Ask John: What’s the Point of FUNimation Suing Sentai?

Question:
Heard the news that Funimation is taking ADV, and its successors to court, acting as a debt collection agent for a Japanese entity.
Why on earth would Funimation want to do something like that? It is going to cost them, perhaps, millions of dollars in legal fees, just to recoup an estimated 8 million dollars for a group in Japan. This case doesn’t appear to be a slam dunk for Funimation, so the question appears to be why, and what do they get out of it. Is Funimation doing so good, that they can afford this legal wrangling for an outside party? What ever the case, this can’t be good for us.

Answer:
Naturally, representatives of FUNimation and the various companies affiliated with Section23 would be the ideal spokespeople to address this issue, but none of them will do so in order to preserve their legal integrity. My own position to speak on the issue is arguable but defensible. I have no more or less right to an opinion on the situation than any other affected consumer, and likewise little, if any, insight into the situation not publicly known.

The American fan community largely seems to be interpreting FUNimation’s suit against Sentai & company as a Goliath bullying David situation, which seems rather ridiculous to me. Lest we forget, FUNimation is a privately owned distributor that was practically valued at only $24 million as of last April when founder Gen Fukunaga along with John A. Kuelbs, and Darwin & Doug Deason purchased the company from Navarre. An estimated $8 million dollars is a significant sum to a company that just sold for $24 million a year ago after no one besides the company’s founder would even offer that much. While FUNimation has pursued legal action on behalf of Japanese companies in the past, this domestic lawsuit is not on behalf of Japan’s Sojitz corporation. FUNimation appears to have acquired 30 anime titles from Sojitz with the stipulation that it could recover and keep the debt tied to those 30 titles. FUNimation claims it has been ADV’s creditor since July 2008, meaning that ADV no longer owes Sojitz/ARM; it owes FUNimation. Sentai & company seem to even concede that FUNimation does have a legal right to collect unpaid royalties on those 30 anime titles that it owes, but Sentai appears to claim that it shouldn’t have to pay the debt because Sentai & company weren’t formally incorporated in July 2008 when the debt transferred to FUNimation, and FUNimation didn’t file a lawsuit to force repayment within a legally stipulated two-year window. Seemingly, FUNimation interprets Texas credit law to read that the particular circumstances of this situation allow for a four-year window, not a two-year window to file suit.

Although actual market shares are not recorded, FUNimation clearly has a bigger market share of the domestic anime market than Sentai & company. But even FUNimation is a relatively small company on the scale of American home video distributors. FUNimation is a privately owned and operated business, so observers should have no reason to begrudge the company’s efforts to persue and obtain money which it believes is legitimately and legally owed. This lawsuit may not be so much an effort that FUNimation can afford to pursue as one which the company can’t afford not to persue. After all, FUNimation may possibly have acquired the 30 anime titles in 2008 specifically with the intention of supplementing the consumer sales of those titles with repayment of the debt attached to the shows. While FUNimation may be one of America’s most successful anime distributors, FUNimation is probably not successful or rich enough to allow it to simply forgive and forget an $8 million debt.

Sentai and company never formally filed for bankruptcy protection from creditors, instead assuming that a legal shell-game of transferring rights and changing names would make its debt vanish. Perhaps Sentai & company have succeeded in legally erasing their tracks and defaulting on financial obligations. A Texas court will have to judge whether or not Section23 and its companies have successfully excised their obligations. While outwardly Sentai Filmworks is aggressively licensing new anime titles and appearing very healthy to consumers, inside industry discussion suggests that financal responsibility isn’t one of Sentai’s strengths.

American otaku fear that in-fighting between the Texas licensors will compromise anime licensing and distribution in America’s already diminished field. Both FUNimation and the reincarnated A.D. Vision have proven their tenacious sustainability. Both distributors are doubtlessly doing whatever they believe they need to do in order to remain stable and solvent. Amateur anime fans presume that this lawsuit is a frivolous matter of one-upmanship or corporate sabotage, but America’s anime companies are not gigantic conglomerates. Many of them operate on a skeleton crew and barely make ends meet. So rather than a spiteful frivolous suit, FUNimation’s charges against Section23 and Section23’s countersuit are likely measures of necessity rather than whimsy, and neither company wants to damage or further diminish the already weakened domestic anime market.