the avex group s medium-term vision · the avex group’s medium-term vision to evolve into the...

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The AVEX Group Presentation on Structural Reforms

Tuesday, April 12, 2005At velfarre

COPY RIGHT©2005 AVEX GROUP ALL RIGHTS RESERVED.

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The AVEX Group’s Medium-Term Vision

To evolve into the "Entertainment Brand

Company" with the strongest creative and

communication capabilities in Asia.


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The AVEX Group’s Corporate Image in 2008

J-pop hit makerNot only a music hit maker but also a company that creates new entertainment trends/booms, such as the fusion between music and images

Avex brandCompany that creates various entertainment brands by itself or in collaboration with different partners and not bound by the Avex brand

Avex in Japan Avex in Asia and Avex in the world

Successful company in the music industry

[Current Image]

Leading company in the entertainment industry, diversified in a range of music and image areas, from core to mega hit products

[Image in 2008]


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The AVEX Group: Basis of what it ought to be and its future direction

To become a leading company in the entertainment industry, the AVEX Group has to enhance the following two capabilities:

The first one is Creativity.While constantly developing its cutting-edge core business, which currently attracts only a small number of people, Avex has to manifest its creativity in adapting this business to

a bigger customer base by using potential trends found in this core business.

The second one is Communication.Communication means how and in what form (with what kind of added value) we deliver the content we develop using our newly manifested creativity to the people who need it.When the customer segment that pays a certain amount of money for content becomes large enough to form a community, we can say that we succeeded in creating a brand.

After developing the “avex (trax)” brand, which predominated dance music, Avex used this platform to expand the brand to the J-pop industry and maintained brand equity.

However, we have not created any brand that has surpassed “avex (trax).”(This means the customer base has not grown enough.)

While entering new music genres, we are determined to expand the circulation model of the music platform to the image business and pursue new growth in the whole Asian market,

which is the target of our communication strategy.

By further strengthening collaboration/partnerships with various people and companies, we will expand and deepen our business model to become

the most powerful entertainment company in Asia.


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Basic Concept of Structural Reforms

CREATIVITY

BRAND

COMMUNICATION

To create new brands (value) by strengthening creativity and communication capabilities (dialogue with customers) and

enhance corporate value by seamlessly carrying out that process


6COPY RIGHT©2005 AVEX GROUP ALL RIGHTS RESERVED.

Basic Design of a Creative Company

The continuous development of creative capabilities and the ceaseless pursuit of new possibilities will lead to the creation of valuable content. To make this happen, we must prepare an environment that helps human resources work actively.

To become a challenging creative company!From inside:

• Establish a creative board:An advisory body to the board of directors, comprising internal and external people who are strong in creative businesses

• Creative pocket award:An incentive scheme targeting all staff to award people who manifest creativity

• Personnel-system reform:Multiple human resources tables that allow diversified career development plans

• New compliance policy:Avex’s unique compliance policy that does not contradict creativity in the entertainment industry (explained later)

• Encourage the creation of new labels:Each production group is allowed to create new, highly unique labels (approval from the creative board is required)

From outside:• Personnel system reform:

Building external human resources tables• Actively recruit external human resources:

Recruitment of brand managers and A&Rs after disclosing materials (new artists)• Further promote an open platform:

Strengthening partnerships with external creators and specialists (e.g., Mr. Tetsuya Komuro became executive advisor of Avex Network’s HD Sound—explained later)

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Creative Communication

We enhance direct, or customer-based, communication and use the results to improve content. Thus, we further improve creativity and satisfy consumer needs.


Contents

Creativity

Package store

Concert/event

Fan club

Membership business

Music/image delivery

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Enhancing Branding Strategy

Label branding

Create various music labels by emphasizing label identity. The expansion of a customer segment and label branding targeting relevant customers are simultaneously carried out. At the same time, the branding of the image business is executed.

Business strategy for specified customer segments through artist branding and diversified activities in areas other than music

Live events, merchandizing, fashion, etc.

