Funimation Founder Gen Fukunaga on Business of Anime, Piracy

Funimation Founder and Retired CEO Gen Fukunaga gave a must listen seminar on the anime business at Columbia Business School’s Center on Japanese Economy and Business (CJEB) on October 10. Full transcript below.

This Gen Fukunaga interview was conducted at Columbia Business School’s Center on Japanese Economy and Business (CJEB) by moderator David E. Weinstein, Director of CJEB. He is also the Carl S. Shoup Professor of the Japanese Economy at Columbia University.

The event took place on Tuesday, October 10th and was officially titled ‘A Lunchtime Seminar with Mr. Gen Fukunaga ’89 of Funimation Entertainment.’ Below you’ll find a highlight snippet and then a full transcript.

Highlight Snippet:

GEN FUKUNAGA: The problem we ran into though is that our original business plan was, ‘Hey, let’s only get the hits!’

So we waited until a show was a hit, then we bought it. Well then a couple of our smaller competitors started trying to jump us in the market and try to buy before a show was even being produced, right? So then we had to start making some decisions early to avoid that.

And then streaming happened, then it was over without waiting for anything. We were buying shows before the first episode even came out. We’d have a deck this thin that says, here’s some pictures, an idea of what this show is, you’re gonna buy it for a million bucks.

That’s the deal that went down. And so we were buying shows off of nothing because you gotta simulcast it within a day after it hits Japan because within two days it’s on a pirate site. So you had to be out there.

And so we’re buying shows, like I said, on few pieces of paper. So then the title selection became all about first and foremost based on a manga because when you look at all the original programming that the studios have pumped out of Japan’s original content, a large percentage failed compared to a manga based title.

So a manga based title is four times more likely to succeed for various obvious reasons. The other thing is you still have genres that don’t work and a lot of ’em still don’t work like sports anime or period historic period pieces.

Now yes, there’s been breakouts in sports anime. Like finally there was one on volleyball, I think it was called Haikyu!! that broke out, but that’s rare. And like I said, historic period pieces, even Samurai period pieces, you think people would be into Samurai Anime, but if it’s purely historical without a sci-fi fantasy twist… It probably wasn’t gonna work.

Simpsons-like comedy, Family Guy-like comedy, idol bands… Huge money made in Asia off of girl idol bands and stuff, right? Can’t make a penny in North America with those. I don’t know why. So we don’t know why, but honestly, genre matters a lot in the title selection part.

And then of course, the other part two parts of title selection was politics. Meaning, oh, you want this hit, well let me introduce you to two of ‘her cousins’ over here. And so we’d have to buy all three titles to get the hit. The two cousins came with the package, so that’s title selection.

Another problem with the Japanese market that’s very different than Hollywood is that they’re terrible at, at the way they do sequels. They, they don’t do sequels. And there’s a whole bunch of reasons on why you’d think they would just keep pumping out sequels, but their structure doesn’t really allow it.

Full Transcript

DAVID E. WEINSTEIN: I want to start by talking a little more about your career and your history. One of the interesting things we were just talking about over lunch was that you’d started out in electrical engineering and were working for IBM at first.

I wanted to get a sense of why (even though) you’re already doing so well in that career. You chose to pivot and then come to Columbia Business School and maybe you could say a few words also on how that shaped you professionally.

GEN FUKUNAGA: Yeah, well I had Asian parents and my dad was an electrical engineering professor at Purdue, so I had a lot of encouragement to go down that route.

Of course electrical engineering from Purdue is great career, high paying jobs, jobs everywhere. But as I started working I realized that the very, very best people were totally passionate about their engineering.

So they would spend nights or even all nighters trying to figure out that new algorithm or try to come up with a way to get a few cycles outta that micro, micro microprocessor, for example.

And I spend my evenings reading business books and strategy and how to run companies. ‘Cause that’s where all my passion was. So clearly it was obvious to me that if I really wanted to be the top of the game, I had to follow my passion.

Which by the way, when we recruit people at Funimation, we talk about this all the time among the executives, is get the guy with passion, right?

And so, so I decided to make a hard pivot. I didn’t see a quicker way to jump into the business side other than getting an MBA and especially an MBA from a top school. Because a top school like a Columbia can immediately propel you into that kind of career. And it did, by the way.

So I got my MBA at Columbia, which did immediately propel me onto the business side. Accenture hired me, it is called Anderson Consulting. Back then we were their strategy group outta Manhattan.

So our entire competition was McKinsey and actually half our staff was from McKinsey actually. But, so we did that and I was right in the business side. Of course, they wanted to take advantage of my high tech background, so I was doing consulting at the, the C-suite level of high tech companies. So it immediately got me into that, into that side.

It was a very quick transition for me, which really helped me, like I said, dive right into my passion.

DAVID E. WEINSTEIN: I want to talk a little bit about your transition into anime per se. You, you founded Funimation in 1994, so about five years after you had gotten your MBA.

Then you came to helm the efforts to bring Japanese anime, your efforts were to bring Dragon Ball Z to North America. And I wanted to just talk about that transition a little bit, how did you get that started?

