TYO Creative Business City Town Block Planning WEB X TV-CM

Special Report:Web Strategy

Part1 TThehe nnewew TTYOYO town block; emergency TThehe WEB x 4 roundtable discussion WEB x TTV-CMV-CM

Part2 In the vanguard of creativity Toward an international ● dwarf Inc. The world of craftsmanship that brings happiness to TYO Productions Inc. Creative creator and viewer alike 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan http://group.tyo.jp/ JASDAQ Securities Code: 4358 Network Neｗ Face ● Theoria Communications Inc. ● COM Co., Ltd. ● 1st Avenue Inc. ● Haxen International Inc. ● DOGA KOBO Inc.

Management Strategy Interview TYO 2007 Creative Business City Town Block Planning Today, success or failure is determined by originality and quality in the true sense of the terms. The various brands of the Creative Town Block are working together to move to the next stage. Management Strategy Interview 2007

oday, success or failure is determined by originality and quality in the true sense of the terms. The various brands of the Creative Town Block are working together to move to the next stage.

The Internet, the driving force in today’s era of cated in Japan or overseas. Tmedia diversification, continues to evolve and The Creative Business City, comprised of a daz- change. It is alive with those people who are us- zling variety of 34 companies, gained an excep- ers as well as our clients. tional supremacy within the industry. During the The TYO Group is responding to these inevi- year ended September 2006, celebrating the table changes with an approach based on its 25th anniversary since its founding, it posted inherent capability to confront new challenges consolidated net sales of 21 billion yen. and create exceptional content of the highest The TYO Group has begun to shift the corpo- quality. One example is that four Web content rate style of this City toward the Creative Town production companies of the TYO Group, each Block concept. In this issue, Hiroaki Yoshida, with a strong individual character, are working TYO Group President and CEO, describes the to establish a presence overseas in China, Eu- effort to achieve improved craftsmanship and rope, and the United States. The TYO Group is the next method for utilizing the One Capital linking companies and people without regard Multibrand. to the type of company or whether they are lo-

advertisers have reached a stage in which adays, the efforts of website production Website commercials, their view of the Internet as an advertising companies to develop high-end movies cross-media medium is not “Shall we do something and acquire computer graphics technol- on the Internet?” but rather “How can we ogy with outstanding cost performance – The key word of the day is alliances make our Internet advertising more ef- inevitably generated a large wave. fective?” In short, the Internet is now an To fully grasp these needs and further As a medium, the Internet has become ordinary medium. As with other types of develop websites as a profitable business, an integral part of the infrastructure of the media, the most important task facing us we must not follow a philosophy of single everyday lives of people. All the corporate now is creating high quality content. Now- company supremacy, in which each com- TYO Creative Business Ci ty Town Block Planning 01 TYO Business Vol 3 TYO Group representative Hiroaki Yoshida President and CEO, TYO Productions Inc.

pany follows its own self-centered course. panies became new members As long as the Internet is a medium with of the group. a high degree of freedom, the creation of Haxen International Inc. is one content will demand a multidimensional of Japan’s foremost docu- approach. The key word for the world of mentary production compa- the constantly changing Internet in the nies. They’ve been involved future will be alliances. Alliances between with the production of regular website production companies, website programming on commercial and TV commercial production compa- networks and special pro- nies, website and computer graphic ani- grams on NHK. Some ex- mation companies, and website and sales amples of their work include promotions as well as the funding ability Jonetsu Tairiku (Continent to support these alliances are indispens- of Passion) for the Mainichi able. Broadcasting System, Suteki The diversification of all media, not just the na Uchusen Chikyugo (The Internet, will create multidimensional as- Splendid Spaceship Earth) for pects to partnerships with a single client. TV Asahi, and Gaia no Yoake Deepening creative expertise is impor- (Gaia’s Dawn) for TV Tokyo. tant, but at the same time I also think that Theoria Communications Inc. forming as many connections as possible is a strategic website creator with strong and continuously aim to produce higher- with companies and people with whom ties to foreign-capital affiliated companies. quality animation. We believe these new you can form alliances is an important Their clients include JAL Brand Com- partners will create new value for the TYO element. A specific example of these alli- munications Co., Ltd., CyberAgent, Inc. Group. ances is the capital and working partner- and Sony Corporation. They also develop In addition, the TYO Group continues ship formed last December by colab Inc., interactive advertising tools. 1st Avenue innovation that will result in even more formerly Nexis Communications Corpora- Inc. is a spin-off formed by members of projects to look forward to in the future. tion, with SEPTENI HOLDINGS CO., LTD. Production3 of TYO’s production head- One is the appearance in theaters of I look forward to the fruits produced by quarters. The people at 1st Avenue call komadorieiga komaneko. The heroine is this alliance, which will utilize the content themselves a “creative boutique” under Komaneko, the new character created by production and sales forces of each com- the slogan “Creativity is What We See” dwarf Inc.’s Tsuneo Goda, who also cre- pany in their respective fields of specialty. where they pursue the potential of vari- ated NHK’s Domo-kun. There’s also the The world of the Internet is extremely hot ous types of media while creating new full-time assignment of Tadanori Mabuchi right now, and it is where the most tal- directions in advertising. COM Co., Ltd. of TYO-ID to Cailoghi S.r.l. in Florence, ented young people are flocking. I firmly is a website production company that Italy. believe the TYO Group can build a good creates high quality sites with long-term mechanism capable of realizing the great- prospects, including the Central Japan People will want to see est happiness of the greatest numbers for Railway Company’s recruitment site and something good even if they young creators. NTT East’s FLET’S.com site. They’ve won have to pay for it the acclaim of their clients for boosting – A consideration of the creative essence site access totals and enhancing the cor- Creative potential porate image. DOGA KOBO inc. is an es- There are services in the video industry – TYO Group innovators tablished animation production company using the Internet to distribute video con- that has created and produced many his- tent free of charge. We are convinced that There has been considerable movement toric animations for more than 30 years. the idea that only this method will attract within the TYO Group this year. Five com- They employ Japan’s leading animators users fails to understand user needs. TYO Creative Business Ci ty Town Block Planning TYO Business Vol 3 02 Management Strategy Interview 2007

