President’s MessageINVESTOR RELATIONS
From the 'MEDIA DO Report 2021'
MEDIA DO will incorporate the ever-growing possibilities of technology and take the initiative in installing frameworks for utilizing content to ensure that the benefits of technological process can be felt by the entire content industry.
Yasushi Fujita President and CEO
5. In Closing
1. MEDIA DO at a Turning Point Social Purpose Backed by Forward-Looking Ambition
MEDIA DO’s vision of “More Content for More People!” was formulated more than a decade ago. Before getting into eBooks, MEDIA DO was involved in ringtone distribution services, which it got into shortly after its founding. This vision is therefore a reflection of our desire to contribute to the creation and distribution of not only eBooks but all different types of content. At the time of this vision’s formulation, we lacked management resources to fulfill our vision for the future, so found ourselves needing to focus on the rapidly growing eBook market while waiting for our opportunity to realize our larger vision. Time has passed since then, bringing us to today, when we find MEDIA DO with an unrivaled No. 1 position in the domestic eBook distribution industry. The path leading to this position has been paved with our acquisition of and merger with Digital Publishing Initiatives Japan Co., Ltd., transition to a holding company system, introduction of an executive officer system, revision of human resource systems, and other measures for reinforcing our operating foundation. In addition, we have advanced a concerted effort to forge strong ties with publishers and eBook distributors and to supply systems and solutions that resolve the issues faced by the industry. Our pursuit of growth did not slow when the Company was listed on the stock exchange, as we proceeded to procure funds for the first time since listing, form a capital and business alliance with TOHAN CORPORATION, and take part in numerous M&A activities. I feel confident in touting the growth we have achieved and the contributions we have made to the industry through this dedication to forward-looking ambition.
Today, the MEDIA DO Group finds itself at a turning point. Technological progress has made the world more convenient than ever, granting us increased leisure time. At the same time, content is being created at an unprecedented pace. We are now in an era in which content creation is not a pursuit limited to a small handful of geniuses and professionals. Not only can anyone now produce content, demand for such content is growing faster than ever imagined.
One might ask, what path, then, should MEDIA DO walk amid these trends? The answer is that we must faithfully fulfill the “More People” portion of our vision by delivering content through our existing eBook distribution business. Meanwhile, we will also need to work to enact the “More Content” element of our vision by leveraging the trust and position we have developed so far to engage in new undertakings together with content and intellectual property (IP) holders as a partner that fully understands the content business. Through this two-pronged approach, we should look to transform into an entity that is able to catalyze innovation across the industry.
The advent of the smartphone fundamentally changed the nature of technology and content. These tiny devices are now an integral part of our daily lives. As such, content and IP holders are now pressed to search for earnings opportunities and deliver superior customer experiences through these devices. Another change is likely to be seen with the development of blockchain technology, which has strong defenses against alteration. This technology has the potential to spark a massive increase in the presence of digital content.
Seeing the potential in this new technological development, MEDIA DO created a digital content asset model. This model endows digital content, which used to be infinitely reproducible with each new copy being the same as the last, with the concept of finiteness. This finiteness gives digital content value as an asset and makes it possible to trade. The digital content asset model is simultaneously an embodiment of our mission of “unleashing a virtuous cycle of literary creation” and a bold new undertaking for realizing our vision for the future of the MEDIA DO Group. Through this scheme, we aim to propose business models for raising the value of music, books, videos, and other digital content that differs from the models used today in order to provide new options to artists and other creators along with new experiences for users. I personally feel that the way digital content is seen only as something to be consumed for enjoyment is a waste of potential. This is because the true value of digital content is exhibited when it is used to drive production and creation activities by users. As I stated a moment ago, we are witnessing a massive change in digital content and in the people who make it. When the market was dominated by physical content, the range of areas in which users could be directly involved in production and creation were incredibly limited. Technology, however, has since broadened the scope of areas in which users can get involved. If we can create frameworks in which users can become more than just consumers by taking part in production and creation, it will no doubt lead to the production of a greater range of content. Such a situation would have benefits beyond helping companies grow; it would also drive the development of a richer culture for society. MEDIA DO’s purpose is to act as an intermediary for connecting content to technology, content to people, and people to society. Fulfilling this purpose will require us to continue to grow and evolve. This was the commitment that formed the foundation for the new medium-term management plan announced in April 2022.
