From the 'MEDIA DO Report 2021'

To ensure that the publishing industry and publishing culture can continue to evolve for generations to come, MEDIA DO will surpass existing frameworks and preconceptions to introduce its stakeholders to a new world.

Yasushi Fujita President and CEO

#1   MEDIA DO’s Mission
New Outlook on the Present and the Future

President and CEO Yasushi Fujita

The operating environment for the publishing industry is changing rapidly. These changes can be seen in society, as indicated by Japan’s Society 5.0 vision; in industry structures and lifestyles, as driven by the COVID-19 pandemic; and in the ensuing rise in eBook use due to higher demand associated with people increasingly staying at home. The industry is thus pressed with a need to respond to these changes and undergo a digital shift. However, Japan’s publishing industry has long been focused primarily on the physical world, indicated by paper books and brick-and-mortar bookstores. This situation has resulted in a lack of expertise pertaining to digital transformation and the digitization of content in most areas of the industry. It was this industry backdrop that created the opportunity for MEDIA DO to contribute to the growth of the eBook market as an eBook wholesaler armed with superior technologies, leading to us claiming the No. 1 position in the domestic market with this regard.

We are now in a time of great change. Recognizing this, we sat down to think about exactly what MEDIA DO, with its strong foundation of transactions with more than 2,200 publishers and over 150 major eBook stores, should seek to accomplish. We arrived at the realization that MEDIA DO’s mission is to help develop an environment in which new and inspiring written works continue to be produced. This mission should be accomplished by utilizing our technological prowess to contribute to the digitization of content as well as to the streamlining of publishing processes and the enhancement of publishing value chains. At the same time, we are tasked with proposing new means of using digital content in order to heighten the value of said content. As a result of the evolution of digital devices, most people now have a venue for enjoying video, gaming, and various other content, literally, in the palm of their hands. We are thus now at a turning point in which the essence of the publishing industry and publishing culture is being called into question. As you know, the publishing industry and publishing culture are responsible for the distribution of written works, or content, which are the vessels through which we communicate the wisdom that has shaped culture and society since the dawn of time. To ensure that the publishing industry and publishing culture can continue to evolve for generations to come will require us to go beyond simply invigorating the eBook market by utilizing MEDIA DO’s expertise to reduce distribution costs and hassles. Rather, we must drive the evolution and digital transformation of the publishing industry by digging our roots deeper down into the publishing business as a whole, including the areas related to paper media, in order to support industry players with cutting-edge technologies. This will be a principal means through which we must provide value as well as an important mission of the MEDIA DO Group going forward.

#2   Evolution as a Publishing Platformer
MEDIA DO’s Objectives

Today, eBooks have come to account for more than 60% of the domestic comics market, and the representation of eBooks in this market is expected to continue to grow going forward. As a result of this trend, as well as the rise in demand associated with people increasingly staying at home, some major publishers that offer large quantities of manga content have been posting record-breaking earnings in this fiscal year. Looking at the publishing industry as a whole, however, we can see that many small to medium-sized publishers are behind the times when it comes to the digitization of content, with digitization rates of only 6% for non-graphic books, such as novels and self-help books, and 2% for magazines. This lack of digitization is gradually reducing the opportunities for people to encounter written works. Bookstores offer the opportunity for serendipitous encounters with books. However, these venues face structural issues, and would require substantial amounts of time and money to develop structures and value chains for supplying digital content. In this manner, Japan’s publishing industry is currently in a state in which only certain players are prospering, creating a clear divide between those who are successful and those who are not. This situation should be seen as a matter of extreme concern with regard to the freedom of Japan’s free publishing culture to allow for content to be produced based on a diverse range of values. By addressing these industry issues and using MEDIA DO’s expertise and systems to promote the digital transformation of the industry, it is our goal to invigorate the bookstores and small to medium-sized publishers that have supported Japan’s publishing culture and thereby further the development and evolution of an ecosystem through which society will continue to be supplied with inspiring content.

Against this backdrop, the fiscal year ended February 28, 2021, became a year in which we were pressed to reassess the unique value we provide and to communicate our need to change to people both inside and outside of the organization. The policy of becoming a Publishing Platformer that we continued to pursue was aimed at reducing the energy used for distribution in the eBook market and thereby driving the growth of the eBook market. However, our reassessment of the Company led us to update our definition of a Publishing Platformer. Under the new definition, evolving as a Publishing Platformer will entail becoming a game changer that transforms the industry, broadening the scope of our targets to include both the physical and digital elements of the publishing industry as well as the overall content market, by providing higher levels of value across the value chain.