go shopping, and see a portunities are found overseas, then I en- movie. Successful televi- courage them to keep pursuing those op- sion series are turned portunities. When the members develop into movies, and the vitality, it means that the TYO Group also satellite channels broad- will develop vitality. cast hundreds of movies Accepting a challenge is one of the things a week. The number the TYO Group emphasizes. That requires of movie screens has people who can assert themselves and m o r e t h a n d o u b l e d show leadership. They will not survive in over the past 15 years, this company unless they are the type of and the number of new people who bubble over with new ideas productions released that they want to express and that they to the public has risen enjoy expressing them. In the same way by roughly four times that flowing water will never become stag- over the same period. In nant, a company that receives vitality from short, I think the media active people will never grow old. It will seeks and achieves a always be capable of offering something prosperous coexistence. fresh. Users will not watch content that does not Television and websites have begun a pique their interest just because it’s free. beneficial association based on a win-win The creative town block There is a trend that holds the combina- relationship. Nothing more fits the pessi- expands overseas tion of new media and no charge results mistic outlook of wondering who will sur- – Aiming for international partnership and in something consumers will want to see. vive than the creative business. What this providing content with a global standard First, however, we should get a complete job requires is a more relaxed approach in grasp of user needs based on the glaring- which both parties think about what they There are two keys for the TYO Group’ ly obvious concept that users will watch can do to make the other more enjoyable. s overseas business strategy. One is that which they want to see. creative work overseas. Our objective The issue is not whether fees are charged; Companies with vitality is to collaborate with talented creators rather, the important aspect is the qual- will never age throughout the world and create high ity of the content. There are still plenty of – Their people are active and their quality content in an international creative things that users want to see even if they potential grows network. The other is foreign countries pay for it. The questions are whether or as a market. There has been stunning not the content is interesting, whether it I’m in the habit of telling people to stop economic growth in China and India, and is appealing enough that the users want doing the same thing. The TYO Group’s these are large markets in Asia. Also, Ja- to see it, and whether it has useful infor- asset is its human resources, and this has pan is the world’s leader in the interactive mation. Therefore, the TYO Group’s idea remained unchanged since our found- advertising field, and we anticipate our is that we will stand out from the pack ing. When talented creators gather and work in interactive advertising will be very and respond to user needs by creating compete with each other, it produces a successful in Western markets. exceptional content in the future. We will stimulus, resulting in the outpouring of TYO obtained authorization to conduct develop talented creators, form networks, new ideas. In the end, these new ideas business in Dalian, Liaoning Province in and further increase our creative abilities. produce profits. That rational mechanism 2005, and we established the DaLian That is the basis of the TYO Group. is the TYO Group’s distinguishing charac- Eastern Dragon Cartoon Development Lately, we often hear the argument that teristic. Co., Ltd., an animation production com- television commercials aren’t necessary The larger a company becomes, however, pany. It is the first Japanese-Chinese joint if a company has a website. I think that’ the more likely it will stagnate in some venture in this industry to be approved by s jumping to a false conclusion. When areas and lose its vitality. That is the fate the Chinese government. This enabled us television appeared a half a century ago of everything in the world. That’s why to be the pioneer in establishing a pres- and quickly spread throughout the coun- we creative people must create our own ence in the immense cartoon market of try, people said that movies would die vitality so that we don’t become stag- China, which has 400 million children. We because people could watch television. nant. Therefore, I tell the members not to plan to use this as a stepping stone to While the film industry did suffer a major become content with our first success, create a network in the Chinese-speaking setback for a time, what happened after but to move on to the next step. Success world and Southeast Asia through Hong that? Now, it is commonplace for families can be achieved by succeeding someone Kong and Taiwan. to go to cinema complexes, have a meal, else or through a different form, and if op- In March 2006, we established TYO Inter-

