Why the Animation Industry Needs Web3 – Populous

# Key Insights into the Global Rise of Japanese Animation and Its Future with Web3 Japanese animation, once confined to a niche audience known as "otakus," has transitioned into mainstream global entertainment in recent decades. A significant shift has occurred over the past 100 years, marked by the introduction of the Production Committee system and media mix strategies in the 1990s, followed by a renaissance spurred by OTT streaming services in the 2010s. ## The Current State of the Japanese Animation Industry Despite its growth, the industry continues to rely on the Production Committee system, where multiple companies co-invest to spread risks and share profits. While this structure has fueled quantitative growth, it has also unveiled several structural challenges: declining profitability for production companies, funding difficulties for smaller studios, reduced creative autonomy, animator treatment issues, and a disconnect between fans and creators. ## Web3-Based Business Models as a Solution Web3 technologies offer alternatives to these structural problems. Blockchain-based token economies can diversify funding mechanisms, mobilize fandoms, secure secondary market data, distribute ownership, and monetize secondary creations, potentially overcoming existing limitations in the animation industry. ## Case Study: AnimeCoin Leading the Web3 Integration AnimeCoin is pioneering the fusion of Web3 and animation. This project, led by Azuki Entertainment, Anime.com, and Animechain ($ANIME), aims to create a decentralized world of animation. ### Introduction Historical innovations often emerge from unexpected collaborations. The intersection of animation and cryptocurrency is no exception. Until 2012, international sales made up only 17% of the Japanese animation industry's revenue. However, the mid-2010s saw a significant rise thanks to global OTT platforms like Netflix, Amazon Prime, and Disney+, transforming Japanese animation into mainstream global entertainment. ### Achieving Global Mainstream Entertainment #### Surpassing Domestic Revenue The Japanese animation market has seen impressive growth, from ¥1.6 trillion in 2014 to ¥3.34 trillion in 2023, driven primarily by overseas sales, which accounted for more than 50% of the market in 2023. Successful global releases included "Dragon Ball Super," "Jujutsu Kaisen 0," and "One Piece Film Red," leading to a projected record performance for the industry in 2024. #### A Long Journey to Global Popularity Japan's animation took nearly a century to gain global recognition. Initially confined to an experimental phase in the early 20th century, significant advancements were made with TV animations in the 1960s, such as Osamu Tezuka's "Astro Boy." The introduction of the OVA market in the 1980s and the Production Committee system in the 1990s further shaped the industry. The media mix strategy emerged in the 2000s, creating multifaceted revenue streams from merchandising, games, and thematic parks. ### The Golden Era with OTT Streaming Services OTT platforms revolutionized distribution, making Japanese animation accessible worldwide. From 2013 to 2022, revenue from OTT platforms grew by 385%, with critical acclaim from distribution experts like GKIDS and Toei Animation indicating streaming's role in boosting theater attendance even during the pandemic. Major media enterprises, including Sony and Toho, have invested heavily in animation, recognizing its lucrative potential. For instance, Sony's acquisition of Crunchyroll for $1.3 billion underscores the strategic importance of anime content. ## Production Committee System's Dominance The animation production process, involving pre-production, production, and post-production stages, requires substantial investment, making the industry high-risk, high-reward. The Production Committee system, where multiple sponsors co-invest, emerged to mitigate financial risks post the 1990s economic bubble. While enabling the industry to produce more content, this system has disproportionally allocated profits to investors rather than production companies, exacerbating issues like declining profitability and poor working conditions for animators. ### Structural Limitations of the Production Committee System #### Profit Distribution Imbalance Most profits go to investors, with production companies receiving minimal shares. This imbalance often leads to increased competition among production companies, driving down production costs and making it challenging for smaller studios to survive. #### Animator and Subcontractor Challenges Animators face low wages, long hours, and poor working conditions, leading to high turnover rates and industry instability. #### Creative Autonomy Erosion Investor demands often dilute creative visions, pushing for commercial rather than artistic priorities. This limits innovation and reduces the quality and uniqueness of the content. #### Fan and Creator Disconnect Current systems restrict fans to passive roles, limiting their engagement and participation in the creative process. This hinders the expansion of intellectual properties (IP) and reduces long-term growth potential. ## Potential of Web3 in the Animation Industry Web3 technologies offer transformative potential. Direct-to-Fan (DTF) token funding can decentralize financing, enabling creators to bypass traditional production systems, maintain creative control, and secure funding from global fan bases. ### Enhanced Fan Participation Web3 allows fans to become more than mere consumers—they can actively participate in and influence the creative process through tokenized ownership and decentralized autonomous organization (DAO) governance. This can lead to a more engaged and invested audience, enhancing the long-term viability of projects. ### Innovative Use Cases Projects like Azuki's "Anime 2.0" vision and Square Enix's "Symbiogenesis" exemplify how Web3 can integrate fan engagement. Fans' input in storytelling and ownership can create highly personalized and immersive experiences. ## Conclusion: Embracing Web3 for Sustainable Growth The Japanese animation industry stands at the cusp of a significant transformation, where traditional challenges can be addressed through innovative Web3 technologies. By leveraging decentralized funding, enhanced fan participation, and transparent transactions, the industry can overcome existing limitations and embark on a sustainable growth trajectory. Key projects like AnimeCoin demonstrate the promising synergy between Web3 and animation, setting a precedent for future initiatives aimed at integrating blockchain technology with creative industries. As the market continues to evolve, embracing these innovations will be crucial for maintaining global competitiveness and fostering a dynamic, inclusive animation ecosystem.