Anime ($31b) is Underutilized in Gaming

Anime is a $31b Market with 600m Fans Worldwide

Similar to the rapid rise of video games over the past decade, anime (a shortened form of the Japanese word animēshon, which means "animation”, and refers to Japanese or Japanese-style animation) has grown from a niche genre to a sizable and recognizable form of media.

For reference, there were 1.2b gamers in 2013 which grew to 3.4b gamers in 2023 (9.9% compounded annual growth rate, or CAGR) with a market size of $76.5b and $184b respectively (8.3% CAGR). The global anime market was valued at $24b in 2020 and is projected to grow to $44b by 2027, a 7.8% CAGR (Fandom) but the number of fans of anime is growing at least 4x faster.

There were about 300m people globally who watched anime in some form in 2022, a 2x jump from the ~150m in 2020. This has already doubled again in the past two years; as there are now ~600m anime fans globally today outside of China. Crunchyroll, the top anime streaming service, expects that there will be more than 800m anime fans globally by 2025 (implying a 32% CAGR from 2020). It is worth noting that Crunchyroll intentionally excludes China and Japan from their 800m estimate, so the actual number is likely >1b people by 2025.

Despite the genre’s origin in Japan, the majority of anime’s recent growth and forecasted growth is coming from outside of Japan. For example, the movie “Demon Slayer: Kimetsu no Yaiba – The Movie: Mugen Train” was released in late 2020 and was a global success (benefiting from COVID lockdowns), grossing over $507m worldwide. This made it the highest-grossing film of 2020 and is the first time a non-American movie production topped the annual global box office. It is the highest-grossing Japanese film of all time, a title previously held by Spirited Away (2001) which grossed $395m (Crunchyroll).

The original anime series that Demon Slayer was based around was licensed by Netflix and premiered on the platform in 2021. Two years later, Demon Slayer was still the #1 watched anime on the platform at almost 100 million hours watched.

The anime markets in North America and Europe have driven a majority of the overseas growth to date. However, it is anticipated that the next big wave of growth will come from India, South America, and Southeast Asia.

While this growth will likely be fragmented and decentralized through mediums such as pirating websites, legitimate players are looking to expand their footprint in these regions. Market leader, Crunchyroll, has publicly stated that they plan on making a hard push for market acquisition in India. The platform was acquired by Sony in 2021 for $1.2b and is anticipated to be a primary driver of profit growth (36% of all profit) for Sony’s picture division, which includes its Hollywood studio and content business.

Despite the platform’s specificity and limited globalization to date, Crunchyroll manages to hold its own in terms of subscribers (~11m in Q1 2023, more than doubling 2 years after acquisition), especially when bearing in mind that, unlike other OTT competitors, it is completely free to watch content on the platform with ads and limited features, such as simulcast; there are >120m registered users to date.

Other streaming platforms have started to catch on to the genre’s trend and have slowly begun building their libraries and partnerships with content providers. More than half of Netflix’s global subscribers outside Japan watched at least one anime title in 2021.

High overlap between gaming and anime

Since 2020, brands and IP holders have been eager to bring their products and IP into gaming worlds. Categorically, anime IP is one of the most compatible genres of IP with the gaming industry, especially given the genre’s ease of translating the lore into a game (the most popular anime genres are action and combat-oriented) and the audience’s interest.

Thematically, this intersection of gaming and anime makes sense as both groups enjoy being able to immerse themselves into fantastical worlds and lore. There is a heavy degree of overlap between anime fans and gamers as 21% of gamers watch anime in a typical week and 60% of anime fans are avid gamers. In fact, anime fans are 40% more likely to play video games for >20 hours a week than non-anime fans.

Anime games’ performance is lacking to date

Despite the compatibility between anime IP and the medium of video games, great video game adaptations have been few and far between outside of a select handful - for example, Pokémon, Dragon Ball Z, and Gundam. More often than not, anime video games resemble a pattern very similar to the recent mobile title, One Punch Man: World - they can garner initial interest (downloads) but are unable to sustain or monetize long-term player engagement.

We believe that four primary difficulties must be addressed to unlock the potential for anime video games:

1. Restrictive licensing: While there is some variance across shows, generally, the publishers of each anime (and respective manga) are the gatekeepers of each IP (Otaku Journalist). Given the massive audience that each IP can garner, the owners are (rightfully so) protective of how their IP is represented in media and merchandising, limiting licenses to very few channels which can be exclusive by medium (manga, anime, merchandise, video games etc) and region.
2. Timing of anime release vs the release of its corresponding game: While some anime series can run for years with hundreds of episodes, emerging IPs can go years between a successful first series release and the launch of a second. Since video games can also take multiple years to develop, games have a high likelihood of being rushed after the end of a commercially successful season.
3. Uninspired and repetitive gameplay: A majority of video game adaptations of anime IP attempt to compliment the genre of anime which often ends up being fighting or action games. These styles of game are oversaturated at the intersection of gaming and anime, making even the latest iterations of new IP on the scene feel stale to gamers.
4. Predatory business models: Given the repetitive nature of the game style, developers often have to overly lean into the strength of the IP, by including things like cameo appearances or gratuitous animations to play into fan hype around the IP (“fan service”). These can (and often) are linked to how the game monetizes. For example, unlocking rare characters can be locked behind paid “gacha” or “lootbox” mechanics which encourage players to pay to receive in-game items which are completely randomized.
   

UGC platforms are the unlock

We believe that UGC platforms could be the next unlock for anime-based video games. These platforms typically offer a majority of the technical infrastructure right out of the box, letting game developers focus on the story, gameplay, and business model. This also enables studios to work efficiently with smaller budgets and timelines. Even the most advanced games in Roblox take only a few months with a small team and while UEFN is still nascent, we anticipate that developers on this platform will be much more efficient than those developing non-UGC platform-hosted games.

However, there are 3 primary blockers to anime’s success in UGC:

1. Who will get the licenses?: For the IP holder, it will be much harder to decide who to grant licenses to based on the nascency of studios building on these UGC platforms - there are very few studios with the same pedigree and level of experience that they are used to seeing with traditional game developers.
2. Potentially low quality in gameplay (still): With increased commercialization and interest in anime IP and only the potential for more licenses, there may be too many developers flocking to developing these games because of the ROI they envision around this genre of games. Unlike video games or most non-anime TV shows, anime and manga can span hundreds, if not thousands, of episodes or chapters. It is possible that developers will not be “true” fans of the IP, meaning that gameplay may still be poor.
3. Gaming revenue for IP owners could be minimal: Based on the unit economics on Roblox and the player volume on games outside of Fortnite on UEFN, it may not make sense for an IP holder to grant a license to a smaller Roblox/UEFN studio over a traditional studio distributing on console or PC. That said, it is likely that IP holders will remain excited about UGC and view it as more of a marketing channel than a revenue channel.

Takeaway: The fan base for anime IP (now 600m people) is growing >4 times faster than the number of gamers (now 3.3b people) over the past decade. The overlap and complementary nature of the two audiences leads us to believe that there is a severely underserved desire for games leveraging anime IP. We believe that UGC platforms are a key unlock because the UGC vertical enables (licensed) developers to create quality games faster and cheaper; however, unless the IP pipeline becomes more efficient, low-quality games based on anime IP could continue to hold back the genre’s broader success in gaming.