Anime attacks: as Disney dithers, Toei takes on the world.

IF you haven't heard of Mr. Muscleman, Digimon Tamers, or Cutey Honey, listen up. They are the first attack wave in a new Japanese army of occupation, and their target is children around the globe.

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COLORFUL AND CUTE THEY MAY BE, but these characters have a fearsome record of success. From Sapporo to Seville and on to Santa Fe, Japanese cartoons are reveling in a new global boom. Their makers have discovered a world full of little people with big appetites for the sort of madcap fantasy epics that Japanese animators specialize in--and those animators see now as the right time to storm the overseas market. They have just reached the conclusion that the United States, Britain and continental Europe are ripe for a double conquest: the TV programs, and the flood of merchandising that goes with them.

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The Japanese confidence in the marketability of traditional hand-drawn cartoons stands in stark contrast to that of US animation behemoth Disney. This January, the company that originally made its billions from Mickey Mouse took the signal step of closing its Orlando animation studio as part of an ongoing process of cutting back on its output of traditional 2D cartoons. Flops like the 2D Treasure Planet have been triumphantly outdone at the box office by computer generated (CGI) 3D hits like Finding Nemo and Toy Story.

Disney's decline

The future of animated cartoons has been brought into even sharper focus with the recent corporate maneuvers surrounding the Disney empire. Near the end of February, Walt Disney's board unanimously rejected the unsolicited takeover offer from US cable giant Comcast and offered a vote of confidence for Disney chairman and chief executive Michael Eisner, tossing the ball back into Comcast's court just as Disney was readying itself for its crunch annual meeting in early March.

Comcast's bid, valued at $47.97 billion plus $11.9 billion in Walt Disney debt, was made in mid-February and reminded many analysts of the 2000 deal that forged AOL Time Warner. Many were also quick to point out that, in the course of 2003, it was established that the AOL element of the company now represented nearly zero value to the corporate whole. In a statement, Disney's board seemed eager to shift the focus toward its concern for shareholder value and away from criticisms of Mr. Eisner's performance.

The board said it would "consider any legitimate proposal" that would create shareholder value, and added that the board "has confidence in the business, financial and creative direction under the leadership of Michael Eisner and his management team."

The build-up to the March meeting put the trailers for a summer blockbuster to shame, but when the event itself took place, even the most jaded market mavens were surprised. In a powerful blow aimed squarely at the top of management, Michael Eisner ended the showdown with an agreement to step down as chairman of the entertainment giant. He will stay on as chief executive while Disney tries to ride out the twin threats of a shareholder revolt and the unsolicited Comcast offer.

But the message was as audible as they come: Enraged investors withheld a startling 43 percent of voted Disney shares from Eisner at the Philadelphia event, reminding the world of who is actually in charge of a listed company.

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As the corporate skirmishes play themselves out, there is an even more critical set of issues astir: Will Disney continue to rule the roost when it comes to animation, or is this the beginning of the end of its long era at the top?

What many analysts can readily imagine is a scenario in which Disney is effectively split up into its salient divisions, and the market (via investors, corporate buyers and private equity) decides what will constitute the new core of Disney and what will not. In that process it is also very possible that, in effect, the conclusion will be reached that the business of animation is now best handled by an aggressive new breed of experts--and that the Japanese are at the very top of that list.

Hooking the kids

Japanese cartoon makers firmly believe they have the edge when it comes to content. They have mastered, they say, the art of getting young viewers hooked on long serials and of extending the appeal of the cartoon format to a broader range of age groups.

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While Chappie the Witch appeals to toddlers, and Magical Doremi  to 7-year-olds, Jeanne, the Kamikaze Thief and Fist of the North Star have teenagers gripped. The plots, which draw heavily on Japan's vibrant comic book culture, are absorbing and intricate. True: the action can be violent, and the themes are often bizarre. But the visuals of the cartoons themselves have a uniquely recognizable Japanese artistic style that has already proved a major draw in early experiments in both the US and continental Europe.

Within the next few months, a rich selection of Japan's most popular cartoon hits will be appearing on screens around the world. Shows such as One Piece, which follows the adventures of a child pirate, and Sailor Moon, which features large-breasted high school girls with magic powers, already command multi-million strong audiences in Japan.

Their makers have every reason to believe that the formula will work outside the country with only the minimal tweaking of language and the adjustment of cultural references. Their distributors' strategy is to start with the cable and satellite audiences, and then make the leap onto terrestrial channels just as overseas television systems convert to digital transmission.

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The invasion is already well underway. Dragon Ball and Digimon are now playing to British audiences, and both are following closely in the hugely successful footsteps of Pokemon, the globally ubiquitous cartoon series that spawned video games, trading cards and a host of other manifestations that rake in millions in merchandising profits.

Heading the latest charge is Toei, the largest of the Japanese animators, and a company that was founded in 1948 specificially as a rival to the big US houses. (Toei was once dubbed "the Disney of the Orient.") Over the last few years, Toei has been so aggressive in selling its wares abroad that 40 percent of its sales now come from a combination of Europe and US figures.

