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Japan’s New Golden Oldie Nearing Its Centennial, Columbia Music Entertainment Enjoys A Profitable Turnaround

Billboard 12.10.05
Steve McClure

TOKYO - Japan's oldest label, Columbia Music Entertainment, has a new spring in its step after years of crippling losses.

On Nov. 17 Tokyo-based CME announced consolidated first-half net profits of 78 million yen ($654,802) for April 1-Sept. 30, up from 8 million yen ($75,800) in the same period last year.

In May, CME's figures for the year ending March 31 showed a 157 million yen ($1.5 million) net profit—its first in 14 years—following a 745 million yen ($6.5 million) loss in 2003/2004.

The company expects to maintain its turnaround year, predicting a net profit of 100 million yen ($840,000) for the year to March 31, 2006.

"CME has now shown sustained profitability," New York-based CME chairman Strauss Zelnick says. "We are pleased by the company's progress and fully intend to accelerate it."

CME reported a 9.7% first-half sales rise to 16.2 billion yen ($135.8 million), boosted by revenue from third-party distribution and digital sales.

"In the first half, we cleared our accumulated loss and paid off our bank loans," CME president/CEO Sadahiko Hirose says. "The second half will be our investment phase."

The company entered this financial year carrying an accumulated loss of 34.2 billion yen ($287.4 million) and bank loans of 4.4 billion yen ($37 million). Those were cleared through an internal transfer of capital and July's $55 million sale of CME's CD/DVD manufacturing operation, Columbia Digital Media.

"We have completed restructuring as a record company," Hirose says. The next step, he says, is to move from a traditional label model to build a music company for a multichannel digital environment.

Industry observers here are cautiously optimistic about CME's revival.

"I am not quite sure if it's finally over the hump, but it's on the right track, thanks to Hirose and other good new managers," one industry source says.

"CME's future will depend on whether the management can give domestic A&R and marketing staff the motivation and support to produce more hit acts like [female vocalists] Kaera Kimura and Yo Hitoto Yo," the source adds.

Besides Kimura and Yo, first-half CME successes included Jiro Kanmuri, Kiyoshi Hikawa and, through a V2 licensing deal, the White Stripes. At a recent media/retail presentation, the label showcased its established acts alongside promising newcomers, notably female singer/songwriter Noriko Minami.

Zelnick says the company will now "aggressively pursue" digital growth, with projected digital sales revenue of 800 million yen ($6.7 million) for the current financial year.

But equity analyst John Yang of Standard & Poor's in Tokyo argues it is too early to evaluate the impact of such sales upon CME's recovery. "The digital music industry in general still lacks visibility," he points out. "The price-setters at this moment are not labels but platform owners."

CME formed as Nippon Columbia in 1910. It has undergone extensive restructuring since New York-based investment firm Ripplewood bought a controlling interest from Japanese electronics company Hitachi in May 2001. That restructuring has seen CME cut its staff by 25% and its artist roster by 40%.

Ripplewood now owns 30% of the shares in CME and manages Hitachi's remaining 20%.

Former BMG Entertainment CEO Zelnick took the chairman's role in September 2001. Hirose joined in January 2004; he had been president/CEO at Japanese Internet company @NetHome.

One of Hirose's first moves was to double CME's sales force to 80. "CME [now] enjoys one of the largest and strongest sales teams in the industry," Zelnick says. "[It] will continue to leverage the strength of its distribution network through third-party deals."

The company's shares traded at around 95 yen ($0.80) on the Tokyo Stock Exchange when Hirose joined in 2004. On Nov. 22, they closed at 132 yen ($1.12).