John Zeitler

There was an announcement today on ANN that certain sites in Japan were refusing to sell North American imports, specifically anime DVDs and Blu-Ray discs, to Japanese addresses. On the surface it seems like such a ludicrous problem: these people live in Japan, why do they need to buy our anime? Wouldn’t it make more sense, and logically be cheaper, to buy the anime they already have over there?

As with everything, the answer is not quite so simple. And, as can be expected, the problem arises from an attempt to fix a pre-existing issue.

To understand the issue, a brief history of the DVD format is needed, along with a modicum of understanding of the differences between the North American publishing and distribution model, and the Japanese pub/dist model. Let’s start with the DVD thing, since that’s easier. When the DVD format was first introduced in the mid 90s, region encoding was added into the specifications to avoid a major flaw that existed in the VHS standard. Primarily, it came down to wanting to maximize profitability and rights control for the various parties involved in distributing a film or TV show on DVD. Because VHS has no region restrictions, a film sold in one part of the world can be taken anywhere else in the world, and possibly resold. This could happen at a price cheaper than the “local” going rate, depending on the film and how long the film has been out in the two areas, and as a result, someone could quite easily make a profit– and a handsome one at that– buying VHSes from one part of the world, overnighting them across the globe, and selling them where the demand was higher. Problem is, though, that this undercuts and subverts the legal rights holders in the destination region– which, ironically, may be the region the film was produced in to begin with! (Take, as a specific example, The Passion Of The Christ. Not going to be a big seller in a predominantly Muslim country, like, say, Malaysia; therefore, bundle up a pallet of copies bought for pennies on the dollar in Kuala Lumpur, send ‘em even just as far as Hawaii, and rake in the dough.)

The DVD standard specifies seven primary regions, though in truth only four or five see any real use. The big ones for English-speakers are Region 1 (North America), Region 2 (Europe and Japan), and Region 4 (Australasia). The idea between fusing Europe and Japan into a single region was based on the theory that physical distance and minimal demand would keep them more or less separate. Naturally, when Internet commerce began its rise, the concept of physical inaccessibility became more or less complete bunkum. Still, the DVD regions held up, since they were split up in a reasonably sane manner.

Flash forward to the mid 2000s, when the Blu-Ray specification was being hashed out by Sony. Sony, as we all know, is a multi-national corporation that does a significant amount of its business in North America and Japan. However, they also realized that major content provider studios– that is, the people who make the stuff that goes on the Blu-Rays– would not sign on to a standard that had no region encoding. The compromise was that instead of seven regions, there would be only three. This sounded fair. It wound up that Japan and North America were lumped into Region A. And all hell broke loose, because consistency is a silly thing.

Now we get to look at the differences in distribution methods. In North America, when a product such as a game or a movie or a CD is sold in stores, it’s actually been sold up to three times before or more. It’s sold by the manufacturer to the publisher– the publisher grants the manufacturer a license to make the thing in the first place, but the publisher must then place an order for the physical objects. Then, the publisher sells the physical objects to a distributor, who in turn sells the objects to the retail stores. In the case of big-box retailers like Wal-Mart or even GameStop, the company is both the distributor and retailer, but the principle remains largely the same. At each step of the way, a transaction is brought to completion. In most cases, however, there’s a return clause that says if the product doesn’t sell, it can be returned all the way back up the chain. As time goes by, the value of the products changes, and their prices drop– which is reflected in the retail price of the object. This reflects a change in the risk that the retailer is taking by holding on to the product. After a certain amount of time, the product is dusted off, boxed back up, and shipped back up the chain to the manufacturer, who sells it on the extra-cheap to a closeout retailer like Big Lots. There they stay until sold, but at the same time, Big Lots is stuck with the goods. They have taken on less risk, but the risk is all on them. (Then again, there are some places, like Gabriel’s, which are what my dad always used to call “where Big Lots dumped the junk they couldn’t sell”. Yeah, imagining someplace less classy than Big Lots may be difficult, but believe me. It exists.)

