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Japan’s Dwarf Studios is looking for a new partner for “Hidari,” the stop-motion samurai film voiced by Keanu Reeves, after talks with a U.S. company that offered to fund the entire budget in exchange for all rights stalled, producer Matsumoto Noriko told an audience at the Busan International Film Festival‘s Asian Contents & Film Market (ACFM) on Sunday.

Dwarf Studios co-founder and head producer Matsumoto was speaking at “Co-Producing with Japan: Opportunities and Challenges,” a Producer Hub session co-hosted by VIPO. Japan is the Producer Hub’s focus country this year. She was joined by Questry CEO Ibe Tomonobu and Knockonwood founder Yamaguchi Shin, with VIPO’s Tanimoto Hiroyuki moderating. Kawamura Masashi directs “Hidari,” produced by Dwarf, Whatever and Tecarat.

Dwarf’s “Hidari” pitch was a highlight of the Annecy Animation Showcase at Cannes and at Annecy itself earlier this year. A U.S. company’s offer to fund it came with a condition: it would take all the rights. Matsumoto said the company respected Dwarf’s creativity and was prepared to pay enough, but full funding would have left the studio with no control over a highly original project. Dwarf wanted to hold on to half the rights and asked Ibe to find the Japanese share. Before the talks could go further, the people Matsumoto had been negotiating with lost their jobs amid upheaval in Hollywood, and Dwarf is now looking for a new partner.

“Even with Keanu, we cannot stop the fire,” Matsumoto said.

Questry has set up a special purpose company for “Hidari” so that overseas and local investors can put money into the film side by side. Ibe said the project shows why development money matters. Dwarf made a pilot short in 2023 at its own risk, partly through crowdfunding, and the pilot traveled far enough to bring Reeves aboard. Questry now wants to back pilots and development-stage work, which in Japan studios and creators usually pay for themselves.

The film could not have been financed in Japan alone, Ibe said, and the reason lies in how Japanese film and anime are usually funded. Ibe spent 11 years at Goldman Sachs before founding Questry about four years ago. His presentation put the share of Japanese anime and films backed by production committees, or seisaku iinkai, at more than 90%, citing industry estimates. Publishers, labels, broadcasters, streamers, toy companies and ad agencies each put in a share, mainly to win a “window” – the right to exploit the title in their own business. Window fees are deducted first, so members often make more from their window than from their stake. Studios, meanwhile, are typically hired for a fee and see little upside.

In Korea, by contrast, investors, distributors and producers play separate roles, and Ibe said producers often take around 40% of profit after recoupment. “How you raise money decides how you share it,” he said.

Ibe’s presentation described the committee as a well-built system that works very well for titles made in Japan for Japan. It can still serve titles sold worldwide if overseas rights are planned from day one, he said, but the fit gets worse the more global a project is. A co-production with few Japanese windows to sell gives Japanese companies little reason to invest, and only Japanese companies can sit on a committee. Overseas sales made up 56% of anime industry revenue in 2024, up from 20% in 2014, he noted.

“If the world needs a project, we want to put money into it, even if the Japanese market can’t see it yet,” Ibe said.

Yamaguchi, who said he has wrestled with financing for more than 20 years, has made the committee work for an international film. Fukada Koji’s “Love on Trial,” which Knockonwood joined in 2017, drew 60% of its budget from a Toho-led committee, 29% from the government’s JLOX subsidy and 11% from presales through MK2 Films and French distributor Art House. Yamaguchi kept the committee to Toho, Knockonwood and one music company. The French money went in through Knockonwood’s share, backed by a separate contract giving the French partner full sight of the numbers – an arrangement he said still sits in a gray zone. The film world premiered at Cannes and had its Asian premiere in Busan last year.

Hikari’s “Rental Family,” starring Brendan Fraser, took a different route. U.S. partner Sight Unseen put in seed money in 2020 and later connected the project to Searchlight Pictures, which signed on in 2023. Searchlight covered 90% of the budget and a JLOX location incentive the other 10%. The film world premiered in Toronto in 2025 and was released in 73 countries. Yamaguchi has worked with Hikari for 15 years.

His third case, Eddie Cahyono’s “Ibuku,” plays in competition at Busan this year. Indonesia’s Talenta Media and Yasa Buana Films hold 80% and Knockonwood 15%. The last 5% came from Thailand’s White Light gap fund, released after the project won the White Light Asian Project Award at BICM. Christine Hakim stars in the 16mm film, which first won a prize at Busan’s Asian Project Market in 2015. Knockonwood came aboard nearly a decade later through Cinema at Sea.

“Independent filmmakers and producers never give up because we have to find the new ways,” Yamaguchi said. Japan has started opening up to co-production over the past two years, he added, though it remains behind other countries on language, legal and accounting fronts. Japan has co-production treaties only with China and Italy, and Yamaguchi said neither works well for the Japanese side.

Tanimoto said the government subsidy behind “Love on Trial” and “Rental Family” has been upgraded this year into a new program, IP360, with higher minimum budgets for production and post-production. Pre-production support remains, and applicants need a Japanese producer partner. The Agency for Cultural Affairs also offers a co-production subsidy covering 20%, subject to caps.

