Ask John: What Effect do Rental Services Have on the Anime Industry?

Question:
With rental services such as Netflix and RentAnime offering a wider selection of anime titles then most brick-and-mortar stores, I’ve increasingly found myself renting titles rather then buying. While this means I’m more inclined to take a chance on a title I would otherwise be hesitant to purchase, I can’t help but wonder if this is having a negative impact on the distributors. What are your thoughts on this?

Answer:
Although I work for an anime company, I’m not a businessman, so please excuse me if my economic logic is flawed. It may seem as though the popularity of online rental services may jeopardize the stability of the anime industry, but in fact the impact of anime rental depends greatly upon its prevalence. Anime distributors depend on the sale of anime DVDs to recover operating expenses and generate investment capital and profit. Exactly who buys anime DVDs isn’t actually important to distributors. What’s important is the number of sales. Regardless of whether it’s 50,000 individual anime fans or a single company that purchases 50,000 copies of an anime DVD, the distributor has still sold 50,000 DVDs. With small variation, distributors earn a constant, consistent amount from the sale of each DVD. Since distributors sell at a wholesale price, each DVD is sold for X amount, regardless of whether the final consumer is Netflix or a private anime fan. The distributor’s sale price for an individual DVD is a percentage of the disc’s suggested retail price, which is why the suggested retail price of anime DVDs is most often $29.98.

Heavily discounting anime DVDs hurts the anime industry because heavily discounted prices encourage consumers to cease buying new releases, or force retailers to negotiate for lower wholesale prices, which in turn reduces distributor earnings. If consumers wait for complete series sets or discount priced re-releases, retail stores stop selling individual new release discs and distributors don’t earn enough to continue licensing and releasing anime DVDs. So distributors need their new release DVDs to sell, but who buys them isn’t important since the distributor earns the same amount regardless of who buys the discs.

So if online rental companies buy only a handful of new anime DVDs and consumers rent discs instead of buying them, distributors get minimal sales and the industry slowly shrinks. But if rental companies buy lots of discs in order to meet strong customer demand, the distributor sells lots of discs and earns enough to continue growing. In essence, someone has to buy new anime DVDs in order for the American anime industry to thrive. It doesn’t matter if the DVDs are sold to rental companies or private fans, as long as they’re consistently sold. So the increasing popularity of online DVD rental services may balance out diminishing consumer purchasing.