In Japan, however, the security blanket of being able to return items is either nonexistent or very much frowned upon, as by and large products like video games and CDs are sold flat-out and without any wiggle room for pricing. Put another way, the price of the product is tied irrevocably to its SKU (Stock-Keeping Unit, a number that uniquely identifies the product class; for example, a movie offered in full-screen and in wide-screen formats, on separately-sold discs, is said to have two SKUs even though it’s the same movie). If there needs to be a price drop, it is up to the publisher to delete the existing SKU and re-issue it as a new one, at a new price. To avoid taking a bath on a large, high-priced debut, print runs in Japan are usually small, which is also a function of the smaller population compared to North America’s market. That’s why games sometimes come out many different times in Japan, with labels like “The Best” or “Greatest Hits” or the like. (The principle has been applied to video games in North America, but it’s tied to lifetime sales of the game, and not necessarily that it needs to drop in price.) As a direct result, goods stay at higher prices longer in Japan unless they reach popularity sufficient to warrant a new print run, and even then they’re likely to stay at the standard price for a couple of printings.

Here’s where things get tricky. In general, goods in North America drop in price faster than Japanese goods. This means that, if you’re in Japan and want an American good, it’s cheaper to import it from America yourself than to wait for a company to do it for you. For nine items out of ten, that’s completely irrelevant; I can’t see too many Japanese desperately wanting to see the latest season of CSI so badly that they can’t wait for the WOWOW dub. However, for games and anime, it’s a whole new ball game, particularly because North American products contain the original Japanese track on them (usually). In short, it’s getting more than the local product for less money, and screwing over the local companies who produced the product to begin with.

That’s capitalism for you, folks.

Now, the major issue here isn’t that the products can’t be reverse-imported (the term for such a circuitous purchasing route). As I said, it’s capitalism; anyone can go ahead and do this, consequences be damned. The article in question singles out a particular retailer and a particular NA publishing company (Funimation) who are restricting reverse-imports.

If you ask me, I’d say that all online retailers should restrict reverse-imports. There’s a very good reason why.

Funimation has to jump through a TON of legal hoops in order to get licenses of the shows they put out here in NA. We saw a little of the hot-dog factory last year when the simulcast servers were hacked, exposing an episode of One Piece before its Japanese air time. The crapstorm that followed, I imagine, probably involved a lot of screaming into telephones on both sides of the Pacific. In the end, though, it came down to issues that existed before: Funimation can’t guarantee that their products won’t wind up on Japanese shelves eventually, particularly when you take a look at the prices involved. In Japan, DVDs are usually on the order or $30-$50 for two or three episodes (though they usually come out shortly after the episodes air on TV). In NA, that same $35-$50 will buy you an entire series, usually with an English dub track on top of the DVD-released episodes (the tradeoff being that the series is usually a year or so old by the time it’s out over here). We can assume that this is not some huge revelation, considering it’s been going on since region-free DVD players were introduced, oh, about ten minutes after people figured out there was region encoding on discs.

What’s happening now is that the Japanese license holders are starting to see the availability of cheap reverse-importing cutting into their profits. As a result, series are not coming out on permanent media nearly as quickly as they used to be (streaming and simulcasting are, however, making it feel like series are coming out with minimal turnaround). Licensing houses like Funimation and Bandai USA (even though they’re nominally linked to Bandai Japan) have to balance between a fast release or a cheap release. There’s been some move towards a split between the two, with half-season sets for the more popular or more recent series being offered (even though it’s relatively older, El Cazador de la Bruja was released in two half-season sets, though rather oddly the two pieces were released simultaneously), and some studios are cutting costs by not dubbing their acquisitions (which, in the case of Clannad, is a damnable shame). Still, though, it all comes back to the presence of the original Japanese track on the discs. And removing those would cause the total and final collapse of the NA anime market, I think. Funimation is probably facing pressure from the Japanese studios, and the cessation of reverse-importing is probably just another price tag on the licenses they’ve recently acquired.

In short (too late), I don’t see the restrictions against reverse-importing to be as drastically anti-competitive as some people do. The fact that it’s blatant protectionism isn’t lost on me. But in all honesty, when faced with a choice between a little less profit and no profit at all, any sane company will self-regulate in order to stay in business. This works pretty well for people on both sides of the Pacific in that it keeps the cels flowing. I could be completely wrong on this, of course, but truthfully, it’s all the same in the end. The announcement is just business as usual and nothing to get too worked up over.