Growth Matters: Japanese Anime Puts Crunchyroll on the Fast Path

If you live outside Japan and are familiar with the television series Naruto Shippuden and Tegami Bachi: Letter Bee then you are, no doubt, also familiar with Crunchyroll, an online video service that provides full length episodes and movies of Japanese anime. The site has become so popular that in March, TV Tokyo, the smallest of the five Japanese networks and the source of those two cartoons, invested $750,000 for an undisclosed stake in Crunchyroll.

Crunchyroll (its name inspired from a sushi dish), has quickly become Asia's Hulu. The company carries content from Japanese television networks (just like Hulu provides content from networks such as Fox, NBC and ABC) and brings their content to a worldwide audience. "We differ from Hulu in that we get our content in the five-second window after their shows are broadcast," says Kun Gao, CEO of Crunchyroll.

Japanese Anime Gains Popularity

This window gives Crunchyroll access to a young population segment. The company says it has access to 50% of the anime on TV in Japan within one hour of its broadcast. "We are focused on the most popular sites, which attracts the 13-to-34 year old audience," says Gao. "We are second only to YouTube."

Crunchyroll's growth is coming from its English speaking audience. About 50% of its viewers come from North America with the rest coming from countries with large English speaking populations such as Singapore, Malaysia, and the Philippines.

Crunchyroll was founded in June 2006 by Gao and three others who graduated with degrees in computer science from the University of California Berkeley.They decided that they wanted to create an Asian oriented content site, along the lines of YouTube. While creating Crunchyroll, the four founders had other distractions. One, for example, worked at Starbucks (SBUX) while another went on to Carnegie Mellon for graduate school.

But the founders quit their day jobs to focus on their online venture as success came fast: The company had one million viewers by the time it was nine months old. "We have passionate users," explains Gao, "and a venture capitalist approached us saying that it loved the community of users." In 2008, in a venture round led by Venrock , Crunchyroll picked up just over $4 million in capital and partner David Siminoff joined the board of directors.

While viewers can log on and watch video for free, Crunchyroll makes money by charging a monthly fee for premium services. The fees range between $7 and $12 per month to get access to more than 250 titles, early access to many shows, high definition quality, no advertisements and the ability to stream shows to mobile devices. For the free version, the company makes money by selling ads with its videos.

Future growth will come from a continued effort to expand the range of devices on which consumers can use the Crunchyroll service (such as mobile devices, set-top boxes and internet enabled TV) -- and simply from getting more people to sign on. CEO Gao points out that Crunchyroll is a compelling deal. He says that many videogamers pay $15 per month to play games online for 20 hours a week.