The American TV production and anime dubbing studio 4Kids Entertainment (NYSE: KDE) announced this week that the New York Stock Exchange, the world’s largest stock market by market capitalization, has begun preparations to remove the company from the index. The New York Stock exchange requires all companies that are listed to maintain $15 million in market capitalization. Since early March, 4Kids’ stock price has slipped 27%, and drops this week bought the price under $1.15 and slipped the market capitalization of the firm to $14.7 million.

According to quarterly reports, net revenues for the first three months of 2010 totaled $4.2 million, less than half of the $9.3 million for the first three months of last year. In 2006, net income dropped 75%  from 2005. The company has not posted a profit since then, losing more and more money since 2007. In 2009 they lost $42 million.

This is just the most recent of a series of bullets in the chest for the American anime industry. Earlier in April, Bang Zoom! Entertainment CEO Eric P. Sherman announced that the company will probably cease operations by the end of the year if the industry didn’t look up. Excuse me, but a company doesn’t like the market conditions? It’s in the hands of companies to shape the market conditions, not to complain and give up.

It’s true that entertainment distribution models are going to be changing dramatically. DVD may be on the way out forever, and online TV is becoming a reality very quickly. But so far, there are no successful ways to monetize online entertainment. Not so that creators can afford to produce and distribute quality content. Anime is going to die.

Unless YOU change. Right now. Stop stealing. If you have committed theft, robbery, shop-lifting, or just “downloading some stuff through torrent reactor,”  then just stop doing it — now.  You probably wouldn’t go into a supermarket and put a package of swiss cheese under your shirt and walk out without paying. Nor would you walk into Best Buy and try to walk out with Guitar Hero, bypassing the cash register. Why? Is it because you might get caught? Or are there other issues, such as standards of morality, that dictate how you live your life.

The net, for all it’s charms, is also a dark and dangerous place. When you’re navigating it, you need to ask yourself this question:  Is this right, just because it is so easy? You need to understand that quality entertainment costs a lot to create. And if there is no one paying for this content, it just won’t be made anymore. If no one bought tickets to a Lady Ga Ga show, she would not do the tour. That’s just how it works. For some reason, people don’t mind stealing their anime. I’m here to tell you flat out: This is wrong. You are doing something bad. And you need to stop it.

-Eric Sherman, CEO of Bang Zoom! Entertainment

Oh I’m sorry about that, man. God forbid that firms have to adapt to changing market conditions and apply corporate strategy once in a while. Did Nintendo just give up after the GameCube couldn’t generate enough sales compared to the other systems? Did they instead just whine and complain about how the only thing people want now are graphics instead of fun games, so they can’t play in this new market? No. They put on their competent management hats and looked for new ways to make money in the market. I’m not going to deny that the anime industry in the US is in a major pinch, but you are a CEO, Mr Sherman. Start acting like one.

Sherman acknowledges that DVD is going to die quickly and that entertainment distribution models are rapidly changing. But somehow he still has the gall to think that the hilariously awful business model that American anime fans had to suffer through the last 10 years could somehow still be profitable. Take a major, popular hit anime from Japan that you think will appeal to a majority of the population stateside, dub and sub the thing, totally ignore niche fans, and release an overpriced product a year later. Just pretend the long tail and Web 2.0 don’t exist, right? Would I buy anime DVDs just to have a physical anime collection to put in my room and maybe watch occasionally? Yes, I have some. Would most of the market do the same? No way. Is the industry somehow going to change consumer behavior? I don’t think so.

Fansubs are responsible almost solely for the mere existence of a demand for anime stateside. Who would have heard of all the different anime Bang Zoom! dubs (or what anime even is, for that matter) if they had not seen anime from the internet already? Yet the crucifixion of fansubs as a criminal act is the default complaint from an industry mismanaged to death.

Any college student who took a strategic management course can tell you some key success factors for Intellectual Property Licensing (IBIS industry number 53311 if you want to look it up). And my point is not to lecture Mr. Sherman about the basics of market competition, just like it is not his role to lecture me on stealing swiss cheese. I’m sure Mr. Sherman and his board have analyzed various options very carefully and I know that the industry, as well as digital distribution, is very complicated. The point I want to get though is that it is ridiculous to blame a firm’s failure on consumers. Does fansubbing call into a question of consumer ethics? Yes. Does it give a firms some kind of “excuse to fail” and the right to preach how we behave? No. If the majority of customers in a market are upset, they will always get their way. Economics dictates with with switching costs, scale, and substitution. Remember the DRM battle in the music industry? Major music stores are now DRM-free. And you can bank on it that if the industry continues to push this outdated, inefficient system of licensing and distribution that it will be driven into the ground.

What is there to do? The industry needs to change. Too long we have paid too much for too little, too late. But think for a while: what would happen if the American licensing industry just… died?

We would have fansubs and people will continue to watch whatever anime they please. Given, dubs would most likely disappear, but I still do not believe that so many people cannot read at a 5th grade level. But the key is that there is a demand. And there will be a continual demand for quality, be it 24 hour turnaround or dubs, or professional quality subs, that will create an opportunity for intrepid souls to make money using technology from the present day. Will it be you, Mr. Sherman? Sure it can. But if you want to give up then someone more qualified to be a CEO will come around with his own company and their own model to make money off of digital distribution or whatever way they figured out. Where there’s a will, there’s a way. In business there are winners and losers, that’s how the world works. If you want even a chance at winning, there’s no room for sitting back and complaining about the state of the industry. Some will win, some will lose, (some of them will sing the blues  …sorry) but not doing anything to adapt is losing by default.

Getting delisted from the NYSE is a pretty big blow for any company. 4Kids will lose a vital way of raising capital, something that it desperately needs. Three straight years of losses (and another one coming up) most definitely spells doom for the company, and good riddance. You have slaughtered One Piece enough. Not even that godawful show deserves what 4Kids has done to it. I will probably guess that Bang Zoom! will hold true to its promise and cease operation by the end of the year. The anime industry in America looks bleak, but industries do not simply die like this. If there is demand, if people want to watch anime, something will come to replace the void. So download those fansubs, my fellow fans. We have an industry to take down.

I recommend Yumeka’s post on the same subject as great supplemental reading. My post on digital distribution is worth a gander, too.

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