Crunchyroll president Rahul Purini on how anime took over the world
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Today, I’m talking with Rahul Purini, the president of Crunchyroll, a streaming service focused entirely on anime — and really, the biggest anime service still going. Rahul has a long history with anime: he spent more than seven years at Funimation, a company that started in the ’90s to distribute Dragon Ball Z to US audiences, before getting the top job at Crunchyroll.
Anime might seem like niche content, but it’s not nearly as niche as you might think — our colleagues over at Polygon just ran a huge survey of anime viewers and found that 42 percent of Gen Z and 25 percent of millennials watch anime regularly. And Crunchyroll is growing with that audience. Like most entertainment providers, the service absolutely exploded during the pandemic, going from 5 million paying subscribers in 2021 to more than 13 million as of last month. But, interestingly, Rahul says Crunchyroll’s growth isn’t being driven by more and more people watching anime, but by more and more anime fans — especially those watching pirated content — choosing to pay for it.
All streaming services have complex relationships with the people who make the work, but because anime is so tightly tied to Japanese anime studios and creators, Rahul has a unique challenge — you’ll hear him talk about the intricate web of license holders, production companies, and others that are involved in the global distribution of anime.
That leads to a lot of classic Decoder questions about decision-making, of course — there are a lot of people who get a say in what Crunchyroll does. And this episode might have the most complex answers to the Decoder structure questions we’ve ever had, because the company known as Crunchyroll, LLC today is part of Sony that was created over 30 years of messy media mergers and pure corporate chaos. The very short version is that Sony acquired most of Funimation in 2017, acquired Crunchyroll in 2021, and then merged the two companies together in 2022, with Rahul at the head of the new organization. You’ll hear us talk about it quite a lot, because it obviously colors so much of what Crunchyroll is now.
Rahul says that Crunchyroll is now in stable structure and ready to execute, but things still aren’t totally settled down. Earlier this month, Sony said it will be shutting Funimation down for good in April. Users aren’t happy, especially because it means some digital purchases will no longer be available. I asked Rahul about this, because the company’s official explanation was frankly unsatisfying, and he told me that the company is trying to make good by offering replacement digital copies on other services.
It’s a small thing here, but it’s part of a much bigger conversation the whole industry is having about whether the concept of digital media ownership means anything at all.
And of course, I had to ask Rahul about anime’s timeless debate: subs vs. dubs.
Okay, Crunchyroll president Rahul Purini, here we go.
This transcript has been lightly edited for length and clarity.
Rahul Purini, you are the president of Crunchyroll. Welcome to Decoder.
I am very excited to talk to you. Crunchyroll is a very interesting streaming service. All the big streaming services are going through some kind of convulsion. There’s something going on with the big streaming services. Crunchyroll is very small, very focused on anime. It seems to be doing very well. I’m very curious how you’ve managed to position all of that, and I’m very curious where you think it’s going, but I want to start at the basics. Explain to people what Crunchyroll is.
Crunchyroll is a media and entertainment company focused on serving a very particular audience, which is the anime fan. So anime, for your audience, is animation that’s conceived and created in Japan. It is a very dynamic storytelling format and has something for every fan.
When you think about that specific definition, “made in Japan” seems like the most limiting piece of that puzzle. Is that core to your definition of anime? Is that what the fans have decided it is? Where does that come from specifically?
The way we think about anime, we believe it is something that is conceived and / or created in Japan. And the reason we believe that is because when anime fans are asked why they gravitate toward anime, what makes it something so important for them, there are a lot of factors. But some of the few important things that they mentioned are connection back to Japanese pop culture, connection back to a Japanese way of storytelling, and the stories and the characters and the way the Japanese creators create and bring them to life. So for those reasons, we feel like for anime to be truly authentically anime, it has to have those things in it. And so that’s why we believe that it being conceived or created in Japan is something that is important.
Crunchyroll has a long history that we should get into, but there’s a connection to Sony, there’s a connection to Japan, the company’s built of mergers. There’s quite a lot in the background of how Crunchyroll came to be as a company. Do you maintain a corporate connection to Japan itself? Is that a core part of the company’s identity, or is it just, “We import Japanese animation to 12 million people in the United States?”
It’s a really important part of who we are. Like you mentioned, Crunchyroll is a merger of several companies that we’re all focused on this audience. All of them had one thing in common, though. They all had a really strong connection back to Japan and relationship back to the Japanese creative ecosystem in Japan. And we maintain that very much today. So we have fairly long relationships with the creators in Japan. We have a big team in Japan that works with that creative ecosystem day in and out. We are an ex-Japan business, meaning we don’t operate the service and our business in Japan because we have strong partnerships with partners that do that in Japan, but we have deep connections with that ecosystem and leverage that to bring anime to a global audience.
One thing that’s interesting about this — and I just want to poke at this a little bit, and then I want to talk about the actual structure of the company, which is fascinating. Most internet services are inherently globalized. They are inherently flattened culture. You look at the Spotify charts around the world, and it’s like a mishmash of different cultures coming together. Often American culture dominates and various countries around the world have strong feelings about that. But that’s most platforms, they tend to be flat on the global level and especially at scale, they tend to flatten everything.
You’re very specific. “We’re going to go buy animation in Japan, have a connection to those creators, and we’re going to bring it over to this market. And that is a service we provide.” Do you feel any pressure as you think about growth on that core conceit? Because most other platforms, they look at growth and then whatever that specificity is tends to go away in service of growth as fast as possible.
The advantage for us is there is so much opportunity for growth, even just being focused on this one cohort of audience, if you will, the anime fan. We have research that shows that there’s about 800 million people that are anime aware, anime interested, and watching anime outside of China and Japan. So that’s a huge [total addressable market]. So for us, we feel like there’s opportunity to grow and continue to grow, even being singularly focused on this audience. So we don’t feel the pressure to expand. We say we don’t want to be something for everyone. We want to be everything for someone, and that someone for us is the anime fan. So what we are focused on is making sure we serve that fan holistically across their touch points for their fandom.