How did you start up that business and how did you know? You’re a person who’s kind of on that edge. Being born in Japan, but basically raised here from, I think it was the age of four or so. So probably culturally you’re very American, I suppose.

How did you get Japanese companies to be able to trust you so that you would be the person to do this?

GEN FUKUNAGA: Yeah, well, so at that time I was working at Tandem Computers in the Silicon Valley. They were a pretty big computer company by then.

What I started seeing was that I saw that Tadem’s future in the next three to five years started looking kind of bleak to me. You know, ’cause I had a lot of access at enough of a high level to see what was going on in the all of Tandem.

And so I decided, I gotta leave Tandem. The main problem basically with Tandem was, is that they made fault tolerant systems, but because to make them fault tolerant, they had a proprietary operating system, proprietary programming language, proprietary relational database.

And the entire computer industry at that time was shifting toward open systems such as Unix.

And so I started looking around for something else to do. I I’ve always been an entrepreneur all my life. So I said, I’m gonna go find a startup in the high tech industry.

I assumed I was gonna go work for a high tech startup. Sure enough, Tandem did have problems. And you know, they got bought out by Compact Computers who got bought out by Hewlett Packard. So they’re all part Hewlett Packard now.

I remembered, I lived a whole year in Japan in eighth grade. ‘Cause my parents, took the whole family, let us spend a whole year and I’d seen all this great anime and manga. Manga is Japanese comics. Now here I was in my early thirties and sitting there going, why isn’t that in the US yet?

I mean, the content is so great. And so fortunately my uncle was a well-known producer director in Japan on the live action side, not on animation.

So since I had that contact, I said, well, it’s not gonna be that hard to do a little due diligence. So I contacted my uncle, Hey, I’m thinking we should bring anime over to America. And so he started that relationship by introducing me to TOEI’s animation side and their US agents in Los Angeles. And that started a conversation.

By the way, my uncle was a producer director for some famous movies in Japan, like Power Rangers. So, so he had some clout over in Japan as well. So he just said, well, they have hundreds of shows. Which one do you want?

And I said, well, what’s your most successful one? And they said, Dragon Ball. I’m like, well, that’s the one I want because the genre really matched the US market, you know, an action adventure type of show.

And they immediately said, well, no way in hell. They were not gonna give a startup the Dragon Ball license rights to me. So, so it took nine months of pleading and trying to bribe them well not bribe, but offering license fees that were in the million range.

Here, we’re willing to license them for a million bucks, you know, and my uncle was pressuring them, giving ’em all sorts of gifts and from the Tokyo side, and eventually the agent in the US, all they were doing is eyeing the commission they’d get.

So they were pushing the Japanese side ’cause of the commission, and finally they said, you know, let’s just take the guy’s money. Anime’s not gonna work in America. Nobody in America wants anime. Let’s just take his million bucks and let’s go.

And so they did the deal, and that’s how it all started. Of course, I didn’t have a million bucks, so I had to raise seed capital. A couple million came from one single family out of the Texas area, the Kau family, who are still great friends of mine.

Also, my business plan was quite simple, which was hey, bring over a hit. If it’s not a hit in 12 months, I can go right back into the high tech industry.

I thought my resume was solid enough, I could just jump right back in. No big deal. Silicon Valley loves people at failing startups anyway. And I had that, but the business plan is simple.

Hollywood has two really big problems. One is on original content, things that aren’t sequels and such, they have no idea if it’s gonna be a hit or not, right?

And the second problem they have is it costs a butt load of money to make content. Right? And so I just simply said, okay, well then I’ll get rid of problem one. I’ll just take something that’s already been a hit.

And especially Dragon Ball had already crossed cultures and been a hit in multiple cultures, though, not just Asia. And then second, I’ll license it for 10 cents on the dollar. And so that’s how I did it.

And so that was the basic plan, and off we went. Then how did I get the trust? I think honestly, when a major studio like TOEI outta Japan gives you one of their major franchises, you get instant credibility in Japan. And so that gave us instant credibility.

Then when we made Dragon Ball one of the few original anime hits in America, our credibility shot through the roof. ‘These are the only guys that can make a hit in America’ kind of attitude, even though there’s one other hit at that time simultaneously called Pokemon that was working pretty well too.

And so those were the two. But the US company that took Pokemon went bankrupt because after they made a ton of money on Pokemon, they ran into other issues trying to do lots of new original content, and we didn’t go that route.

We kept buying anime. They didn’t, they wanted to start doing Americanized shows.

DAVID E. WEINSTEIN: I wanna just talk about the basic strategy about some of the legal hurdles and regulatory hurdles that you you faced. What were the challenges in kind of transporting Japanese property here?

What were the legal challenges that you faced in handling the ownership, distribution rights, things like that?

GEN FUKUNAGA: Well, on the legal side, there wasn’t a lot of friction because you have to understand by then, Japan had already been licensing their content to lots of Asian distributors.

They’ve done lots of third party license deals, and then titles like Dragon Ball Z, they were able to make it hit in Mexico, Spain, France. So they had licensing deals to those kind of countries.

