Case Study: Defense Against Disruption

BlueOcean 001 300x198 Case Study: Defense Against Disruption

This is the last time we’ll be using this image. I promise!

If you recall, we held an ongoing discussion on Blue Ocean products, and how simple concepts can be leveraged to create a favorable unbalance in the anime market. For example, we saw Crunchyroll deliver inroads to digital distribution and simulcasting that the market takes for granted today. Or, in the case of the Kindle, allowed for a more convenient digital distribution of manga for both publisher and customer alike.

If properly implemented, disruptive innovations will trigger ripple effects in an industry. Since disruptive products are usually inexpensive and made to fill specific formerly-unrecognized needs, it triggers a mass adoption in the marketplace. This is, quite naturally, a fairly large threat to the established players in the market. As the new product is adopted, we begin to see profits for the established players dwindle. In the case of our Crunchyroll example, we began to see Japanese companies like Toei, Gonzo, and the like offer their product directly to users. With Crunchyroll as a medium, we saw these corporations take a larger slice of the profits, as the American market struggled with difficult physical media sales.

When faced with such a challenge, it’s not uncommon for the established players to react, in an attempt to either co-opt or protect against the disruptive innovations introduced to the market. Steps to halt the migration of customers are taken, and any attempt to satisfy the current market with the fewest costs possible begin to arise.

In the case of Crunchyroll, for example, it wasn’t long before companies like FUNimation and Sentai Filmworks began chasing digital rights on top of their current offerings. We began to see the American distributors announce simulcasts, and digital schedules change to accommodate ongoing shows. Subscription services began to be offered, and companies began to enter a race to match Crunchyroll in their offerings. FUNimation began offering subscription services, smartphone apps, and a Roku Channel to counter similar offerings from their new competitor. Every opportunity to match Crunchyroll was taken, and every grab for customers was a logical grab to maintain the marketshare that was at stake.

“But why? FUNimation was a profitable DVD seller! They had titles that could sell in the tens of thousands!”

Well, dear reader, that’s the fun part of the entertainment industry. People will almost always follow the path of least resistance. By maintaining their physical presence, they could service two sets of customers:

  • DVD collectors
  • Blu-Ray collectors

At the same time, they could find easy profits in re-releases of their more successful titles. Shows like Dragon Ball, One Piece, and the like could bring in large quantities of customers at a minimal investment. However, investments in the digital market allowed for a secondary revenue stream for these distributors, in addition to a valuable source of research. By having a reliable monitor of a show’s performance before it hits physical media, entities like FUNimation are able to minimize the risks of localization. Now, hard numbers could be evaluated and confident decisions could be made on which titles had a chance in the greater market. This allowed FUNimation and, well, whichever company The Anime Network works with (wink, wink) to determine which titles would get the full treatment, and which would exist only as streaming offerings. So, in their effort to counter a growing threat, companies like FUNimation and The Anime Network were able to eliminate a decent amount of guesswork that was once involved in the licensing process.

So, while Crunchyroll wasn’t a force that could completely uproot the industry, it was an important agent of change. The current industry players were able to successfully defend against and co-opt Crunchyroll, to the point where it was no longer the tangible threat that existed in the company’s early days. At the same time, they were able to refine their processes and mitigate a number of risks that could provide potentially deadly pitfalls to a distributor.

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