That relationship makes sense on the export side, right? There’s a culture of creators in Japan. You take their work, you pay them for it, you go and take it to the large audience outside of Japan in various ways. You meet those fans where they are. Does that go back the other way? Do the needs or wants of the fans in the United States come back to the Japanese creators, or is there influence in that direction?
Absolutely. So one of our value exchanges with the creators in Japan — what we commit to do that we uniquely bring to them — is that data back. So we have, over the last 25 years or 28 years depending on which company, built relationships with fans in these regions across the world. And while anime fans have a lot of similarities across the globe, their preferences, what they watch, how they watch is slightly different in each region.
And that’s the data that we spend every day understanding, drawing insights from, and taking those back to our creative partners in Japan, either influencing what shows they tell, how they tell those stories, and sometimes what we are investing in and co-producing with our partners in Japan. Because sometimes certain stories might not be something our partners might be able to create and produce primarily for the Japanese audience. So we step in and invest with our partners because this might be something that we believe strongly for our audience internationally. And so we take that step and co-produce with our partners.
That’s really interesting. Can you give me an example of something that you stepped in to say, “There’s an audience outside of Japan that’s worth it, here’s some money”?
Actually there’s a show that we just launched in January called Solo Leveling. It’s a show based on a Korean manhwa. Our team had read the manhwa, liked the IP, and so we actually took it to our partners in Japan — one of our sister companies, actually, Aniplex — and co-produced the show with them. We announced the show about a year and a half ago and we released it in January, and it’s been really well received by fans across the world. And so that’s one example where we co-produced a show that we brought to the table based on what we were hearing from our fans.
That’s amazing. That is globalized in sway, right? You go find a Korean IP, you have an audience for it somewhere else, you bring it to a Japanese studio. You talked at the beginning about fans really appreciating the inherent Japanese quality of the work. Do you have any safeguards against, “Okay, this process might actually make this less Japanese, less the thing that our customers are asking for”?
Yeah, it is definitely something we pay a lot of attention to. We definitely believe that anime fans globally want to experience stories that are from across the globe. That is one of the biggest things that attracts them to anime is the diversity of the stories, the diversity of the genres. So we do believe in taking stories that are global and producing anime out of it, but doing it in a certain way that they’re still authentically anime. So we work with creators and even with IP holders so that the IP could be presented in such a way that it is still authentic to the original story, but also authentic to how anime creators would tell the story. So our producers are very focused on making sure that that authenticity still comes through.
That’s a pretty good sense of what you’re trying to accomplish. You’re trying to bring stories to a certain class of creators and then you’re trying to take the anime that they make out to the world. That feels like the main business, right? Streaming video and the inputs and outputs of streaming video. Is that what Crunchyroll is? You described it as a media and entertainment company. Do you have other businesses or is that the main one?
The streaming business is our single biggest touch point back to our fans, but it is one component of what we call our flywheel approach. Like I said earlier, our entire emphasis is making sure that we are providing amazing experiences for our fans across their fandom, all of those touch points. So streaming is the biggest part of that, but we also are into games. So we bring games that are based on anime IP or anime style to our fans. We have an e-commerce business where fans that are collectors or want to buy stuff that is from their favorite show have the opportunity to do that.
We are into theatrical, so we bring movies to theaters across the globe for our fans to experience their favorite shows on the big screen with friends and family. We are into consumer product goods and collectibles as well. So yeah, we are a full media and entertainment business serving our fans across all the channels that they would like to exhibit their fandom in.
You call it a flywheel. Many media companies want to have a flywheel. I think Disney has the most famous flywheel of all, right? You watch the movie, you love the characters, you go to the park, stand up on a cruise, you watch the next movie, you buy a hat. It works, that approach really works. Where’s the biggest source of growth for you in that flywheel? Is it growing new customers, making new anime fans, or is it existing customers buying more merch? Are you going to do theme parks — you should do theme parks — or is it the extensions of the existing customers?
Yeah, so we don’t have theme parks, but some of our IP is in theme parks.
Hey, if you do a theme park, you let me know. I get a piece of that.
Absolutely. So right now, like I mentioned, there is a huge audience of existing anime fans. So we are focused on making sure that those anime fans know about Crunchyroll and can engage with their fandom and experience anime within our ecosystem. So that’s our first priority and our sole focus, if you will. We’re not focused on reaching out to fans or consumers that are not aware of anime and introducing them to anime. That is maybe in the future. But today we are focused on taking this huge audience of anime-aware, anime-interested fans and bringing them into our ecosystem.
Different components of the flywheel play different roles for us. Streaming and games, for example, play both the top of the funnel, meaning these are channels that will bring new people into our ecosystem, given just their size and reach they can play that role. But they also allow us to retain our subscribers and our fans in the ecosystem for a longer period of time. Whereas other channels like theatrical and e-commerce are ways for us to extend that connection with our customers, with our fans, for a longer period of time. Add value in multiple ways, if you will. So those tend to be more an LTV play for us, so lifetime value, whereas if you think of subscription or games, they play both.
I’m looking at some numbers from our sister site, Polygon, which just ran a gigantic survey of anime viewers and their habits and what they think, and here’s what jumped out to me. Forty-two percent of Gen Z watches anime regularly compared to 25 percent of millennials. Thirty-nine percent of Gen Z anime fans identify as LGBTQ+, 17 percent over the age of 18 are Black, which is fascinating. Twenty-three percent of Gen Z is Black. Netflix is the dominant player here. According to this data, 75 percent of fans watching anime are watching Netflix. But when it comes to Gen Z, it’s like 58 percent of Gen Z is on Crunchyroll. So you have a much younger audience than Netflix.
Is that how you grow to overtake Netflix? The piece of the puzzle that you’re talking about where you’re like, “We’re not trying to make new anime fans, there’s a lot of them. We’re just trying to win with what we have.” It seems a little bit in tension with Gen Z is picking Crunchyroll, because that’s the new base of fans. So how are you initiating the younger audience to your service compared to Netflix, which seems kind of like the default for everyone?
