Columbia Music Entertainment Issues Notice of Consolidated Business Results to the End of the Third Quarter of the Fiscal Year Ending March 2009 and Revised Full-Year Outlook
March, 19 2009
Columbia Music Entertainment Inc. (hereinafter CME; Head Office: Minato-ku, Tokyo; Chief Executive Officer (CEO): Sadahiko Hirose) today issued consolidated results of the Company’s financial performance for the first three quarters (April 1 through December 31, 2008) of the fiscal year ending March 2009. The Company also released a revised financial forecast for the full fiscal year.
The Company has downwardly revised its financial forecast for the full fiscal year ending March 2009, as a result of the slippage and cancellation of major releases, the elimination of certain artist contracts in the J-Pop/J-Rock Department as well as sales declines in the Creative Core subsidiary, all as discussed below.
In the previous fiscal year, the Company reviewed its J-Pop/J-Rock artist relationships and materially downsized the unprofitable International Department. Furthermore, the Company also reduced its employee base through a “Second Career Program”, the results of which are being steadily reflected in the Company’s performance through reduced expenses. Despite reductions in the Company’s cost structure, profitability has not been achieved given declines in sales, due to lack hits in the J-Pop/J-Rock Department and the current market environment in which the majority of revenue is increasingly tied to hit products.
In response to the aforementioned, the Company is increasingly focused on those areas in which either opportunities for sustainable profit or future growth are expected, thereby building an business that can generate profits for the long term.
Specifically, CME plans to focus on Enka/Kayokyoku, Animation/ Education, and Classical titles. The Company is also in the process of restructuring the J-Pop Department through the termination of contracts with artists that are unprofitable. In addition, CME is strengthening the release of titles that appeal to the senior demographic, a large and growing population with a high level of purchasing power.
For Creative Core, which CME acquired in the previous fiscal year, CME plans to strengthen each of its areas of operation and generate further synergies by continuing its integration with the Company. As a result of Creative Core’s relationship with San-X Inc. in the game software production business, CME and Creatiive Core serve on the production committee for the TV animation show Kupuu!! Mamegoma!, which features San-X’s highly popular character Mamegoma. In the game business, which is benefiting from market growth, CME is planning to increase sales by strengthening Creative Core’s product development.
The Company is also in the process of further lowering its fixed expenses by (i) carrying out a voluntary retirement program that reduces the number of full-time and contracted employees, (ii) reducing its use of outsourcing and temporary staff, and (iii) reducing executive compensation and managerial staff salaries, which took effect in December 2008. Through the aforementioned measures, the Company expects to generate a profit for the fiscal year ending March 31, 2010 . To the extent that that the process of consolidation has any effects on the Company’s performance that require disclosure, the Company will report the details expeditiously.
During the nine-month period through the end of the third quarter, the Company’s cumulative consolidated sales totaled 13,773 million yen. This represents an increase of 3.7% over the corresponding period of the previous fiscal year, primarily driven by a 21 percent increase in sales within the Digital Business as well as the inclusion of sales of Creative Core, which became a wholly-owned subsidiary of the Company in November 2007. In the in-house Music Production Business, Enka and Kayokyoku titles continued to sell strongly, while sales of Animation and Educational titles exceeded their respective levels for the corresponding period of the previous fiscal year. However, sales in the J-Pop/J-Rock Department declined over the corresponding period of the previous fiscal year given a reduction of major releases. In addition, sales at the Company’s overseas music production subsidiary declined due to the impact of the deteriorating economic environment in the United States.
During the period, the Enka/Kayokyoku, Animation, Educational, and Classical Departments all achieved strong profitability. However, the J-Pop/J-Rock Department, the Custom Sales Business, Creative Core, and the Company’s overseas music production subsidiary all recorded year-on-year declines. As a result, the Company recorded a cumulative operating loss for the 9 months of 772 million yen (compared with a loss of 622 million yen for the corresponding period of the previous fiscal year) and a cumulative ordinary loss of 734 million yen (compared with a loss of 696 million yen for the corresponding period of the previous fiscal year).
Furthermore, the Company booked several extraordinary gains and losses, as follows: (i) 384 million yen gain (disclosed on November 7, 2008) related to the reversal of payments following the recalculation of royalty payments estimated and booked during past financial years, (ii) 191 million yen gain related to a discontinued business, (iii) 75 million yen gain related to the reversal of a license contract liquidation loss, and (iv) a 247 million yen loss related to a label contract liquidated to avoid anticipated losses. Including these extraordinary gains and losses , CME has recorded a net loss for the 9 months of 354 million yen (compared with a loss of 614 million yen for the corresponding period of the previous fiscal year).
Consolidated Business Result Forecast for the Full Fiscal Year Ending March 2009
Columbia Group has revised its previous forecasts issued on November 7, 2008. Columbia is forecasting total sales of 18.8 billion yen for the full fiscal year ending March 2009 (April 1, 2008 through March 31, 2009), a decline of 1.2 billion yen compared with the initial forecast, due to ongoing declines in the music market, cancellations and delays in releases of major titles, the liquidation of artist contracts in the J-Pop/J-Rock Department, and declines in sales of Creative Core. We also anticipate further losses in both operating loss and ordinary loss, given the aforementioned decline in sales as well as additional one-time retirement benefit payments associated with the ongoing voluntary retirement program (to be recorded as an extraordinary loss). As a result of the aforementioned, the Company forecasts full year sales of 18.8 billion yen, an operating loss of 900 million yen, an ordinary loss of 880 million yen, and a net loss of 780 million yen.
—Artists and Titles Making Major Contributions to Sales—
< Music Software>
Kiyoshi Hikawa— Aishu no Mizuumi/Yugao no Hito,
Kiyoshi Hikawa Enka Meikyoku Collection 8 ~ Genkai Funauta ~,
Kiyoshi Hikawa Enka Meikyoku Collection 9 ~ Aishu no Mizuumi ~
Eisaku Okawa— Nagori no Sakura/Soba ni Ite ne,
Futari no Tabiji/Nakase Ame
Maiko Takigawa— Sekihoku Honsen/Kinokawa Bojou
Kazusa Wakayama— Ajisai no Yado/Onna Hanazakari
Yo Hitoto— Hajimete/Hanamizuki, BESTYO
Kaela Kimura— Moustache/Memories (original version)
Ikuko Harada– Kemono to Maho
Chiharu Matsuyama— Tensai/Matsuyama Chiharu no Rabu Baraado (Love Ballads), Tabidachi ~ Ashoro Yori ~
THE IDOLM@STER Series
Enjin Sentai GoOnger Series
CREST 1000 Series
Enka no Chikara