03 TYO Business Vol 3 national B.V. in the Netherlands, an inter- since our founding ● A diagram of our anticipated intermediary holding company scheme mediary holding company wholly owned in our multibrand TYO Productions Inc. by the TYO Group, to further strengthen stance of stressing TYO Administration Inc. our business in Western markets. TYO the brands of each International B.V. is an important player of our companies. Advertisement WEB Business Entertainment Content Solutions International in joint international content production, The Town Block Business Division Division Business Division Business Division Business Division a sector where demand is expected to concept is a mecha- increase in the future. It has become a nism that improves center for presenting borderless creative the mobility of our Company A Company B Company C Company D Company E Company F Company G Company H Company I Company J Company K Company L Company M Company N Company O services, including those on the Internet. If companies. We be- … … … … … the company functions well, we plan to set lieve it will enable us up similar intermediary holding companies to forge ahead with in China and other countries in Asia. Thus, craftsmanship of the concept of supplying global standard even greater quality. content is expanding by building both Ultimately, there is no change in our judgments. production and distribution networks and principle that though there is but one The TYO Group’s objective is to be the eventually becoming involved in high qual- strategy, each company must have its best and the only place for people and ity creative collaborations. own tactics. companies in the creative business. We believe that if we fulfill all the require- ments, including those for personnel, The mechanism of the company is The TYO Group’s aim gradually changing resources, funds, trust, and information, – To always compete in earnest – But the fundamental concept then we will continue to attract superior remains solid people and companies. That place must We’ve had to pay close attention to our also produce self-sustained growth. Our launch of intermediary holding stock price since our listing on JASDAQ in companies was not only to conduct 2002. The worst thing a company can do, business in Western countries. There however, is to hesitate taking a new step has been an increase in the number because of excessive concern about a of group member companies, and the decline in stock prices. This TYO Group organizational template is may be just the fashionable now at the point where it will move to thing to say, but the most the next stage. We continue to develop important thing is to make the concept of designating a leader even just one good product company in each business field and and do good work, which providing functions of an intermediary will lead to higher prices. holding company as the Creative Town Not only is this the best Block. That’s because, in addition to course for a company to the growth in the number of compa- take, it is the course a com- nies, considerations of establishing a pany must take. A compa- full-scale business presence overseas ny is a living thing, however, and forming alliances with different and so its financial perfor- business fields require intermediate or- mance will not perpetually ganizations to get a read on conditions improve. There are times from point-blank range. To achieve that, when things must level out. we have formulated the Town Block At those times, TYO has concept and created another layer be- implemented drastic reform tween TYO itself and each of its com- policies to further improve panies. The modern creative industry is performance. We always undergoing a radical transformation. In compete in earnest, no conditions such as these, an important matter what the situation. key to growth is how an organization In the future, we’ll disclose can respond to this transformation. financial information every This requires a highly mobile formation. quarter, and we’ll let the Of course, there has been no change stockholders make their

TYO Business Vol 3 04 The new TYO town block; Special Report × Web Strategy The WEB 4 emergency Part1 roundtable discussion Four company presidents discuss their tasks on Internet commercials and the direction of creativity on the Internet. There’s been no change in the approach of conveying a message just because it’s on a website.

TYO-ID presents high quality message solutions in the interactive sector. It is a hub linking the TYO group with creative companies and personnel overseas, developing a borderless creative system.

TYO Interactive Design Inc. (TYO-ID) Kenji Morimoto President and CEO

The Internet will continue to grow more interesting in the future because it is a tool with interent potential of different types.

We finalized a capital partnership with SEPTENI HOLDINGS CO., LTD., the major Internet advertising company, at the end of last year to further strengthen our business on the Internet. We also are striving to create links with other media apart from the Internet to become a creative enterprise that creates the greatest effectiveness for our clients. colab Inc. Hiroshi Hirao President and CEO

The users have the leading role on the Internet, so our planning is always based on our understanding of the users.

Our company is involved with strategic Internet advertising that incorporates considerations of the users’ lifestyle and preferences. Of course it’s involved with cross-media projects, but we also sometimes handle sales promotion events. We have the additional role of promoter with marketing aspects. Theoria Communications Inc. Daisuke Uwabo President

In the end, the Internet has to make people happy.

We seek to create websites that improve corporate value and are easy for the user to understand. Long term thinking is essential for creating websites. We think of how we can add originality not only when we’re creating the site, but after it’s been opened to the public as well.