Yeah, so Netflix is ubiquitous, right? They’re in every household. The Gen Z audience obviously is watching anime on Netflix, but they’re also watching anime on Crunchyroll more so than any other demographic, like you said. Our value proposition to them is the depth and the breadth of content we’re bringing to them. They get anime, great anime, on Netflix that gets them interested in that, but if they want to go broader and deeper — watch a broader set of genre stories — Crunchyroll is the destination. That’s what we are bringing to the table.
So once you’re a fan, a casual fan, and you want to try more, you come to Crunchyroll. So that’s why we also work with our partners that are in general entertainment that have broad reach, whether it is Netflix or Hulu or Amazon, to help reach this audience, engage them, and then we have the confidence that when they want a deeper experience, they’ll come to Crunchyroll.
Is that something you think about in conversations with the Netflixes and the Amazons of the world? Not many people think of Netflix as the discovery platform for their service. It’s usually the other way around. But is that how you think about it, “Okay, Netflix will initiate an anime fan and if they become a slightly more intense anime fan, they will arrive at Crunchyroll?”
We absolutely do. In all our conversations with our partners, that’s something we do. For example, Netflix launched One Piece, which is a live-action TV series that was based on a popular anime show, and we definitely saw fans coming to Crunchyroll to watch the One Piece anime. And we see that not just from other streaming services. We see that when we launch games or when we release a movie in theaters. It creates conversation within our audience that then drives them into the Crunchyroll ecosystem to watch those shows or adjacent shows or similar shows.
I’m looking at the number here. It says you have a little more than 12 million paying subscribers. How much bigger do you think that can get?
We actually announced at CES that we are past 13 million paying subscribers.
So like I said, the [total addressable market] is huge. It’s over 800 million people across the world outside of China and Japan. Every time I’ve estimated what the size of this business could be over the last eight years, I’ve underestimated it. So we think there is definitely potential for several times more in terms of paying subscribers globally. We are focused on making sure that we grow this globally. So I think multiple times where we are right now.
Let me ask you the Decoder questions, and then I want to talk about how you might grow. You’ve described a very complicated business. I feel like I could ask you to just describe the structural history of Crunchyroll, and that would be the rest of the hour because it is so complicated. But just right now, Crunchyroll, LLC exists. It is part of Sony, it’s affiliated with Sony. You have events, you have merch, you have the back-and-forth flywheel with Japanese creators. You have a lot of growth to do. How is the company structured right now?
I’ll go back to what I said, which is at the core, we want to be a company that is focused on being everything for that anime fan. So we’ve structured the company on that principle. So we have business units or lines of businesses that are focused on creating these experiences for fans. So those are groups of people that are focused on those unique experiences. So we have a team that’s focused on streaming, we have a team that’s focused on games, e-commerce, theatrical. And then we have functional teams that go horizontally, supporting all of those lines of business or business units.
That creates a matrixed organization for us, where we have business units that are focused on those consumer experiences, and then we have functional groups that are focused on supporting those business units horizontally. And that structure extends globally for us. We have teams in each of the regions focused on serving audiences in each of the regions, but reporting to the global groups. We are not structured by region, we don’t have P&Ls by region. We have one organization that’s a global organization, and these teams manage businesses globally with team members in each of the regions.
I always think this is, for an entertainment company, one of the hardest kinds of questions to answer. Because you take one piece of IP, that’s the core — it’s a show or a movie — and the streaming team is going to go find it, they’re going to buy it, they’re going to bring it to the audience, they’re going to market it. But then to extend it to merch, some other team is going to show up and do something else with it. How do you maintain the quality, the soul of the actual work, as all these different teams in different regions run with it in different directions?
And actually the other thing that I would add to that complexity for us, specifically, is we work with our Japanese partners and the way the moral laws are structured in Japan, the Japanese creators have a lot of control in how their IP is distributed, marketed, and things like that. So we have a lot of work that we have to do where we have to go to our creators in Japan and get approvals for marketing campaigns, assets we create, and things like that. So that creates another set of complexity.
So what we’ve done is we’ve created a team, we call it a brand management team. It’s a team that’s focused on managing an IP or a title across its life cycle. So they get involved, there’s one or more individuals assigned to each IP whose job it is to understand the content, build a relationship with our partner in Japan, and then come up with the strategy on which cohort of audience within our overall audience does this show appeal to, how do we market it, and how do we market it across each of the channels and how do we bring it to life in each of our business groups, if you will.
So obviously it’ll start with streaming, but then if you’re thinking about consumer product goods or e-commerce or games, they become the continuity. They become that centerpiece that manages the IP throughout the life of that. That gives us the consistency to ensure that we are treating that IP in the way that our partners would like to be handled.
How big is Crunchyroll? How many people do you have right now?
So we have about 1,200 people globally.
As you think about structuring into those different kinds of teams, how big are those teams?
Some of the functional teams are our biggest teams. So our product and engineering team, given that the majority of our touch points with our fans are digital in nature, that’s our biggest team — about a third of the company. Our localization teams, because we are not only just taking this content with the Japanese audio and subtitling it into 10-plus languages, we are also dubbing it into 10-plus languages. And so we have teams that are focused on localizing, and we do that in-house for most of our territories. So that’s another big team. Our business groups are fairly focused teams. So they’re not the biggest of the teams within the organization, but they bring the focus that we need them to bring for each of those touch points.
I am going to talk about the history of Crunchyroll here. I have a timeline that our producers prepared for me open on my screen. It is a full-screen document on my 27-inch display. It is just a lot. The history of this company stretches back to 1994 with the launch of a service called Funimation, which existed just to license Dragon Ball Z. Crunchyroll was a user-generated content site for a minute. There were some piracy concerns. It merged, AT&T is in the mix for a hot minute, now they’re gone. Sony buys Funimation and then they buy the rest of Crunchyroll. There’s a very complicated M&A story in there. I’m just making it as simple as I can.
