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In the Volatile World Of VTubers, Companies Crash And Burn

As interest in VTubing explodes, the fledging young field is experiencing some awkward growing pains

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Three VTuber avatars, Shxtou, Mito Tsukino, and Ironmouse look out against a purple and green background.
Image: Shxtou / Mito Tsukino / Ironmouse / Kotaku

Elves, robots, zombies and pirates. Many of today’s internet stars aren’t even human, but outlandish characters that wouldn’t look out of place in a popular anime or manga. Such is the world of virtual YouTubers or “VTubers,” who have gone from a niche technology experiment to a full-blown cultural phenomenon in the space of just a few years. Yet as this fantastical world continues to expand, so too do its cautionary tales, painting a picture of a subculture that may be expanding faster than its fledgling infrastructure can support.

Kizuna AI is often given credit for being the first virtual YouTuber, but the industry has come a long way since her entrance onto the scene in 2016. As animated avatars that mimic the movements and facial expressions of the person behind them, VTubers now count among some of the platforms’s highest single earners and most viewed accounts, all the while enjoying a sizable presence outside of the country where they began - Japan. Despite some recent scandals, the VTuber bubble doesn’t look to be bursting any time soon, leading many aspiring creators to go down the virtual path less trodden.


Upon doing so, many would prefer to debut as part of a talent agency or company than to try breaking into the field on their own. While it is certainly possible to make a living as an independent VTuber, there are certain benefits to signing an agency contract, usually in exchange for part of your income. The first is brand recognition: when debuting as part of a well-known group, more fans are likely to discover your content. The second is a sense of community: talents frequently forge friendships with each other and carry out collaborative projects.

The VTuber Ironmouse smiles in a shot from a YouTube video.
The popular VTuber Ironmouse is seen here in a recent YouTube video.
Screenshot: Ironmouse

Moreover, VTuber agencies can also help with less glamorous things such as software support, legal advice, brand deals, and even character creation. This last part is particularly important as a VTuber is nothing without an attractive avatar, so a good VTuber agency can help put talents in contact with prospective designers. Some agencies may even provide them in-house.

That being said, there is an imbalance right now between the number of creators who want to debut and the number of agencies able to accommodate them. As long as the VTuber bubble continues to grow, there are incredible possibilities for new companies entering the space, but also incredible pressure on them from prospective talents. The result is an industry littered with the corpses of countless failed ventures, each with their own particular story. Here are just two.

The Curious Tale of Colorful Magic

Sometime back in June, a curious phrase started trending on Japanese Twitter: 1日落ちたVTuber事務所. Roughly translated as “the VTuber agency that fell in a day,” it referred to the incredible feat accomplished by one company called Colorful Magic that began operations, held auditions, recruited talent and disbanded—all in a single day.


It started out innocently enough, with a single tweet on June 13 announcing the formation of the company and the start of auditions for its first wave of talent. Very quickly, however, several users began to point out some of the pitfalls in the company’s strategy: most notably, the fact that anyone who provided avatar modeling would be doing so ‘free of charge’ as the company was not currently making any money. Avatar provision is considered one of the key functions of a VTuber agency, but the amount of artists who would be willing to do this work for free is very low indeed.

As the day went on, some cybersleuths managed to track down the identity of Colorful Magic’s owner and founder: a freelance rigger by the name of Roze. Having taken avatar commissions in the past, Roze certainly had some experience in VTuber-related software such as Live2D and Reality, but nothing in terms of successfully running a business. Thus, the amount of support that this agency could actually provide for its talents was likely pretty limited.


On June 14, just shy of 22 hours after the initial announcement, the Colorful Magic Twitter account then put out a statement basically confirming everything the Internet had found out up until that point. Roze admitted that they had severely underestimated what it took to run a VTuber agency and would be putting the company’s activities on indefinite hiatus, at least until they had sufficiently leveled up the relevant skills.


True to Roze’s word, Colorful Magic did eventually reemerge several months later as an “AVTuber” agency (with AV standing for “adult video”), combining the wonderful world of Japanese pornography with virtual YouTubing. Another controversy soon followed involving Colorful Magic’s unauthorized use of an artist’s illustrations that resulted in Roze deleting their Twitter account, but the agency has successfully managed to debut four talents to date.

