Giant robot men, wide-eyed princesses and epic battles in a post-apocalyptic age: Can this be the stuff of Japan’s next great industry? Japan built the world’s second-largest economy on electronics and automobiles. Now animated entertainment, known as anime, is a growing global industry, according to Wharton experts and analysts.

Anime’s rabid fan base in Japan and other areas around the world spends more than $5 billion on film and DVDs and an additional $18 billion on anime-linked merchandise. Beyond that, the industry may also be generating a halo effect for other Japanese products and services. “Anime is creating new interest in all things Japanese, including business,” says Nelson Gayton, a Wharton adjunct professor who studies media and entertainment.

He compares the Japanese anime industry to the influence of The Walt Disney Co. in building global interest in the United States. Looking at what Disney has done for the export of American culture, “one might argue that anime can have an [equally] dramatic impact on the presentation of Japanese culture and everything related to Japan outside the country.”

Anime, which is closely tied to video games and Japanese comic books, known as manga, has evolved from Astro Boy and Speed Racer cartoons in the 1960s, through Pokemon in the late 1990s, to the Academy Award winning film “Spirited Away” in 2003. According to the Japan External Trade Organization (JETRO), anime is viewed on television in over 70 countries. In the United States, the number of anime programs has grown from 13 in the early 1990s to 37 earlier this year.

Sony and a group of partners launched the Animax satellite television network in Japan in 1998 and began expanding to other markets in Asia and Latin America in 2004. In the U.S., Anime Network, headquartered in Houston, Tex., began in 2002 as a video-on-demand service with Comcast. That initiative has become a regular 24/7 cable channel in markets with a reach into 40 million homes. ADV Films Inc., the network’s parent company, this year formed a joint venture with Sojitz Corp., a $48 billion Japanese production company, to expand sales in North America.

In Japan, advertising agency Dentsu and industrial conglomerate Mitsubishi earlier this year announced an alliance to produce and sell 15 to 20 anime projects a year. “There have been a whole host of these developments,” says Gayton. “As these various partnership and distribution agreements become more pronounced, the potential for anime in the future looks good.”

According to Wharton marketing professor Jehoshua Eliashberg, the anime industry in Japan is deeply entwined with marketing tie-ins, everything from toys and video games to stickers, watches, tableware and figurines. The relationship between the anime production houses and marketers is much more coordinated than it is in the United States, where the producer makes the film first, then shows it to distributors and marketers for possible licensing deals.

In Japan, Eliashberg says, television networks, advertising agencies and toy manufacturers are all in on the development from the beginning, putting up money to finance the project and taking a share of the profits after the film is released. “I’m not sure it makes the film more popular, but it’s certainly more commercial.”

American film production companies are also interested in anime, buying the rights to remake Japanese films. Even though anime films do not pull in the kind of ticket sales that blockbuster Hollywood films do, they can still do well, Eliashberg notes. “They might pull in $10 to $20 million in the U.S., which is not considered extremely high. But if they do that consistently in many countries, it becomes a fairly big number. The [producers] are not paying Hollywood movie stars and they are outsourcing production work to South Korea and China, so it can become a very profitable proposition.”

Hiroshi Kamide, an analyst at KBC Securities in Tokyo, says the future of anime is in global sales because the art form has nearly saturated the Japanese market. At the same time, the Japanese population is aging. “Japan has this demographic problem. There are a lot fewer kids today. As a result, they are trying to kick-start the industry with more risqué content,” he notes, adding that in Japan, comic books and cartoons are not necessarily for kids only. Sexually explicit stories and images that appeal to men, and more recently to women, are a growing part of the manga and anime businesses. According to Kamide, the industry is also looking to expand through mobile phones and other forms of wireless distribution.

“Soft Power”

Historically, the Japanese government has not been supportive of exporting culture, but recently the country has reversed that policy to promote anime as a top product for overseas markets, says Gayton. Last year, JETRO launched its Entertainment Platform of Japan (EPJ) to foster ties between Japanese entertainment companies and global partners. In March, the Japan Anime Association opened the Tokyo Anime Center in the Akihabara electronics district in Tokyo to serve as a portal facility for the anime industry. Twenty-five members of the association, Tokyo’s municipal government and the Japanese Ministry of Economy, Trade and Industry are funding the center. “I think the future bodes well for anime because the Japanese government has initiated a number of different efforts to try and promote it,” says Gayton.