Artist branding


Establishing a Brand Management System

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Artist Branding

Music(Package/delivery)

Fashion(Model, etc.)

Image (Actor/director/creator)

Image character(Commercial/game)

Animation(Voice actor)

Publishing/goods(Photo book/character development)

Concert/event (Live entertainment)

By increasing artists’ brand equity and maximizing profits, we build a stable revenue base.

Artist Brand


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Label Branding

Label G

avex traxproduction

Production Division A

Label D

Entrusted production business

Author management

Label E

Label F

Entrusted production business

Author management

Production Division B

BRM BRM BRM

BRM Department

Media Department

avex traxproduction

: Artists belonging to AEI

Although artists who belong to Avex Entertainment Inc. (AEI) are managed by the Brand Management Department (BRM), the head of the Production Department decides which artist is released under which label, taking into account the characteristics of both.

Artist management

Head of Production Department


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Enhancing Communication Strategy

Creativity

By enhancing marketing functions in the package distribution area, value is added to the content.

Provision of content

Proposal for optimum policies on products and distribution


Proposal for optimum policies on products and distribution

By enhancing marketing functions in the digital distribution area, value is added to the content.


Live performances, which add value to content, are arranged for customers. Profits are expanded also by using external content.


Improvement in content value

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Communication Strategy for the Package Business

Enhance area promotion:

Nurturing local hits

Enhance the entrusted sales business

E.g., HY, Sasuke

New proposal for packages:

Collaboration goods, etc.

Faced with a contracting package market, we must improve our communication capabilities with customers by strengthening marketing

functions and propose high-value-added products to customers. Also, area promotion and the development of a new customer interface

are important. The entrusted sales business is enhanced, too.

Develop a new customer interface:

Response to customers’diversified purchasing

approaches

Pursue marketing strategies: Identifying

consumer trends/needs as well as changes in the

external environment and incorporating them into a

package strategy


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Example of a Hybrid Scheme for Package and Delivery

January 1, 2005—Start delivery of Chakumero andChaku-Uta® (ring tone) versions of “Hopeful”

February 9, 2005—Start delivery of Chaku-Uta FullTM

version/copy of “Hopeful”

March 14, 2005—Start delivery ofChaku-Uta® version of “Delightful”

March 24, 2005—Start delivery of Chaku-Uta FullTM

version/copy of “Delightful”

March 24, 2005—Release of singles “Delightful” and “Hopeful”

Simultaneous package and non-package campaigns aim for synergistic effects on promotion.

April 15, 2005—Start delivery of Chakumeroand Chaku-Uta® versions/copy of “Eventful”

Jan. 2005 Feb. 2005 Mar. 2005[Ami Suzuki’s case:]

Apr. 2005 May 2005

May 25, 2005—Schedule the release of the single “Eventful”

To album


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From a Mere Digital Distribution Company to Entertainment Media

Merchandizing

Delivery businessFan club business

Membership business

The AVEX Group develops unrivaled services by deepening values that only the Group can provide as an entertainment content holder.

Building brands as entertainment media


Based on unique services backed by strong content, the AVEX Group will gain support from an overwhelming number of consumers. Thus, the Group will grow into

a company that is distinct from other companies engaged in the content delivery service aimed at cell-phone and Internet users.

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Membership Business


* New music: Ultrahigh-speed initial delivery of Chakumero/Chaku-Uta®

* Chaku-Uta® versions of live sound sources* Dance music catalogue* High quality sound Chakumero/Chaku-

Uta® officially recognized by artists* Artists’ voice, etc.

Launch service in early summer 2005

New Avex site for cell phones (plan) Building a mobile platform

• Differentiate Avex’s site from other sites by introducing master recordings/original images and content by artists who belong to Avex Entertainment Inc.

• Create Avex fans as well as a community that enjoy music and videos.

Phase 1

Phase 2 Aiming to prepare a full range of content for PCs and cell phones

• Enhance capabilities as music/image media. Also, external content linked to the site. Become a music/image content portal site. Increase fan base.

