In the five years since it debuted as a top-rated kids show in 20 countries, Pokémon has generated more than US$15 billion at retail and solidified its status as the Holy Grail of anime-hunters mining the Japanese market for action-adventure hits. And with 90 new half hours of anime programming being churned out every week – not to mention the reams of library fare gathering dust in domestic producers’ catalogues – Japan would seem to be a buyer’s nirvana at first glance.

But on-the-ground execs from companies such as 4Kids, ShoPro, Nelvana and FUNimation know very well that the market has always been a lot trickier to navigate than it looks, and it’s getting even trickier as new issues related to ancillary rights, co-production and anime’s status on the worldwide stage come to the forefront. To understand how the Japanese market works today, it’s important to take a look back at how it used to function and how the anime-hunting landscape has evolved since the dawning of the Pokémon era.

Until the late ’90s, Japanese animated series like Dragonball Z and Speed Racer largely aired outside of Japan in early-morning and off-peak slots on syndicated channels in the U.S. and the U.K. Eager to sell their shows abroad and unfamiliar with international license fee standards, Japanese prodcos often offered up their TV rights for ten times less than today’s rates.

Despite loyal fanbases that enthusiastically embraced early anime exports such as Sailor Moon and Card Captors (especially in Italy, where a strong manga subculture drove anime into the mainstream earlier than elsewhere in the world), most international buyers were reluctant to give Japan’s unique animation genre a try in their markets because of stylistic translation concerns.

DIC Entertainment CEO Andy Heyward remembers when Saban CEO Haim Saban first tried to introduce U.S. kids buyers to Power Rangers, the now-ubiquitous live-action Japanese concept featuring five kung-fu superheroes: ‘He was told that nobody would want to watch these weird Japanese characters,’ says Heyward. ‘There’s always a resistance to things foreign or different in the U.S.’

‘Anime was outlawed,’ says Sean Akins, head of programming for Cartoon Network’s Toonami block, adding that the failure of classic anime film Akira to perform well on American cable net the Sci Fi Channel in the early ’90s was often cited as proof that anime would flop in the U.S. Akins remembers programmers also saying that the characters’ eyes were too big, and that kids lacked the attention span to handle anime’s serialized story structure.

Then in September 1998, anime exploded into the psyche of a mass international audience. With an initial 84% syndicated pick-up in the U.S., a top-rated Game Boy title already on the market and a veritable flood of merchandise on retail shelves, Pokémon proved all the naysayers wrong. Stu Levy, CEO of L.A.-based Tokyopop, theorizes that Pokémon’s blowout success was based on the powerful combination of its lead-off video game and trading card game products. ‘It was one of those fads that took over the entire kids business, and the property featured characters that could be merchandised across all categories.’

John Easum, senior VP of ShoPro Entertainment in San Francisco, says 4Kids’ merchandising and marketing strategy for Pokémon stoked the flames of an already strong TV debut, building fan momentum and making it one of the first Japanese programs to coordinate its ancillary rights development in a cohesive way.

This type of merch cohesion is a rare beast because many Japanese producers split up their rights and sell them to three different kinds of middlemen. International publishing is often handled by a Japanese manga house, TV rights commonly go to an advertising firm, and merch rights frequently end up at a domestic toyco with international subsidiaries.

Hans Ulrich Stoef, managing director of German brand incubation company m4e, explains that since most top-performing anime series are hatched from manga (Japanese-style comic books), they are usually owned by publishing houses, many of which prefer to use the TV show as an advertising platform to bump up sales of their manga lines and attract ancillary licensees. Hidenori Oyama, senior director of international licenses at Toei Animation, says Japanese producers have gotten wise to the bigger revenue potential offered by merchandising compared to film and TV sales.

Hand in hand with this insight, Japanese companies are starting to understand that a project may sell faster if they offer European and U.S. broadcasters and licensors additional revenue guarantees, and they’re also coming around to the philosophy that the best way to compete in the U.S. market is by appointing someone to manage the entire brand across all rights. ‘With the rights spread out, it used to be difficult to put together an effective marketing strategy,’ Easum explains. ‘But now, in most cases, we represent all the rights on a worldwide basis, so we can approach prospective partners with promotional and toy strategies in hand.’

Change is also afoot in the realm of multi-territory TV deals. Benoit Runel, Fox Kids Europe’s senior VP of programming, says many Japanese producers traditionally shied away from signing pan-European deals in order to honor long-standing programming alliances with broadcasters in Spain, Italy and France that had been cultivated since the ’80s. But Runel says that as FKE works to establish stronger relationships with Japanese distributors and producers, these old alliances are less of a barrier than they used to be.

From a buyer’s perspective, while the proportions of what an anime hit can generate have grown, so too has the amount of risk involved. 4Kids Entertainment CEO Al Kahn says if a show is a miss, ‘you get hammered because you’ve paid a lot of money to localize it.’

Priming Japanese properties for Western-world consumption has evolved from straight-up language translation to a convoluted process called transcreating or rotoscoping. Costing anywhere from US$20,000 to US$40,000 per half-hour episode, the process can involve rescripting (including changing character names and removing Japan-centric references), replacing untranslatable music sequences, and paint-fixing to remove Kanji (Japanese letters).

Kahn says Americanizing a Japanese anime show can help propel its international success both in terms of ratings and merch. Above and beyond helping kids understand what’s going on in the show, you’ve got to guide them through the play patterns that are at the heart of anime. In Yu-Gi-Oh!, for example, viewers who own the show’s trading cards are encouraged to role-play along with the episode.