In addition to foisting Digimon onto Saturday morning audiences, Toei has already sounded out the UK market with its wild-haired, towheaded hero Yu-Gi-Oh--a trading card and video game tie-in that makes the merchandising power of Nintendo's Pokemon seem, er, poky. Both titles already hold the No. 1 and No. 2 slots in the US TV market. Toei's Saint Seiya series--a huge hit in Japan during the mid 80s--is the next on the list for export.

It's the story, stupid!

In an exclusive interview with J@pan Inc, Toei's president, Hiroshi Takahashi, explains his confidence in the Japanese 2D format. "The fact that Disney is withdrawing from 2D animation has certainly given the whole cartoon industry a lot of unease, but we still believe absolutely in the future of 2D. It's simply cheaper and quicker to make. When the costs converge, we can perhaps start talking about CGI as an alternative," he says.

Takahashi believes that children around the world have entered an era in which US-style cartoons no longer provide the richness and variety of entertainment today's animation audience demands. "The basic differences between our cartoons and the stuff coming from the US studios is that ours are far deeper," he says. "We spend so much time on the treatment of the main character and the twists and turns of the story. Japanese stories are often spectacularly complicated, and each individual character gets much more and much deeper development."

It's story--rather than advanced technology or budgets--that distinguishes superior animation and speaks to today's more sophisticated sensibility. "Disney animations, 3D or not, are simply flat," Takahashi continues. "If all you want are happy endings and perhaps a bit of surprise somewhere in there, fine. But Japanese cartoons give viewers the whole gamut of emotions--tragedy, jealousy, romance, anger, grief. People in the US and UK have started to crave something different, and that niche is perfectly filled by Japanese animation. For one thing," he adds wryly, "Japanese cartoons use talking animals very, very rarely."

Toei's impending assault on British televisions sails forth on a wave of success already generated by Japanese animation feature films that have performed well at the international box office. Last year's Oscar-winning success of Spirited Away added strongly to that momentum, and to consumer awareness of its force.

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The complexity of Japanese cartoon plots--many series run to more than 50 episodes--taps the same addictive quality that has fueled the Japanese comic book market. Toei's Dragon Ball, for example, has been running for nearly 20 years, during which the diminutive hero has taken on more than 1,000 different enemies in his endlessly frustrating quest for the eponymous dragon balls.

But the cross-cultural appeal of Japanese animation is not as new as it seems. With little fanfare, American and British children long ago demonstrated their potential interest in Japanese cartoons. Battle of the Planets, which was screened by ABC and the BBC in the 80s, was a best-selling product for Tatsunoko, one of Toei's closest rivals. Edited heavily for violence, copious tears and untranslatable emotions, it became largely unrecognizable to Japanese visiting Europe or the US at the time, and the producers took pains to cloak the fact that the show had its origins thousands of miles away.

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"When Japanese cartoons first went abroad it was really almost impossible to meet US needs," says Takahashi. "It was a time of analog editing, and it was hard to convert the products within a reasonable budget. But in the digital era, 2D cartoons can be edited in a flash. We can alter things like clothing or home furnishings to make everything more familiar for Westerners. Even so, we actually change less and less these days. What we find is that there are fewer borders in the global cartoon market today, because children nowadays are actually pretty clever--and they understand the pictures anyway."

Chicken versus egg

But Takahashi believes that the real edge the Japanese have is that their cartoons are inextricably tied to a whole consumer culture of video games and merchandizing. He explains that Japanese cartoons have engineered their huge exportability via the surrounding products, so that consumers face a tantalizing chicken-or-egg scenario: They are no longer completely sure which came first--the toys, the video games, the mobile phone jingle, the clothing range, the trading cards or the TV program that tells the story.

"I wish I could say it was a general feature of Japanese businesses, but it isn't," Takahashi concedes. "Japanese animation companies are just the best in the world at getting the media mix right."

Toei's stock was listed on the Jasdaq market in 2000, and while the overall story has generated plenty of investor interest, progress has been choppy. Although Toei has the largest back catalogue of cartoons in Japan, digitizing the entire collection and readying it for global distribution or DVD sales has been an expensive and time-consuming process.

In fiscal 2002, the group posted a net profit of [yen]1.7 billion--an 88 percent one-year jump. But net profit results for fiscal 2003, due in three months, are expected to show only a marginal improvement. The group employs an army of 370 artists, and despite running cheaper operations in the Philippines, the general cost of making cartoons is surging.

The answer to this, says Takahashi, is to concentrate even more intensely on selling Toei's cartoons to the global market, gambling on the premise that their apparently addictive qualities will have the same potency everywhere.

"In the end, we are in a business for kids, and there just aren't as many kids in Japan as there used to be," he says. "So of course we have to look at the rest of the world, because that is where the children are."

Toei tallies:

* Cinema release feature films:          54
* TV cartoon shows currently
  being shown in Japan:                 148
* Annual output (titles):               250
* Total number of productions
  since foundation:                   8,000
* Number of cartoon hours
  available on DVD:                   4,000
* Artists:                              370
* Sales in fiscal 2002 (billion yen)     17.7