• Develop various kinds of communities other than a music/video community via cell phones and PCs. Create new entertainment enthusiasts.

Phase 3 Towards a comprehensive entertainment portal• Aim to strengthen new entertainment content by using members,

marketing data, and communities as a weapon.

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Considering that the music delivery market is now becoming a major entertainment market,Avex Network decided to launch high-quality sound project shortly and set up the High Definition Sound Laboratory (HD Sound Lab.). When consumers’ interests shift fromChakumero to Chaku-Uta® to Chaku-Uta FullTM, it shows their growing dissatisfaction with current sound quality. As a leading company of music content, the AVEX Group believes that meeting such needs is an urgent issue. In the project, Mr. Tetsuya Komuro, who has been pursuing high-sound quality, assumed the post of executive advisor of the HD Sound Lab. In a partnership with Mr. Komuro, the AVEX Group will study and experiment with forms of high-sound quality in this music delivery age in order to explore the best form for the future. The HD Sound Lab. aims to conduct full digital processing by using a master recording and 24(32) bit/192 Khz as standard specifications. Our goal is to provide music fans with a high quality sound environment mainly for HDD players, including cell phones, in cooperation with telecommunication carriers and hardware manufacturers.

Mr. Tetsuya Komuro

　　

　　　　　　　　　　HD Sound Lab.　　　　　　　　　　

　　　　　　　

Advice


High Definition Sound with TK

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Delivery Business


1999Japan’s first official music delivery service “bit music” (SME) started

2000Avex music delivery service “@MUSIC” started

2002Chaku-Uta® service started

<Rapid changes in the market environment>

2005—Turning point

Release of a range of terminals that respond to diverse music lifestyles

Because growth of the delivery market is anticipated, the conventional conservative stance should be shifted to an aggressive stance that aims to actively create the market.

1. Ensuring a competitive edge in the market through valuable content based on artists’ brand equity2. Expansion of operation and sales channels to external sites to prepare for the future borderless

delivery age3. Promoting strategic policies on music delivery in conjunction with tie-ups, cosponsorships, and

package promotions. 4. Experimenting on and verifying DRM that can adapt to diverse media5. Commitment to high-sound quality that responds to each terminal

<Basic Stance on Delivery Business Strategy>

2004Chaku-Uta FullTM service started

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Live CommunicationAiming to become a widely supported company in the entertainmentand show business industry

Avex tries to improve its brand value by adding value to content by switching it to live performances and making content value as appealing as possible to consumers.

Planning/production

Cosponsorship/promotion

Venue management/merchandize sales

Video delivery/live DVD/secondary business


Aiming to build an open platform through one-stop control of the business system used in live operations so that production companies providing external content or alliance partners and event planners can use the platform.

Expansion of content provided

to customers

Traditionally, live performances are planned only for a limited

number of artists who have the ability to attract a certain audience

size.

Current situation

Avex intends to develop show business using not only internal content but also external content

and Avex original content, including musicals.

Future

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Development of Next-Generation Brands


• Integrating all talent development information of the AVEX Groupand developing and nurturing new talents—Avexartists/talents— who bear Avex’s future growth

Nurturing budding artist brands of the next generation Avex Artist Academy

• By consolidating information within the Group and promoting closer communication among Group companies through media integration across the Company, more effective information is provided.

Mass communication (TV program/promotion magazine)

Real communication (Restaurant/shop business)

• Creating new businesses using synergistic effects and brand power; commercialization of various businesses and their derivative businesses, such as the development of commercial facilities, including different kinds of shops

20COPY RIGHT©2005 AVEX GROUP ALL RIGHTS RESERVED.

