KADOKAWA ANNUAL REPORT 2003

  Your company opened a new chapter in its history on April 1, 2003 with the establishment of a holding company structure. The launch of this new group framework under Kadokawa Holdings, at a time when the publishing, advertising and video software industries—broadly, the content industry—are undergoing tumultuous change, is a significant step for us. It may still only be early days, but I firmly believe that this action was an inevitable development and is in the best interests of the Kadokawa Group.
  Kadokawa Holdings’ overriding goal is to spur the creation of greater corporate value across the group. While being the driving force behind stronger group cohesiveness, Kadokawa Holdings will oversee a framework that ensures quick, autonomous decision-making. For the group’s content creation companies, originality will be paramount, as will reacting swiftly and independently to shifts in respective markets. I believe the holding company structure will facilitate this.
  Before I move on, I would like to look back at the past fiscal year and the context in which we took this decisive step. Fiscal 2003, ended March 31, 2003, was characterized by contraction in our traditional markets. The Japanese publishing industry endured its sixth straight year of negative growth and advertising expenditure in the four main media, including magazine advertising, slid for the second year in a row. On a more positive note, fiscal 2003 saw the continued emergence of new market needs, seen for example with a sharp rise in DVD sales in the video software industry. There are clearly some industries that are performing and others that aren’t. But even in those that aren’t performing there are growth fields where businesses targeting the needs of broadband and mobile phone users are growing strongly. I believe we now have in place a corporate framework suited to this operating environment. But our shift to a holding company structure isn’t the end of our transformation. It’s just the beginning. The next step will be to fashion a framework that enables us to maximize efficiency and profits in each of our business domains.
  In order to guide our efforts, we have established a set of concrete goals. Our current medium-term management plan, which runs through the year ending March 2005, calls for consolidated net sales of ¥100 billion and operating income of ¥7 billion. And we are already off to a promising start: the companies that were brought under the Kadokawa Holdings umbrella are performing well, while affiliated companies set up during the so-called IT revolution are starting to recover their initial investments. But to achieve the goals of the medium-term plan we must also transform two new business domains into earnings pillars. One is our video software business, the other area-centric advertising.

HEAD OFFICE 2000

SECOND HEAD OFFICE 1995

In order to expand our video software business, our aim is to establish an integrated framework handling everything from the creation of content to the sale of packaged DVDs. With the recent addition of Kadokawa-Daiei Pictures’ extensive movie archives, we are now well positioned to offer an increasingly diverse and broad lineup of video content for the burgeoning DVD market and the impending broadband age. Our goal is to be nothing less than the preeminent Japanese company in the packaged video content business. The establishment of Kadokawa-Daiei Pictures, in fact, has moved the Kadokawa Group a step closer to becoming a full-fledged publishing and video content enterprise.
In the area-centric advertising business, our aim is to build up a readership for free magazines. We envisage a business model consisting of two types of magazine—a freely distributed lifestyle information magazine, published annually and which we expect people will want to keep, and a monthly information magazine with coupons for restaurants and entertainment venues as well as merchandise. Our first annual magazines were launched in two areas of Japan in September this year. Both have been well received. Although free magazines may seem like an entirely new industry for a conventional publishing company, we believe they dovetail well with our traditional publishing activities as we seek to develop a new publishing paradigm.

With these initiatives, we have painted a clear picture of how we plan to transform into a publishing and video content company. It amounts to a transformation from a Mega Software Publisher, a concept we previously advocated with publishing as our core business, into a Mega Content Provider, with an expanded video content business and increasingly profitable IT operations. Your continued support and encouragement will be vital as we work to achieve this shift that will drive growth of the Kadokawa Group in the years ahead.