There was a certain process and a certain contract template they used. So we were able to just go through that structure, which was a perfectly good fair deal structure. But really, there weren’t regulatory issues on the except for how censorship works.

But we can talk about censorship later in its own right. And so really at the end day, yeah, it wasn’t that bad, but the issue about the legal system once you’re in partnerships with the Japanese, is they don’t like lawsuits.

And when you’re doing deals and projects with these big companies, if something suddenly doesn’t work out the way they need it for political reasons, for approval or anything, it doesn’t almost matter what the contract says.

You know, you play ball or you get blackballed, right? So we were always known as the company that found a win-win solution and always worked it out, even though it was clear in our contract what the rights we had and we caved basically a lot of times.

Now, on the flip side, in 25 years as CEO, thousands of contracts we had with every major Japanese studio and that TV network and everybody out there that we did deals with, we have never ever been sued by a Japanese company. We’ve never even had to go to arbitration. We’ve never had to go to mediation ever during my tenure.

The legal part wasn’t the challenge, the challenge is TV distribution. In the US and everything at that time was based on Hollywood and had to be invented here, you better get on TV and get those eyeballs onto the show.

All these issues we ran into were a real problem for us in getting TV distribution at first.

And so that was really the main hurdle we had to overcome before Dragonball could be successful. And so, I remember pitching these program directors at all the major television networks and the syndicators and all this and the responses we tended to get were very much about it not being invented here.

Hollywood thought they’ve made the best animation in the world. Hands down, nothing can compete. But also we got lots of comments like, well, this Dragon Ball Zs serialized, it’s like, you can’t do a serialized kids show.

It’s gotta be episodic where each story ends on its own. You can’t continue the storyline each episode. Kids don’t have that kind of patience in America. They don’t have that ability to follow a series.

So they said, there’s no way Dragon Ball will succeed because of that. Another comment we often got was, wait, your characters actually grow up, get married, have children in Dragon Ball Z, what the heck is that?

Do you ever see Donald Duck or Mickey Mouse change at all? Oh my God, this is a definite failure. You know, things like that. Even the fact that they said, you can’t call the name Dragon Balls, you know, like, well, it’s not Dragon Balls, it’s Dragon Ball Z.

He goes, no, no, no Dragon Balls. I’m like, no, it really is not about Dragon testicles. Take my word for it, right?

This is Dragon Balls. Well you gotta change the name, whatever. And so those are the kind of things I heard all the time from the programming people. But eventually, and remember, we’re going into these pitches with data, right?

Like, we’re like, yeah, but it’s now generated $3 billion of revenue overseas, not just in Asia, but in France, in Mexico, in Spain. You cannot tell me this is not a cross-cultural hit wonder. And they went with their gut feeling. So basically all the Hollywood people I talked to went with their gut feel that they were smarter than the data.

And so, so eventually though we did get it on syndication when Haim Saban brought it into syndication. And if you know what TV syndication is, that means you gotta go literally city by city selling each individual TV station to give them, give you a time slot, right?

And at that time, kids TV stations were buying individual shows for Sunday morning and, and afterschool time blocks at the time. But, Heim Saban is famous for bringing Power Rangers from Japan to America. So he kind of understood the concept of bringing Japanese content to America, obviously.

And so he, his syndication group took it out. The kids syndication market right at that time was completely collapsing in the US but we had no choice ’cause we had no other options.

All the TV networks had rejected us, everyone. So we went to syndication, even though the market was collapsing, we showed that it was a popular show, enough that Cartoon Network picked it up. And once Cartoon Network picked it up, the rest is history.

It exploded in the US market with Cartoon Network and it was off to the races. And then honestly, from a challenge point of view, it still exists like 30 years later.

The main challenge we still run into that I ran into from the very beginning is the Japanese salaryman style, structure and culture in Japan really prevented a lot of innovation and fast-paced nimble business because in the entertainment industry, you’ve gotta be moving like lightning, right?

And so all the products that had to go through Japan for approval, all the marketing programs had to go through Japan for approval. And, so things would get stuck all the time. Like either never get approved or like I have a deal on the table that I just helped. All I did was do the intros.

So I’m not financially part of it, but I introduced them like it’s been five months. They haven’t even even, approved the concept yet to allow them to make this ice shaker drink cup.

You know, they’re like, it’s just a drink cup with Dragon Ball pictures, come on. You know, like it’s five months, they haven’t even approved it or anything.

And that’s kind of thing we run into and that they just are very not rock the boat kind of attitude in the management of these companies. They leave millions and millions and millions of dollars on the table because of that, that same culture is still there.

And another classic example that just happened recently is NFTs. So NFTs hit the market, we said immediately thought, well we should be in NFTs anime’s, perfect for it, non fungible tokens.

Well, Japanese wouldn’t approve it as always. Well, which other major studio is approved? Well, nobody has, well then we’re not gonna be first.

And so, and we’re like, yeah, but there’s no risk because, you know, with NFTs, we were just gonna license it to a third party and they’re gonna give us a check up front for the rights. So we’re gonna get millions of dollars in checks.

And if they fail, they’re the ones that eat the money, not us. We just got mailbox money. So we’re just gonna keep millions of dollars. They have to do the marketing, they have to make the NFTs, everything’s on their burden, and yet the Japanese just wouldn’t approve it.

