Answerman

How Does An Anime Studio Go Out Of Business?

boy kano asks:

How can an anime studio goes bankrupt? If they receive money from a publisher like Kadokawa, surely it can cover up the cost of making an anime title.

Anime studios can and do go bankrupt, and in the last few years, at least one or two notable ones have closed. The reasons why can be myriad, and have nothing to do with the nuts and bolts of actual anime production: bad investments, overhead costs (expensive office space, or buying more equipment than they could afford), maybe they tried to produce an original show that tanked. Very often an old, grizzled industry veteran that knew how to keep the ol' ship afloat retires or passes away, and the people left simply don't know how to run the company. In some cases, there are shadier reasons, like embezzlement or bad loans.

In general, though, when anime studios fail, they tend to slowly bleed themselves to death by not controlling their costs. Anime is made on a very lean profit margin. The production committee, and specifically the company in charge of planning (kikaku) are responsible for brokering the deal with the animation company, who acts as a contractor. They may solicit bids from several anime studios for a given project, or they may have a specific studio in mind.

Here's the thing about producers: they are SHARKS. In entertainment production there is never enough time or money, and in making the film or TV series, there are always a huge number of sacrifices that have to be made. It's the producer's job to drive a hard bargain, getting the best work for the lowest possible price. Production costs are typically a fixed yen-amount per episode, and often go as low as US$200,000 an episode. By American TV standards, this is absurdly cheap for an original scripted television show, let alone an animated one. $200,000 per episode is about the budget of a low-tier cable reality TV show. (There are other expenses not covered by this figure, like marketing and DVD/Blu-ray authoring -- this is purely for production.) It's from that amount that up to 2,000 people -- credited and not -- need to be paid for their work. (Is it any wonder why wages are so abysmally low?)

So, several animation studios may bid on a given project, and based on the price they bid, as well as the studio's reputation, their working relationship with the producers, and other various factors, the producers will decide who gets the job. Once that offer is accepted, the price is set, and that is all that the studio will get paid to produce the show.

Anime goes over budget and over schedule ALL THE TIME. The character designs might be too extravagant, causing the animators to move slower than normal, so it's necessary to outsource more of the work. An animation checker might not be paying attention, causing a bunch of bad art to be colored and fully animated, and it needs to be redone. The director might not be satisfied with a handful of cuts and wants redos. It is entirely possible -- common, even -- that an animation studio will lose money on a project.

This actually isn't too far off from what happens with other animation-related businesses around the world, most notably in the computer graphics business. The tough-bargaining producers strike deals with the animation studios, who are less tough and tend to care more about the quality of the output rather than financial self-preservation. The animation staff will then wreck themselves going the extra mile, occasionally asking for more money. The producer will usually refuse, and hold the animation studio's feet to the fire. ("You signed a contract saying you could do the job for ¥XXX!") The animation staff then must decide if it will eat the extra cost, lose money and save their reputation, or cut corners and let the project turn into something nobody is happy with. Since anime staff are usually otaku, themselves, and have a lot of pride in what they make, the choice is usually obvious.

So you can see how an animation studio can very easily get themselves into trouble, especially if they bid too low in the first place, or signed a work agreement with the producer that doesn't have favorable terms. But in that way, animation studios aren't too much different from any other creative production vendor, such as an ad agency, a post-production company, or a graphic design firm. Business is tough. Show business is tougher.

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Anime News Network founder Justin Sevakis wrote Answerman between July 2013 and August 2019, and had over 20 years of experience in the anime business at the time. These days, he's the owner of the video production company MediaOCD, where he produces many anime Blu-rays. You can follow him on Twitter at @worldofcrap.