The Economics of Virtual Youtube
What exactly are Ichikara and Cover, the companies that manage Nijisanji and Hololive respectively? Should we look at them as technology companies? Entertainment companies? Talent management agencies? This video seeks to answer that question by taking a look at the economics and finances behind virtual youtube and speculate about what the future holds for our favourite virtual anime streamers.
When we look at Ichikara and Cover, I would argue that they seem like pretty run of the mill tech startups. Ichikara’s website makes lofty claims about how they intend to create a new “Entertainment Economic Zone” or whatever that means. These companies have raised decent cash from venture capital firms and corporations to fund their growth. As of this April, Ichikara has brought in around 3 Billion Yen in funding from various stakeholders. Just last month it was announced that Cover was able to raise about 700,000 Yen to fund their expansion into international audiences in China, Indonesia and the English speaking world. That seems like a lot of money to dump into a company whose primary draw is making anime models for girls to stream content on the internet. After all, there aren’t VC’s lining up to give millions of dollars to OfflineTV or something. So what exactly is it that these investors see in the future of virtual youtubers?
To answer that question, it is necessary to understand just what exactly is the primary source of revenue for virtual youtubers. Initially, you would probably assume that it’s from donations in the form of super chats. After all, super chats the visible form of revenue and virtual youtubers go out of their way to acknowledge superchats to a degree that far surpasses most western twitch streamers. But the reality is that superchats, and donations in general, often make up a very small part of any streamers revenue, not just for virtual youtubers. For example, last year the highest earning individual Vtuber, in terms of superchat revenue, was Minato Aqua bringing in around 40,000,000 (40 million) yen last year or about 370,000 dollars. That sounds like a lot of money but when you consider that youtube takes a 30% cut and that Cover probably takes somewhere between a 30–50% cut, Aqua herself is probably only walking away with somewhere in the ballpark of 100,000 dollars. And this is in the highest earning case, earnings fall off pretty precipitously once you make it past the top 20 or so top earning Vtubers.
In terms of what the companies are taking away from superchats, Nijiansji took in 550,000,000 Yen in Superchats or around 5 million dollars. But that doesn’t take into account the cut that youtube and the Vtubers themselves take. In reality, Ichikara can probably expect something closer to 1.5 to 2 million dollars in Superchat money. Based on Superchat earnings, Hololive can expect around half of whatever Nijisanji brings in. That’s a fine sum of money, but is that really enough to justify 28 million dollars in venture capital funding?
So how else do these companies bring in money? Aside from direct donations, there are channel memberships, advertising money and direct sponsorships. The problem here is that, as many poor Vtubers have learned, these methods are pretty volatile. Vtubers like Kiryu Coco or Akai Haato have been demonetized by youtube or just straight up prevented from joining the partner program. Coco wasn’t even allowed to stream for a while. Ichikara had this whole tussle with Nintendo a while back about monetizing streams of Nintendo games.
From a business perspective, it seems slightly insane to stake your business model on the whims of capricious tech giants and the charity of sweaty weebs. I’d wager that there’s a fairly finite pool of money that people are willing to donate to Vtubers and the more and more faces get introduced, the more and more likely it is that they are going to end up cannibalizing their own market. So what then is the business model of virtual youtube? What is the plan for the future? Virtual youtube is staked in a bet on the future of Japan’s entertainment industry. One is slightly less ambitious and one is a fundamental re-imaging of the future of celebrity culture.
In the short term, both of these companies have two goals: expand into international markets and establish their foothold as a media franchise. It is evident that expansion into global markets, especially China, is critical to their success. After all, that’s what Hololive raised 700,000 Yen to do. The reality is that given Japan’s rapidly aging population and stagnant economy, investing in Japanese consumers is likely a losing proposition, especially when compared against the large populations of young people in places like China and Indonesia that are eager to consume anime and idol content. Propelled by the growth of an expanding middle class, the Chinese anime market is worth over 20 billion dollars. The importance of international expansion is something that the Korean entertainment industry has known for decades. The concept of “Hallyu” or the “Korean Wave” was coined by Chinese media in the late 1990s to explain Chinese youth’s sudden obsession with Korean cultural products like music, clothing, cosmetics and television. The modern Korean entertainment apparatus was largely manufactured by the Korean government as a way to increase Korea’s soft power across the globe. The success of Korean cultural exports have played a major role in transforming the global understanding of South Korea from a cultural backwater that’s only known for fighting a civil war into a robust and innovative economy. Jung Bong Choi, an assistant professor of cinema studies at New York University argues that Hallyu should be understood not as a cultural trend but as a cultural formation. As he puts it, the phenomena is largely “helmed by a handful of entrepreneurs, mainstream media, state bureaucrats, and professional consultants”. The expansion of talent into Chinese, Indonesia and English speaking markets is, more or less, an acknowledgement of this changing understanding of the Japanese entertainment industry from one that is mostly concerned from appealing to domestic consumers to one that is increasingly focused on catering to an international audience. Many Vtubers maintain a large presence on Bilibili for the express purpose of cultivating a Chinese audience while these companies are trying to bring in more Chinese speaking talent.