And the whole NFT cycle is probably death right now, passed anime by completely without making a penny out of NFTs. So that’s the kind of thing we’re I’m talking about.

DAVID E. WEINSTEIN: So I wanna just follow up on one thing that you said about the Cartoon Network being, one of your big breaks, at least initially. How did you make that happen?

GEN FUKUNAGA: Yeah, so honestly Cartoon Network was a small network back then, and they weren’t really that powerful back then. So you gotta understand where they were.

Cable was new-ish at that time, you know, cable channels were starting to come on board. So honestly, I think they saw some of the foothold we got from the syndication situation. And they contacted us because there’s one guy, who was a big Dragon Ball Z fan inside the programming group of Cartoon Network.

And he pitched it hard inside his company to go pick up Dragon Ball. So they contacted us and we said, well, yeah, we think Cable’s growing and you guys are still a pretty small coverage of the US market, like half of the US households back at that time.

But, you know, let’s do this together. And we did. And we grew. They grew because we grew. We grew ’cause of them. So we both grew together in a sense. And, it was great relationship.

Those guys were wonderful.

25 great years with them. They’re a great, fantastic group.

DAVID E. WEINSTEIN: I wanna talk a little bit about something I mentioned in my introduction, which was your ownership of the company.

Funimation was sold in 2005 and then six years later you purchased it back and then sold it again in 2017 to Sony Pictures. Could you tell us a little about the history behind that, why you sold it, bought it back, how it all worked out?

GEN FUKUNAGA: Well, we took that initial couple million seed capital. We actually never had another equity round and we never took a penny of debt in the company.

So, we were a one round company and then by 2005 we had decided that we were, we, we were literally making like 80% of our revenue through home video, right out of Dragon Ball. And a lot of it was through home video.

And so even though there’s hundreds and hundreds of episodes of Dragon Ball, we saw eventually how many releases with Home video we had left in the next couple years.

We thought, well, we have a couple years of Dragon Ball releases and yeah, we’re buying all these new titles like YuYu Hakusho and Fruits Basket and all these great shows, but we just were worried about the Dragon Ball side.

We decided we’d better sell the company at the top of our game. And so we put it on the market and we sold it the public. We had several bidders, but we sold it.

So we got a 62 times return on the invested capital in that company. And then I stayed on as CEO, it was part of a Keyman deal where they wouldn’t buy us without me signing up as a Keyman.

So they did that, but then corporate entity Entity bought us, started running into other financial issues because they were a company that all they did was pick, pack, ship and warehouse product.

They took somebody else’s product, pick, pack, and shipped it to Walmart, Costco, Sam’s Club. And so it was a super low margin business, right?

A middleman business. And so they decided, well, we need to make more margin, we’re gonna go into the content vertically, integrate up into the content, right? And so, so they bought three entertainment companies in a row. We were the third.

They successfully bankrupted the first two. And so we were the last one left.

And then some activist shareholders jumped into the company and said, what are you doing with an anime company? Go back to your logistic roots, your a logistics company.

Go back to that focus only on that.

And so they decided they would sell us. The reason it took so long for me was to convince them they need to sell us. ‘Cause I was trying to convince ’em from the inside, like, you know, either I’m outta here soon or you’re gonna have to sell us anyway.

And so I had optical problems getting rid of us. And so the activist shareholders forced it and they were choking me off because they were taking all our cash flow.

So I needed to get outta there, put it on the market. At that time, the DVD market had started to collapse in the US and we still made a lot of our money off of home videos and so off of DVDs.

And so what happened was that a lot of acquirers liked this, but wouldn’t pay a high enough high price for us. And so I saw a great opportunity to do a management led buyout, gathered a couple friends, we went in and bought it out as management. So we did management, led a buyout of a couple of friends.

I bought it for one fifth of the price. I sold it to that company for the one fifth. And then we grew the company and I sold it for 11 times higher than the equity we put into the buyout to Sony Pictures in 2017.

So actually it was a two tranche deal, 11 x on the first tranche, and then they made me keep five more percent and it was 20 something x on the second tranche, so for the last 5% of the company.

DAVID E. WEINSTEIN: I wanted to hear a little bit more about some of your other successful partnerships such as Universal Pictures, Hulu, Crunchyroll, like how have you made these connections and made these mutually beneficial contracts?

GEN FUKUNAGA: Well, of course we were known at the top, there was really only two competitors at that time, right?

Crunchyroll and Funimation. I mean, the other studios were dabbling, but they had gone into the market and then had pulled back out of the market like Warner Brothers, Sony, Disney.

Universal was a home video deal. So what was happening was the home video deal was crashing, like I mentioned. We felt scale was very important in Home Video and Universal had one of the best home video platforms in America.

So them, Disney, Warner Brothers were the three best at that time. And so we did the deal because we rode off of their contracts to get better cost of goods sold.

We were able to drop our costs of packaging and punching out DVDs and Blu-Rays, right? So we rode their volume contract on that. That helped margin.

