With subscription fee income from subscribers accounting for approximately 90% of the Company's income, changes in the net number of subscribers due to new subscriber acquisition and cancellation can largely affect the Company's income and earnings. There is likely a certain limit to household disposable income and information services related spending. Accordingly, competition among information services provided by the wide variety of media and changes in the external environment, such as economic trends or impact of disasters, may change the ratio of spending allocated to and priority of pay broadcasting and thereby impact the Company's subscribership plan. In addition, there is likely a certain limit to also how much of the 24 hours in a day that is spent on watching TV. Accordingly, the increasing number of media and channels may keep the time spent watching the Company's programs down and thereby impact the Company's subscriber acquisition plan. Meanwhile, going forward, competition over acquisition of subscribers with BS broadcasters, CS broadcasters, cable TV operators, carriers offering IPTV services, carriers offering online video streaming services, etc. is forecast to increasingly grow. If strengthening of advertising, sales promotion and other subscription promotion activities exceeding the Company's expectations become necessary, the costs of such may have negative impact on the Company's corporate management.
The Company has entered into simultaneous retransmission consent agreements with over 500 cable TV operators and promotes subscription acquisition via cable TV. Depending on the individual cable TV operators' corporate management policy as cable TV operators expand their business from TV to other communications fields such as internet and telephone, the acquisition of new subscribers via cable TV may not necessarily proceed according to the Company's business plan.
In addition, the Company has entered into distributorship agreements with approximately 700 distributors, such as electronics retail stores, chain stores and electronics manufacturers' distributors, and registered approximately 54,000 agents under the management of such distributors. Subscriber acquisition is promoted through these distributors and agents. As these distributors and agents do not necessarily specialize solely in the acquisition of subscribers for the Company, the Company's subscriber acquisition may not proceed according to the business plan due to such reasons as these distributors' and agents' subscription acquisition activities for the Company stalling depending on selling of their own products or competition with subscription acquisition for other pay TV broadcasters.
Risks arising from the BS themselves include whether the BS in orbit will operate normally, whether these will malfunction from colliding with meteorites, cosmic dust, etc. or other incidents in orbit, and whether these can maintain or sustain their functions for the period of the design life of the BS.
BS broadcasting services may be suspended due to malfunctioning of the BS themselves or due to incidents caused by earth stations being hit by natural disasters or human-caused issues. If broadcasting services are suspended due to such malfunctioning or incidents, the Company may receive complaints from subscribers. There may also be cases where income can no longer be expected if the period of suspension of services exceeds a certain period, in which case there may be negative impact on the Company's corporate management. A backup system is in place by launching a backup satellite to reduce such risks.
The facilities and equipment owned or leased by the Company may malfunction, or the concerned facilities and equipment may suffer damages due to an earthquake or other force majeure event.
Of these facilities and equipment, if particularly the facilities and equipment of broadcast programming and broadcast operation systems, customer management systems, etc. seriously malfunction, situations such as suspension of broadcasting services and suspension of fee collection or other customer management operations may arise.
These facilities and equipment are each duplicated or triplicated by having not only an active system but also a backup system or backup data to reduce such risks. Even if the active system malfunctions, measures are in place to keep the damage to a minimum by immediately switching to the backup system.
The Company has entered into a card use agreement and an encryption services agreement with BS Conditional Access Systems Co., Ltd. ("B-CAS"), which is an affiliated company that is not accounted for using the equity method, for the B-CAS cards used in BS digital broadcasting. Although B-CAS has technological measures in place for the security of B-CAS cards and is considering further security improvement measures, fees to be paid in for pay services of the Company may be unpaid should the security of B-CAS cards, which are IC cards, be compromised. If situations arise where illegal B-CAS cards cannot be invalidated, there may be negative impact on the Company's corporate management.
Since commencing subscription-based broadcasting services, the Company has been providing broadcasting and other services centering on comprehensive entertainment, and striving to acquire and produce various programs that meet viewers' demands and satisfaction in tune with the trend of the times.
The Company considers stable delivery of programs appropriate for viewers of pay TV broadcasting to be of the utmost importance and focuses efforts on strengthening relations with contract counterparties and other measures, however there is no guarantee that all programs currently being broadcast can continue to be secured into the future. If certain programs can no longer be broadcast, upset subscribers may cancel their subscriptions.
In addition, competition over acquisition of programs is intensifying as BS digital broadcasting, CS digital broadcasting, IPTV, online video streaming and other new pay and free video viewing services increase. Costs for program acquisition are thus generally on the rise. Such cost rise in program acquisition may mean that the Company is unable to acquire the programs that it wishes to acquire or acquiring overpriced programs, which may result in negative impact on the Company's corporate management. Furthermore, concerning contract renewals, not being able to agree on economic or business terms and other factors may delay the contract renewal or make it unrenewable.