It’s a viral tale with a (relatively) happy ending, but not all of them turn out so nice.


VStars: “For VTubers, By VTubers”

One positive consequence of Colorful Magic’s rather rapid rise and fall was that any real fallout was largely avoided. The sheer number of people wanting to debut under an agency in the VTuber space meant some of the company’s more dubious aspects were quickly uncovered, but the company never really existed in its first iteration to gather a solid group of people around it. Unfortunately, the same cannot be said for VStars.


Starting operations in April 2021, VStars was a community-driven VTuber talent agency that mainly operated on a fairly large Discord server of somewhere between 250-300 members. Described as a community “for VTubers, by VTubers,” its aim was to provide a place where virtual talents both old and new could support each other through a variety of activities including game nights, support raids, and even workshops run by associated personalities.

In many ways, VStars was more of a hub for independent virtual YouTubers than a real agency offering business and branding support like Colorful Magic, but it fulfilled the desire for a sense of community and even offered the hope of brand recognition in the future if the group grew large enough. According to the official website, at least three talents debuted under the agency before it imploded: the “celestial shape-shifting fox” Fuwapuff, the “chaotic bat” Nimu Kalmia, and the now-inactive YoRoHu, which stands for “your robot husband.” Perhaps there were even more, but it’s a little hard to tell.

An anime bartender cleans a glass while standing behind a bar.
Takahata101 is a virtual bartender who streams on Twitch.
Screenshot: Takahata101 / Kotaku

What makes understanding the rise and fall of VStars particularly difficult is the fact that the group’s official Twitter account was deleted at some point for unknown reasons. All that’s really left to us is a rather empty Instagram page and a particularly venomous TwitLonger published in November 2021 where one of the owners (it is unclear who) lays out a laundry list of grievances and reasons for leaving the group. In and amongst the petty grudges and in-jokes, there are two major themes: burnout and betrayal.


As a largely volunteer-run organization, none of the VStars upper management ever got paid. Still, they were apparently fine with that as long as the project succeeded and attracted support from the wider community, but engagement apparently dropped to “abysmal levels” after the group had held its first auditions. They therefore felt used and abused by their own server members, who were accused of only looking out for themselves.

Corporatization and Demand

Partway through, the VStars TwitLonger makes a stark warning: “You’ve seen these posts before. You’ll see them again.” Indeed, there are so many different talents and companies that enter and leave the VTuber space each day that it can be hard to keep track of them all. It just so happens that these two examples were particularly well publicized.


Many reasons can be given for the continued growth and popularity of VTubers. On the one hand, they combine the artificiality of the anime aesthetic with the opportunity for viewers to form a parasocial relationship with the streamer they’re watching. (This is present in all forms of livestreaming, of course, but it’s perhaps more novel when the individual you’re forming a parasocial bond with is a cartoon catgirl.) More importantly, they also provide a liberating method of self-expression for those uncomfortable with their own image. However, the fact remains that the demand from the wider community far outweighs the infrastructure available to accommodate it. The result is the rapid rise and fall of such agencies as Colorful Magic and VStars.

In its first iteration, Colorful Magic was obviously not much of a compelling proposition. Not only was the owner completely inexperienced, they were fully willing to profit from the work of other artists without paying a single cent. And yet the company still managed to attract significant attention because of the sheer number of people wanting to debut under an agency in the VTuber space. Although this was also (ironically) how it managed to come under so much scrutiny and shut down in a single day, it effectively demonstrates the intensity of the dynamics at play.


Considering the lack of proper agencies out there to satiate demand, independent groups that fulfill many of the same functions could step in to fill the gap. This is what VStars attempted to do while remaining a non-profit organization, but the creators were shocked by the reception they received. As far as they saw it, their server members were only interested in being part of the select few as affiliated talents: in other words, brand recognition was favored ahead of the community project.

Looking at the list of top 50 most subscribed virtual YouTubers, it’s hard to find a single talent not associated with one group or another. The specifics of each contract no doubt differ from agency to agency, but it speaks to the growing corporatization of the industry. How are future talents supposed to break through if there aren’t enough agencies out there to accommodate them? It may actually take a downturn in interest before an equilibrium can be restored, lest the industry continues to be a place of dramatic rise and falls.