But the real thing that helped us was that we saw their scale forced a certain pricing within the retail market. And that was critical. ‘Cause when we sold to Walmart, they would nitpick us and talk about it, you know, and change the pricing on us and discounted us.

‘Cause we weren’t a big enough studio and all this stuff, but Universal scale, they said, Hey, if it’s a new say movie, let’s take an example. New movie release, all new movie release. Here’s a wholesale price no matter what it is.

So we got the same wholesale as when they were releasing Jurassic Park, the movie, we would get it the same for our stuff.

And so that literally popped our margins, our wholesale price by 25% wholesale price. And that was a phenomenal deal for us.

Put way extra margin in on our bottom line both on the cost and the price side. And that was a great deal. Still a lovely deal.

Wonderful Partners, they actually were one of the people interested in buying Funimation. When we went to the block, when Sony bought us, Hulu was a situation of Capital. So what was happening in the time at that time was that a couple 800 pound gorillas suddenly aggressively entered the anime market.

They were called Netflix and Amazon Prime. They both jumped to the market hard. And Netflix started bidding two times the amount we were bidding for every show on all the A titles. They didn’t want any of the lower titles, the B titles, you know, we were a volume shop as well as a hit shop.

But on the hits, they wanted to beat us no matter what. So they were just doubling the price against us. And Amazon was even bidding 50% higher on the price too. And so we were getting a little concerned, honestly.

And then on top of everything, to compound insult to injury to us, Crunchroll got bought by Warner Brothers and they started backing them with more cash to compete against Funimation. So we thought we were in a big squeeze problem. One of the reasons we sold the company actually the second time.

And so we saw a great partnership opportunity at Hulu where we wouldn’t cannibalize our streaming platform with their streaming platform with the way we structured the deal.

But they were gonna give us a lot of capital to copy each title. The hits anyway. They only wanted the A’s as well. They didn’t care about the b’s.

They paid at least half of the price each time, but they got a later window than we did on streaming. They got a limited number of shows so that they couldn’t do the volume game against us. And so it was a great partnership that we had with Hulu.

Then we did the deal with Crunchroll because still we were killing each other for all the other shows that were on the market outside the As.

And so we realized all we were doing is beating each other up and making the Japanese really rich.

They approached us and they said, we need to do a joint venture and let’s copy titles. And here’s how we’re gonna split the market.

You’re known for subtitles, we’re known for dubs, let’s split subtitle, dubbed in English type of strategy. And that was the approach we took. But a really big motivator for them was that Warner Brothers had decided they were gonna bet big on a new platform platform called VRV.

Does anybody remember VRV at all? Okay, couple of you. It was supposed to be a multi-channel internet play. Like they were gonna be the Comcast of internet.

They were on the internet. They were gonna have multiple channels.

So you sign up with one subscription fee and you get all these channels, you got Crunchroll, you got Funimation, you got this, you got that, you got mostly content centered around Geek culture at the time.

And so they’re doing a multi-channel thing. They were really focused on that, which is one of their motivations. They approached us ’cause they really wanted us to be a channel on there. And that was a big initiative from corporate for their side.

So we thought it wasn’t gonna hurt us because they were willing to pay us a lot of money, promise a lot of money for getting on the channel structure… But we didn’t think they would be big competition in the future because we saw several major flaws in their business plan that we thought they’re not gonna overcome.

Now if we were wrong and their business plan worked, we were screwed. So it was kind of a bet in that sense too. But sure enough, as you know, VRV collapsed since then and it no longer exists. It didn’t work, which we knew was gonna happen.

But, that’s also why we were willing to do the deal with somebody that was a direct competitor.

DAVID E. WEINSTEIN: A lot of Americans know anime as an important manifestation of Japanese culture. And it’s kind of a window into a different country that most Americans will probably never go visit. I seem to notice one big difference between us and Japanese cartoons is that us cartoons tends to be about innate talent.

You know, you have some superpower and Japanese cartoons tend to be about working hard to achieve a goal. And it’s not about who you are, it’s about what you do.

I kind of want to get your sense of how does anime helps generate understanding about Japan and how has it affected international perceptions of Japan?

GEN FUKUNAGA: When we started Funimation, Japan didn’t have much influence on the pop culture side of America. Obviously they had influences on electronics and cars and things, but not pop culture. And so anime really introduced Japanese pop culture to America, I think.

And now it’s permeated enough that I doubt there’s a person under 35 that doesn’t know what anime is. At least if they don’t watch it themselves or if they don’t watch a lot of it, they probably almost certainly have a friend or relative that watches it.

They certainly know influencers that may admire or watch it. ‘Cause there’s a lot of influencers, you know, NFL stars directors and producers and Hollywood star talent that like anime. And so you’re seeing changes in American animation now.

The art style has changed using a lot of anime art style, if you’ve noticed, especially in action adventure shows you’re seeing with live action.

A lot of the concepts that were used in anime have shown up in many places in American Hollywood. So, because a lot of people were influenced, I mean even in the early days, people like Josh Whedon was influenced and he made a, a show called Serenity that was basically Cowboy Bebop. And he talks about it, so it’s not a secret.

