World's top anime site Crunchyroll is Sony’s new money-maker

By Sohee Kim

When top anime streaming platform Crunchyroll was first gaining popularity as a pirated-video site in the mid-2000s, Japanese animation was considered a niche form of entertainment, appealing mainly to enthusiasts known as otaku.

Today, it’s a $20 billion industry spanning streaming, games and merchandise, and the company’s hit series, such as One Piece and Demon Slayer, have drawn millions of US and European subscribers.

Crunchyroll, now owned by Sony Group Corp, is setting its sights on India as a major growth market — one that could help the industry further expand from a made-in-Japan subculture into a mainstream and global phenomenon.

The company, founded in 2006 by graduates of the University of California at Berkeley, started off as an anime-sharing site. It eventually began streaming only legitimate content, helped by investment from venture capitalists including former News Corp President Peter Chernin and ownership by AT&T Inc’s WarnerMedia. Now the largest anime-dedicated streaming platform in the world, it was bought by Sony in a $1.2 billion deal announced in 2020.

Crunchyroll has more than 100 million registered members, including 11 million paid users, after rapid subscriber growth during the pandemic when people binge-watched exotic content. With growth in Western markets moderating, the anime giant is looking to India for its next breakthrough, according to President Rahul Purini.

“In terms of percentage growth, India will be a significant driver of our growth,” Purini said in an interview ahead of a business trip next week to Mumbai, where he plans to meet potential partners. “They’re small numbers right now, but we believe they will become a significant portion of our subscriber base.”

Crunchyroll is seeing more anime fans in new markets such as South America and Southeast Asia. Expansion in India, with its burgeoning youth population, could prove particularly helpful in turbocharging Sony’s efforts to boost its entertainment content business.

In May, Sony Chief Executive Officer Kenichiro Yoshida shared the company’s long-term vision of increasing users of content, including music, games and movies, by over sixfold to 1 billion people. India is seen as a crucial battleground in that effort, particularly as China remains closed. US streaming services such as Amazon.com Inc and Netflix Inc are also competing for a bigger audience in India, where the media and entertainment industry is expected to grow by around 10 per cent annually to $60 billion in 2030.

In India, Sony is also closing in on a merger with local TV and film business Zee Entertainment Enterprises Ltd, a deal that would create a $10 billion media giant.

Sony bought Crunchyroll through affiliate Funimation, a US home-video distributor also running an anime streaming platform. The integration of the two companies during the pandemic was “the biggest challenge” but is well underway, according to Purini, a Funimation veteran. The migration of content and subscribers from Funimation to Crunchyroll is likely to be completed fairly soon, he said.

Crunchyroll’s strategy for India is to acquire more content and to localize anime series using dubbing and subtitles in local languages such as Hindi. The streaming platform recently lowered its prices in the region, which at around $1 a month is roughly a 10th of the price for a comparable, middle-tier plan in the US.

Ironically, the biggest challenge for Crunchyroll is its fight against illegal streaming websites, which are rampant in India. Crunchyroll believes its competitive pricing and unique features will eventually persuade users to opt for paid services.

“If we do our job right, we can convince fans to switch over to an official site,” Purini said. “The other part is that we work in collaboration with our partners, whether it’d be Sony Pictures, whether it’d be our Japanese partners, using all the lawful means at our disposal to be able to talk to fans and address the anti-piracy issue.”

Crunchyroll expects the anime industry will have more than 800 million fans globally by 2025 outside markets in China and Japan. Of those, around 200 million are expected to watch series on official websites, he said. The business is open to acquiring assets to grow in targeted markets, he added.

Sony doesn’t reveal financial details for Crunchyroll, and Purini declined to share detailed sales or profit numbers. Analysts have said that while anime is still a small part of Sony’s chips-to-movies business empire, it’s emerging as a key growth area.

Goldman Sachs upgraded its recommendation on Sony to a “buy” on Thursday, citing expectations for Crunchyroll. Analyst Minami Munakata estimates that in five years, the anime site will account for 36 per cent of all profit at Sony’s picture’s segment, which includes its Hollywood studio and content business, up from just 1 per cent in the year ended in March.

“Given that Crunchyroll is being rolled out in more areas and that demand for dedicated anime streaming services is likely to increase in regions other than North America as the growth of Japanese anime continues overseas, we expect the number of Crunchyroll paid subscribers will increase in the next five years, with regions other than North America becoming the main drivers,” she said in a note.

Technology research firm Omdia also predicted increased global anime viewership, both in theaters and on streaming services.

“Japanese anime is worth more outside of Japan than inside now, and this growth will continue,” Omdia senior analyst James McWhirter said, noting strong box office results for titles such as Demon Slayer and Jujutsu Kaisen. He noted that some anime is now being produced outside Japan, including in the US and China.

“Local anime is also challenging Japanese anime, but also supporting the overall growth of the market,” McWhirter said. “The pie will get bigger.”

The biggest competitor to Crunchyroll right now is Netflix, which is also betting big on growing anime fandom. Anime is a popular category among Netflix users in Japan, while Crunchyroll isn’t offering its streaming service in Japan to avoid competing with its local partners. More than half of Netflix’s global subscribers outside Japan watched at least one anime title in 2021, and time spent watching anime has been increasing, according to the company.

Purini said he welcomed competition from Netflix as well as Amazon and Walt Disney Co, as their investments could help grow anime’s overall audience. The new fans, he said, could later turn to Crunchyroll to explore the category more deeply.

The company also remains dedicated to its so-called flywheel strategy of offering fans a broad range of services from streaming and theatrical releases to anime-related merchandise. In addition to its expansion in India, he said, Crunchyroll is also discussing the use of new technologies such as AR and VR in partnerships with big tech companies.

“We want to be everything for someone rather than something for everyone,” Purini said.