A controversy is developing this week that could adversely affect the entire anime industry, and may either involve legal action or turn into something that can benefit both anime fans and copyright owners.

Crunchyroll Inc. is a video streaming site founded in 2006, that began as a type of fansite, running anime (among other things) without licensing it. Originally just a hobby, the site got so many hits that the venture capital firm, Venrock, began to take notice. It has now been confirmed that the company has invested US $4.05 million into Crunchyroll, with Venrock's General Partner David Siminoff joining the site's board of directors. Crunchyroll has clearly hit the big time.

The problem is that none of the anime running on the site is licensed. In other words - it's a violation of copyright for Crunchyroll to stream these series. However, the owners of the site - who are so far remaining in the shadows - claim that they want to operate legitimately, and work with the distribution companies to acquire license to the titles.

They have in fact responded whenever an explicit demand was made that they take down certain series; they've posted a specific policy about that very thing. Meaning that to this point, according to an interview they gave to Kokoro Media this week, they have removed series such as Dragonball Z, Cowboy Bebop, Death Note, Evangelion, One Piece, Gundam, and Hunter X Hunter, at the copyright and license owners' request.

FUNimation, meanwhile, was the first to issue a statement about all this, on Wednesday of this week, saying it has been "carefully monitoring" the site since 2006, and has notified Crunchyroll of several copyright infringements. FUNimation further reminded fans, in its statement, that if such sites don't pay for the content, the high cost of producing anime cannot continue to be met. Implying, of course, that we could lose our anime altogether if we don't honor the producers' work in creating it, and the distributors' work in bringing it to us.

Shortly after FUNimation's public statement on Wednesday, Bandai Entertainment followed suit, stressing more than once that the entire anime industry could be in jeopardy if illegal downloading continues. Bandai has also demanded that Crunchyroll remove any of its titles from the site.

The most recent news, as of Thursday, is that Gonzo/GDH is not outright condemning Crunchyroll, but instead is engaging in talks with them, to find some compromise that will benefit both. (Gonzo and its parent, GDH, have been responsible for such titles as Hellsing, Samurai 7, Basilisk, Gravion, Peacemaker, and Transformers: Cybertron.) The report about the negotiations with Gonzo has been posted on Crunchyroll's blog, and judging by some of the gifts the company apparently sent, Gonzo's approach is definitely positive.

Also judging from some of the comments attached to the blog post, Gonzo's method of dealing with this problem is winning fans, while the more hardline approach of FUNimation and Bandai may alienate a lot of them and actually hurt, rather than help, those companies' business. It's going to be a fascinating exercise, watching the two methods at work, and seeing which one best succeeds with the anime fans and most benefits the copyright owners and distributors.

Meanwhile, according to the Kokoro interview, Crunchyroll itself assures both fans and anime copyright owners and licensors that it fully intends to obtain legal licenses to all the material it shows on the site. If it can generate income in ways other than going pay-to-play (which generally doesn't work in this genre) - things like ads, for example - the anime industry might become a little more forgiving of Crunchyroll's questionable beginnings, and might allow the licenses.

Hang onto your hats! This could be a wild ride before it's done!