Furthermore, we procured funds, for the first time since the Company’s listing on the Tokyo Stock Exchange, through the issuance of share acquisition rights in October 2020. This move was aimed at securing the funds needed to acquire the necessary functions and services through growth investments and merger and acquisition (M&A) activities. The majority of these funds were allocated to M&A activities and capital and business alliances. For example, we converted digital comic distribution app provider Nagisa, Inc., into a subsidiary in October 2020 and then acquired the Firebrand Group (Quality Solutions, Inc., NetGalley, LLC, and their subsidiaries) through subsidiary Media Do International, Inc., in January 2021. The Firebrand Group has achieved the No. 1 share in the U.S. market for enterprise resource planning (ERP) systems provided via a software as a service (SaaS) scheme. Goals of the Firebrand Group acquisition include utilizing this group’s customer network to further the global expansion of the MEDIA DO Group. In addition, we will look to introduce the cutting-edge expertise of the U.S. publishing industry, a forerunner in digital transformation, to the Japanese publishing industry in order to accelerate its digital transformation. Finally, we concluded a capital and business alliance with TOHAN CORPORATION and acquired NIHONBUNGEISHA Co., Ltd., in March 2021. The alliance with Tohan is expected to allow us to form a powerful driver behind the digital transformation of the publishing industry by capitalizing on the strengths of both parties. With this regard, Tohan boasts robust management resources and physical bookstore and paper book distribution networks while MEDIA DO possesses significant expertise and technologies pertaining to eBook distribution. Nihonbungeisha, meanwhile, will be a powerful asset for developing strategic content production systems focused on both the physical and digital sides of publishing with the aim of implementing MEDIA DO’s imprint vision for next-generation publishing.

Turning to our finances for a moment, the Company’s equity ratio had remained at a low level since the acquisition of Digital Publishing Initiatives Japan Co., Ltd., in 2017. However, the October 2020 fund procurement activities brought the equity ratio to the respectable level of 28.0% on February 28, 2021, a 9.7 percentage point increase from August 31, 2020, prior to the procurement activities. This change represents a notable improvement in our financial health.

Moreover, in the fiscal year ended February 28, 2021, we posted net sales of ¥83.5 billion, operating profit of ¥2.6 billion, and profit attributable to owners of parent ¥1.5 billion. Each of these figures represented a record high. Given this impressive performance, I feel confident in saying that we succeeded this year in laying the foundations for future business growth and progress.

#3   Fresh Start toward Our Vision
Measures and Progress in the Fiscal Year Ending February 28, 2022

In the fiscal year ending February 28, 2022, we aim to make large steps forward in improving the value of digital content as we cement the foundations we have built thus far and streamline processes across the publishing industry in terms of both the physical and digital aspects. To guide these efforts, we have revised our growth strategies based on the aforementioned redefinition of a Publishing Platformer. The framework of our new growth strategies will be formed by the policies of development of our digital content asset (DCA) model *, promotion of the digital transformation of the publishing industry, and new service creation.

The development of our DCA model will entail proposing new ways to enjoy digital content by endowing such content, something that was previously only consumed, with the concepts of ownership and finiteness. Up until now, digital content has been solicited based on the convenience it offers as this content could be sold or used anywhere. However, as digital content is the exact same for everyone, it lacked that special feeling of being something one owned. Blockchain technology has the power to change this reality by giving digital content the same feeling of ownership and uniqueness that was previously reserved only for physical content that one could take in hand. Recognizing this potential, we turned our attention toward blockchain technology in 2018, and have since been moving forward with research and development on this technology. Today, the social implementation of such technology is close to becoming a reality.

Yasushi Fujita President & CEO

Specifically, we are planning the release of digital content services that uses non-fungible tokens (NFTs). The first of these services will be the introduction of digital benefits that use NFTs. Offered through collaboration with Tohan, this service will employ NFTs to attach digital content to the paper books sold in bookstores to provide special benefits to people who purchase these books at stores. For bookstores, digital benefits differ from the physical benefits previously attached to paper books in that they do not have the same issues surrounding delivery, management, and return procedures. Accordingly, the use of these benefits reduces the amount of energy used for distribution while also improving operational efficiency at bookstores. In addition, attaching digital benefits to paper books will allow for higher selling prices while also functioning as sales promotions. In other words, they will have multiple advantages contributing to increased sales at bookstores as they attract large numbers of fans seeking to acquire the attached digital content. We are currently in the process of planning actual digital benefits with major publishers such as KADOKAWA CORPORATION, KODANSHA LTD., SHUEISHA Inc., and SHOGAKUKAN Inc. as well as with numerous other publishers. MEDIA DO also plans to develop a marketplace through which these digital benefits can be sold or traded. This marketplace is anticipated to encourage interaction between fans while also fostering a sense of community.