Efforts are being made to raise in-house production capacity to reduce such risks.
The Company invests in the production and distribution of specific movie works to enrich the lineup of movies broadcast by the Company and to earn various revenue from showing the movies. Such movie production and distribution investment includes those that are the Company's projects where the production funds are raised from other companies, those where participation is made in other companies' projects as an investor in the movie and even those where funds are invested in solely the movie distribution rights in Japan or a specific region, etc. Until the end of production, the invested movie involves the risk of various factors, such as changes in the economic environment or movie content, leading to shortages in production costs, etc. and the need for additional investment.
In addition, movie works generate revenue after completion from movie theater screenings, selling of DVDs and other videograms, licensing of broadcasting rights for pay-per-view, pay TV and other pay TV broadcasting or terrestrial TV broadcasting and other free-to-air broadcasting, but depending on the status of screening and selling, the funds invested in the movie works may not be recouped or the result may even be unprofitable.
As copying of programs has become easier along with digitization of media, technological protection measures that prevent illegal copying (copy guard or copy protection) are introduced for the purpose of protecting the copyright of films and TV programs, etc. from unforeseeable rights infringement acts (for example, selling of illegal copies) other than recording for private use. Accordingly, the Company broadcasts programs with copy guard signals added to airwaves upon requests from the broadcasting rights holders.
All copy guard methods mentioned above are approved from all rights holders at this point in time, but with future technological advancement, employment of a new copy guard method may be requested or may become a precondition of the broadcasting rights license by the broadcasting rights holders.
In addition, copyright and other intellectual property rights involve not only the Company but also content producers, content suppliers, content distributors, commissioned broadcasters, receiver manufacturers, etc., where each makes efforts at one's own responsibility so as not to infringe rights, etc. However, in the event the problems arise between the concerned parties over copyright and other intellectual property rights and such conflict affects the Company, there may be negative impact on the Company's corporate management.
The Group's businesses are subject to many legal controls in Japan and Minister for Internal Affairs and Communications' approvals, licenses, etc. If the broadcasting related legal system or the Ministry of Internal Affairs and Communications' decision changes in the future for whatever reason in a direction not in favor of the Company, there may be negative impact on the Group's corporate management. In addition, if the Group fails to comply with applicable laws and regulations or the required terms and conditions, approvals, licenses, etc. may be revoked, which will force the business to be suspended or terminated, and the provision of services or future new acquisition of approvals, licenses, etc. in the broadcasting business may become difficult for the Group.
The current status of acquisition of approvals, licenses, etc. pertaining to the major operations of the Group is as listed below. Each and. all approvals, licenses, etc. below need to be renewed every five years and, although no event falling under the grounds for revocation is recognized to have occurred, there may be material impact on the Group's business activities should the approvals, licenses, etc. be revoked.
|Approval, License Name||Renewal Due Date||Description|
|Approval of satellite basic broadcasting operations||October 26, 2018
June 16, 2019
October 18, 2020
|Approval obtained from the Minister for Internal Affairs and Communications for broadcasting using basic broadcasting stations (satellites) held by basic broadcasting station suppliers|
|BS digital earth station license||October 31, 2018||License obtained from the Minister for Internal Affairs and Communications for establishing a radio station to relay transmission of BS digital broadcasting signals from earth stations (Shibuya and Shobu) to BS digital broadcasting satellites|
The Company manages subscriber information, agreement information and other personal information obtained from the subscription agreements concluded with subscribers, and entrusts part of the management operations to its consolidated subsidiary WOWOW COMMUNICATIONS, INC. Please note that JIPDEC has granted the Company and WOWOW COMMUNICATIONS, INC. with PrivacyMark certification, which is granted to business operators that appropriately handle personal information.
The Company and WOWOW COMMUNICATIONS, INC. exercise great caution in the management of personal information, and are thorough in taking such measures as having relevant enterprises bound by confidentiality if personal information is to be used for marketing or other appropriate purposes. If there is ultimately any leakage of personal information from the Company, WOWOW COMMUNICATIONS, INC., etc. nevertheless, there may be negative impact on the Company's corporate management as the Company may be held legally liable under the subscription agreement, be socially criticized for insufficient personal information protection, etc.
The broadcast programs sourced by the Company include programs purchased from overseas in the local currency.
Although the Company engages in currency hedging transactions to minimize the negative impact of short-run fluctuations in the exchange rates among major currencies, sharp rate fluctuations may have negative impact on the Company's business performance and financial position (in general, the impact on the Company's business performance is negative when the yen is weaker and positive when the yen is stronger than the other currencies).