Will Sony’s Deal Roll On?

5 months ago 106
Will Sony's Deal with Crunchyroll happen with the US Department of Justice requiring a deeper look?

After going back and forth for a while, this past December brought confirmation that Sony, owner of Funimation, would be buying Crunchyroll from AT&T. But is it possible the deal will never go through?

The Investigation Continues

On March 24th, The Information reported the US Department of Justice is taking a deeper look at the purchase to ensure there are no antitrust issues.

The article notes the review could take six months or longer, and it’s also very rare for this second-look-delay to happen:

“Most acquisitions reviewed by U.S. antitrust regulators aren’t subject to such extensive reviews, with just 3% of deals getting a second-phase investigation in 2019, the most recent year for which such data is available.”

Crunchyroll reached four million paid subscribers in February. Meanwhile, Funimation’s numbers aren’t public, but in the US, it’s likely under a million. So even with Funimation’s international numbers, that still would be a fraction of most streaming services. Paramount+, which can be considered new-ish even though much of it is a rebrand of CBS All Access, touts around 20 million domestic subscribers. HBO Max, which is one of the most expensive streaming services, has around 40 million.

Those numbers are likely going to be a part of AT&T and Sony’s arguments. According to The Information:

“The companies are urging the Justice Department to not consider anime as a market distinct from the broader range of animation geared toward adults, which would expand the field to include shows such as ‘The Simpsons,’ said people familiar with the situation.”

The companies also point to Netflix, Amazon, HIDIVE, and others being options for anime studios who want to license their work to the US and elsewhere.

The Future of the Deal

So whether it’s a month from now or a year from now, we’ll find out what the Department of Justice says. The likely outcomes are:

The deal is approved as-is.The government sues to stop the deal.Sony and AT&T have to agree to additional terms.

You could make arguments for each of the results.

The first is rather self-explanatory. There are so many streaming options out there for those who wish to pay and even for those who only want free services. In the anime world, Netflix has teamed up with several studios to develop new shows and/or get first access. Free-with-ads RetroCrush keeps adding new anime.

And, well, that’s not to mention all the non-anime content out there, from Disney+ hits like WandaVision to HBO Max’s same-day-as-theaters movies. In addition, Disney has picked up the rights to the partially-Toei-backed show (which once was very anime) Miraculous: Tales of Ladybug and Cat Noir while HBO Max has Ghibli movies. So even if not “anime” in the strict, weekly-show-from-Japan sense, those services can provide a similar fix. And it doesn’t mean they couldn’t add more in the future as the anime boom continues.

On the other hand, governments should tend to do their due diligence whenever a market leader enters into a business transaction with a competitor. As I mentioned in a couple of articles, President Biden’s administration is likely going to be harder on mergers and general anti-consumer practices than his predecessors, including potential monopolies. HIDIVE, for instance, which Sony and AT&T point out as a competitor, doesn’t have the financial resources or Japan connections to back anime productions from the get-go like Crunchyroll and Sony (through Aniplex/Sony Music Entertainment) can. Netflix would probably be their biggest rival, but is the fact they back and license anime enough? Having antitrust issues isn’t just about being a literal monopoly (as in no other options) but making things more difficult for consumers to shop around. For instance, you can buy copy paper, coffee, printers, and such at Amazon, Best Buy, and Walmart, but there’s reasons why Staples and Office Depot can’t just merge.

In addition, very few of Netflix’s titles make it onto home video in the US. A few anime like Violet Evergarden and The Seven Deadly Sins had discs put out by Funimation, which may be an issue for the government. But if a studio wants to make sure fans can buy a Blu-ray, suddenly their streaming options are much slimmer. Again, there’s HIDIVE via Sentai Filmworks, but again, they don’t have the purchasing power of its bigger rivals.

Funimation Logo

But the Department of Justice may allow the sale to happen, but there will be restrictions. Maybe Crunchyroll/Funimation can’t raise prices for a number of years. Or they will be forced to offer VRV to HIDIVE. Maybe Sony has to agree not to pursue HIDIVE — and it’s possible Sony would want to, using the same “to better compete with Netflix et al” reasoning. Sony can control, hypothetically, 40% of the anime streaming market, would 45% be an issue? 50%? Where’s the line? Regulators are likely be crunching the numbers, finding that line, and making sure Sony doesn’t aim to cross it even if this sale is approved.

So will this sale be approved? Probably, but with some limits as I described above. I imagine the government would want to ensure HIDIVE isn’t left high-and-dry, that they can remain a viable competitor in the anime streaming market.

If the Department of Justice does sue, it’s not like the deal is guaranteed not to go through. Sony and AT&T could go to trial, or they could end up making further concessions in exchange for permission to merge. If they were to lose or decide it isn’t worth spending more money on lawyers, then Crunchyroll would probably be spun off into its own company, maybe like DirecTV is now.

AT&T logo

As I’ve said before, I don’t know how many other companies would be interested in paying over $1 billion for the service, and AT&T doesn’t seem to have any interest in streaming outside of their own HBO Max. And the problem is that with Crunchyroll having such a huge presence in the US and global markets, anyone who is related to the anime streaming universe is going to get a huge boost. We often tend to think of businesses gobbling up smaller competitors leading to monopolies, but in this case, the market leader wants to sell itself. So it’s no surprise the government wants to have a thorough analysis. With the Biden administration taking a harsher stance on big corporations, it may seem like the deal would have had an easier time going through under his predecessor, but well, any AT&T-related deal likely would have been in the government’s crosshairs anyway.

So if you were worried about this merger, well, you get to enjoy the status quo for a while — likely several months — without worrying about changes. Maybe it could be wrapped up quickly and things just got a little delayed because of the pandemic and the change in administrations, but I doubt this is just going to wrap up in a couple of weeks. Otherwise, why would they need a delay? But whether you want to simply your anime streaming habits and have more under one roof or don’t want to deal with less competition, we are all just going to have to sit and wait for the outcome. No matter what happens, it won’t be too much of a surprise.

Do you want the Crunchyroll/Funimation merger to happen? Why or why not?
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