Image Business: Building an Image Platform

Build an image content platform using the platform Build an image content platform using the platform developed in the music businessdeveloped in the music business

Establishing a producer’s royalty model

Establishing an image

content platform

Establishing an image

content platform

Branding labelsBranding labelsEstablishing an earnings

model

Establishing an earnings

model

Acquisition of killer content

Acquisition of killer content

Establish a system that attracts excellent content and human resEstablish a system that attracts excellent content and human resources by building a platformources by building a platform

Establishing a model pursuing synergy with music

Establishing a new production business model

Establishing a multiuse system

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1st Image Production

Division (Purchase of foreign films)

2nd Image Production

Division(Production

of Japanese films)

3rd Image Production

Division (Innovative

images)

Elephant Picture

(Quality films)

Image Business Department, Avex Entertainment Inc. (AEI)

Sound-track room

Animation Production

Division (Animation production)

Choose an optimum label according to the characteristics of the Choose an optimum label according to the characteristics of the productproduct

Image Business: Label Branding


Labels scheduled to be set up

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Intellectual Property Strategy: Consolidated Management of the Group’s Intellectual Property


Office for Intellectual Property Strategy

Unify the intellectual property management that has been divided within the Group

Intellectual property is managed by each company within the Group, which caused the

meaningless hoarding of rights, excessive claims of rights, and time consuming procedures to

confirm rights. These problems were solved by a consolidated management.

Intellectual property





Company A

Intellectual property Intellectual

property



Company B


Intellectual property Intellectual

property

Company C



Company D

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Organization Strategy

Outside productions

The value chain of the music business is indicated below. Because management focus was put on each company’s financial self-sufficiency within the Group, individual company’s business compartmentalization was not optimized, which resulted in duplicate operations of several companies under one business system.

Avex Network (Digital delivery)

Avex Distribution

AvexDistribution(Package

sales)

Outside production/mastering companies

Outside manufacturing/distribution companies

Prime Direction

Prime Direction

(Publishing/copyright

management)

HowdyInternational

(Goods)

Axev (Live events)

Axev

AxevAxev

Axev Inc. (Fashion/publicityrights-related business/live

image delivery)

AvexAvex Avex

Avex (PV delivery)


Scouting Developing 　Management Production PromotionDistribution(Sales/delivery/live events)

Royalty businessManufacturing

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Avex Marketing Communications

(Package sales)

Organization StrategyIn the structural reforms, the group organization was changed so that the operations/businesses of Group companies constituted the optimum value chain, and an efficient platform was established.


Scouting Developing Management Production PromotionDistribution(Sales/delivery/live events)

Royalty business

Outside productions

Avex Network (Digital delivery)

Avex Distribution

AvexDistribution(Package

sales)

Outside production/mastering companies

Outside manufacturing/distribution companies

Prime Direction

Prime Direction

(Publishing/copyright

management)

HowdyInternational

(Goods)

Axev (Live events)

Axev

AxevAxev

Axev Inc. (Fashion/publicity

rights-related business/live

image delivery)

AvexAvex Avex

Avex (PV delivery)

Avex Entertainment

(Production/promotion of music/image

content and music publishing)

Avex Planning &Development

(Scouting and developing new talent)

Avex Entertain-

ment Avex Marketing Communications

(Package sales)

Avex Live Creative (Live events)

Avex Network

(Delivery of PV/live images, fashion, goods,

publicity rights-related

business)

AVEX GROUP HOLDINGS (Management of the Group’s overall intellectual property)

Manufacturing

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Vision of AVEX Group—Concept DiagramCOPYRIGHT(c) 2005 AVEX GROUP ALL RIGHTS RESERVED.

The circulatory model of Japan’s music platform is extended to the image platform. By expanding this circulatory model to Asia, Avex ultimately aims to become a key player in the circulatory model across Asia.

Expansion to the music/image platform in Asia based on an alliance with local

partners

Expansion to the music/image platform in Asia based on an alliance with local

partners

Developing

Management

Production

Promotion

Sales/delivery

Maximizing brand valueMaximizing brand value

Scouting

CashCash

Royalty business

AsiaAsia

Building AVEX Group’s unique open platform for

music and images

Building AVEX Group’s unique open platform for

music and images

Developing

Management

Production

Promotion

Sales/delivery

Maximizing brand valueMaximizing brand value

Scouting

CashCash

Royalty business

In JapanIn JapanLaunching the

U.S./European content business using the

Asian platform

Launching the U.S./European content

business using the Asian platform United States/

EuropeUnited States/

Europe

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Building AVEX Group’s Unique Open Platform


Entrusted business

Outside Outside Outside

Entrusted management

business

Master recording

Scouting/developing artists

Promotion Membership business

Web site creation

a-nation (Live event)

Merchandizing (MD)

The AVEX Group will actively promote an alliance with other companies in the music and image value chains and build a unique open platform across Asia.

