Why Hollywood has long ignored a multi-billion-dollar global fandom.
“No media company has figured out how to make premium movies or TV shows significantly more cheaply. In fact, competition has driven production budgets even higher. Ultimately, these costs are paid by viewers.”
Matthew Ball, VC & Media Strategist
In the world of business strategy Red Oceans represent the known market space across industries and derive their hue from the intense competition that leaves rivals bloody in the business battlespace. In this cutthroat environment, products either become commodities or niche offerings, since a competitive advantage can only be gained via either a low cost strategy or a differentiation strategy.
Blue Oceans, on the other hand, represent the unknown market space across industries. In this environment, competition doesn’t exist because demand has to be created and captured rather than fought over.
Blue Oceans result from pursuing both low cost and differentiation simultaneously. This is called Value Innovation. By pursuing both low cost and differentiation, a company can create a new, uncontested market space.
And while lowering cost structures while adding new, often premium, benefits is tricky it’s not impossible. For example, the Nintendo Wii altered the gaming landscape by simplifying the hardware requirements in its consoles, which lowered the per unit cost to make them. And by differentiating itself with a novel wireless motion control stick, Nintendo was able to carve out a new family-oriented Blue Ocean market and avoid a bloody Red Ocean brawl with PlayStation and Xbox. And Nintendo continues that dominance with the Wii’s offspring, the Nintendo Switch.
The question then becomes, is it possible to pursue a Value Innovation strategy and carve out a Blue Ocean market in Hollywood?
Hollywood’s Production Cost Problem
Hollywood has a cost problem. We call it the Inverse Production Law. It goes like this: as production costs for VFX-heavy content rises, narrative risk-taking falls (see image below).
For example, big tentpole films take few narrative risks in an effort to attract big audiences. The problem is, once you’ve seen one comic book movie, you’ve pretty much seen every comic book movie.
Indie films, on the other hand, can take big narrative risks since the cost to make them is comparatively small. The problem is, you can’t get the epic fantasy worldbuilding and amusement park-like fun you experience with event films.
Historically, this dynamic has forced audiences into a choice: epic fantasy worldbuilding and watered-down narratives or deeper narratives and little-to-no epic fantasy worldbuilding.
But what if there’s a hidden multi-billion-dollar global audience out there obsessed with stories that feature both epic event-style worldbuilding and deeper, more mature narratives? That would represent a significant opportunity for Hollywood.
There’s only one problem: the Inverse Production Law. In its current inefficient state, Hollywood simply can’t do both, it’s too risky. And these obsessive fans of deep genre content are left adrift to seek other avenues and platforms to engage with their favorite content.
The Obsessives
So, who exactly are these obsessive fans? We call them, otaku.
Otaku is a Japanese term for people obsessed with computer tech and certain strains in pop culture - most famously anime, manga, and gaming. In the West, these obsessives are mistakenly lumped into the geek or nerd category. The term, otaku, was used, until recently, as a pejorative in Japan, similar to how the terms geek and nerd were used in the U.S. decades ago. But over time these obsessives began to self-identify as otaku, even co-opting the term as a source of pride. Again, similar to geeks and nerds here.
But otaku are different from geeks and nerds. While the underlying behavioral traits are similar, geeks and nerds are usually associated with highly intellectual non-mainstream, niche pursuits. But there is nothing niche about the gaming and anime/manga markets.
The global gaming industry is a $175B juggernaut - about the same size as the global entertainment industry and North American professional sports markets combined. Meanwhile, the anime industry is a not-too-shabby $24B global market, which is over 2x larger than the North American movie box office. And while the gaming market is growing at a compounded annual growth rate of roughly 13% year-over-year (YoY) the overseas anime market (anime exported from Japan to the rest of the world) is growing at 23% YoY. For comparison, the North American box office grew at an almost imperceptible rate of 0.64% YoY from 2010 to 2019, exclusively from increases in ticket prices.
Oh, and the United States is the number one importer of anime.
Just how popular is anime in the U.S.? A day after the release of its second episode on March 27th of this year, The Falcon And The Winter Soldier, Marvel’s latest MCU gambit on Disney+, became the most popular show on any SVOD platform. What show did TFATWS dethrone to take over that top spot? Attack on Titan, a 2D anime series imported from Japan. Is it any wonder then why Netflix, Sony, and Amazon are going big in this arena?
Yet, there’s still a perception among many in Hollywood that otaku content is niche. This is most likely due to the fact that the few otaku movies Hollywood sporadically releases typically misfire at the box office, where Hollywood’s attention has historically been focused. These misfires occur because studios water-down the narratives to compensate for the high production costs, thereby alienating otaku audiences. Blame is then misdirected toward either lackluster demand or small market size. In fact, it’s just the reverse. Otaku audiences in Hollywood suffer from a supply problem not a demand problem.