Another philosophical divide that sometimes poses problems relates to the timing of licensing programs. ShoPro’s Easum explains that in Japan, rights holders tend to roll out merch in tandem with the launch of the TV show because the property itself has usually already built a fanbase as a manga line. In the U.S., consumer products typically don’t appear on shelves until after the show has proven its staying power on the airwaves.

Tokyo-based manga publisher Shueisha, which holds the publishing rights to 4Kids TV properties Yu-Gi-Oh! and Shaman King, is currently testing the effectiveness of its Japanese business model in the U.S. market. Kiyotsugu Takehana, senior manager of Shueisha’s rights and merchandising division, says subsidiary company Viz launched a monthly American version of the Japanese manga magazine Shonen Jump in November 2002 with a circ of just under 200,000. If the tactic pays off by building early buzz for the property, Takehana may use the same model to introduce two top-rated Japanese shows that have yet to appear on foreign screens.

In Japan, Shonen Jump is a weekly publication that reaches three million readers, and its manga titles have acted as a launchpad for fresh animation concepts including TV Tokyo Medianet’s Naruto and Toei Animation’s One Piece. But Jim Weatherford, GM of Nelvana’s Tokyo business operations, says the vast majority of anime currently on air in Japan is not suitable for broadcast outside of Asia. ‘In America, parents lock their bedroom doors, but in Japan, the doors are open. Nudity is not seen in the same light here,’ he says. ‘Violence too: It’s perfectly acceptable for a city to be destroyed and fall into the ocean in a preschool program.’

So despite the fact that many anime-hunters are keen on both Naruto and One Piece, their content as it stands might be deemed too bloody for kids outside of Japan. Naruto tells the tale of a young slacker who longs to rule a top Ninja clan, although many villagers believe he is the curse of a demonic monster. Hiroaki Saiki, manager of international sales at Medianet, says it may be necessary to make some visual modifications to the show in certain territories because of each country’s broadcast standards for violence. But he adds: ‘The action scenes are indispensable, and we never resort to violence for the sake of making a program flashy.’

John Hardman, senior VP of Kids’ WB!, says because shows like One Piece air in prime-time slots on Japan’s broad-targeting terrestrial channels, they can get away with elements that aren’t appropriate for his kid-targeted network. Adjusting the content after production with rotoscoping is costly and can jeopardize the artistic vision of a show, so a growing number of Japanese producers are making modifications to their concepts in the development phase. And Kids’ WB! is doing everything it can to support these efforts. The channel recently signed a development deal to help Toei Animation work up future projects from conception to launch.

The cooperative spirit was alive and well on the revival of classic anime property Astro Boy, a co-production between Sony Pictures Entertainment and Tezuka Productions that launched on Kids’ WB! and Cartoon Network in early 2004. Nelvana’s Weatherford says the show’s Western influence makes it stand out in Japan. Astro Boy’s succinct beginning, middle and life-lesson-learned ending is very much in keeping with a Western style of storytelling that’s foreign to Japanese viewers, who look for entertainment above education.

As the anime faith has picked up more converts, Cartoon’s Akins says bigger players such as Kids’ WB! and Sony Pictures are making frequent stops in Japan. But the smaller players who got their foot in the door early haven’t lost much ground, thanks in part to traditional Japanese business etiquette, which is vastly different from the Western code of conduct. ‘It’s a country that bases its business culture on strong personal relationships,’ says FKE’s Runel. ‘It’s only once you’ve gained their trust that you can start to do business.’ To maintain his hard-won foothold in Japan, Nelvana’s Weatherford spends hours a day with his clients and is on always on-call.

Stoef says without a loyal connection to a particular Japanese company, it can take a long time to get legs in the market, and many international players don’t have the patience for a business culture in which dense corporate hierarchy severely slows down the pace of dealings. ‘Japanese licensing consortiums take a long time to approve deals and artwork because there are so many different people and companies involved,’ he explains.

As companies on both sides of the anime equation come closer together, there’s a fair bit of homogenization taking place as the genre gets absorbed into Western culture. With anime shrugging off its ‘trend’ label and becoming a programming mainstay, executive VP of Bandai Entertainment Ken Iyadomi says his company doesn’t have to edit as many names or change as many cultural elements as it did five years ago because ‘people are getting used to it.’ DIC’s Heyward adds that ‘a three- to five-year-old today doesn’t know the term ‘anime.’ They’re looking at style and story development, and that translates into much longer interest and many more episodic adventures.’

Looking to the future, many anime-hunters can’t wait for an opportunity to start mining other Japanese animation sources beyond boys action-adventure. Besides trying out the many girls anime properties on offer in Japan (see sidebar on page 86), many players are just as eager to introduce Western audiences to Japan’s wealth of comedy toons. But FKE’s Runel says much of the humor in these shows doesn’t translate easily and would require a lot of adaptation work. In Toei Animation’s Bobobo Bo Bobobo, for example, ‘the hero is fighting with his nose hair, and he’s also using it as a weapon,’ says Runel. ‘It’s really fun and completely crazy, but you have to screen it with a Japanese person who can explain it to you.’

As to whether the Japanese market could produce another Pokémon-sized hit, it’s a definite possibility, and it’s very obvious that no one wants to miss the boat this time.