Stop-motion brings its own problems, Matsumoto said. A co-production typically requires 20% to 30% of the budget to be spent outside Japan, which is hard when the shoot cannot easily be split. Dwarf, which co-owns NHK mascot Domo-kun, has still found partners abroad. Its feature “Komaneko” drew more than 250,000 moviegoers in France, over 10 times its ticket sales at home, and “Mogu & Perol” is being developed as a series with French and Taiwanese partners. Dwarf is also adapting Matsumoto Taiyo’s autobiographical manga “Sunny.” Matsumoto, meanwhile, is developing “Moritō,” drawn from an art exhibition by Shibata Keiko, creator of the picture book “Pan Dorobou.”

“Even if I give up co-production, I don’t give up finding collaborators,” Matsumoto said.

Kim Sung-soo, director of Korean box office hit “12.12: The Day,” once saw AI as a destroyer of the film industry. Speaking Sunday at a session hosted by Kling AI at the Busan International Film Festival‘s Asian Contents & Film Market, he described how it has instead become part of his craft.

His turning point was “Worm Train,” an eight-minute short he first gave up on because AI couldn’t render its key scene, a giant insect colliding with a packed train crowd. Months later, the technology had caught up. “Technology doesn’t replace creativity. It shows what’s in your imagination,” Kim said. The project changed how he imagines and collaborates, he added: “I’ll never go back to the way I used to make films.”

He did not make it alone. Kim assembled a nine-person team, including an animation art director and a music director. Though the short could have been made entirely with AI, he said, they chose to generate only part of it and handle the rest with conventional filmmaking methods. He plans a similar hybrid approach for a seven-part drama series he is developing. Its nearly 15-minute opening chase on the Gyeongin Expressway, which he said would require “enormous financial resources” to shoot conventionally, will first be generated with AI, then used to decide which shots need actors on set and where traditional VFX come in.

Kim was joined by Harry Hyun, director and CEO of AI production company MooAm; Chinese animation director Li Wei, co-director of “Jiang Ziya”; and Lee Sangwook, producer and team manager at MBC C&I’s AI Contents Lab.

Li made a similar case for animation. Presenting a trailer for “Born of the Tide,” a 105-minute AI-animated feature about China’s boat-dwelling Tanka community, he said the technology works best at the trial-and-error stage: concept designs that once took enormous time to draw by hand can now be visualized quickly and shared with the team. “AI can generate many things, but the choice and the details all come down to the director,” he said.

Hyun agreed that filmmaking skill is what makes the difference. “Faces look identical, sets look identical, lighting looks identical,” she said of AI output made without it. That is why MooAm looks for AI artists who have directed at least one live-action short.

Otherwise, she said, AI production is not fundamentally different from a conventional shoot, only more efficient. What changes is the crew. Her directing team now includes an “AI coordinator,” who decides which cuts will be generated, keeps a continuity script for them and checks with AI artists that everything cuts together. Even assistant directors need a basic grasp of AI, as gray screens marked with tracking points replace green screens.

Building those skills is also a priority for Lee, whose lab is producing “Rendering Love,” a short-form K-pop romantic comedy about a virtual idol group, with “Parasite” producer Barunson E&A developing the story. “If even one or two individuals lag on the learning curve, overall quality can suffer,” he said of keeping pace as models update.

Mastering the tools won’t settle every question, though. Kim argued that rules on commercial use and permissions should be settled before the industry sets any technical standards. “Whenever I generate outputs, I scrutinize the results closely to ensure they do not infringe upon existing works or violate anyone’s publicity rights,” he said.

“In the future, we won’t call AI movies ‘AI movies,’ just as we no longer call films ‘color movies,’” Kim said.

Small, AI-native companies running automated pipelines can develop their own intellectual property, while traditional studios hold on to their advantages in established franchises, production infrastructure, talent and distribution, according to VFX veteran Hong Jae Cheol.

Hong, a producer-director at Viscode who began his career at Industrial Light & Magic and worked on films including “Iron Man,” “Transformers” and “Pirates of the Caribbean,” laid out that vision at the InnoAsia AI Creators Camp, held Sunday at the Busan International Film Festival‘s Asian Contents & Film Market in Busan. “We are moving from using AI to generate individual images toward using AI as part of a complete production workflow,” he said.

AI is changing the production model, Hong argued, while traditional visual effects remain essential to making generated material usable on screen. He framed the future as a hybrid, and a partnership between AI and human creativity, rather than a wholesale replacement of existing studios.

Hong contrasted a conventional live-action and VFX process, involving 3D assets, animation, rendering and compositing, with an AI-assisted approach. In the latter, actors perform on a controlled set; AI generates environments and visual elements; and VFX artists handle tracking, integration and finishing. He also outlined current AI applications across VFX, animation and filmmaking, including rotoscoping, cleanup, previs, character design, camera tests and environment creation.

Mark Wachholz, chief creative director of Berlin-based Dreamkite Studios, whose AI films “The Cinema That Never Was” and “Céremony” have won top prizes at AI film festivals, approached the shift from the creative side. He described AI co-creation as an invitation to give up some control and allow for surprise, framing the process as “exploring instead of controlling” and “finding instead of knowing.” He also argued that new tools require new ways of thinking, rather than simply applying old methods to new technology.

Director Ahn Jaehong of Climax Studio, who turned to AI filmmaking after arm injuries ended his work behind the camera, brought the discussion back to directing and production. He mapped a workflow from prompts and camera information to scene context, shot lists, storyboards, character and prop sheets, locations and keyframes. The sequence reinforced a point shared by the speakers: AI can assist across multiple stages, but filmmakers still need to shape the story, visual design and final result.

Hong summed up the distinction: “AI is just a tool; film is a sequence.” The discussion centered on how that tool might become part of a connected filmmaking process, with human direction and VFX expertise still determining how its images fit together.