In 2002, an article in Foreign Affairs used the phrase “Gross National Cool” to describe the way in which Hello Kitty, Pokemon and anime symbolize Japan’s growing cultural influence around the world. The article argued that “cool” was a form of “soft power” that could benefit Japan’s global standing even though the country lacked some of the key elements of “hard power,” including a robust economy and military strength. A 2004 JETRO report cites a study by Dentsu that attempted to measure the “soft power” of 15 countries. The United States ranked first, while Japan was sixth after Sweden.

“If you think back, the initial vision of Japan in the prewar period was as the imitator that made cheap cameras,” says Susan Napier, author of Anime: from Akira to Princess Mononoke. “One of the biggest discoveries in the last decade or so is how imaginative the Japanese are.” Anime’s global appeal, she adds, is that it explores ideas that stand apart from most Hollywood fare. Beyond the distinctive artwork, anime paints a portrait of characters and themes that are different yet universal. The stories are darker and the characters more complicated, but at the same time anime explores common topics, such as coming of age. Often, anime stories are set in an apocalypse, which Napier says is more on people’s minds after September 11.

“A lot of people think Hollywood is just too full of feel-good happy endings that have no relation to reality,” says Napier. “People want escapism, but not always. Paradoxically, animation does it better than Hollywood live action.”

Pure Piracy

According to Gayton, anime remains a largely cottage industry, with much of the production coming out of small studios in Tokyo. Some argue that “one of the things that may limit, or has limited, anime’s popularity is the lack of management expertise at many of the animation houses. It’s not like dealing with Disney over there.” The industry remains fragmented, he adds, with studios often managed by artists themselves who rose through the ranks. “The kind of marketing savvy that made Disney [what it is] seems to be lacking.”

Further, anime is plagued by the same problems all entertainment businesses face. It is driven by hits and remains dependent on the whim of a fickle public. In addition, Gayton says, anime appeals to a mostly niche market of affluent, well-educated viewers, the type who would admire small, independent films. “From a mass-market perspective, it doesn’t seem as accessible. Even though it is visually stunning and attractive, the storytelling can seem too high-brow for traditional family-fare animation.”

Anime is also the focus of an intellectual property debate rising from its obsessed fans around the world who dub their own translations onto versions of Japanese television shows often only hours after they are shown in Japan. Then these so-called FanSubbers share their work over the Internet. Many operate on a code of honor that prevents them from sharing shows once they are licensed in the U.S.

FanSubbers know it’s illegal to distribute the shows because of the copyright treaties between Japan and the United States, but they view their licensing compromise as ethical because they are not making any money selling the material, says Ian Condry, professor of Japanese cultural studies at MIT, whose current research project is titled Global Anime: The Making of Japan’s Transnational Popular Culture.”

FanSubbers say “there needs to be an evolving understanding of fair use in the digital world. They have put in their own ideas of fair use.” While many anime fans practice what they view as a moral approach to sharing material, pure piracy does exist, Condry adds. In contrast to American entertainment companies, Japanese anime producers have been reluctant to sue. “The Japanese are less vigilant, but they are in difficult straits. They are concerned about raising the ire of their most intent fans.”

Chris Oarr, a marketing executive at ADV Films, the U.S. anime distributor, agrees that his company operates in a niche and can elicit intense loyalty from fans. “We are a lot closer to our customers than Paramount or Twentieth Century Fox. We are in a better position than most to address piracy issues because we do speak to our fans. I think that accounts for the often-stated protocol of removing something as soon as it’s licensed.”

Still, ADV faces piracy and prosecutes regularly, Oarr notes. Usually, ADV needs only write a letter to the web site and the pirated material is pulled. He says ADV, like other entertainment companies, is especially concerned about licensing violations through YouTube and is keeping a close eye on that site.

At the same time, he acknowledges that, to some extent, file-sharing fans generate marketing buzz that enhances ADV’s business. “The flip side of the FanSubbing phenomenon does mean that opinion leaders, or gatekeepers, or vectors are out there with the knowledge of shows we publish. There’s a level of excitement when anime people are aware of the show.”