I think that’s pretty cool how anime is permeating culture and I think the US perception of the Japanese culture is maybe they’re not as stoic as we all thought Japanese are.

You know, after you watch enough anime, you’re like, huh, these are a weird group of people. I mean, they’re out there! (laughs) No, I’m just kidding. But they’re, not all stoic.

But anyway, I think that’s the influence. Has anybody watched the US Open recently here, right in your backyard? No, not a lot of sports fans, I guess.

Well, you know, a woman on the women’s side of us, an American won the US opens women’s, when they were interviewing her on center court right after the semi-final win, Pam Shriver was asking her, ‘Hey, what are you gonna do now that you going to the semi, going to the finals? What are you gonna do in the next few hours? ‘

And Coco Gauff said, ‘Watch some anime!’ And then there’s applause in the audience. She goes, ‘No, literally, I watched four or five episodes of My Hero Academia before I played today!’ So, you know, it’s influencing things. Right.

COLUMBIA UNIVERSITY AUDIENCE QUESTION: Did you lose your passion for anime or do you still continue enjoying this side of your business?

GEN FUKUNAGA: Well I enjoy both the business side and the anime of course. And actually the entertainment industry in general is a really exciting field. And so, no, there’s no passion lost in that in that at all.

That’s what I’m good at. So, you know, I mean, I’m gonna try to stick to my knitting as much as possible, I guess

COLUMBIA UNIVERSITY AUDIENCE QUESTION: Why did you leave or what contributed to you retiring at Funimation?

GEN FUKUNAGA: Well, so after I sold the company in 2017, the Sony executive structure doesn’t give any equity. It’s a salary position with bonuses of course, but it’s a salary position. And honestly, after cashing out twice in the company, I really didn’t need to work for a living anymore! (laughs)

So, I didn’t want a regular job day-to-day grind, so I told them, I promised them two years at most before I retire because I wanted to start doing my own things at that time.

I wanted to be my own boss like I was for 25 years. So, I only promised them two years and I gave those two years.

COLUMBIA UNIVERSITY AUDIENCE QUESTION: In the early days, in the fan community there was fan subs, there was a lot of like bootleg, VHS kind of things… Even Crunchyroll started as a not completely legit site.

How much did that kind of thing change, your assessment of the demand for anime in the US?

And how much did it change how you thought that it could work as a kind of legitimate business instead of just this kind of under the table VHS tape kind of thing?

GEN FUKUNAGA: Well,I mean, look, piracy in the content industry is rampant no matter what, no matter what area you’re talking about. And yes, it was a big problem, especially with streaming, right?

I mean, not really, not when it was in the VHS or DVD days because no legitimate retailer would buy a title if it’s pirated. So you didn’t see pirated stuff on Walmart, Amazon, Best Buy.

So almost all our revenue came from the big retailers anyway. Yeah, you could go to Chinatown and find it, but it was irrelevant. Streaming though, that was a problem because there’s a lot of illegal streaming and even today, by the way, within 24 hours of any release, it’s on a pirate site right now.

So it changes your business model obviously, but a lot is still focused on the industry. You know, don’t break the law, you know, buy from a legitimate source and all that. But yes, you still lose a lot to piracy.

Now one could argue in the early days of anime it actually helped create the market though streaming. ‘Cause it finally gave national exposure to a lot of genres.

Remember on the TV side, they were still pretty much only focused on action and adventures for male audiences. That was it, you know, that was our silo. And so, you got exposed to all sorts of other genres which work now in anime.

DAVID E. WEINSTEIN: Currently AI is the new buzzword, it’s having a big impact in a number of different areas.

And I’m just wondering how the whole anime industry is navigating the impact of AI? Is AI created art affecting the quality of the productions? What is it going to mean for the future of the industry in five years?

GEN FUKUNAGA: I think AI’s not gonna do the heavy lifting in the creative for a long time. It’s not gonna write your whole script. It’s not gonna direct the show.

So that heavy lifting on long form content is a long ways away. So it’s really gonna be more used like a tool that assists you along the way. For example, it could start outlining a story for an idea you have.

It gives you the first draft outline or whatever. You still have to have a lot of good writers come in on. After that, maybe it’ll start saving you costs and things like doing the backgrounds for animation or the in-betweens, which are between a key frame of animation.

There’s in-between animation, it could maybe do something like that, which tend to get outsourced to China anyway right now.

So there’s things that it might do to help reduce costs. There’s things it’s gonna do to help generate ideas for the writers and the directors, but actually doing the heavy lifting? It’s a ways away, I think.

Now the quality of the images it generates, the problem isn’t that the image quality isn’t good. Anybody with a computer can make great images. It’s the other stuff, the creativity of directing it, the camera angles, the lighting, all these creative things is, yeah, it’s not AI’s thing.

The other thing AI could be good at though in content is taking a lot of data and trying to figure out what the traits of a successful piece would look like.

For example, I think one of the best business plans right now out there that I’m willing to invest in, for example, is where the content isn’t that high quality anyway.

Like YouTube doing a lot of YouTube shorts, trying to bring all that big data in, trying to figure out what all the right traits are that make people watch.