You get promoted to president in 2022. In 2023, you launch your free linear channel. There’s a lot going on there in the background. Just a lot of M&A activity, a lot of different corporate cultures showing up and disappearing, a lot of literal corporations disappearing. This version of Crunchyroll is only four years old, three years old, 2020. Do you think of this as a new company? Are you trading on that long corporate history? How do you maintain this culture of a company that is built out of that much M&A activity?
Look, I think we are a combination of legacy and history and experience from all of those companies. We have people that have been part of some form of this company for about 20-plus years. There’s a lot of team members. So we are a combination of all of that legacy and experience, but we are one Crunchyroll. So when we did the largest merger recently, in 2021 that you said, when we put Funimation and Crunchyroll together, we very intentionally said, “We are going to be one brand, one team, and one service, and we’re going to be Crunchyroll.”
That’s because we recognize the complexity of putting two companies of that size together and the work that we needed to do to get to a very cohesive culture. That was the starting point. It’s a work in progress. Two and a half years in, we are through a majority of that integration. I think we are very much one Crunchyroll now, but there’s still ways of operating that have come together from those different companies and we are still working through that.
That would be very simple if it was just Crunchyroll. There is a Sony in the mix. There’s Aniplex, you already mentioned, your huge production partner in Japan in the mix. How does that all work? How do those relationships work?
Technically, Crunchyroll is a joint venture between Sony Pictures Entertainment and Aniplex, which is part of Sony Music Entertainment Japan. But both of those companies are wholly owned by Sony Group. So we are essentially part of Sony Group. We operate independently, but we are consolidated into Sony Pictures Entertainment for the purposes of financials and reporting and things like that. But it’s been a great place for us, when we were Funimation and now as Crunchyroll, because Sony is a Japanese company and has history and has been in anime for a long time, both in Japan and globally. They think very long term, strategically and long term.
All of those things have helped us. In addition, as I said, we are part of Sony Pictures Entertainment. As you know, they’ve been in the business of taking content from America and taking it to global audiences for over 100-plus years. There is a tremendous amount of experience and expertise and infrastructure within Sony Pictures Entertainment. All of that is available to us to tap into as we grow this. So it’s been really a great place for Crunchyroll to land and focus on the growth given the support we’ve seen across the board.
Land is an interesting word. It’s almost a perfect word. As the structural plane landed for Crunchyroll… I’m looking at this, I got some of the dates wrong because you announced the combination with Funimation in 2020, and it took a year to get regulatory approval for the merger. This is just a noisy corporate history. There’s no other way to describe it. There’s a lot of things that happened. Is it done now? Is this the company? Do you feel stable, like you can go attack the growth? Or is there more corporate shuffling to come?
We feel like structurally we are in the right place. We are in the right holding company so that we can go attack the opportunity that’s in front of us. Will there be potential inorganic opportunities to add to our current growth? Yes. And would we pursue them when they make sense? Yes. But I do feel like we are in the right place. We have the right structure to focus on our future.
You mentioned it’s all one Crunchyroll now. It’s been three years since that deal. You’ve said it’s the right holding company at the right time, but there’s some cost to all this change. Crunchyroll just announced that the digital libraries that Funimation customers had purchased will be affected by the rollup into Crunchyroll, and some of those purchases will go away. Why is that happening?
Just to set some context, Nilay, this is, at Funimation, what we used to call digital copies. So for our customers that bought our physical home video collectible sets, we added an add-on to those collectible sets where they could redeem a digital copy within the Funimation platform so that they could have access to a digital version of that same show.
That was a feature that was built into the Funimation platform. And as we look at usage of that and the number of people that were redeeming those and using them, it was just not a feature that was available in Crunchyroll and isn’t in our road map.
And so as we announced the sunset of Funimation, the users that had bought those physical home videos will not be able to have access to the digital copies on the Crunchyroll service. I will say these are customers that we value a lot, and we are working really hard directly with each one of them to ensure that they have an appropriate value for what they got in the digital copy initially.
What is an appropriate value for what they got in the digital copies?
It could be that they get access to a digital copy on any of the existing other services where they might be able to access it. It could be a discount access to our subscription service so they can get access to the same shows through our subscription service. So we are trying to make it right based on each user’s preference.
So you might give people digital copies on other services entirely to make up for what they’ve lost?
If that is what they prefer.
Do you have those deals in place? Have you been offering those things to people yet or is that to come?
As people reach out to us through customer service, we are responding and handling each of those requests as they prefer.
You’re making it seem like a small thing, and it might be a small thing with a small number of customers. It is a huge problem in the world of digital media, right? That it doesn’t feel like purchases we make of digital media are actually purchases, that they tend to go away. This has come up, not just for Crunchyroll, but for Sony writ large recently. There was a huge outcry against some Sony digital purchases going away for PlayStation customers, and Sony had to walk that back. Why does this keep happening? Why should anyone trust a digital purchase?
I think it’s a really good point, Nilay. I think as customers buy stuff, make it a transaction, there is an expectation that, similar to the physical world, that they own the copy. But given how digital ecosystems work and how new these ecosystems are and how the terms of service of these ecosystems are set up, it is definitely something that is evolving.
The adoption, the evolution of the ecosystem and the digital media itself is what I think is creating this confusion. We acknowledge that it is not the most convenient thing for the customer. So we’re trying to do right by the customers while staying focused on being able to create an experience for our overall global audience and keep our resources and teams focused on what would help us bring the best experience for the broader audience.
Do you trust digital copies? Would you spend money on a digital purchase from any of the services in the hopes that that stays your property, or not?
I’m in this business so I understand what the terms of service are. I know that while it is a transaction and I get access to it, the terms of services are really clear on most of these platforms, that it could go away depending on what’s happening with the service. So I understand that, but I also know that I’m in this business and I have an understanding of these terms of services, and that might not be the case with a broader general audience.
Consumers don’t read terms of service. Would you recommend to consumers that they spend money on digital purchases?
