The anime industry can seem like a confusing place at first. Why is there a fixation on moe and harems? What’s with the unsatisfying endings? What the hell is a waifu?

Gintama © Shueisha / Sunrise / Bandai Namco Pictures

And what the hell is Shinpachi doing?

But the one question that stumps even long time fans is how is money made? We’ve seen time and time again how industry insiders are saying anime is declining or how piracy is killing the industry.

Let’s examine how money is made, and where anime fits in the equation. Think of this as a crash course that will give you the basics, and hopefully help you understand why anime does the things they do.

Anime for kids and families make bank.

This may come as a shock, but the anime you watch is not mainstream, unless you watch shows made for kids and families.

Sazae-san © Fuji Television

7,181 episodes and still ongoing. Sazae-san routinely pulls in 14% to 20% of TV viewers when it airs.

The truly successful anime air between 8 am to 9 pm. Shows like Doraemon, Detective Conan, Pretty Cure, One Piece, and Sazae-san have a broad appeal among Japanese children and parents. Not only do people tune in to watch them on TV, but people buy their merchandise and source material in droves. This constant demand and fans buying pays for the 100+ episodes that the series produce.

Franchises like Sword Art Online and Attack on Titan help prop up the anime industry as well, even though they are not as kid friendly. The key is merchandising. Other than PVC figures and dakimakura, the popular shows will sell fashion items, action figures and dolls for kids, folders, binders, inspired jewelry, and limited edition food packaging.

Late night anime is extremely niche.

Most anime that the international community consumes are “late night anime.” These shows air between 11 pm to 4 am in Japan. They also get laughably low TV ratings and the average Japanese person has never seen them.

Rokka: Braves of the Six Flowers © Shueisha / Passione

I’m willing to bet that International fans of the Rokka anime outnumber Japanese fans.

Since their TV ratings are low, these anime make money from Blu-ray and DVD sales. Merchandise helps too.

The low ratings are explained with Japanese work culture and school hours. The average employee works 12 hour shifts, which doesn’t leave a lot of free time to watch every anime, even with a DVR.

Then there are the school hours and the massive workload Japanese students have. Except for certain holidays, Japanese students only get Sunday off (which is why the weekends are packed with anime). However, the workload for students, club commitments, and general teenage life can get in the way of late night anime viewing.

That leaves the otaku crowd, who are willing to stay up late to tune in to watch these shows. Basically, your favorite anime isn’t making money from TV, but that was the plan from the beginning.

Most anime are infomercials.

This is an open secret for Japanese fans. Late night anime, unless it’s aired on the Noitamina program on Fuji TV, will always be an infomercial.

Spice & Wolf © ASCII Media Works / Madhouse

The average late night anime budget is small (about $2 million to $4 million for the entire series), and that is by design. If you look at the production committee of late night anime, you’ll find the TV station is a committee member.

That is because they use anime as a low budget way to fill in the late night time slot so they can get a low viewership. At that time of day, a low viewership is better than no viewership.

Also sitting in on the production committee are manga and light novel publishers, music production companies, and general advertisers (like Pizza Hut in Code Geass). These members couldn’t care less about low TV viewers or low DVD sales, because they are not trying to sell you the anime.

Gintama © Shueisha / Sunrise / Bandai Namco Pictures

The business world calls this “synergy.”

Manga and light novel publishers are using the anime to promote the source material. If people aren’t watching the anime, but sales of the source material are increasing during the run of the anime, they will be happy. Music companies are concerned with selling image song CDs or promoting their idols (think Love Live!).

If a manga or light novel finishes, the possibility of another anime season becomesnonexistent. That’s one of the reasons a third season to A Certain Magical Index has not been made; the light novel ended in 2010. Unless ASCII Media Works wants to celebrate an anniversary for the series or remake it several years down the line to introduce new fans to the light novels, you’ll be forever waiting.

Original anime works are not free from this either, since they tend to be adapted into manga and light novels. However, they do have more leeway in terms of story.

The crazy thing is that this business model works. In 2014, the manga industry made 282 billion yen (2.3 billion USD) in Japan alone. The anime industry brought in 242 billion yen (1.9 billion USD) in 2013 from the Japanese and international markets combined.