2. Review of the Previous Medium-Term Management Plan and Overview of the Fiscal Year Ended February 28, 2022
Reinforcement of Group Operating Foundations to Prepare for Future Endeavors
The previous medium-term management plan, which was announced in July 2018, aimed to grow MEDIA DO into an entity that supports the entire eBook distribution industry. To this end, the plan put forth the three strategic frameworks of stimulate the growth of eBook markets, specifically by supporting the growth of the eBook market with our existing structures; invent future eBook markets, by capitalizing on advanced technologies to further expand the market; and aggressively invest in business expansion. We also defined five priorities. Initiatives were carried out based on these frameworks and priorities. Our largest success of the past four years was our securing an unrivaled No. 1 position in the domestic eBook distribution industry, which was made possible by the acquisition of and merger with Digital Publishing Initiatives Japan. This position is our greatest strength as well as our greatest asset. It is a symbol of the trust we have gained from publishers and eBook distributors and the expertise we have accumulated. Our position is thus a strength that our competitors will not be able to reproduce anytime soon. Moreover, our functions as an intermediary between publishers and eBook distributors grants us a window into the shared issues on both the publishing side and the creation side of content, which is a core part of our ability to generate shared value for both parties. Our No. 1 share in the industry is the financial manifestation of this position. However, more important than the financial aspects are the non-financial elements of our position as an asset for supporting our future pursuits.
In terms of financial performance, our net sales have doubled over the past four years, surpassing ¥100.0 billion and achieving the target of the medium-term management plan a year earlier than anticipated. Unfortunately, we failed to meet our target for EBITDA due to our decision to extend the phase during which we invested in new businesses. As for our qualitative strategic targets, I am proud to say that we generally accomplished all of the goals set out for the plan’s five priorities.
Looking at the fiscal year ended February 28, 2022, specifically, net sales rose 25.4% year on year, to ¥104.7 billion, while EBITDA was up 14.7%, to ¥3.9 billion. This was a year of great change as we leveraged our position to develop our business through undertakings such as promoting the digital transformation of the industry through our alliance with Tohan and boosting the value of digital content through the launch of the FanTop platform. In the face of this great change, we chose to delay the announcement of our new medium-term management plan by one year. However, I feel that this extra year enabled us to formulate a much clearer vision of the directives for our business domain that will need to be implemented under the new plan. Looking ahead, we will strive to ensure the accomplishment of the goals of the new plan while fully capitalizing on the successes we have achieved.
3. Growth Strategy Directives Based on the New Medium-Term Management Plan
Completion of Cultivation of New Earnings Pillars Founded on Trust
A central theme of the new medium-term management plan is the completion of the cultivation of new earnings pillars founded on the trust we have fostered. To expand upon our business domain, we will take advantage of the foundations we have built to evolve into a company that contributes to the content industry in order to lay the groundwork for the development of our digital content asset model. At the same time, we will pursue stable earnings growth by fostering additional earnings pillars to complement our eBook distribution business. This is a task that we were not able to fully tackle under the previous medium-term management plan.
Specifically, we have classified the new businesses we have fostered thus far into the imprint business, the publishing solution business, the global business, and the fan marketing business. These four businesses, which were cultivated in focus areas by taking advantage of the position and technologies we have amassed, are contained in the new strategic investment businesses segment. Even with the creation of these new businesses, however, our core eBook distribution business will continue to be positioned as our main business. The stable earnings generated by the eBook distribution business will be used to fund investments in strategic investment businesses to an even greater extent than before. Through this aggressive approach toward investment, we hope to accelerate the growth of these businesses to raise the portion of net sales attributable to strategic investment businesses from the current 8% to 25% by the fiscal year ending February 28, 2027, while also boosting the portion of EBITDA from these businesses to 50%.
