Fast forward to 2008, and lo and behold, it looks like some VC’s are either gutsy, brainy, or just plain ol’ “I’ve got money burning a hole in my pants, and I’ve got to spend it somewhere” (also known as “stupid”), as Crunchyroll has got its first round of funding, courtesy of Venrock, to the tune of just over $4 million dollars, as reported quietly by the Private Equity Hub.

So, back to where I see the controversy: Crunchyroll’s content — the popular stuff — is almost all totally copyrighted material … *somewhere*. We’re talking popular (and less so) anime, full reel stuff, if its found in separate parts, almost always dubbed subbed (that is, “subtitled”) for English speaking audience. There’s also Asian movies by the bundle, Chinese, Korean, and Japanese (and probably more), all dubbed subbed for your easy perusal. The way that Crunchyroll makes its cash is through a membership fee, as you can pay to watch a higher quality streaming video.

And let’s give credit where its due: they will happily take down material *if* the copyright owners send in all the right DMCA paperwork. Furthermore, there are smaller sections (that’s probably growing) that are focused on user-generated videos (music videos, and videos of people with their riced up cars, for example).

So why was I all agog with this announcement?

Only that it seems like Crunchyroll’s success lies *soley* with its ability to stream copyrighted material that anime-obssessed otaku are overjoyed to watch — for free — without downloading. That a fraction of their this bunch is happy to buy a membership so that they can share in higher quality streaming seems to be an *extremely* dubious model to me, simply because its all hinging on the hope that the original owners of said copyright are *not* going to throw DMCA letters to take down all this material.

The “this is so stupid, I can’t believe how stupidly stupid this is” part of the argument probably carries on by saying that once companies across the Pacific Ocean *do* hear that Crunchyroll has funding, all it creates is a giant sign that says “we’re big enough so that you can now send your lawyers after us!” I guess that there are some VCs who are confident that, just like Google, there are some video-streaming sites that are just worth fighting for (but probably, unlike Google, don’t have the warchest to fund said legal fight).

But that brings me to the gutsy and or brainy part of it. Maybe there’s some part of the plan that we don’t yet know about; perhaps Crunchyroll has made a number of partnerships behind the scenes to stream a ton of copyrighted material. Who knows? Or maybe the minds behind Crunchyroll have some awesome way of maintaining members and viewership up even when the proverbial Golden Goose has been sued into submission (it looks like a classic figure four leg-lock, if you must know).

Hey, anything’s possible, I guess.

But I’m really hoping that their business plan *doesn’t* involve a lot of praying and hoping that the original copyright holders *don’t* DMCA the hell out of Crunchyroll, so that Otaku all over the world can watch their J-drama’s and anime gratis.

A couple real interesting things here.

1. Google actually owns a 5% stake of the site in question, Xunlei.  Nothing too profound here, just thought I’d point that out.  Oh, and say that, perhaps Google has had its fair share of copyright and piracy issues with YouTube, and knows a thing or three about settling them.  On the other hand 5% ownership probably amounts to a negligible amount of liability, and is probably what Sergei and Larry have hiding in their gold-plated couches at any given moment.

2. Chinese Torrent Sites aren’t really the problem.  Sure, tons of people use them.  Perhaps, for Xunlei at least, as many as the Wikipedia numbers suggest.  But I think that’s only one part of the equation.  The real question people should be asking themselves is if movie piracy is a significant problem, exactly how “mainstream” is it, and are there any other quasi-legal “distribution channels” that exist where might be *more* significant than, say, torrent sites?

My money is on “not as much as they MPA worries about, but its not zero”, and “yes, there are *other* distribution channels that exist that might be more significant.

What might those be?

Well, I don’t know where you live.  But in Toronto, there are several locations where you can buy pirated DVDs — *physically* — off the shelf, for as little as $1 a pop.  The just released stuff might be more expensive, but at a “volume” discount, it might be $20 for 6.

No, these aren’t dudes selling it out of the back of their car.  These are folks who are in malls — physical locations — raking in thousands of dollars a weekend selling boot leg movies.

And let’s not be obtuse.  Of course they are Chinese Malls, found in the multitudes of Chinatowns around the city (we have many).  In Toronto, you can look to good ol’ Pacific Mall, for example.  Market Village is another.  First Markham Place has tons.  They all do, in fact.  Like 5-6 per mall.

If you’re so inclined, here’s a tip: Don’t go on week days — they only have *Chinese* pirated material.  Weekends is when they bring out the Hollywood stuff.  One enterprising place has even hired a “kwai-lo” to help the crowds on weekends.

Every few months or so (may be six-ten) the local constabulary put on a good show and make a few arrests, and hand out hefy fines, but you can bet your bottom dollar that the majority of them are back doing the same thing two weeks later (probably because it only takes a couple weeks to recoup the costs of the fine).

Long rant, but here’s the bottom line.

I’ve been around Toronto, but I’ve also been to a lot of other Canadian and American cities.  And you can bet that I’ve seen folks selling bootleg DVD’s *everywhere*, and again, I’m not talking about of the back seat of some car, or on the street.  I’ve seen’em in all kinds of ethnic malls, and other places most concerned people don’t care to look.

And its no secret.  I mean, its like they’re selling candy to kids who can’t control themselves, at 90% off.  And you’re still making several 100% in profit.  In many ways, its *better* than selling drugs (and let’s not get into how organized crime might or might not be involved in any of this).

So, Hollywood interested in taking down torrent sites?  Sure, why not.  But there’s a real distribution channel that exists to funnel pirated movies into the hands of ordinary folks, that I rarely, if *ever* see mentioned.

And that, to me, is the real irony.

Or stupidity.

Or shortsightedness.

… well, you get my drift.