COM Co., Ltd. Hirotaka Goto President

05 TYO Business Vol 3 and radio has not become obsolete. The information. In other words, there is a clear Rebuilding media with the Internet may be an indispensable medium structure that the user has the leadership advent of the Internet for sales promotion, but it’s no longer the role in conveying information. I think it is case that companies use the Internet alone important to understand that methods of Morimoto: While there are many commu- for that purpose. approach are different for Internet commer- nications tools for presenting advertising, Uwabo: It’s obvious, of course, but each cials. the advent of the Internet immediately in- medium has its own distinctive character- creased the extent of interactivity for com- istics. If the creators of commercials are Linking television commercials munications. required to create messages that utilize and the Internet Hirao: When the Internet appeared, I those characteristics, we have to start by thought this was the greatest invention asking what the characteristics of the In- Goto: Ten years ago, people saw commer- since the Industrial Revolution, and that it ternet are. The first thing we can cite is the cials on TV, and that caused them to want would become the fifth medium to go with high degree of user involvement. The users that product. Now, the Internet is designed the existing four. Really, however, it’s be- who can successfully use the Internet are so that people can compare products and come part of the infrastructure for daily life truly intelligent. It’s not such an easy job to think about their purchases before they rather than a medium. create something that will meet the expec- buy. In other words, websites have taken Goto: That’s right. It’s infrastructure, which tations of those users. on greater importance. That’s why we are makes it convenient and something from working to create websites that users will which anyone can obtain the same broad enjoy as they obtain the information they’re range of services. Something like water, The Internet looking for. The websites are easy to un- however, has facilities and a system, but is already part of derstand and provide benefits to the user. not all of the flow of information available The ideal is to create the web- the information infrastructure. Uwabo: on the Internet today is good. Both the pro- sites and commercials with a synergistic viders and the recipients need a lot more What is the outlook for checks effect. The most important factor is that common sense. on the Internet we can very effectively put Uwabo: It’s interactive, so that means it’s in the future? information that we couldn’t say in a tele- not a one-way street. Word of mouth on the vision commercial. We have to carefully Internet has a great deal of effectiveness, Goto: There are also issues. The Internet consider the way we use the medium and but I sense that if it can be linked to other is an interesting medium in which even a the Internet mechanism to devise ways that media, it could create a substantial flow. small company can create advertising that prevent the user from going elsewhere. In Morimoto: We can consider the impor- is very cost effective. On the other hand, that sense, we should focus primarily on tance of the information reach of media the lack of restrictions sometimes results the brand experience and be aware of the other than the Internet. For example, if we in exaggeration. It’s a situation in which the Internet, which engages the user. send a message to a friend, that friend will person who talks the most gets the up- Goto: We’ve failed if we’ve gotten the user have a different emotion depending on per hand. When it comes to who will take to come on line, look at the advertising whether the message is sent by e-mail, responsibility, there are no rules at present. campaign page, and leave. The relationship postcard, or letter. In the same way, the ad- So one issue is the consideration of these between brand recognition and sales is vent of the Internet means that the method rules on an international scale. disintegrating. We can’t capture the users of communication is different than it was in Morimoto: With television commercials, with stylish Internet commercials alone. the past. That’s why I think it is extremely the users passively receive information, but important to consider which medium to use on the Internet, they actively seek informa- when conveying information. tion. If something resonates emotionally Goto: The Internet has few restrictions, with the user, then the user will expand that making the market large and facilitating the upload of information. But just because something is put on a website won’t make it successful. It’s become clearer that the key is the content and not the medium it- self.

The potential of the Internet as a medium

Hirao: After the advent of the Internet, there was a period during which people excitedly wondered whether television and radio would become obsolete. That has not been the case at all. Television still has an overwhelming strength as a medium today,

TYO Business Vol 3 06 Uwabo: There are many different ways to develop advertising on the Internet, and depending on both the way it’s created and the way it’s used, it can become very boring. But there is no change in our deter- mination to create high quality content to boost the client’s brand strength regardless of the media used.

How to create an Internet strategy

Goto: There is the sense that the Internet is viewed using a PC, but we really can’t The necessity for producers forget that there are other ways to access it potential to enable different kinds of busi- who understand the Internet as well, starting with cell phones. The reach ness through networking. of communications tools is expanding. The Hirao: Look at the ways of receiving in- Internet is a growing medium. What could be seen on the formation. The user passively accepts Hirao: It would be ideal if it could be stan- Internet, and what can’t be seen? television commercials, but is always active dardized, but it’s just not possible. We’ve when using the Internet. Though the num- strengthened our Internet business through Uwabo: At my company, we determine ber of Internet users has skyrocketed, it still a tie-up with SEPTENI HOLDINGS CO., the target values for the key performance doesn’t have the reach of television. I think LTD., but it’s no longer the case that we indicators at the planning stage and pres- this requires a new type of producer that can create a commercial and call it a day. ent the proposal to the client. As a com- understands the differences between the I sense that multidimensional creative de- munication tool, websites are free and Internet and other media and can switch velopment utilizing the diversity of the TYO nonlinear, so the numerical targets are eas- from the conventional ways of thinking. group is becoming more important. ily explained to the client as a fixed point Morimoto: The situation for creators will observation. perhaps have changed in about five years. Goto: There is definitely no end to web- For our generation, we still have in the back The success rate for Internet sites. As a creative service, they continue to

of our minds the brilliance of the golden commercials can’t be predicted. evolve and change their form as we try this age of TV commercials. Soon there will and that in the course of maintenance. That be a generation for which the Internet has So what should makes them an interesting medium. On the been a part of daily life since they were other hand, if we don’t stay on top of them, small. Their sense will be intuitively different we do now? they’ll wither and die like flowers. Websites from ours. The sense of distance between are living creatures, so I think we’ll create users and TV is definitely changing. Uwabo: That’s right. Today we have to link more success stories in the future for link- Goto: Internet users are changing in the different media to formulate the optimum ing websites with television commercials, same way, and they are developing a new strategy that fulfills the client’s requests. For and with other media. sense. It’s my mantra that Internet com- example, some websites utilize the brand, Morimoto: The extent of website effective- mercials have to be more exciting, enjoy- while some websites leave everything up to ness depends on the way they’re used, able, and provide a greater sense of hap- the product. There are even some websites and the users are diverse. I suspect that if piness than a good television commercial. that are globally dominant, such as Google. we make satisfying all users as our target, They won’t last long if both the creator and We have to determine which route is the it will blur our focus and result in shallow the view don’t enjoy them. best for reaching our objective. There must creativity. Focusing on targets that have be a wide range of incipient resources to apprehended user needs will become in- create the most appropriate course, and creasingly harder to do in the website sec- the environment to skillfully develop them. tor. The TYO group’s style of corporate man- * KPI:Key Performance Indicator. This is one of the key parameters that constitute a company’s operating rev- agement is truly the best match for the enue. times. Morimoto: Website production companies cannot be restricted in the same way that commercial production companies are be- cause they are multidimensional and have the option of multiple approaches. All four of us here today are involved with websites, but everyone does something different. That creates a certain flavor, and has the