As we work together with publishers to roll out these services, MEDIA DO will utilize existing content, such as images, music, and digital trading cards, to provide digital benefits. Most importantly, we will seek to differentiate our service from other NFT marketplaces by supplying a marketplace that is not speculative. We thereby aim to provide a larger number of users with an easily accessible opportunity to experience digital content assets and to enable them to sell and buy NFTs with peace of mind. Through this approach, we will look to grow the digital content asset market. We also anticipate that this undertaking will lead to the creation of NFT-driven digital content industries the likes of which have never been seen before.

Moving on, to promote the digital transformation of the publishing industry we will focus on supporting and advancing the digital transformation of small to medium-sized publishers for which progress in digital transformation is low in comparison to overseas. For example, the frameworks for the royalties paid to writers differ for paper books and eBooks. Whereas paper book royalties are paid based on the number of copies of a work that are printed, eBook royalties are paid based on actual sales numbers. Accordingly, digital sales data must be tracked monthly on a somewhat perpetual basis. The development and implementation of the systems and frameworks necessary for managing this data is costly and labor-intensive, and these factors erect large hurdles to digitization for publishers.

To address this issue, MEDIA DO has developed a publishing SaaS-based ERP system that will contribute to the efficient management of sales and royalties. We began supplying this system to certain publishers in March 2021, and we expect to start providing service through this system within this year. In the future, we will look to infuse this system with the expertise of the Firebrand Group, which boasts the No. 1 share in the U.S. publishing ERP system market. We thereby plan to install additional features for bookmaking and marketing in order to evolve this system to be even more convenient.

We also see potential for the NetGalley business of the Firebrand Group to transform the distribution of paper books on a nationwide scale. NetGalley is a service that allows for galleys (preliminary versions of publications used for proofreading) of pre-publication books, which previously had to be provided in a paper format, to be shared with relevant individuals in a digital format. Through this service, galleys can be shared with bookstore staff, librarians, and even regular consumers, and the reviews of people with whom these galleys have been shared can be used in sales promotions or to predict sales numbers. Moreover, the market-oriented distribution approach advocated by Tohan could be applied to transform the business models of bookstores across Japan. We anticipate that this approach could help lower the rates at which books are returned to publishers unsold, which is becoming a serious issue for Japan’s publishing industry. At the same time, Tohan’s nationwide bookstore network could be used to promote the introduction of MEDIA DO’s digital library services at schools and public libraries. New service creation efforts will entail capitalizing on MEDIA DO’s position within the industry to expand operations in peripheral areas to eBook distribution through M&A activities and the development of new businesses. One such new business is our imprint business. In this business, we converted Nihonbungeisha into a subsidiary with the goal of ramping up efforts to acquire licenses in the digital entertainment content market, which will no doubt continue to grow in today’s digital society. By augmenting this company’s digital content production capabilities, utilizing digital marketing, and streamlining back-office functions, we will work to make Nihonbungeisha into a model example for next-generation publishers. Going forward, we will build foundations for actively utilizing its content to coordinate with publishers, incorporating these publishers in the MEDIA DO Group, and providing solutions.

Media businesses will be another important venue for new services. MyAnimeList Co., Ltd., a major proponent of these businesses, conducted a third-party allocation of shares with the goal of expanding its scale in February 2021. A total of ¥600 million worth of the shares allocated was split among KODANSHA, SHUEISHA, SHOGAKUKAN, and MEDIA DO. Later, in May 2021, ¥300 million worth of shares was once again split among the four companies, and then another ¥450 million worth of shares was split between several companies including Dentsu Group Inc., in June, making for a total of ¥1,360 million worth of shares allocated. Demand for Japanese anime and manga continues to grow in overseas markets. This growth makes the third-party allocations of shares by MyAnimeList all the more significant as they laid the groundwork for collaboration between Japanese intellectual property (IP) holders aimed at deploying made-in-Japan content in the global market.

* Digital content asset and DCA are registered trademarks of MEDIA DO Co., Ltd.

