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Signs of Revival at Columbia Recording First Operating Profit in Seven Years; Placing Hope for Growth on the “No More Enka” Policy

Nikkei Industrial, 05.16.03
Yoshihisa Fukuda and Takumi Sasaki

On May 15, Columbia Music Entertainment (CME) published its consolidated financial results for the term ended on March 31, 2003, revealing that it had recorded its first operating profit in seven years. One and half years have passed since it left the Hitachi Group and became affiliated with Ripplewood Inc. Not only did it restructure, a process that included job cuts, but it also created the foundations for future growth by developing its Japanese pop (J-pop) artists and outsourcing the manufacturing of music software. Introducing a new corporate culture, this old firm is recovering from the difficulties caused by declining popularity of Japanese Enka ballads.

"A good song, isn't it?"

President Masao Nakajima looked satisfied, chatting with members of the audience at a special concert site at the premises of Ikegami Hommonji Temple in Tokyo on April 20. Performing on stage was a singer who was the first to achieve the target of recording a hit tune in the J-pop genre. The singer's name is Yo Hitoto.

CME's business had been running at a loss since April 1997. Its sales had fallen below 100 billion yen since April 1998. Dispatched from Ripplewood as chairman, Mr. Strauss Zelnick introduced a strategy for simultaneously addressing two issues, namely corporate restructuring and the creation of a structure to bolster sales. The development of its J-pop business was the top priority for establishment of a structural revenue increase.

The company had to deal with the sudden death of Katsumi Matsumura last year, whose inauguration as president had coincided with the arrival of Mr. Zelnick as chairman. As Mr. Matsumura's successor, Mr. Nakajima proceeded with corporate rehabilitation on the principle of "No More Enka." Mr. Nakajima is from Being, which has ample J-pop bands such as B'z.

Last July, CME's management launched the "4-1 Plan." It suggested focusing on promising titles to reduce the number of new titles by 40 percent and to lower the rejection rate to 10 percent or below. Until the term ending March 31, 2003, it achieved a release cut rate of 24 percent, but according to management planning headquarters, the figure is nearly 40 percent when J-pop is excluded. This has hastened a radical change in the company's portfolio of titles. With leading Enka singers like Hibari Misora and Hideo Murata, Columbia enjoyed a golden age in the decade from 1955 to 1965. But now its management has demonstrated internally and externally its resolve to expand into new genres.

Last October, CME enjoyed the company of YOSHIKI, leader of the dissolved rock group X JAPAN, at a press conference held at the Tokyo Stock Exchange to announce a plan to entrust the performer with production for its young artists. In the category of Western music, CME sold approximately 80,000 copies of the Janet Jackson DVD. Mr. Nakajima revealed that he had told the sales staff to increase their target by an order of magnitude to spur them.

Another pillar of the structural revenue jump is the commissioned manufacturing and sale of music software. Columbia's head office lobby displays a photo of Kuzu next to a photo of young Enka star Kiyoshi Hikawa. Kuzu is a band composed of comedians. Last August, CME won an order for CD manufacturing and sales from R&D Japan, a software company based in Mitato-ku, Tokyo that is affiliated with Yoshimoto Kogyo. This summer, CME will start software manufacturing for the emerging music company Dreamusic, located in Shibuya-ku, Tokyo.

That will raise the production efficiency of its press plant in Kanagawa Prefecture, which has existing monthly production capacity of four to five million units. It will also increase the number of marketed copies of titles designed for a young audience. Dreamusic had formerly outsourced the manufacturing and sales to Sony Music Entertainment, but CME captured the contract.

In the term ending March 31, 2003, the company posted an operating profit of 22 million yen but sales were stagnant at 29,877 million yen. If the audio-visual equipment business, which was spun off in October 2001, is left out of the equation, sales fell 9.2 percent from the previous term in the music business alone. It still ended with a bottom-line loss of 1,250 million yen.

In the term ended March 31, 2004, the company is aiming to achieve sales of 31,000 million yen and a bottom line profit of 300 million yen. Mr. Zelnick predicts that reorganization will be finished in all aspects and that the company will turn towards profitability, but another successful artist to follow up on Yo Hitoto is essential.

The hit charts up to the middle of the year will tell us whether the new Columbia is on the road to recovery track.