07 TYO Business Vol 3 ables joint production with people over- Toward the next stage seas. Trying to figure out what to do in a for websites limited space will not lead to good results. At those times, one of the TYO group’s Hirao: Meetup sites have spread from the biggest advantages is that we can benefit United States. They’re different from sites from the wisdom of a different type of cre- for individuals to meet each other. These ator, and that also leads to self-growth. are supporting sites for meetings of people Hirao: It’s at times of great change that with similar hobbies. Some of the former horizontal relationships are important. Dif- sites result in criminal behavior, but Meetup ferent types of people become more active, sites are very useful for making friends. De- and more powerful networks are created pending on their use, of course, the result within the group. This also creates a good could be the exact opposite, but that’s not sense of distance and stimulation. It ex- limited to websites. pands the potential for creativity. Morimoto: In other words, that’s a differ- small companies. The two aspects of the ence in content, not a difference in me- A sense of excitement for moving group’s diversity and its dependency have dium. The logic of bequeathing something a great influence on our creativity, I think. to the next development: good and flourishing to posterity hasn’t Uwabo: I think it is not easy to find so changed since the Edo period. About the Expectations many ideas and the strength of the net- only communication tool they had in the works in just any company. Speaking for Edo period was word of mouth, but word for websites myself, my work has gotten a lot easier about products with a good reputation since I joined the TYO group. It’s a collec- quickly spread between people. Today, the are growing. tion of companies doing different things, only thing that has evolved is our tools. The but when it comes to a showdown, we can logic that people will not become excited easily collaborate without the barrier that without something to brighten their spirit The future shared usually exists between different companies. is universal. That’s the starting point for by the TYO group There’s no substitute for the speed that we creativity in any era. I think the TYO group’s can achieve. initial intention of creating high quality con- Goto: In the end, the great stimulus and Morimoto: In the same way that talented tent is because we realize the importance enjoyment in the TYO group is getting to- creators gather in a creative city, the TYO of this starting point. gether with people who want to do some- group is a corporate body that always Uwabo: I also think we shouldn’t forget thing, and who are capable of doing some- is facing outside to provide its stimulus. the sense that what we’re making is digital, thing. Everyone thinks it’s great to have fun That’s why we want to be a Creative Town but our spirit is still analog. Even with the while making something. I think that idea is Block. fastest communication tool, the schema of at the core of the TYO group. person-to-person interaction hasn’t broken Morimoto: We always want to provide a down. stimulus for our employees. Making a profit is the prerequisite, but we have to have a forward-looking approach first. The importance of a network Hirao: The TYO group is a collection of

Morimoto: The advent of borderless me- dia has resulted in the greater necessity for TYO Interactive Design Inc. and advantages of creative collaboration 6th Floor, RE-KNOW Meguro Building that transcends national borders. At TYO- 3-1-4 Kami-Osaki Shinagawa-ku, Tokyo 141-0021, Japan ID, Director Yutoku Matsutani has moved TEL: +81-3-5793-8500 / FAX: +81-5793-9030 URL: http://www.tyo-id.co.jp/ Date established: October 1, 2002 to TYO International B.V. in the Nether- Capital: 10 million yen (Investment share of TYO Productions: 100%) lands, and the former President Tadanori Business content: The planning, production, and operation of website advertising, Internet promotions, and interactive Mabuchi has transferred to Cailoghi S.r.l. in Title: Pepsi content Italy. The previous fervor for joint produc- Client: SUNTORY Ltd. Agency: Asatsu-DK Inc. / tion with overseas companies has cooled. International partner: grouek (Paris) The greatest encouragement for us is the increased opportunities to be objectively colab Inc. evaluated on a global level, such as when 2nd Floor, TYO Main Office, 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan creative people overseas speak well of TEL: +81-3-5434-8815 / FAX: +81-3-5434-8816 Japanese creators. URL: http://www.colab.ne.jp/ Websites and other aspects of IT Date established: June 24, 1996 Goto: Capital: 20 million yen (Investment share of TYO Productions: 51%) create a sense of leeway, and I think we Business content: The planning and production of communications policies, The Chocoladefabriken primarily for the Internet have to take them in that direction. IT en- Lindt & Sprungli AG site