Why certain videos get over a million views. And then copying those traits and, and having the AI try to as much generation for as cheap as possible on short form content. So that’s a business plan I could, I could invest in, for example, in AI.

COLUMBIA UNIVERSITY AUDIENCE QUESTION: Why do you think that American audiences in particular have adapted so fast and started watching anime in such high quantities?

GEN FUKUNAGA: Yeah, so in the content industry, at the end of the day, it’s content is king, right? So content is king, which means great storytelling, engaging characters.

And, and so what I think happened with anime is not only did it push the envelope and break the mold in many ways, like Dragon Ball Z did for a kids show… Especially for a kids show, it definitely broke the mold, right?

I mean, back then most of the animation was Roadrunner and Bugs Bunny and things like that. Your action shows might be something like He-man at that time, right? And, and Dragon Ball Z was way more aggressive, way more sophisticated, you know?

And so things that break the mold do sometimes last long if the underlying content is good. It can break out into hits like Dragon Ball, it helps them.

But the reason I thought anime was gonna be around for a long time… When we did the business plan and we stuck with anime, we decided we’re gonna really stay on anime and not make our own kids shows or adult shows on our own or do anything like that. Because at the end of the day, overall in the world, there’s nowhere more competitive than in Japan with animation in the anime industry.

So it’s the similar concept to why does a little small country like Canada keep producing so many good professional hockey players, right? Well, it’s because all the athletic talent in America goes to football and basketball and then maybe baseball. Hockey not kind of…

While in Canada, the social cultural pressures, a lot of people go toward hockey and so therefore they have the best talent. There’s the culture for it, the societal pressure.

Well that’s the same in anime and Japan, a lot of the creative talent, they can get rich just drawing a manga in their garage, right? And they do get rich doing that.

And if you only have to have one hit, and then the best of those get published by the big manga companies. Like, and so there’s this huge pyramid to get to the top.

So you got all these people with lots of talent taking shots at the market, which then get picked up by the publishers and get wide exposure because in Japan, comics actually sell enough units to make a difference on a national level versus America.

And then only the top of those get turned into anime. I mean, only a fraction of manga get turned into anime ’cause it’s very expensive to make. And so now, you know, you’re getting this content whittled down, whittled down to that.

So they generate both quality and volume of content because there’s plenty of cultural and societal and infrastructure there to pump out phenomenal content. Content is king.

They’re constantly pushing the envelope in Japan for the next new cool legacy youth. So why do you think we, some of our shows like Ouran Host club became a hit?

Like who would sit there and say, ‘Let’s make a show about a bunch of guys that want to create a host club to introduce people to their high school so they can meet girls’.

That was a hit or Yuri on Ice, another hit, about two males that decide they’re gonna be a couple in figure skating and compete as a couple, of course there is the whole LGBTQ angle as well in there. And then that was a hit.

So, you know, people are creative in anime, you have to be because it’s so damn competitive that you gotta do something right. And that’s why anime is gonna continue crush in the content area. It’s just that, that that infrastructure is gonna cause it.

DAVID E. WEINSTEIN: I actually wanna ask a question which came from online from one of the registrants who asked:

Looking back, what do you think made Dragon Ball Z so successful in the United States?

How has un animation’s strategy in choosing anime evolved over the years?

And how has the company’s approach to localization changed from when you first started the company in the nineties?

GEN FUKUNAGA: Yeah, that’s a big question on the title selection. I spent a lot of time on title selection all 25 years.

Well, first of all, Dragon Ball’s easy success is because of some of the things I said. At the end of the day, content is about great story development and storytelling and great engaging characters. Clearly Dragon Ball has that.

So, we knew we had the content that was there and the foundation was absolutely there. And so second thing I already mentioned was it pushed the envelope, right?

So because it pushed the envelope lot, it had a lot of buzz worthiness because all the kids talked about it. Like, did you see that on the kids time slot? Like, look, they’re beating the living crap outta each other.

It’s kind of cool. Lots of great martial arts, all that kind of thing.

Then another thing of course is that we got TV distribution on Cartoon Network. That was obviously critical in making a success. And then the final thing that’s made it both a classic and nostalgic, is that it’s still a great current title.

It has a lot of episodes, and having a lot of episodes is gonna make a big show if the underlying content is very good in terms of title selection. So that’s evolved over the years quite a bit.

At first it was just male action adventure, usually with a sci-fi or fantasy twist that was important. And sci-fi and fantasy are still a very important part of most anime.

But as the fan base grew, the demographics changed, females came into the market. The demos got younger and younger. So we pretty much made 95% of our revenue from 18 to 34 year olds.

Now there’s enough of a segment that’s over like 15 to 18 year olds that are actually into anime. Then if you go to the anime cons that are all over the US you’ll probably see 45% of the audience is female now that comes to the conventions.

So demographics changed, which then obviously made our title selection change. ‘Cause now we could go broader, we could buy shows like Fruit Basket and Ouran High School Host Club and those kind of things.

The problem we ran into though is that remember our original business plan was, ‘Hey, let’s only get the hits!’

