KADOKAWA ANNUAL REPORT 2004

In April 2004, we had two commemorable events for Kadokawa Group, which will be remarked in the corporate history in the later days. The one is the first anniversary of Kadokawa Holdings, Inc. and the other is the inauguration of Kadokawa Pictures, Inc. These events were ones of the most impressive experiences during my long business career.
Although I have written this before, the transition to the integrated management of the group companies made in April 2003 has quite significant meaning. Among various occasions during my management of Kadokawa Shoten Publishing Co., Ltd. and later Kadokawa Holdings, Inc. for these 10 years, this transition to the integrated management in April 2003 and the stock listing on the Second Section of Tokyo Stock Exchange will be remembered with the strongest impression in future. And now, I am confident that the form of integrated management matches so nicely to our ideal to be the “Mega software Publisher”. In order to work with the independent-minded, highly creative editors in the fields of publishing business and film producers in the fields of movie business, I believe it essential that every group companies have their originality and autonomy and Kadokawa Holdings stay with the position to supervise their operation and management as the holding company. Another feature of this management style is the centralized possession and utilization of important brands. Under the main brand of “Kadokawa”, ASCII, which is an old established PC magazine, participated as a satellite brand this time. I believe that the financial settlement of the fiscal year under review shows that such business decisions made during this period were most appropriate.

I have been telling the managements and the employees of our group companies, “Let’s strive to be the only one.” That reflects our basic corporate management policy to be the only one company that no other can imitate and yet to yield steady income, hopefully marking 10% operating profit rate. When such target is accomplished, Kadokawa Group as a whole will be the number one as par for the course. I am confident now that our past efforts have finally resulted in the establishment of such corporate structure that can pursue both revenue and profit.
Between January and March 2004, Kadokawa Holdings made decisions for big investments. The investments required huge amount of funds compared to the size of the Company and, therefore, it took quite a moment of ambivalence before I made up my mind to go forward. Those were the acquisition of MediaLeaves, Inc. (a holding company of ASCII Corporation and ENTERBRAIN, Inc., which is a major publisher of video-game related magazine) in the publishing business, the participation to the management of Nippon Herald Films, Inc. as the largest shareholder and the investment into DreamWorks LLC in the United States. Although the investment amount was tremendous, I made the management judgment in that Kadokawa Holdings should overcome the stagnant Japanese economy and take advantage of the paradigm shift by implementing the diversification. This period of January to March 2004 should no doubt be remembered as the decisive turning point for the history of Kadokawa Holdings.
Under such business strategy, our big vision to be the Mega Software Publisher is coming true in the form of “Mega Contents Provider” through the addition of IT digital contents business and multimedia business in these years. In particular, our business activities must have become more visible for the public as that of the “Comprehensive Media Company in Publication and Visual Businesses”.
The publication business has been experiencing negative growth for 7 consecutive years and the revenue has gone down to the scale of 13 years ago. In our group, the book publication performed quite favorably and accomplished acceptable result, but the magazine publication is facing serious downturn in the area of various informational magazines. In order to cope with such situation, we are convinced of the necessity to implement the innovation of business structure by moving ahead on the Business Process Re-engineering (BPR), which we have been promoting. It will require massive energy but when we complete the implementation by the efforts of all the employees, I believe we will have the most competitive corporate management structure in the domestic publication industry. As to the visual business, many shareholders might have had doubts about the development, when we took over the business of Daiei Pictures. However, we now are proud of our line-up of Daiei’s 1,600 titles and Kadokawa Picture’s 120 titles, which is one of the top class archives of contents in Japan in terms of quality and volume. And, as it became feasible to utilize such library taking the opportunity of the rapid increase of DVD players, etc., the film inventory turned out to be the source of income for the visual business. Compared to the recessed publishing industry, the movie industry is shriving more than before as seen by the openings of the cinema complex every place in the country. There are certainly the business schemes that can steadily generate profit in the movie industry and, therefore, I believe we should positively pump our assets into such profitable business models.
The Japanese economy is facing once-in-ten-years time for a change. In the middle of such big wave of shakeup, I visualize that Kadokawa Holdings should be a corporation, which is neither a small venture nor a big establishment but a middle-size growing concern. In order to realize such vision, I do not intend to make up the middle-term business plan based on the conventional build-up method but would like to establish a realistic goal, which can be shared by all, and to such a goal all the management personnel and employees shall buckle to go forward. I sincerely ask your kind understanding and support to the renewed challenge of Kadokawa Group.