TYO Business Vol 3 08 Profiles ofNew Members of the TYO group

Theoria Communications Inc. The brand experience plays a major role in advertising Our company was the pioneer in developing an approach for strategy-based interactive promotions. We present communication models for the Internet generation of the future with keen insight into user needs, and use our unique methods to improve the client’s brand value. Theoria Communications Inc. Daisuke Uwabo The model for advertising has changed product use, as well as our understand- President due to the advent of the Internet medium, ing of user needs. I am originally from Theoria Communications Inc. and today the initiative for advertising is the advertising industry and have written 1st Floor, MO Building, 3-14-15 Higashi, Shibuya-ku, shifting from the sponsor to the user. We advertising copy. In the early days of the Tokyo 150-0011, Japan TEL: +81-3-5774-8558 / FAX: +81-3-5774-8557 believe that a brand experience involving Internet, I discovered the NCSA Mosaic URL: http://www.theoria.ne.jp/ the user, rather than a one-sided brand browser and was jolted by the realization Date established: June 23, 1999 Capital: 85 million yen strategy, has become increasingly impor- that it would change the world of adver- (Investment share of TYO Productions: 87%) tant, and we are devising communication tising. It’s rather simple, but I was truly Business content: Creating communications systems methods based on that concept. We do inspired at the time and changed course using the Internet, planning and producing broadcast and distribution content, not formulate an advertising budget in ac- into my current business. I insisted that and planning and cordance with a product’s sales. Rather, website design capabilities were essen- producing advertising content our promotional approach is to incorpo- tial and spurred on the designers I knew. rate a marketing concept that reflects in The TYO group has an environment that the product the branding to develop prod- allows us to plan as much as we would Client: Kodansha Ltd. uct devotees by having them experience like. Now, we have started to take on new Title: Monthly King Web Site the changes in their daily life resulting from challenges.

COM Co., Ltd. Our ideal is to become a company for which it is said,“The Web would not function well except for COM” After conducting research into artificial intelligence at university, I became fascinated by the Internet in 1996 and formed a company because I wanted to promote Internet use. Since then, there has been no change whatsoever in my attitude of creating websites that offer enjoyment.

I think the roles of websites can be gener- optimum proposal they will most readily COM Co., Ltd. Hirotaka Goto ally classified into three areas: advertising, understand, including information that President information conveyance, and community the client may not want to hear. At times, systems. At present, we are striving for we have to stand firm and be convincing. COM Co., Ltd. growth in the information conveyance and It often happens that randomly creating 3rd Floor, New TYO Wing, 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan community systems sectors. This involves websites just to curry favor with the client TEL: +81-3-5724-5639 / FAX: +81-3-5724-5654 determining how to create websites that will result in websites that suffer sharp URL: http://www.com56.com/ Date established: December 18, 1996 impart easily understandable informa- drops in user hit rates with the passage of Capital: 74 million yen tion to the user, and how to protect and time, even if those websites are attractive (Investment share of TYO Productions: 51%) develop community systems. The Internet when first launched. Business content: Providing comprehensive Internet- related services, including the planning, creation, has continuously evolved since its incep- Becoming a member of the TYO group production, and operation tion, so once we create a website and has drastically increased our potential. of Internet and Intranet sites, Internet advertising, Internet obtain the client’s trust, they will continue Our great ambition is to become a website promotions, and offering to order work from us. This results in our infrastructure company that collaborates Internet consultation continued growth, so we then focus on with other companies, is stimulated by enhancing our business by developing first-class creators, and continues to grow Client: Japan Central Railway Company Title: Japan Central Railway Company’s new recruitment websites. In this industry, however, users in this enjoyable atmosphere. site for 2008 are very demanding, so we present the

09 TYO Business Vol 3 Two division heads who are the driving force of creative work at the TYO group discuss the Internet, commercials, and the media of the future.

The relationship between advertisers and us- TYO Productions Inc. TYO Productions Inc. ers has changed, and now the trend is for the Waju Fukuda Jun Ebihara Executive Managing Executive Managing transformation of business styles. There will Director, head of #2 Director, head of #1 be a wide array of success stories. production division production division

