Avatar struggles show how Japan is ditching Hollywood

IN ITS ECONOMIC HEYDAY of the late 1980s and early 1990s, there was a curious phenomenon of Hollywood celebrities showing up in Japanese commercials: Arnold Schwarzenegger instant noodles, Harrison Ford Kirin beer. To this day, Tommy Lee Jones still appears in a long-standing advertising canned coffee.

You won’t, however, see much of the current generation of Hollywood stars — no Dwayne Johnson promoting Toyotas, no Ryan Reynolds plugging energy drinks. That’s not just because Japanese firms don’t have the market budget they once had — Johnny Depp recently advertised Asahi beer — but because of a growing, often ignored fact: In Japan, Hollywood isn’t the draw it used to be.

The US share of the world’s third-biggest box office has been dropping for years, a phenomenon that predates the pandemic and has only been aggravated by it. Four of the top five grossing movies this year are domestic hits, with Hollywood’s only representative the ’80s throwback Top Gun: Maverick.

It’s part of a broader decoupling between Hollywood and Japan. But unlike the woes studios face in China, this is no ideological departure. Japan is a free market, with no equivalent of the quota Beijing places on US movies, nor censors stepping in to prevent their release on moral grounds. Neither is it a pandemic phenomenon. Japan is one of the few countries that largely kept cinemas open during the global outbreak.

Instead, Japanese audiences are favoring domestic fare, a trend accelerated by an increase in big-budget animated movies. Every other film, except Top Gun, in the top five this year is Japan-made and uses animation, led by One Piece Film: Red and Jujutsu Kaisen 0: The Movie. Even James Cameron isn’t immune. His Avatar: The Way of Water debuted at a disappointing third place in Japan, behind two animated motion pictures that have been on screens for weeks. Some estimates say it’s the only market where Avatar failed to debut at number one.

While the first Avatar was a box-office hit in Japan and the country’s 12^th-highest grossing movie of all time, tastes have shifted in the decade-plus since. The phenomenon is epitomized by the of Demon Slayer: Kimetsu no Yaiba — the Movie: Mugen Train — which despite opening in the midst of the pandemic became Japan’s biggest-ever box office hit, toppling a record held since 2001 by Studio Ghibli’s Oscar-winning Spirited Away.

There’s no single reason behind the audience’s changing tastes. But one must be the rising quality of domestic movies. The days of reusing animations and dragging the same action scenes out for episode after episode are over. Japanese animation these days is a big-budget affair, illustrated nowhere better than by the hits from director Makoto Shinkai, the behind Your Name, the 2016 tale of body-swapping teens that is Japan’s fifth-biggest box-office blockbuster. Shinkai’s recently released Suzume, a disaster-themed animated fantasy that’s one of the movies that beat Avatar last weekend, is nearing ¥10 billion ($75 million).

Meanwhile, the same pressures that impact the movie industry elsewhere also affect Japan. The rise of streaming means that films need to be tent-pole events to get people in seats. Animation directors like Shinkai or Studio Ghibli alum Mamoru Hosoda have become brand names unto themselves, with budgets to match. That pressure for success encourages making movies of established franchises such as One Piece, the long-running pirate series that is Japan’s all-time top-selling manga, or perennial high-school basketball tale Slam Dunk, a movie adaption of which beat Cameron to the top of the box office last weekend.

The rise of high-quality movies from the pages of comic books also means there’s less room for Hollywood’s equivalents. Another reason for its shrinking share is the limited audience for the now-ubiquitous superhero movies. With a few exceptions, such as Avengers and Spider-Man, consumers haven’t taken to them in the way they previously flocked to franchises like Harry Potter or Pirates of the Caribbean. While Black Panther might rank globally as the 10^th biggest-grossing movie of the last decade, it scored just $14.7 million in Japan. This year’s Thor: Love and Thunder earned a paltry $9.8 million.

Even Walt Disney Co.’s animation hits seem to be struggling. While 2013’s Frozen grossed nearly $250 million in Japan — fully 20% of its total — recent entries have done startlingly poorly. Last year’s Encanto earned just $6.8 million, Raya and the Last Dragon $3.3 million, and Strange World, released a month ago, less than $1 million. For a Disney-crazy country, that failure should be concerning. Notably, remakes of previous hits like Aladdin and Beauty and the Beast seem unaffected by this disinterest, a further indication that it’s the properties themselves, not the hassle of going to the theater, that’s turning audiences off.

Japan’s success in capturing audiences at home is to be applauded. There’s no question of protectionism here. But it’s hard not to feel a little troubled if this trend continues long term. Among certain generations, despite a lack of a common language, it’s easy to bond over a shared love of Arnie blockbusters or the early career of Leonardo DiCaprio. For that to disappear entirely would be to lose something precious.

Of course, there’s always the alternative: Japan could better export its increasingly high-quality products. Animé already scores highly on Netflix, Inc. worldwide, with more than one generation of westerners having grown up watching Japanese cartoons. Sony Group Corp.’s purchase of animé streaming service Crunchyroll bears close attention.

It’ll be interesting to see if the second season of the Japan-produced Netflix show Alice in Borderland, released this week, resonates with audiences. The first season largely sank without trace abroad, only for the similarly themed South Korean Squid Game to become an international phenomenon. Instead of aging Hollywood stars in Japanese commercials, it might be Japanese stars, real or otherwise, hawking products on western screens.

BLOOMBERG OPINION