Saul on Netflix is not a perfect substitute for watching the Office on Peacock. Watching the live action One Piece on Netflix is not a perfect substitute for watching the actual One Piece anime on Crunchyroll. As such, the way that streaming services compete with one another is not really by offering better service or pricing, but by trying to gobble up as many exclusive licenses as possible to force people to subscribe to their service to stay in the zeitgeist.
On one hand, there’s a certain case to be made that consolidation and monopoly or at least an oligopoly within the streaming industry was better for consumers. It was certainly way better back in the day when you could pay $10 dollars a month for Netflix and basically have access to almost all of the most popular TV shows and movies, instead of the absolute clown show the media market has currently devolved into. Indeed, this is probably why a lot of anime fans cheered the collapse of Anime Strike. There is some case to be made that it’s preferable for Crunchyroll to have a near monopoly on the anime industry. People don’t want to have to subscribe to like five different services to watch the anime they want.
On the other hand, Crunchyroll is an awful company. Their technology is chronically years behind other streaming services like Netflix and they have demonstrated that they frankly do not care about making improvements to their service. After all, why would they? There is no other place for anime fans to go if they want to watch anime legally. Crunchyroll can be essentially as terrible as it wants and as long as they deliver some minimum viable product. This isn’t even to mention the disaster area that is their other business lines like the game publishing arm or the Crunchyroll store.
Of course, the specter that always looms over these discussions of online media streaming is piracy. To be honest, I have never paid for Crunchyroll, or any streaming video on demand service for that matter, and as a matter of principle, I never will. I don’t want to give my money to these companies and implicitly vindicate this horrid anti-consumer business model. Frankly, I don’t personally know anyone in my life who pays for Crunchyroll, after all, why the hell would you when piracy provides an equivalent, if not superior service? I can go on Nyaa.si and torrent basically every anime in existence and watch it at a superior quality, often with better subtitles and translation, than what Crunchyroll offers. Or I can go to a certain purple website and experience a UI that is somehow better than the one offered by the multimillion company.
Inevitably, that one Gabe Newell quote always comes up when the topic of internet piracy is discussed. You know the one, the one that goes “Piracy is almost always a service problem and not a pricing problem.” There’s basically no better example of this than the music industry. For those of you who are either too young or literally weren’t alive yet, during the early 2000s there was a huge stir in the music industry about the rampant growth of music piracy via new computer applications like Napster and Limewire. The music industry responded by attempting to crack down on these fledgling P2P music sharing services. Napster was ordered shut after a successful music industry lawsuit less than two years after the service started operation.
Yet, isn’t it curious how basically no one pirates music anymore? At least for those of you living in developed countries, do you personally know anyone who still pirates music? Nowadays everyone just pays for Spotify or Youtube Music or something. It turns out that if you offer someone the choice between being able to stream almost any song they want for like 11 bucks a month and having to go through the chore of downloading new music all the time, most people will just opt to fork over the trivial amount of money.
Even before the advent of music streaming services, competition from digital piracy forced the music industry to change their business model. Rather than forcing consumers to fork over twenty bucks for an album containing like 10 songs, the advent of iTunes in 2001 allowed consumers to buy music in a much more convenient and less costly way. In effect, competition from digital piracy forced the music industry to reevaluate their business practices and meet consumers where they were.
It seems to me at least that the inevitable result of the current streaming market will be a rise in internet piracy. Streaming services have become less convenient and more expensive for some time now. In an attempt to follow Netflix’s steps, the other major streaming services are copying their crackdowns on password sharing and raising prices to increase profitability, all at the expense of consumers. The promise of online streaming was that it would provide an easier, more consumer friendly way to access media compared to the old days of renting DVDs or paying for cable, yet we’re seemingly regressing backwards to the point where it’s sometimes easier to physically acquire all parts of a media franchise than attempting to watch it all legally online.
At the end of the day, if your only moat as a business is controlling access to exclusive media licenses, piracy is an existential threat to your business. There’s a reason that Game of Thrones remains the most pirated TV show in history. People would rather get the one show they want to watch for free than fork over money for an HBO subscription they’ll never use once they finish Game of Thrones. In the anime context this is even easier. Torrent aggregators like Nyaa.si have basically every show in existence. If you don’t want to download, there are no shortage of illegal websites that will allow you to also watch almost any anime you want. Whereas Western media licensors tend to more aggressively defend their copyrights, Japanese license holders have historically been quite lax about ending overseas piracy of anime, largely because the business model of anime has historically revolved around domestic Japanese sales of physical media and merchandise.
This is a serious question I’ve been pondering for quite a while, namely how exactly to create a streaming platform that actually provides meaningful value to the consumer besides just gatekeeping access to restricted media licenses. I want to give people a streaming service that provides value beyond just moral grandstanding about “supporting the industry” and maybe some niche cases for people who want to stream via a game console or streaming box that can’t as easily support piracy. For example, in the case of music streaming, Spotify not only allows you to just access all of the music you could want without having to fiddle with downloading new songs, it also helps you generate playlists and discover new music, giving the service a tangible value proposition over piracy.
To be frank, I have yet to figure out how to replicate such a thing with video streaming. I’m sure there must be some way to create value for the end users, but I have yet to think of it. Even still, if I could suddenly convince Sequoia Capital to give me a bunch of seed money to make a meaningful competitor to Crunchyroll, I would more than love it. At the very least I’d employ competent engineers and designers to make a service that at least compares to Netflix in basic technical competency. The fact that international anime fans are stuck with Crunchyroll as their only options to legally stream anime is a travesty. We deserve better as consumers. We deserve more than a company that pisses away its subscription revenues on ridiculous projects like High Spice Guardian and failing to manage popular Gacha Games. Am I at all confident that we will get a better option? Not really. But maybe if everyone subscribes one day I’ll be rich enough to make a halfway decent anime streaming service a reality.