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A holding company that controls the whole group and works to increase the group’s consolidated profits and enhance corporate value

Business Domain and the Role of Each Group Company

Not bound by package manufacturing, the Company focuses on the content production of music and images. While carrying out the brand management of artists and talents, the company tries to maximize revenue by developing diverse businesses.


Develops businesses using internal/external content, such as fan clubs, goods, memberships, and delivery; aims to become an entertainment media that optimizes communication with customers mainly through a digital platform, though including a neighboring real platform

Provides customers with live events using external and internal content by adding value to the content; also, the Company improves content value through live promotion.


Improvement in content value

Engaged in scouting and developing next-generation brands as well as in new entertainment-related businesses, such as restaurant operations.

Provision of theAvex brand

Development of next-generation

brands


Enhances marketing functions in the package distribution area, plans a package strategy based on consumer needs, and optimizes customer/product/delivery


Proposal of optimum

product/delivery policies

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New Compliance Policy

<Preamble>

We work in an industry that is called show business, or entertainment. Our job is to make people happy or make them cry, i.e., to inspire

audiences. So, our work is different from those of conservative industries.

If we have to follow rules that are too strict, we cannot create good things. Without having a rebellious mind, we cannot produce innovative things.

So, not many of us are good at complying with rules and regulations.

But this does not mean we are going to do something wrong. Rather, we value people’s feelings and thoughts very much.

We accept everything that people have on their minds, such as good things, bad things, strong things, and weak things. We transform those

things into music, images, or other forms to convey them to people.

So, we have to challenge conventional thinking and keep a pure mind. We always have to face people’s minds.


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There are things that we value.

To create something that touches and moves people from intangible things, we must have love and trust in our hearts.

In other words, it is a feeling of “we can work together only with this kind of people in the first place.” If we use a formal word, maybe this is our ethics.

I pause to think about it. I seriously think whether our ethics are strange compared with other rules in society.

My conclusion: Not at all!

We think that the basis of compliance is people’s minds. Maybe it is difficult to bind minds with rules,

but if compliance is not based on minds, it ends up being just a formality.

Although our compliance policy may be a little unusual, we compiled rules that we fully agree upon. So, there are no lies or dishonesty in our

compliance policy. April 2005

Masato Matsuura, CEOAVEX GROUP HOLDINGS INC.



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Do not deceive.1. Compete with other companies in a fair, transparent, and free manner.

• No consultation on or arrangement for products, service costs, or production volume shall be carried out among peers or trade organizations.

• Do not reject trade with specified companies or new entrants in conjunction with peers or trade organizations.

2. No action shall be taken to place one’s own interests or those of a third party before the legitimate interests of the Company.• No transaction between the Company and employees or between the Company and employees’ friends/relatives shall

be conducted unless such transaction goes through due formalities of the Company. • Falsification of receipts, false or fictitious entries in the account book, or building off-the-book property shall not be

conducted.• No sample CDs/DVDs/novelties or Company equipment shall be used by individuals for personal activities or sold.

Do not bully the weak.1. The human rights of employees shall be respected, and no discriminatory conduct shall be tolerated by the Company.

• No member of the Company shall abuse his/her power, such as making an unreasonable demand on subordinates or interfering in his/her subordinate’s private life.

• No member of the Company shall engage in sexual harassment using his/her authority or position of power.

2. Relations with business partners shall be built on common sense and integrity, and they shall be treated fairly and equitably.• Payments to subcontractors or business partners shall not be deliberately delayed and their contracts shall not be

cancelled abruptly.• No forceful cooperation or cosponsorship money shall be demanded from subcontractors or business partners.