It’s a preference thing. I do have digital copies because I prefer to have access to them outside of a subscription service. And it’s also immediacy, when I want it. So there are use cases where I would say yes, I would definitely recommend it for customers depending on what the use case is. But they should understand what they’re paying for and what is guaranteed in that transaction.
So here’s the big Decoder question. You’ve described a lot of things you’re trying to do, a lot of growth you have yet to achieve, you’ve hinted at organic growth. Maybe there’s other stuff you want to do. Coming out of all this, how do you make decisions? What’s your framework for making decisions?
I think of it a couple of different ways. I have my leadership team, we call it the senior management team, which is a combination of leaders that run those business units I mentioned as well as leaders that run the functional groups. So that team, we have a mindset of “first team” where we believe we are the first team. All of the leaders in that team act with that mindset where we are focused singularly on the objectives of the company. And so that’s a big part of our decision-making framework, if you will, meaning we start with what’s right for the company, what do we do in terms of achieving our objective.
And then there are a couple of other frameworks we bring to bear. One, there’s a framework we use, which is a variation of RACI that we call OVIS: own, veto, influence, support. So one of the things that we’ve spent time over the last couple of years is to get clarity on who owns the decision, which team or which leader owns the decision, and we hold them accountable as they make that decision, where do they get input from? Who do they allow to influence that decision? How do they communicate the decision? Who needs to support it?
So that clarity has been really helpful, being able to publish that for each of the important decisions to the entire organization, so the entire organization knows who owns it and how they can influence it. That’s been really helpful. The other mechanism that we use is the traditional OKR process. So we use the objective key result framework to make sure that we are focused on what we need to be focused on, and we publish that on a six-month basis and we use that to hold ourselves to our priorities. So the combination of those three things have helped us be nimble, move with agility, but also stay focused.
The way you describe that, that’s very tech company. We have OKRs, we have a RACI framework or a riff on a RACI framework. I could walk into Google with some of those structures and at least fake it for a while. People would figure out that I wasn’t supposed to be there, but I could fake it for a while with some of those structures in mind. But you run a media company. You run a media company that has to protect Japanese culture because you have a Japanese parent and there’s Japanese laws, moral rights for artists that protect the culture because your audience inherently wants the product to be reflective of the art and culture of Japan.
Traditionally when these kinds of cultures interact, bad things happen. Tech company cultures plus media company cultures, bad things happen. I think that’s historically true, at least in this country. Like Hollywood and Silicon Valley, they don’t speak the same language at all. How do you manage that conflict inside of Crunchyroll?
A couple of things I would say. One is that singular focus on that audience has been a real helpful mechanism to hold all of those competing groups that you talked about in a place focused on the same thing. So we ask ourselves what is right for the audience and also what allows us to stay true to our North Star, our mission, our purpose. And that’s a big way we hold those teams to making the right decisions, number one.
Number two, data and being analytical in our decision-making has been another thing. Whether you are a creative- and content-focused team, whether you’re a product- and engineering-focused team, whether you’re a digital marketing or performance growth teams, data and data-supported decision-making is baked into our culture and that’s been another way we’ve been able to make all of these teams work together in a good way most of the time.
You’re saying it’s not perfect, but most of the time—
It’s not perfect, but we try and these things help.
When you think about the product side of it, there’s an argument out there, and I think a lot of the big streamers — the Paramounts and the HBOs, what have you — thought that, “Okay, video streaming on the internet is a solved problem. We can go buy some products, we can roll up some other people’s products, we can put a streaming service out in the market and it’ll be fine.” And some of them succeeded and most of them realized they needed to make a vastly larger investment into the product.
You said one of your biggest teams was the engineering side of the company, the product side. Do you think that video streaming is this white label thing you can go off the shelf and what you’re building around it is experience? Are you still working on the core, “We’re streaming video on the internet, we’ve got to solve that problem every day?”
We’re still working on it. I don’t think that problem is solved. There are a lot of components of the streaming stack that are built out that you can take and are continuing to evolve and you can leverage, and we do the same. Whether it is cloud-based components or open-source components, we leverage those because that gives us the ability to get to market quickly and do this more efficiently. But we don’t believe it is a white label, OEM, “take it off the shelf, put your brand on it, launch it and you’re done” kind of thing, which is why we are investing in that product and engineering team and continue to focus on improving that experience.
The other thing that I would say is consumers don’t differentiate between Netflix and other general entertainment services and Crunchyroll and what they expect from those streaming services. From their perspective, they’re paying for a service and they have a benchmark on what that service should be, and they expect the same from all of us. That also requires a constant investment in innovation and keeping up with the technology, but also consumer expectations on what they want their streaming apps to be able to do. That’s the other reason we continue to invest in product and engineering.
And finally, I think as an anime-focused company, we also believe that we need to and we want to provide a purpose-built experience for our fans. Otherwise, they can go get these shows anywhere else. And so that’s something we try to bring to our streaming experience as well, in terms of learning how our fans want to consume their anime as part of a streaming service, and how do we make that better and how do we make it more uniquely an anime experience.
Do you think about things like interface design, the interface of the app should reflect that this is anime more? Do you have designers who push it too far and then you’re like, “Well no, everyone knows how Netflix works. It’s got to look more like the familiar thing”? Is that a tension that you have to ever make a tradeoff between?
Yeah, it is definitely something we think about when we think about UX, when we think about search, when we think about even something as standard as video player options, right? Because one example I’ll give you is that anime fans like to watch their shows as soon as they come out. And most of the time when the show comes out, it’s only available subtitled and a couple of weeks later the dub is available. And we find that fans watch shows subtitled, and then they go back and watch shows dubbed, but sometimes they switch in between.
And so giving them the ability to switch and experience it within their current environment is definitely something that they prefer. And also in the subtitled [version], how they engage with subtitles is also very unique. So all of those things we think about when we say we want a purpose-built experience for anime. Yes, we do push on the UX and the UI. We test and learn, we make mistakes, but we try to improve and make it more authentic to the anime experience.
I need to ask you, president of Crunchyroll, subs versus dubs.