the division of labor, so this will become integrated as the joint Reorganizing media business models for 2011. production of websites continues, or else there will be a separation and then a fusion. Fukuda: The Internet’s household diffusion rate soared to close Ebihara: The same is true for the clients. They are confused by to 90%* in no time at all. Some still doubt that the Internet can be the reorganization of business models for the television medium. called a medium, but it is an indispensable one for companies. Supporting Web applications is only one of the measures of this re- While the linkage and development of television commercials and organization story. That is why clients seek a production company websites is becoming the rule rather than the exception, people that will cooperate like a partner or a mentor. Only an organization are still seeking the optimum relationship between the two. Ter- such as the TYO group, in which diverse production companies restrial digital television broadcasts start in 2011, and I get a real have banded together for their mutual benefit, can accurately meet sense that there is now a surge in the reorganization of television these needs. We should have a sufficient number of methodologies media business models that incorporate the Internet to meet that for the pattern of success for both the clients and the creators. challenge. Fukuda: We must not forget that the foundation of the TYO group Ebihara: The pattern in which people are strictly recipients is no is production companies. We offer productions that will increase longer the standard. The methods of obtaining information and the clients’ profits. We are creating content, not a medium. There the speed for obtaining that information is diversifying based on is always volatility, and today is nothing unique in that regard. It’s a individual lifestyles and preferences. For example, television tuners matter of course that our strategy should be to take advantage of have now become standard for PCs, as the border between tele- our business opportunities now and always be on the lookout for vision and computers has disappeared. It will be easy to provide new challenges. interactive services once terrestrial broadcasts begin, so it will no longer be possible to distinguish between television and the Inter- Aiming to develop multitalented employees that net if someone accesses the Internet while they’re watching TV. can respond to diversification and change. Fukuda: Of course the clients are paying attention to the diversifi- cation of information in the future. Orders will grow more complex. Ebihara: The future will require that each person have multiple Over the next few years there will be constant change in the busi- skills. Rather than people who can create commercials, there will ness model of television commercials and Internet commercials. be a premium on multitalented people who understand the Internet And this will present new opportunities for our creators. as well. While the TYO group has an environment that enables the development of people capable of both, the task before us is how * The Internet diffusion rate at the end of FY 2005: 87.0% for households (Survey of telecommunications usage trends, Ministry of Internal Affairs to develop the industry leaders of the future. and Communications, Information and Communication Statistics Database) Fukuda: In the borderless and unregulated Internet medium, it is easy for a surfeit of information to develop. The phenomenon of the separation of distributor and user may well occur. It is possible that The times require diversification through alliances. the intent of the distributor will not be conveyed as is to the user. Therefore, peace of mind and trust will become extremely impor- Fukuda: Creating commercials is no longer a simple problem tant. Our attitude must be that the creator has an ethical view and solved by a single equation. The TYO group consists of companies takes responsibility for the creation. We must incorporate that into that create commercials and websites with individuality and diver- our personnel development. sity. They also have formed a wealth of alliances with companies Ebihara: The future will become even more fascinating for the outside the group. For us, this means that we have the potential to- TYO group, and we have a growing sense of expectation. survive periods of volatility. Producing commercials usually involves

Client: Nissan Motor Co., Ltd. Title: Spring: Minna-Norina- SERENA

Client: NIKE JAPAN Title: Nike Cosplay

TYO Productions Inc. 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan TEL: +81-3-5434-1580 / FAX: +81-3-5434-1595 URL: http://www.tyo.co.jp/index2.html Date established: April 2, 1982 Capital: 1,077 million yen (Holding company) Business content: The planning and production of television commercials

TYO Business Vol 3 10 Special TYO Global Network Strategy Report Web Strategy Toward an international Part2 creative network

Japan ■TYO Interactive Design, Inc.

■colab Inc.

■Theoria Communications Inc.

■COM Co., Ltd. unit9 Ltd. (UK)

TYO International B.V. (The Netherlands) grouek SARL (France)

Cailoghi S.r.l. (Italy)

The TYO Group has launched the global development of its own business model. TYO Interna- tional B.V. is the TYO Group’s first intermediary holding company. It is an important entity in the group’s international strategy and has taken the lead in TYO Group’s European operations.

TYO International B.V. is an intermediary TYO Group’s business model. The Web- by which we will achieve this is investing holding company wholly owned by the centered advertising field has the great in existing overseas companies and estab- TYO Group and was established in The advantage of productions that consist of lishing new companies, to produce digital Netherlands in March 2006 as the core en- digitized data. For example, we produced advertising, which will be focused primar- tity for the Group’s international strategy. the website of a Tokyo client in Brazil. ily on interactive advertising based on the The company was based on the concept of Providing these borderless services is the Web. expanding the TYO Group’s Creative Busi- hallmark of the international group we We also intend to expand our network ness City beyond Japan, to support inter- continue to create. In every sense, that set in fields other than Web advertising, national mergers and acquisitions, as well us apart from our competitors. strengthen our business by utilizing the as establishing new companies, to conduct Japan is one step ahead, today, in Web-cen- characteristics of creative networks that effective and creative business, and to tered interactive advertising. But there are are not reliant on a particular region, and actually contribute to the management of capable companies and personnel involved form links through physical and capital tie- the companies in which they take a stake. in planning and design throughout the ups. We are aware that one important role That is to say, they are playing the lead world. The network consisting of the TYO for us in the future will be to serve as a role in the international expansion of the Group and these companies and personnel bridge closely connecting the TYO Group enhances corporate value across different companies in Japan and other regional markets as they share technology and ca- group companies, generating a truly inter- pabilities. national group synergy. The Group took the first step by estab- lishing a foothold in Europe when they TYO International B.V. assumed a capital stake in unit9 in UK, to Stille Veerkade 36, 2512BG Den Haag, The which they had sent Takayoshi Kishimoto, Netherlands TEL: +31-70-3265604 / FAX: +31-70-3265666 Japan’s leading creative director, as one of URL: http://www.tyo-international.com/ the corporate directors. They then took a Date established: 10 March, 2006 capital stake in grouek in France and set Capital: €6.5 million (Investment share of TYO Productions: 100%) up Cailoghi in Italy. In the future, we will Business content: Investment in interactive TYO International B.V. shape the creative global standard in Web content production companies in Europe Managing Director / CEO : You Matsutani advertising by linking the TYO Group with and the Americas; corporate operation and management Director / COO : Ronald Jimmink the global advertising market. The means