Our goal for our mainstay eBook distribution business is to strengthen our position as an industry infrastructure provider through further reduction of distribution energy use and the provision of additional functions. Three measures have been defined to speed us toward this goal: Grow the eBook market by reducing distribution energy use, provide data marketing and other new functions, and develop new products and grow the market for non-graphic eBooks. Currently, we are seeing growth in the amount of content as well as in the number of campaigns, publishers, and eBook distributors. For this reason, one of the main expectations levied toward MEDIA DO, in its capacity as a wholesaler, is to provide frameworks and standards that allow for effective management of all of these factors along with safe and efficient distribution of eBooks. Moreover, it is important for us to further build upon our operational excellence through these efforts. By this, I mean continuing to reduce the amount of energy used for distribution through improvements to operational efficiency and to expedite distribution, for example by shortening the lead time between sending the manuscript to printers and commencing sales of published works. In this manner, we aim to further cement the foundations of our eBook distribution business.
Turning to our strategic investment businesses, a great amount of attention is being garnered by the physical publications we have been supplying with attached digital benefits using non-fungible tokens (NFTs). This was a scheme that we developed through our alliance with Tohan with the goal of contributing to the publishing industry. Japan’s publishing market has continued to contract since it reached its peak of ¥2.6 trillion in 1996. Today, the scale of this market is only around ¥1.3 trillion,* speaking to the difficult environment with which this market has grappled for quite some time. MEDIA DO has been diligent it its search for ways to help save this industry. One area we looked at in this search was the increasing number of bookstores that are closing their doors, which has resulted in a sharp decrease in the presence of bookstores in Japan, particularly outside of urban areas. Speaking from my own experience, I remember a time when the closure of our local bookstore caused a sharp decline in the amount of conversation on cultural topics in the community. It was at that point when I realized that the loss of bookstores might become a serious social issue for Japan in the future. Recognition of this issue was one of the factors that fueled my drive to supply physical publications with digital NFT benefits. The first such publications hit the shelves in October 2021, and we were able to market some 15 titles with digital NFT benefits over the roughly six months that followed. We have attached such NFT benefits to books, magazines, and photobooks. Particularly impressive sales were seen for the SPA! weekly magazine published by FUSOSHA Publishing Inc. Despite the special edition featuring the NFT benefits being priced higher than the standard edition, it sold out. Moreover, SPA! became the first publication for which every copy came with a digital NFT benefit in July 2022.
In this way, our alliance with Tohan has already contributed to the proposal of new forms of publications and an increased range of ways to enjoy these publications in just its first six months. This alliance has also been a vessel for promoting the digital transformation of the structure of the publishing industry by proposing new value that creates earnings opportunities and connections with readers to publishers and distributors. I therefore expect that this alliance will generate significant opportunities for growing content businesses in the future. The internet and digital technologies have the potential to erode and replace prior physical offerings, and this is something that holds true for any industry. Conversely, new technologies such as blockchain and NFTs complement physical offerings. As such, I see these as technologies that are co-creative toward physical spaces. One example of this co-creation can be seen in physical publications with digital NFT benefits. This is just one success that we have achieved over this short period, but introducing society to this new form of value is an important innovation, not only for how it proves the benefits of NFTs but also in how it will serve as a bridgehead for other such efforts in the future. Currently, the number of bookstores in Japan surpasses the number of physical stores for other types of content, like music and videos. MEDIA DO’s new content business looks to transform bookstores into bases for the transmission of content so that a wider range of potential users can find something to enjoy at bookstores. The next step after having verified the benefits of business will be to determine the numbers of books and titles needing to be secured and how to develop frameworks to ensure that these items can continue to be sold via our FanTop NFT marketplace. Industry players and specific offerings are still unconnected at the moment. Going forward, it will be important to connect offerings and involve industry players like publishers, wholesalers, and distributors in these efforts in order to form synergies and spread our initiatives across the industry. I am confident that this approach will help resolve the shared issues faced by the industry and create shared value. This process will in turn increase the value of the FanTop platform and subsequently produce clear financial benefits in the form of higher user numbers and sales. Our path is clear. Now it is up to us to move forward with the medium-term management plan in our quest to invigorate the entire publishing industry.