Here’s a graphic that shows how we view otaku.
We already touched on the more familiar anime/manga/gaming otaku, but what about graphic novel otaku and deep sci-fi/fantasy otaku? How do they fit in the mix? Well, think of graphic novels as the West’s version of manga (and vice versa), whereas cyberpunk and dark fantasy are examples of deep sci-fi and fantasy subgenres.
This is where things get interesting and why we decided to label this audience otaku. For decades now, game developers, filmmakers, writers, and artists on both sides of the Pacific have been inspired by each other’s work, creating what amounts to a cross-pollinating genre feedback loop. For example, cyberpunk is a sci-fi subgenre created in the U.S. but heavily influenced by Japanese culture. So then, what is Akira? It’s anime/manga, sure, but it’s also cyberpunk. Bayonetta and Vanquish are video games not only highly inspired by anime and manga but also deep sci-fi and fantasy. Berserk is a Japanese manga and anime series that takes place in a medieval European dark fantasy world. Monstress is a brilliant American graphic novel series that’s almost impossible to pigeon-hole genre-wise. It takes place in a seamlessly integrated Asian-themed early 20th century art deco sci-fi/steampunk high epic dark fantasy world.
In other words, the walls between these genres simply do not exist for this audience.
And where do Hollywood studios and other content companies fit in this otaku landscape? In the graphic below, we created a matrix that separates content companies into movie quadrants (for simplicity’s sake) based on budget and audience size.
Broadly speaking, the bigger the budget the broader the audience required to recoup negative (sunk) production costs. As you can see, we’ve listed some examples of companies that specialize in these quadrants. They pretty much live there. The major studios on the other hand sprinkle films across genres and quadrants. The upper left quadrant is the big Event and 3D Family quadrant. The lower-left quadrant is self-evidently nonviable. The lower-right quadrant is the Indie and smaller budgeted studio release quadrant. And, finally, the upper-right quadrant is the otaku quadrant.
That's the quadrant that craves both premium-level epic fantasy worldbuilding, typical of the Event quadrant, and more mature character-driven narratives, typical of the Indie quadrant.
As you can see there is no company in Hollywood dedicated to or specializing in creating premium-level content for this quadrant. Not. One.
This is the Blue Ocean we’ve identified.
The Real-Time Solution
If you’ve read our previous blogs, you can probably guess what the solution is to Hollywood’s Inverse Production Law problem: game engines, virtual production tech, and agile & lean principles.
Game engine-powered virtual production, when married to agile/lean, can solve three issues simultaneously: 1) it can drastically reduce production costs, 2) it can maintain premium quality worldbuilding, and 3) it can preserve nuanced narrative storytelling.
We’ve already spent a lot of time in our previous blog series on the cost benefits of marrying game engines and off-the-shelf virtual production solutions with agile and lean methods, but what about “nuanced narrative storytelling”?
In the live-action world, the subtleties and nuances actors generate from one moment to the next during a performance stem from two sources: the words they have at their disposal and the choices they make in the moment as they listen and react to their scene partner. Those choices are informed by a balletic combination of an actor’s intentions, their mind/voice/body, and their movement through space. Remove, limit, or otherwise obstruct any one of these inputs and a barrier is erected between an actor’s impulses and the character they are playing. And that’s exactly what happens in the animation world: actors do not have access to the full range of creative tools they enjoy in the live-action realm.
Virtual production, however, connects the live-action and 3D animation worlds by allowing actors to access the same creative toolset - and by extension depth of feeling - they use in the live-action world and by empowering animators to better interpret the full range of an actor’s performance. This dynamic points to a new method of genre storytelling: live-action animation.
This is what is so exciting about real-time virtual production. Virtual production not only puts VFX back in the shot but also injects an actor’s real-time creative choices into 3D animation. What does this mean? It means writers can write epic animated fantasy stories at the same level of depth and subtlety they do for premium live-action films or SVOD series.
And that differentiation, combined with the cost and efficiency benefits of game engines and agile, is what makes this a Value Innovation scenario.
Bringing It All Home
Game engine-powered virtual production, working in tandem with agile, not only drastically reduces production costs but also allows the live-action world to merge with the 3D animation world, creating a differentiated experience for audiences. This is the definition of Value Innovation, which is the key to unlocking Hollywood’s hidden multi-billion-dollar Blue Ocean otaku market.
We are at the dawn of a new era in genre storytelling. With real-time technologies, we can write, act, direct, build, and animate right up to the limits of our imaginations. Perhaps beyond.
And this is precisely what otaku require of us: premium-level fantasy worldbuilding anchored in deep, nuanced, character-driven storytelling.