KADOKAWA ANNUAL REPORT 2005

As to film/visual business, the Group established Kadokawa Entertainment in January, 2004, and Nippon Herald Films (presently Kadokawa Herald Pictures) joined the Group in March and became a 100% subsidiary in August, 2005. Kadokawa-Daiei Pictures Inc. changed its corporate name to “Kadokawa Pictures, Inc.” in April, 2004 and made a fresh start in business with the Kadokawa-Daiei movie studio in Chofu, Tokyo that opened anew in September. Business collaboration with Dream Works in America, DVD sales and movie releases are all going smoothly.

The company changed its corporate name to “Kadokawa Pictures, Inc.” and started business anew in April, 2004. The Kadokawa-Daiei Movie Studio in Chofu city, Tokyo opened anew in September and it powerfully supports the production of new movies. Moreover, the studio called “The third stage”, which is a two-storey building with 4 studios is planned for completion at the end of 2005. This will be the first two-storey studio in Japan. Among its assets, Kadokawa Pictures possesses a film library that boasts both quantity and quality, with 1,700 movies consisting of 1,600 former Daiei movies and 100 movies from the time of Kadokawa Shoten.
The company released “Chakushin ari 2” in February, 2005, which became a much talked about movie. As a movie celebrating the 60th anniversary of the establishment of the Kadokawa Group, “Samurai Command” was released in June followed by a entertainment movie “The Great Yokai War” in August, and both became big hits. The company plans to release “Shissou” (starring Yuya Tegoshi of NEWS) based on the novel by Kiyoshi Shigematsu (Kadokawa Bunko) in December, 2005. Furthermore, 40 years have now passed since the 1st title in the series “Daikaiju Gamera” was released, and “Gamera” will return after a 6-year hiatus. “Chiisaki Yusha-tachi GAMERA” planned for release in April, 2006 will be produced under a completely new concept as a monster movie that can be enjoyed by anyone. The company is also focusing on the production of TV dramas such as “Ame to Yume no atoni” .

The Kadokawa Group released a “Summer holiday dream ticket” as one of the 60th anniversary commemorative projects for the Kadokawa Group and this was well received. With this ticket, the holder was able to see either “AEGIS” (released on July 30, 2005), “The Great Yokai War” (released on August 6) or “Madagascar” (released on August 13) at any theater throughout Japan, and 2 types of ticket were available; regular tickets and parent/child pair tickets. Kadokawa Pictures, Kadokawa Herald Pictures and Asmik Ace Entertainment worked in cooperation on the issue of these tickets. These three movies all became hits and gained ranking in the top ten movies in terms of audience. This project was something that only Kadokawa Group could have undertaken, and it attracted attention both inside and outside of Japan as a first in the film industry.

As to the sales of DVDs, the last episode in the series “The Lord of the Rings/The Return of the King” was released in August, 2004, and a deluxe set of all three episodes was also released at the same time and recorded a good sales result. With regard to foreign movies, “The Chorus”, “A bittersweet life” and “Blade Trinity” were widely talked about. In September, 2005, the blockbuster movie marking the 100th anniversary of the birth of Lupin “Arsène Lupin” will be released, followed by “The door in the floor” starring Kim Basinger in October. With regard to movies produced by the company, the blockbuster entertainment movie “AEGIS” was released (in July, 2005), and the movie received wide acclaim having been produced with the full cooperation of the Defense Agency, Maritime Self-Defense Forces and Air Self-Defense Forces, a first in movie history. “Ubume no natsu” based on the novel by Natsuhiko Kyogoku was released in July and won great popularity. Furthermore, the company changed its corporate name from Nippon Herald Films Inc. to Kadokawa Herald Pictures Inc. in August, and the company will consolidate its position as the base for overseas movie/visual business of the Group through substantial improvement in the business model. Moreover, through collaboration with United Cinemas, the company will further enrich the cinema complex business run by its subsidiary Herald Enterprise.

