Crunchyroll Pushes the Envelope On Video Copyright

Crunchyroll is a San Francisco based startup that is a sort of YouTube for anime and other mostly Asian video content. The three founders, who asked to remain anonymous, are all employees of HotOrNot and the company operates out of HotOrNot’s San Francisco offices (although HotOrNot has no financial interest in the company, according to the founders).

The site launched in the summer of 2006 and has grown rapidly, particularly since March 2007. Worldwide comscore stats show 1.3 million unique visitors in July, up from 480,000 in March. The company also had nearly 100 million page views in July and is seeing 20% monthly page view growth.

That growth was apparently enough to get the attention of at least one possible suitor, Viacom. A source tells us that the company was very close to selling to Viacom for $10 million earlier this year, but the deal fell through when Viacom realized that owning the site, which contains a lot of copyright infringing content, may have hurt their positioning in the billion dollar ongoing litigation with Google. Crunchyroll refused to comment on the deal.

All video is uploaded by users and has advertising around it. Premium users who “donate” $6 per month to the site get an ad free version and higher quality video. Rumor has it the company is making $75k/month or so in revenue.

Crunchyroll’s business model is unique in that users pay them to view high quality versions of the content, much of which is copyright infringing. That certainly weakens their reliance on the Digital Millennium Copyright safe harbor provision, which protects service providers from liability for content uploaded by users.

The safe harbor provision only applies if the service provider “does not receive a financial benefit directly attributable to the infringing activity.” It is arguable as to whether advertising around copyrighted content is a direct financial benefit, but it is even more difficult to suggest that a direct subscription fee, even if it is classified as a “donation” doesn’t trip the clause. Either way, Crunchyroll is certainly pushing the envelope as to acceptable behavior under the DMCA.

Stretching The Limits Is Often Lucrative

What’s interesting is that some of the worst offenders when it comes to copyright law have ended up doing very well.

ALLOfMP3 continues to stay in business despite being sued for $1.65 trillion by the RIAA. YouTube, the king of infringers, sold to Google for a cool $1.65 billion. Blogmusik managed to land licensing deals and remain in business. Imeem is growing like a weed despite a very chequered past. The list goes on.

Crunchyroll’s pursuit of premium donations is so audacious that it just might work for them. The company says they regularly comply with DMCA take down notices and other requests to have content removed. And they say that in general their relationship with the Anime and other content creators is very good. Some of those content creators have even approached the company and have suggested working together.

In the end, Crunchroll has over a million passionate anime users who come to the site daily to view content. The business model is secondary. Smart content owners will find a way to mine that user base and make more money.

Crunchyroll has not raised any capital to date, but is talking to venture capitalists now.