How Crunchyroll Turned a Niche Audience Into a Streaming Powerhouse

The anime streaming service launched in 2006 hit 1 million subscribers this month

Anime, has long had a devoted — if niche — fan base in the U.S. But with anime-focused streaming service Crunchyroll hitting 1 million paid subscribers this month, it also provides a snapshot (or sketch) into what works in the new world of internet television.

To put Crunchyroll’s size in perspective, HBO Now has about 2 million subscribers. CBS All Access has 1.5 million. And that 1 million doesn’t include the ad-supported free version of Crunchyroll, whose parent company Ellation is owned by Otter Media, a joint venture between AT&T and The Chernin Group.

While many of its competitors have a one-price-fits-all strategy, Crunchyroll offers two ad-free subscription tiers: Premium for $6.95 a month and Premium+ for $11.95, which includes extras like convention perks and early beta testing of new features for an audience “that really likes stuff,” Crunchyroll’s chief operating officer, Colin Decker, told TheWrap. And knowing the details of exactly what kind of “stuff” anime fans like and how to serve it to them is the primary reason Crunchyroll has seen its growth accelerate.

“I think the most important thing to understand is that Crunchyroll has succeeded based on the deep understanding of this audience,” Decker said. “There was a deep audience underserved by this anime. And the truth is, it didn’t happen overnight. It’s been 10 years in the making.”

The second pillar, Decker, said, was delivering the highest-quality anime programming. Netflix has relied on hit movies and critically acclaimed (and often hard to find on traditional American channels) series to make its product a must-subscribe in the ever-expanding universe of streaming options. There is plenty of anime free to watch on YouTube, just as there are other TV shows, but there’s also a distinction between people who don’t want to pay for cable and don’t want to pay for anything, which successful streaming services have realized.

“One of the things that differentiates is our content is premium TV,” Decker said. “It’s TV that airs in prime time in Japan that we bring to the United States simultaneously on our [streaming video-on-demand] services. The most important thing at the end of the day is story. These series have no less depth of stories than the most premium American franchises.”

Crunchyroll has another built-in advantage as it competes in the relatively borderless world of internet TV: Anime is popular across the globe, and has broad appeal across the United States too, performing equally well in urban, suburban and rural communities, Decker said.

“One thing about anime that is really special is it just has the ability to travel,” he said.

And taking advantage of subscribers’ love for merch and tangible anime experiences they can touch, Crunchyroll is adding a new revenue stream with its live events business. The first annual Crunchyroll Expo will take place in August in Santa Clara, California, and the company is launching Anime Movie Night, presented by Crunchyroll, which will display some of its programming in full theatrical glory four times a year.

While such a passionate, hyper-focused user base might seem intimidating to those who want to casually explore the anime universe, in reality, it does the opposite, Decker said.

“The depth of their engagement is actually what helps draw in some of the more casual viewers,” Decker said. “The bigger that we get, with the authority that we’ve really established at this point around anime, the more it becomes accessible.”

That’s also helped bring some of those more casual fans onto Crunchyroll’s free option, which has given the company another way to monetize an audience that can be hard to pin down through traditional channels. Decker said about 90 percent of Crunchyroll’s audience is between the ages of 13 and 34, a demographic that advertisers value but find hard to reach on linear TV. And because of that, it can command ad rates much higher than typically found in internet video.

“We see a deeper level of engagement,” Decker said. “Our ad inventory is at a significant premium over web short-form. Our advertising partners love Crunchyroll. They’re able to reach a large connected young audience.”

And more importantly for those advertisers, that connected young audience is spending plenty of time on Crunchyroll, with average consumption for premium subscribers reaching 30 minutes a day. To compare, Facebook’s suite of apps (excluding its WhatsApp messaging service) grab onto users for an average of 50 minutes a day globally, Facebook said in its Q1 2016 earnings call.

This year hasn’t been full of unbridled good news for the company, however. Crunchyroll laid off 19 people in January, a moveTom Pickett, CEO of parent company Ellation, said was necessary following an acquisition that significantly grew its engineering staff.

“As part of company restructuring efforts, it is with regret that we needed to make some difficult but necessary changes at Ellation,” Pickett said in a statement.

And while the company has succeeded up to now by syndicating existing shows, including recent breakout hit “Yuri on Ice” (a gay romance, which in itself shows the diversity within anime), Decker said Crunchyroll is exploring the possibility of producing original content. That, however, is still on the drawing board.

“We’re obviously looking at extending our content offering as much as possible,” Decker said. “We don’t have anything to share specifically about originals — although we’re dipping into that space.”