Asmik Ace Entertainment, which has already established a reputation for the distribution of American and European masterpieces also produces and releases remarkable domestic films as well. “Yaji and Kita : The Midnight Pilgrims” (starring Tomoya Nagase, Shichinosuke Nakamura), the first movie produced by Kankuro Kudou known as “Kudo-kan” was released in April, 2005 and soon became a hot topic, and the company released “Gyakkyo nine” (starring Tetsuji Tamayama, Maki Horikita, in July), “Maison de Himiko” (starring Joe Odagiri, Kou Shibasaki, in August) and “The Great Blackout Coming” (starring Etsushi Toyokawa, Tomoyo Harada, in November) in quick succession. As to overseas movies, in collaboration with Dream Works, Asmik distributed “Shark tale”, “Lemony Snicket's a series of Unfortunate Events” and “The Ring 2” and they were all hits. Apart from these, the company also released a documentary film “Bus 174 (June), “Sprout” (July) and “Land of Plenty” (October) directed by Wim Wenders. Furthermore, “Danny the Dog” (starring Jett Lee and Morgan Freeman, in June), a film produced by Europe Corp that is lead by Luc Besson attracted public attention for the fine performance by these talented actors.

Two years after its establishment, Kadokawa Entertainment has now started business at full scale. The company began sales of movies in collaboration with Dream Works with the release of the DVD of “Shrek 2”, which recorded sales of 800,000 copies, and released other DVDs including “Terminal”, “The Stepford wives”, “Shark tale” and “Lemony Snicket's A series of Unfortunate Events” sequentially. Moreover, Kadokawa Entertainment will be the sole dealer for the package sales of the movies of the Kadokawa Group including ever-popular films produced by Kadokawa Pictures new and old, movies produced and distributed by Asmik Ace Entertainment and the movies of Kadokawa Herald Pictures. The recent line up includes “Chakushin ari 2”, “Utsukushii yoru, zankokuna asa” (Kadokawa Pictures), “The Ring 2”, “Yaji and Kita : The Midnight Pilgrims” (Asmic Ace), the animation “Trinity blood” (Kadokawa Shoten) and “Honey and clover” (Asmik Ace). With the rapid expansion of the DVD market, the company aims to attain revenue of 14.5 billion yen this year and 25 billion yen in 2∼3 years time.

Dream Works SKG was founded in 1994 under the leadership of Jeffery Katzenberg, who showed the excellent management skills as chairman at Disney, the film director Steven Spielberg and the music producer David Geffen. A representative selection of their movies might include “Deep Impact”, “A.I.”, “American beauty”, “Minority report” and so on. The collaborative business between Kadokawa Group and Dream Works who became business partners in April, 2004 is showing smooth and steady results in terms of both the sales of DVDs and movie releases. As to movies, the much talked about movies “The Ring 2” released in June, 2005 and “Madagascar”, the latest animation film by Dream Works (the producers of “Shrek 2” and “Shark tale”) was released throughout Japan in the summer holiday season, and both were big hits. Dream Works Animation was listed on the stock market in October, 2004, and Kadokawa Group acquired approx. 2,020,000 shares in this company (and sold 200,000 of them).

Kadokawa Holdings made an agreement with CJ Entertainment (CJE), the largest film production/distribution/screening company in South Korea to collaborate on various issues centered on the movie division in March, 2005. CJE was listed on the KOSDAQ of South Korea in 2002, marking the first time an entertainment company had been listed on that market. They were number one with a distribution share of 25% in South Korea and distribution of 34 movies in 2004. Moreover, their subsidiary screening company CGV is the largest multiplex chain company, currently having 26 venues and 207 screens, and attendance accounting for a market share of 25%, which is also the No.1 result in the country. CJE also has the distribution license for Dream Works movies in South Korea, Hong Kong and China, and we will develop movie related business through cooperation between Japan, America and South Korea in the future. Representative films produced by the company include “JSA”, “A Bitter Sweet Life” and “Untold Scandal”.