MEDIA DO also intends to ramp up its activities in overseas markets. With the addition of the Firebrand Group (Quality Solutions, Inc., NetGalley, LLC, and their subsidiaries) and Supadü Limited to our ranks, MEDIA DO’s global business foundation is now significantly stronger than it was when our previous medium-term management plan was announced five years ago. The Firebrand Group is similar to the MEDIA DO Group in that it primarily plays a supportive role to the industry through business-to-business operations. Moreover, the Firebrand Group has developed a solid presence in the industry over its long 35-year history, and thus possesses significant insight into the issues and trends of overseas publishing industries. This conglomerate develops a multifaceted business encompassing publishing enterprise resource management centered on the bibliographical information management, information distribution, and eBook distribution. Through this business, it offers top-share services used by more than 100 companies including major U.S. publishers as well as publishers in the United Kingdom, Germany, and other parts of North America and Europe. By leveraging the Firebrand Group’s strong ties with overseas publishers, we aim to apply the cutting-edge IP and insight of North American and European publishing industries, where digital transformation was adopted more quickly than in Japan, to develop services for the Japanese and Asian markets. At the same time, we will use the Firebrand Group as our overseas foothold for raising the value of digital content around the world through our digital content asset model. The financial base that will be used for overseas investments has been solidified to a sufficient degree over the past several years. MEDIA DO is thus now well-equipped in terms of both information and finances to bolster its overseas operations. We will therefore be looking to accelerate our growth through global expansion going forward.
* Source: All-Japan Magazine and Book Publishers and Editors Association
4. Approach toward Sustainability Management
Companywide Sustainability Initiatives for Overcoming Tough Times
MEDIA DO has proceeded to formulate sustainability policies, define priority environmental, social, and governance (ESG) themes, and shape strategies based on these to build frameworks for achieving sustainable growth and improving corporate value while also helping resolve social issues. Seeking to further enhance our comprehensive risks management capabilities and maximize business opportunities based on social issues, we augmented these efforts with the reorganization of the Risk Management Committee to form the Sustainability Committee in June 2022.
I believe that sustainability management has a broader meaning than is commonly understood. Specifically, I think that an important part of sustainability management is to adopt new perspectives toward addressing the issues faced in existing businesses and to maintain an overarching perspective with regard to the ways in which society may change in the future. For this reason, companies need to be attentive in tracking the trends in various areas. In addition, incorporating diverse values and ways of thinking into a company is imperative to accomplishing the company’s goals. My approach toward sustainability management is thus to attentively monitor trends around the world in order to reflect the major trends I see into management. The sports business and entrepreneur cultivation and support projects we are currently engaged in may, at first, seem to be unrelated to our core business, but I view such undertakings as an important part of our sustainability management. Moreover, ensuring the sustainability of the Company requires us to develop frameworks and a reputation that will allow us to receive support should we fall on tough times. Let me elaborate on this idea by talking about the entrepreneur support activities of TOKUSHIMA INNOVATION BASE ASSOCIATION (TIB). This organization currently has branches in 17 prefectures throughout Japan, and we look to expand this network to 30 prefectures in the future. Numerous managers have participated in or offered their support to the activities of TIB. These activities are, of course, designed to be an undertaking for helping support regional economic development that MEDIA DO advances together with communities. Such socially minded activities serve to increase the trust and meaningfulness of the Company, and consequently boost our recognition and presence. This will strengthen the MEDIA DO brand and help reinforce our management foundation by aiding us in recruiting human resources. In other words, these connections demonstrate the extent of the social and relationship capital we have been able to amass. If MEDIA DO is around for long enough, it is sure to fall upon tough times eventually. If we are to be able to overcome this adversity, we must be attentive to the overarching trends seen throughout society. We also need to make allies who will support us in the face of such difficulty. These pursuits constitute the approach that MEDIA DO should take toward sustainability management.
5. In Closing Strong Dedication to Accomplishing Goals
I mentioned earlier that MEDIA DO is at a turning point in its quest to move on to the next state of its development with the new medium-term management plan. If we are to take the correct path, management will need to ensure that we are successful in cultivating earnings pillars that can stand alongside our eBook distribution business. We must also expand our business scope to evolve MEDIA DO from a company that is synonymous with eBook distribution to one that is known for contributing to the greater content industry. In these undertakings, the effective implementation of our digital content asset model will be a task of utmost importance. We must therefore be sure to capitalize on the opportunities placed before us and to find a path toward success with this regard. I hope our shareholders, investors, and other stakeholders will look forward to the possibilities to be unlocked through MEDIA DO’s strategies and services in the years to come.
President and CEO