So we waited until a show was a hit, then we bought it. Well then a couple of our smaller competitors started trying to jump us in the market and try to buy before a show was even being produced, right? So then we had to start making some decisions early to avoid that.

And then streaming happened, then it was over without waiting for anything. We were buying shows before the first episode even came out. We’d have a deck this thin that says, here’s some pictures, an idea of what this show is, you’re gonna buy it for a million bucks.

That’s the deal that went down. And so we were buying shows off of nothing because you gotta simulcast it within a day after it hits Japan because within two days it’s on a pirate site. So you had to be out there.

And so we’re buying shows, like I said, on few pieces of paper. So then the title selection became all about first and foremost based on a manga because when you look at all the original programming that the studios have pumped out of Japan’s original content, a large percentage failed compared to a manga based title.

So a manga based title is four times more likely to succeed for various obvious reasons. The other thing is you still have genres that don’t work and a lot of ’em still don’t work like sports anime or period historic period pieces.

Now yes, there’s been breakouts in sports anime. Like finally there was one on volleyball, I think it was called Haikyu!! that broke out, but that’s rare. And like I said, historic period pieces, even Samurai period pieces, you think people would be into Samurai Anime, but if it’s purely historical without a sci-fi fantasy twist… It probably wasn’t gonna work.

Simpsons-like comedy, Family Guy-like comedy, idol bands… Huge money made in Asia off of girl idol bands and stuff, right? Can’t make a penny in North America with those. I don’t know why. So we don’t know why, but honestly, genre matters a lot in the title selection part.

And then of course, the other part two parts of title selection was politics. Meaning, oh, you want this hit, well let me introduce you to two of ‘her cousins’ over here. And so we’d have to buy all three titles to get the hit. The two cousins came with the package, so that’s title selection.

Another problem with the Japanese market that’s very different than Hollywood is that they’re terrible at, at the way they do sequels. They, they don’t do sequels. And there’s a whole bunch of reasons on why you’d think they would just keep pumping out sequels, but their structure doesn’t really allow it.

But that’s gonna be another five minute conversation to be honest with you.

DAVID E. WEINSTEIN: I wanna finish with one question, just kind of addressing the audience. Do you have any advice for our business school students and or just students in general about what they should bear in mind?

GEN FUKUNAGA: Well, I mean, there’s a lot of topics in running a company and running an anime company, but I don’t think there’s anything particular I can think of about there.

But for your recent grad… I know a lot of this audience is graduating undergraduate or graduate school of business, so I probably don’t have a piece of advice that you guys probably haven’t heard from a lot of smart people, honestly.

But, but you know, I mentioned some like follow your passion, that’s important. I think one of the things my dad taught me when I was really young is work where the smartest people are. You know, you’re gonna learn so much from the smart people around you.

Another thing that a lot of executives told me, even when I was way back in college was ‘Follow the Money’. Meaning that if you’re gonna go work for Funimation, try not to work in their home video division… Try to work in their streaming division, which is growing 50% a year over year, home video is slowly dying.

So follow the money within that company. I think people over overemphasize compensation, which I don’t think is the right thing to think about when you’re that young.

And I think people don’t interview their managers when they’re coming into a company, they’re just happy to get an interview. But really, look to see if your manager is good and what their track record is. Is it amazing? Because that’s the person that has more experience and will teach you a lot.

And that’s the person that’s gonna drag you up the chain when they get promoted quickly. You’re gonna get promoted quickly too and when they jump ship to a hotter company, they’re gonna take you with ’em. You know?

So those kind of things all helped my career, honestly. And, and then from an entrepreneurial perspective, I think, let’s put it this way, we do a lot of venture capital investing and one thing we do not do is invest in a 20 something year old or 32 year old founder that has no other people surrounding him on his team.

So there’s just no way, no matter how smart you are, I don’t care if you’re top of class at Columbia at 32, you don’t have enough experience to know how to run a company. So if you’re trying to be an entrepreneur and found a company at 32, you had better have a partner or COO or whatever that has a lot of years experience in that exact silo of that industry.

Otherwise, there’s no chance you’re gonna get a sophisticated investor or a venture capitalist, any good investor really. That’s for sure. You can get friends and family maybe. A

And one big thing I learned at Tandem (Computers) that I never got out of business school at Columbia, that I thought I think they should have taught more of is… Sales and negotiation.

I think it should almost be mandatory class if you’re going through an MBA program. Negotiation and sales class.

You just use it for everything. It’s just like everything, you know, you gotta learn that. You can’t just learn every technical thing of how to read spread, you know, counting statements and this, or five forces theory here or whatever.

You gotta know that side the business. And the biggest, one of the most important things about that side of the business is also the politics that are involved in that.

So Jimmy Treybig, the founder of Tandem, taught me when I was in my twenties, he goes, ‘You know, we’re selling 10 million, 20 million computer systems. And a sales guy would come to me and says, damn, I just lost that bid to Lockheed ’cause of politics!’

And his answer to that salesman is, ‘Every big sale is politics. That means you didn’t read the room, right? You didn’t do your due diligence, you didn’t do your homework.’

Every deal is politics! And so that’s something he pounded into my head when I was young, and believe me, he’s right!

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