What about the studios?

Anime studios are contractors. Once the production committee forms and decides on an anime to make, they’ll scout out anime studios and offer them the chance to work on the series. The studios are given the budget money to work on the show, and they start their magic.

Shirobako © P.A. Works

But how do they make their money? This is where things get tricky. Studios like Madhouse will split the Blu-ray and DVD profits with the distributor who is on the committee (like Pony Canyon). They may split profits with merchandisers too, if a PVC figure uses the anime design created by Madhouse. The amount of profit is low, which is why studios try to save money by hiring freelancers and working on multiple series a season.

Studios like Kyoto Animation and Sunrise are powerful enough to sit in on production committees. They can essentially invest their own money in the shows they are working on, so they keep a bigger chunk of the profits.

Kyoto Animation also does more than anime; they are a manga and light novel publisher and they run their own store in Kyoto. However, it is worth noting that they are the exception.

A complex web of money making.

The last way for a studio to make money is that they are owned by members of the committee. Take A-1 Pictures as an example. A-1 Pictures is animating this season’s The Asterisk War and Perfect Insider, but they don’t necessarily have to worry about sales or viewers because they are owned by Aniplex.

The Asterisk War © Media Factory / A-1 Pictures

Aniplex, in turn, is a powerful committee member for many anime. They sit on the production committee of Gintama, Durarara!!, and Naruto Shippuden as a Blu-ray and DVD distributor. They also produce soundtracks, merchandise, work with food companies for packaging, and video game companies. Aniplex takes that money and puts it into A-1 Pictures, which is essentially themselves. As a final twist, Aniplex themselves are owned by Sony Music Entertainment Japan.

Sony Music Entertainment Japan is the biggest music label in Japan, making 162 billion yen (1.3 billion USD) this past year in revenue. If you have a favorite anime opening or closing song, odds are it was sung by a Sony artist.

Music produced by Sony Music, distributed by Aniplex, and was in a show animated by A-1 Pictures. They are three parts of a whole. No matter how successful an A-1 Pictures series is, they won’t go under anytime soon due to the business structure.

This structure is fairly common in American and European business. It allows you to make money from different segments without being too specialized. At any given time, Sony can make money from 10+ anime series without taking the big financial risks.

International licensing

The international market helps bring in money through licensing. When a studio wants to localize a series, it pays a licensing fee up front. That money goes to the committee, and is usually distributed to the anime studio as part of their production budget.

Fullmetal Alchemist © Square Enix / Bones

For example, if I see an anime that I think would be successful here in the United States. I would offer to pay $10,000 per episode to create a dubbed, Blu-ray release. That would give the studio $120,000 USD upfront for a 12 episode series.

If the anime becomes a major hit in the States and it surpasses a certain threshold (like it sells a specified amount of copies or we earned above half a million dollars), the anime studio receives residual checks that can range anywhere between 20% to 30% of future copies sold.

It is estimated that an anime series needs to sell around 5,000 copies per volume to break even. Only 20% of anime will reach that goal in the first year they are released.

Serial Experiments Lain © Triangle Staff

Keep in mind that the people who rely on Blu-ray and DVD sales are the anime studios and distribution companies (sometimes they are linked together). However, that doesn’t mean there is an 80% failure rate. Anime is a medium that has long legs, and it’s not uncommon for older shows to break even several years later.

Anime sets are re-released and remastered, series are re-aired on TV on different channels, and long term sales numbers from the international market all contribute to a series breaking even down the line. Remember how Serial Experiments Lain was a flop in Japan? It’s one of the more respected series in the States, and you can bet that the studio has made their money back thanks to Funimation selling it on DVD, Blu-ray, and a re-released Blu-ray set.

The thing to keep in mind is that anime is not a short term money maker.

Conclusion

Yes, anime does make money, and as long as the manga and light novel industries are around, anime won’t be going away anytime soon. While we’d love to see more complete adaptations, we have to remember that the main goal of Japanese anime is to sell us manga and light novels.

This article is shared courtesy of GoBoiano.com

Original article by Aaron Magulick – Nov 5th, 2015