#4   Development of Unshakable Corporate Foundations through Initiatives in Priority Areas
Growth into a Strong, Sustainable Conglomerate

If we are to continue making contributions to the publishing and content industries going forward, it will be imperative for the MEDIA DO Group to grow into a strong, sustainable conglomerate. For this reason, we have identified three priority areas in which to focus initiatives going forward— reinforcement of technological foundations, improvement of organizational capabilities, and realization of highly transparent corporate governance.

The MEDIA DO Group has succeeded in developing an unrivaled position at the heart of eBook distribution in Japan. This position is a core strength of the Group. Another core strength is our technologies. There is currently a need for the reinforcement of our technological foundations from the perspectives of availability and security, and the development of engineers capable of advancing research and development toward these ends is thus a top priority. We are therefore devoting our efforts toward fostering a workplace environment that is conducive to the growth of our current engineer staff while recruiting talented new human resources. Our engineer recruitment team was placed under my direct control in June 2021. As the digital transformation of society advances, demand for engineers will no doubt grow. It is thus crucial for us to improve our workplace environment and evaluation systems, among other reforms, to ensure that we can secure the human resources needed to realize our vision and implement our management strategies while providing an environment that allows recruited engineers to grow together with Company. At the same time, effective information security is absolutely essential to maintaining the trust of the industry. We must take every precaution in reinforcing our systems and frameworks to prevent leaks of eBook content and to safeguard personal information in preparation for the projected expansion of the business-to consumer operations of the MEDIA DO Group.

The improvement of organizational capabilities will take the form of enhancements to our evaluation and education frameworks to make MEDIA DO a place that is conducive to the contributions of longtime employees as well as midcareer hires. In 2019, we introduced new human resource evaluation systems designed to encourage employees to set lofty goals and heighten their ability to achieve these goals. Over the year since these systems were implemented, we felt the benefits, but at the same time we identified a number of issues needing improvement.

As for the realization of highly transparent corporate governance, MEDIA DO is currently overseen by me, its founder. There is thus room to improve the transparency and effectiveness of corporate governance at the Company by enhancing our systems and frameworks based on third-party guidelines such as Japan’s Corporate Governance Code. Efforts on this front have included formulating the MEDIA DO Basic Corporate Governance Policy, which discloses our basic stance toward corporate governance, and the establishment of the Nomination and Compensation Committee in June 2021. The goal of these initiatives was to better ensure the objective and rationality of management. In addition, we compiled a skill matrix to clarify the specific roles expected of each director. We are also promoting diversity at the core of the organization, as seen in the appointment of our first female outside director, who has been designated as an independent director.

#5   Defying All Expectations
Creation of Value by Adapting to Any Era or Change

Yasushi Fujita President & CEO

MEDIA DO’s vision of “More Content for More People!” was put forth roughly a decade ago to guide our efforts to grow the eBook market through eBook wholesale. As stated earlier, we are now in an era where eBook usage is much more widespread than it has been in the past. This new era is the perfect timing for us to reexamine our mission and vision to determine the world that MEDIA DO should seek to shape going forward. This introspection has led us to recognize that our mission is to promote the digital transformation of the entire publishing industry, not just its digital arm. We envision a world in which blockchain technology is used to increase the value of digital content and in which transactions of this content are commonplace. There are significant hurdles to realizing this vision. We are currently in the process of conducting various investments for the purpose of removing these hurdles, and we feel that there is still a great deal of potential to be unlocked within the publishing industry, within the overall content industry, and within MEDIA DO itself in the pursuit of further growth.

Over the past year, we have seen a change in how employees perceive management. One factor that drove this change was the distribution of our first integrated report, which we published in 2020, to all employees. I believe that this report provided a good opportunity for employees to see how MEDIA DO is viewed from the outside and to reassess their own roles within the Company to further their growth. We also undertook fund procurement and forward-looking M&A activities, giving employees a chance to engage with different corporate cultures. This was also an opportunity to reflect on the Company’s growth strategies and direction for the future and what each individual employee needs to do given our strategy and direction.

Always with eyes to the future, we will unite to enhance our management capabilities, cement our foundations, and advance strategies that preemptively address change. Driven by a strong commitment to its mission, MEDIA DO will surpass existing frameworks and preconceptions to introduce its stakeholders to a new world.

June 2021
Yasushi Fujita
President and CEO
Yasushi Fujita President and CEO

MEDIA DO Report 2021

Reporting period : Fiscal year ended Feb. 28, 2021(fiscal 2020)
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