It depends on where I am, my context. So sometimes I’m watching while I’m doing something else. Dubs are right for that. Sometimes I want to have a conversation with my 14-year-old about a new show that’s out. I go watch the subtitles so I can engage in that conversation with her. So for me it’s about the context.
When you say they engage with subtitles in a different way, what specifically do you mean?
For example, it depends on if they’re watching it on their phone, how they want to position it, what color and size, which is very expected. But then also when they’re watching it on a big-screen TV, what do they want it to be? In addition to that, because this is primarily Japanese content, you have a lot of text on-screen that’s embedded in the animation, in the visuals, and so we provide a way for fans to be able to have those translated on-screen as well. And so that is a custom subtitling capability we provide, and fans get the ability to turn those on or off. Because sometimes it could be very busy, sometimes fans love it. So we give that flexibility for fans to do that.
You mentioned phones. We went and asked a bunch of Crunchyroll anime diehards in and around our company what they wanted me to ask you the most. This is the number one question: They say the apps on mobile are buggy and crash a lot, and they’ve been like that a long time. Do you have a road map for fixing the mobile apps? Because it seems like the number one thing people wanted me to ask you about.
Yeah, so we definitely are focused on it. We have teams very focused on both our iOS and Android apps. We have been releasing updates very regularly, and I expect your team members will notice that those apps are getting better and better every day.
How often do you file bug reports? My dream is if I ever end up running a company with an app, just give me a custom button that has a bug report button on the first screen, and I’ll just file them all day long. Do you file a lot of bug reports?
A lot? I don’t know. I do file them. I am an engineer by training, so I came through engineering organizations and product organizations. So I still like to spend time within the product and share my feedback back to the teams. They appreciate it sometimes, they don’t sometimes, but I do it fairly often.
One thing I think about a lot in the context of streaming services in particular is the platform situation for smart TVs is basically chaos. Samsung runs Tizen. A bunch of companies, Sony included, run Android TV. You mentioned iOS. Apple TV runs tvOS, which is a riff on iOS. LG runs webOS. Just down the line, it’s chaos. Every different corner of the ecosystem runs a different operating system. That’s a lot of cost.
You have to maintain a lot of different apps and a lot of different operating systems in a way that on phones or even desktop computers, you have two, just fundamentally two. And even on desktop computers, you might just be deploying to the web and you really have to think about Chrome. On TVs, it’s just all over the place. How do you manage that complexity?
For us, it becomes a prioritization activity. Like you said, it is an investment we know we have to make. So we look at it as a prioritization activity where we look at where is our audience, what are they using to engage in their entertainment choices, and how do we serve most of them with our investments? So we use that to prioritize. So is there one framework and one code base that we can develop and deploy multiple times?
So that’s one. Automation is the other thing. Building frameworks, building automation into our [continuous integration and continuous deployment] pipeline also gives us some efficiency into how we publish these things and how we test and release these things. So it’s a combination of those things. We have to invest, it does take time and effort. We have to have focused teams, but then it’s just a question of where we put those resources so we get the biggest bang for the buck.
What’s your priority order of TV platforms?
We are on Android, we’ve been on Android TV platforms for a long time. We are on all of our console, gaming consoles as well—
That’s even more platforms. Okay.
More platforms, yeah, because there is a huge overlap between gaming audience and anime audience, and anime fans wanted to experience anime through their consoles. So we’ve been on all the PlayStation devices, Xbox, and even also on Nintendo Switch for a long time now. So on the TVs, we just announced that we are going to be releasing our new Samsung TV app. So we are, again, focused on region by region in terms of our TV apps.
So is that a decision that comes up to you? “Alright, we got to make the investment in Tizen because Samsung sales in North America are through the roof, and we need to be in front of that audience?”
Usually that’s a prioritization activity that our product and engineering team makes every day. It comes up to me when it requires more investment than we budgeted for or a change in priorities that might impact one of our major initiatives. That’s when it comes up to the leadership team to weigh in on.
When you think about that product, you’ve got a bunch of apps on people’s TVs and the fundamental way to feed that product is to go and license a bunch of content for it. There’s a real connection there between the data you’re getting out of the apps on different people’s TVs, maybe on their phones or their game consoles, the regions they’re in, and then what you go and buy. You’ve already talked about that. Do you find that there’s a different pressure from the game console audience versus the people who are using the built-in apps on a smart TV versus the mobile audience?
The game console audience and the TV audience maybe not so much, but we do find different behaviors, viewing patterns, preferences between our mobile audience and our large-screen format audience. Because I think it all comes back to context and what they’re doing, where they are, and what they’re watching. More importantly, where we find the difference is that different regions have different preferences. So we see if you’re in India, you’re into action and adventure and sci-fi, whereas if you’re in France, you’re more open to slice of life or more artistic shows. So that also influences our content strategy in terms of do we have enough variety to serve all our regions and if so, where are the gaps and where do we go invest or ask our partners to invest in? Things like that.
The reason I’m curious is I’m wondering if you ever buy anything specifically for mobile phones, because that seems like a thing that big media companies have talked about for a long time and that user-generated platforms have figured out, right? YouTubers and TikTokers, they make content for mobile phones. Everyone knows that that’s what they’re doing, but we have never really seen the big IP holders say, “We’re buying this because people over here are going to watch it on their phones.” Has that ever crossed your mind? Is that something you’ve ever done?
We look at it, it hasn’t been the case for us yet. Yes, there is a show that we will greenlight knowing that the majority of the audience will be on mobile, but it’s typically not that, “Hey, we are buying this and it’ll only be for our mobile audience.”
I want to talk about broadly the dynamics of the whole streaming industry now, because Crunchyroll is very special inside of that whole bucket of things. The big streamers, at least in the United States — the Netflixes, the Maxes, the Paramounts — they’re all contracting, they’re all limiting password sharing, they’re all introducing ads. They’re just trying to get more money out of maybe a fixed user base. And it feels like they thought everyone would buy every service and that never was going to pan out. And now maybe you’ll buy one and a couple ancillary services, and that’ll be it.