Once virtual youtubers become an established part of the media landscape, the goal of these companies is to move away from traditional forms of monetization associated with live streaming and content creation to those typically associated with more traditional entertainment companies. This is something that Nijisanji is already starting to do. They are moving away from Superchats and Ad revenue and instead are focused on selling merchandise, like voice packs. Because Ichikara and Cover own the rights to their characters, they are free to profit from merchandise sales without giving any cut to Youtube or to the Vtubers themselves. By all accounts, Vtubers generally are paid in some combination of a fixed salary and superchat money. The companies generally pocket most of the money from merchandise sales. It’s clear that Hololive is trying to maneuver their top stars in a way that is quite similar to what you might expect from a traditional idol group. Tokino Sora has signed with a major Japanese music label and other popular personalities like Shirakami Fubuki have started their own radio shows. The big difference between Hololive and Nijisanji is that Hololive’s marketing is much more similar to that of traditional idols than Nijisanji. While Nijisanji is beginning to prioritize goods like voice packs, Hololive is trying to maneuver their talent into the traditional idol space, which probably explains why Nijisanji’s male talent is a lot better off than Holostars which is whither away. In the near future, we’re likely to expect Hololive to have Hologram concerts much like Hatsune Miku. By creating merchandise or experiences that consumers buy directly from the company, it avoids the many complications associated with Youtube’s monetization whims and allows for a more consistent form of revenue into the future. Cover and Ichikara benefit greatly from how much lower their costs are than a traditional entertainment company. Developing the 2D character model is a fairly fixed one time cost and afterwards can be used basically forever.
But in the longer term, I think that virtual youtube is a wager on the future of entertainment. A wager that one day we won’t have any “real” celebrities or at least virtual celebrities will be normalised to the point where no one would think twice about their existence. Japan has been experimenting with the idea of virtual idols since the 1990s, with the earliest being a relatively obscure figure named Kyoko Date. In 2011, AKB48 experimented with this idea by debuting a new member of their group that later ended up just being a CGI model of other AKB48 members. Hatsune Miku’s large popularity is the greatest triumph for the idea of the virtual idol. This is where the technology side of the virtual youtuber business comes in. The majority of their non-talent related work is developing the models for the girls to use and iterating on motion capture technology to improve the fidelity and quality of their virtual youtubers.
At the end of the day, what really makes a real girl better than an anime one. I’m sure there’s already a large contingent of people out there who would resoundingly tell you that the answer is a fat nothing. If we reach a point where a virtual avatar is able to capture the same fluidity of movement and nuance of emotion as a real person, is there any real difference between such an avatar and video of a real person? As one man put it. “for an otaku audience eager to both consume and produce a technologized, artificial, endearing, and seductive fantasy of femininity from fragments of digital information, an idol such as Hatsune Miku promises a relationship which is in at least some ways superior to that offered by a flesh and blood performer.” According to one study on why people choose to watch Twitch streams, the primary draw of live streaming as to forms of on-demand video is that live streaming allows people to feel a sense of community by participating in the cesspool that is Twitch chat. A similar phenomena no doubt exists for virtual youtubers where people feel like they are having certain social needs fulfilled by interacting with these virtual youtubers and their other fans.
Virtual youtubers stand at the confluence of two established products, the virtual idol and their real counterparts. The story of Japan, and the global economy more broadly, is ever greater acceptance of technology and the virtual world. In the long term, I don’t think it’s unreasonable to think that we may reach a future in which the notion of the “living body” ceases to be an important part of the media landscape. As the advancements in entertainment, social media, and gaming demonstrate, we are moving towards a society where the digital and real worlds are becoming ever closer linked. If the technology behind virtual youtubers can be developed to the point at which it is readily available for mass market consumption, we could very much see a world in which we have a robust digital ecosystem that parallels the real world, not unlike those depicted in anime like Summer Wars or Psycho Pass. Perhaps this is hyperbolic, but virtual youtubers may genuinely have the ability to reinvent the media landscape and how we interact online. It will undoubtedly be interesting to see where these businesses and their virtual youtuber talent go in the coming years.
Sources and further reading:
Hallyu 2.0: The Korean Wave in the Age of Social Media. Edited by Sangjoon Lee and Abé Mark Nornes
Idols and Celebrity in Japanese Media Culture. Chapter 9
Why do people watch others play video games? An empirical study on the motivations of Twitch users. Max Sjöbloma and Juho Hamariac. https://doi.org/10.1016/j.chb.2016.10.019
“And Today’s Top Donator is”: How Live Streamers on Twitch.tv Monetize and Gamify Their Broadcasts. Mark Johnson and Jamie Woodcock. https://doi.org/10.1177/2056305119881694