Do not rely on other people’s money when you play.1. No excessive relationship with business partners shall be established, such as those departing from sound business practices

and social common sense.• Do not use Company money for personal activities.• No entertainment or gifts beyond ordinary social common sense shall be extended to business partners.• Do not ask business partners for excessive entertainment or unwarranted rebates.



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Do not lie.1. Disclose accurate corporate information.

• No false reports shall be released or disseminated.• Corporate information shall be disclosed to stakeholders, including customers, business partners, shareholders,

and investors, in an appropriate manner on a timely basis.

2. Promotions and advertisements shall be fair and reasonable.• No excessive premiums shall be offered, and exaggerated publicity that is likely to cause misunderstanding among

customers shall be eliminated.

Do not become arrogant.Compliance and social norms shall be respected.

• Do not behave as if you are special.• Domestic and foreign laws and regulations shall be complied with.

Do not waste anything.Recognizing the importance of environmental issues, effectively use Company resources.

• No unnecessary sample CDs/DVDs/novelties shall be made in large quantities.• No useless materials shall be printed in large quantities.• Do not waste other people’s time.

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Do not steal other people’s ideas, although it is OK to get hints from them.1. The Company’s intellectual property shall be protected, and the intellectual property of other companies shall be respected.

• The Company’s intellectual property, such as copyrights, patents, model utility rights, design rights, and trademark rights, shall be appropriately used and kept intact.

• No intellectual property belonging to other companies shall be used without permission.

2. No business operation shall be conducted through illicit means.• No trade secrets of other companies shall be obtained/used through illicit means, such as theft.• No trade secrets of other people shall be obtained/used knowing that they were obtained or possibly obtained by illicit

means.

Do not rely on power.1. No relationship with antisocial forces or groups that may threaten society’s order or safety shall be established.

• No antisocial forces shall be used to promote the interests of the Company.• Reject unreasonable or illegal demands from antisocial forces and do not solve such problems through monetary

compensation.2. A transparent relationship with governments and administrative bodies shall be built.

• No person shall offer bribes to politicians or government officials.

Do not go ahead of others.1. We acknowledge that each member is supported by other members, and each member supports other members.

• Do not take all the credit.2. Do not engage in insider trading.

• When you come into possession of inside information about the Company, related companies, or business partners through your business activities, you may not buy or sell stock or other securities in question until the information is disclosed to the public.

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Do not betray the trust of colleagues.1. Do not engage in activities or make statements that damage trust, confidence, or honor.

• Trust with customers, business partners, shareholders, colleagues, artists, talents, and creators shall be established.

2. Corporate secrets and personal information shall be managed appropriately and not be disclosed or leaked outside the Company without permission.

• Corporate secrets of the Company or other companies shall be adequately managed, and protective measures shall be taken to prevent information from leaking.

• Personal information held by the Company shall be appropriately managed and not be used for purposes other than those specified.

Take pride in the team.1. The Company shall create an ideal work environment for employees.

• The Company shall ensure a safe and comfortable work environment for employees, respect each employee’s individuality, and pursue a corporate culture that enables each person to maximize his/her creativity.

• No meaningless excessive work or overtime shall be forced upon employees.

2. The Company shall actively contribute to society as a good corporate citizen.• The Company shall contribute to the creation of a culturally enriched society by providing music, images, and other

diverse products and services that inspire customers. • The Company shall deepen its relationship with communities, establish a good relationship with them, and

contribute to the development of communities as a community member.

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And love and admire talent (do not be jealous).

Management will fully recognize that putting this code of conduct into practice is its responsibility and take the initiative to do so as well as disseminate these policies among employees and other people concerned. If it is discovered that this code of conduct has been violated, the whole company, led by the president, will deal with it by investigating the cause and taking measures to prevent recurrence. At the same time, the Company will disclose information about the incident inside and outside the Company promptly and appropriately, thereby taking accountability for it. The management responsible, including the president, will be severely punished.



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