Crunchyroll is not that strategy, right? You’ve never aspired to be the first subscription. It’s always the second subscription. How do you think about your growth in that world? Would you add ads? Are you just trying to grow the number of total subscribers? Would you have tiers of quality? How are you thinking about that kind of segmentation that we’re seeing the big streamers all do?
You’re right. We’ve always known that we’re not going to be the only subscription service for our fans. We are going to be number two or number three. We currently offer tiers in our service, but they’re all within our subscription streaming service with no ads. And we differentiate them in a couple of different ways. One is product features, like you talked about: simultaneous streams, number of downloads for offline viewing is available or not, number of downloads, quality of streams, things like that.
The other approach we have also taken is the non-streaming benefits we provide in each of those tiers. So, for example, on our second tier we offer e-commerce benefits. On our third tier, we offer access to special events and access to consumer product goods like swag bags and things like that. So for us a combination of both streaming features as well as non-streaming benefits is how we’ve structured our tiers.
We feel the same pressure that our general entertainment partners are feeling in terms of churn and focus on retention. It is a huge priority for us because fans are making choices in terms of which streaming service to keep, especially if you are number two or number three or number four. And so we work really hard on making sure that we provide value both within the streaming service, through the content we are bringing, but also beyond the streaming service.
We launched a benefit within our streaming service that we call Crunchyroll Game Vault, which is a set of free-to-play mobile games that are available to our subscribers. So if a subscriber doesn’t have a show that they’re watching right now, we are offering them other things that they could be doing as part of their membership.
Do you think the streaming wars, for lack of a better term, do you think they played out the way anyone expected them to? Because it seems like the audiences all knew, “Hey, this doesn’t feel sustainable, I have to sign up for 95 streaming services to watch 94 shows.” But the companies themselves all thought, “This is great. We’re going to take back our distribution and we’ll have a direct relationship to the consumer and if we all run the same playbook, it’ll work out.” And there was always a tension there. Do you think that that tension was ever adequately realized by the industry?
I think the tension was always expected to show up. It was just a matter of time because when it was one or two players, it didn’t play out. And now when you have so many players and there is a fight for the consumer’s attention and share of wallet, it’s starting to show up more. I still think it’s early days for streaming. I think there will be paradigm shifts that will happen because of this exact tension and the messiness that the consumer is finding because they don’t know which show is where.
That’s all going to get addressed, in my mind. For example, we’re noticing it from our fans, they have a hard time managing all these services. So we just launched Crunchyroll as an a la carte channel on Amazon Prime, as an add-on to Amazon Prime. And we are not only finding that we are attracting a set of audience that we weren’t able to reach before, but we are finding that audience prefers that experience because they have one place they can go to get all of their entertainment subscription services. It’s easy, convenient. So I think that will continue to play out because it’s not working for the consumer either. And I think all of us will have to figure that out.
You just launched a free ad-supported channel, a FAST (free, ad-supported streaming TV) channel. That’s what my analyst friends in the industry call it. It’s a good acronym. A lot of people think that that is the future. Not only does it already feel like we just went back to cable with how many services we have to buy, but now the future is turn on a grid guide, open a channel on Tubi and there’s some ads in it and it’s free — which is all totally back to the future now only with a lot of technology in between. But you have a FAST channel on so many services. Does that feel like an ancillary thing? Does it feel like that is where consumers will default to, that’s where you’re going to initiate customers? How are you thinking about that then?
We definitely think that it is another channel for us to connect with audiences and bring them into our ecosystem. We don’t believe that will become the primary way the audience will engage with us. The reason being twofold for us. One, we have a very large catalog and, like with every other entertainment service, discovery is a challenge. And so especially when a new fan comes in or a casual fan comes in, knowing what to watch is a challenge.
And so what we are trying to address with our linear channel is that curated experience. So we are able to curate an experience that we know will appeal to a new anime fan, and once they’re interested in that, they can come into our VOD service to have a deeper experience. So part of the objective is to curate an experience that we can use to bring people into our ecosystem.
Part of it is also that we know that there is a segment of our audience that is not ready to be a paying subscription user, and we want to still continue to build and maintain a relationship with them. That’s why we have a wide component on our service. There is a small portion of our catalog available for free, ad-supported on our service, and this is just another extension of that. So for those fans that are not ready to be paying subscribers, we want them to continue to watch anime, engage with it, and we want to build a relationship with them. So the FAST channel allows us to do that as well.
With the ads, are you making money there? Is that profitable?
It’s early days. We launched—
That’s a no, that feels like a no. I just want to be clear.
Yes, it’s still early, still nascent. Ways to go for us.
The part of a business that has to learn how to sell ads, people take it for granted. That’s like a whole thing you got to go learn to do, or you’ve got to turn that over to someone else and give them some piece of the money. Which way have you gone? Have you gone to, “Okay, we’re going to do upfronts and have the big advertisers come and watch anime with us,” or is it, “I don’t know, Tubi will figure it out programmatically, and we’ll take what we can get?”
So like I said, it is for us primarily a top-of-the-funnel play where we want to engage new audiences, give them the ability to connect, and watch something before they get into subscription. So we have not invested in our own sales team or going to upfronts. So we are primarily a programmatic shop. So we monetize those ads programmatically because I think what we are focused on is building that customer relationship and bringing them along into that funnel so that they can sign up for a subscription service when they’re ready.
A huge undercurrent of feedback I get about streaming is that it seems complicated, it’s expensive and getting more expensive, and people have fast internet connections and The Pirate Bay exists.
On top of that, mergers happen — like the merger with Funimation — the services fold, and all of a sudden people don’t have the stuff they bought anymore. Part of what sells a streaming service is that it’s a better experience than piracy. Steve Jobs’ pitch when Apple launched the first iTunes Store was, “We have to be better than free.”
How do you respond to the people that just say, “Look, this is all too complicated. It’s a waste of money. They’re not even respecting my purchases, and I’d rather just steal this stuff”? Because the Crunchyroll audience, in particular, is an audience that grew out of piracy.
You are absolutely right. The onus is on us as organizations that are serving this fan base to make these services so convenient, so compelling, and so competitive that the fans will choose to move to these official sources rather than pirate. Like I said, I think these businesses are still emerging and evolving, and we are all figuring out how to best serve this audience.
And do we have speed bumps along the way? Yes. And I think we are trying to learn and do the right thing for the audience. You are right. I think we have to make these services so convenient and compelling that fans will switch from piracy to these official sources.
Part of that is pricing. Part of it is the experience. Part of it is the convenience of where and when they can access this. Part of it is also education. A lot of these unofficial sites seem legitimate, nobody knows that they’re a pirate and that the creators aren’t compensated from that engagement. For us, it is being in that consideration set for those anime fans, helping them understand that they have a legal and credible way to experience that is value adding and that is convenient. Part of is also what you hit on, Nilay, which is the confidence that these services will honor what terms they’ve committed to to each of the fans.
In your library of services you provide to anime fans, which one brings people over from piracy the most effectively? What’s the thing that gets people to start paying you the most?
The streaming and early access to shows from Japan with subtitles and dubs. So that is, I think, the biggest thing. The sooner we can provide them, the easier we make it available to them — both in however they want to watch it, whatever subtitle languages are dubbed — has been the single biggest driver for converting people over. Because pirate sites do provide that content as soon as possible, but then most of the time it is in a handful of languages, maybe not the language they want. Sometimes they don’t have the dubs. So if we can do that consistently and as fast as we can, I think that’s the biggest opportunity we have.
There’s interesting technologies in the mix there where you can add some value because you do have the direct, both economic and creative relationship with the creators. You mentioned the delay for just dubbing. There are new technologies like SimulDub, there’s simulcasting just to get it at the same time, there’s potentially AI in the mix. Are you thinking about those kinds of technologies?
AI is definitely something that we think about at a lot of different workflows within the organization. Right now, one of the areas we are very focused on testing is our subtitling and closed captioning, where we go from speech to text and how do we improve and optimize our processes where we can get the subtitles done in various languages across the world faster so that we can launch as close to the Japanese release as possible. So that’s definitely an area where we are focused on.
Dubbing, not so much yet for a couple of reasons. Our dubs tend to be adapted dubs, they’re not direct translations. So it’s a creative process. So we have teams that are focused on adapting the dubs to each region. Humor. We also have the thing that we have to dub and we can’t edit the animation itself, so we have to get the match to the lip sync correct. So it’s definitely something that we are playing with. We don’t find the technology to be there yet, but obviously we’re also playing in other areas like personalization and discovery and how we can use generative AI in making that a better experience for our users. So yeah, a lot of different areas across the organization we are testing AI.
I’ll end where we begin. You talked about the TAM and how big you think the market is. In the context of this part of the conversation, is the growth just getting people who already love anime but are getting it via piracy to start paying for it?
I think that’s the biggest growth in near term. If I think about the next two to three years, that’s the biggest opportunity for us as a business and for the ecosystem and the anime ecosystem. So that’s where we are focused.
And is that just down to providing a better service faster? Because that’s what it sounds like. “If we are ready with high quality, with good dubs on time, people will start paying us.”
I think that’s one component of it. Having the diversity of content that appeals to every segment of the audience in every region. And also making sure that we have the ancillary services that allow them to exhibit their entire fandom. So the flywheel.
When you think about the broader streaming market, there is just something happening there. There’s some big convulsion where everyone spent too much money too fast, and it’s very unclear what will happen. What do you think will happen in the broader streaming market that will help you get an edge with Crunchyroll?
I think the broader streaming services, the companies will have to figure out how to solve the messiness, the chaos that is in this for consumers right now. And I think a handful of platforms or streaming players will emerge as somebody that will solve that problem the best. I expect there’ll continue to be consolidation and convergence to a handful of players that provide that either platform or service the best.
I still think there is always a place for companies that will serve specific audiences, like Crunchyroll. So we do believe that there is not only a place, but also an opportunity to grow for companies like us. And I think our ability to win will depend on how best we service that anime fan and how focused we stay on servicing them across their entire experience.
When you say a handful will solve it, the implication there is that a handful will not. And that some will collapse or they’ll get merged into others, or that we’ll go back to an older form where studios make content and they just sell it to Netflix and that’s the end of that. Do you think that we’re going to see more of that in the coming year? Do you think we’ll see less of it as people try to figure out their pricing and hope these advertising strategies work? What should people expect in this coming year?
I do think the industry is going through a disruption. So there will be players that will succeed and there will be players that will not and will get consolidated and will not exist. The good thing, though, is consumers will win because I think the companies that will successfully solve the problem for consumers will thrive. There will be fewer companies, but there will be better service and better value for consumers.
I do appreciate the Alien vs. Predator, “no matter who loses we win” approach to the streaming market that you have there. That’s very good. Last question, a big-think question. Crunchyroll is obviously doing well. You have a young audience that’s growing, they’re passionate about it. The market for anime overall appears to be growing from the numbers that Polygon has published, and everyone should read that survey. It’s great.
Do you see it getting even bigger? Do you see a world where there’s anime on a major TV network in the United States in primetime? Does it have that kind of cultural reach here or is it going to stay a small market that you can over-serve with a product like Crunchyroll?
I don’t think anime is small right now, and I think the influence of anime is going to only get better. It is already mainstream. You’re seeing anime in the top 10 on Netflix shows almost every week in some country or another. It’s featured in Thanksgiving Day parades. It’s already on broadcast TV. And the other thing that I will highlight is the number of influencers and celebrities that are anime fans and are openly talking about anime fans is also only going up every day. And so that’s also going to create more and more reach for anime. So yes, I do think anime will be bigger. It’s huge now, and I think it’ll continue to grow and be bigger.
That’s amazing. Well, Rahul, thank you so much for joining the show. This was an amazing conversation. You have to come back soon.
Thank you for having me, Nilay. Great conversation, appreciate it.
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