11 TYO Business Vol 3 unit9 Ltd. http://www.unit9.com/ unit9 is based in London, a beehive of the norm in the Anglosphere, and more activity for designers and creators from all than half of unit9’s clients are American over the world. It is involved in the produc- companies. Their system is such that they tion of Web content and animation. Its par- receive work from French companies in UK ticular specialty is the creation of products and work with Italian companies to com- for amusement and play using animation plete part of the job. Therefore, the flow of and characters. Their staff of roughly 20 work is far more dynamic than simply being comes from 10 different countries, which between Tokyo to London; Japan helps makes their office a remarkable array of out on American jobs, and they collaborate English accents. International projects are with grouek in France and Gringo in Bra- 2-4 Hoxton Square, London, N1 6NU, UK zil on productions using the Internet and TEL.+44 20 7613 3330 e-mail. Regarding ourselves from the perspective this, our goal will be to perform collabora- in UK, or from the outside of Japan, we tive work that blends Japan with the world, have discovered once again that we can and offer our users playful and fun jobs that take pride in the exceptional quality of Jap- produce advertising on the increasingly im- anese products and the accuracy of our portant Internet. We intend to create prod- work. At the same time, however, we real- ucts that unfailingly incorporate the user’s unit9 Ltd. Director / Creative Director ize that Japan is still too self-effacing and perspective and sensibilities, because we Director / TYO Interactive Design Inc.: Takayoshi Kishimoto must blow its own horn more. To achieve are the medium closest to the user.

Cailoghi S.r.l. http://www.cailoghi.it/

Cailoghi is an advertising content produc- to increasingly sophisticated tion company jointly established by unit9 needs. This company will Ltd. and TYO International B.V. in Decem- serve as a hub for the flow ber 2006 in Florence, Italy. In the future, of creative international staff it will directly supply and refer talented with brilliant ideas. Buildings with offices creative staff members active in Europe and the U.S. so that it can provide fresh and novel creative offerings that respond Cailoghi S.r.l Via dei Bardi 36, 50125 Firenze, Italia President: TEL/FAX. +39 055 245 855 Tadanori Mabuchi

grouek SARL http://www.grouek.com/ grouek is comprised of four staff members in constant communication with TYO-ID for involved in the production of highly creative joint projects, maintaining contact through interactive content that the users can enjoy video conferencing, using e-mail and iChat. and participate in. Our works have been They mirror us in their close attention to highly acclaimed, having won the WA- design and detail, and we are constantly NADOO TROPHEE DE LA PUB.COM, an impressed by the professional attitude and online advertising award from France-Tele- sound corporate structure of the Japanese com’s Wanadoo, and have been profiled in team. such magazines as Strategies, Etapes, and Broadband is used widely in French house- Digit (UK), and such portal sites as Netdiv- holds, and the online advertising market Four creative partners er, Praktica, and French’ n Fresh. In addi- is blooming. This expansion demands tion, the Pepsi NexGame won the Silver W3 quality visual effects and designs backed 7 rue Oberkampf, 75011 Paris, France TEL.+33 1 43 57 56 37 Award. The Pepsi NexGame was an arcade by solid ideas and concepts. In the future, game with interactive characters and 3D we hope to grow in tandem with the group action that users can play online, which we companies, and will step up to meeting the creativity, and enter competitions with inter- created in partnership with TYO-ID. We are challenge of bigger projects and greater national clients.

TYO Business Vol 3 12 In the Vanguard of Creativity The world of craftsmanship that brings happiness to creator and viewer alike dwarf Inc. komaneko was produced with the time-consuming stop motion tech- Tsuneo Goda President nique that incorporates the warmth of the creators, and utilizes en- Domo-kun filming at Dosuta studio joyment, the essence of animation. Is the heartwarming earnestness of the cat a projection of the creator himself? His boundless creativ- ity resulted in the development of fascinating characters.

Enthralled with stop motion The character grows

komadorieiga komaneko (The stop motion Domo will be broadcast on the Nickelodeon film Komaneko) was released in theaters network in the United States. Nickelodeon is Komaneko © TYO/dwarf ·Komaneko film partners last December and met with an enormous the world’s largest television network for chil- The character was created to show the process of stop response. Stop motion is widely perceived to dren. We are now in the process of making 26 motion animation in the “Exhibition Showing Process: The creation of storyboard space images” at the be for children, but this film also captivated two-minute episodes. Only several seconds’ Tokyo Metropolitan Museum of Photography in 2003. adults. I received joyous messages from them worth of stop motion filming can be completed Screenings nationwide began in December 2006. saying they had seen it several times. Our in a day, so we have divided the work among objective for the stop motion works we create five teams and are proceeding simultaneously. is to combine a child-like purity with an artistic We plan to finish production in the spring of sense. I think we might have come close to 2007. People overseas have a different sense our goals with this work released in theaters. I of humor than the Japanese, so we’ve entirely understood the wonder of stop motion when rewritten the stories. The continuation of the I created the animated character Domo-kun series in Japan and the creation of a television for NHK (Japan Broadcasting Corporation). series for overseas markets meant that Domo It was initially used as a theme character for has really grown. This is due to the many Domo-kun © NHK – TYO the NHK broadcast satellite network. My initial people who have sensed the unprecedented impression of Domo was as a stuffed animal. originality of Domo and, more than anything, I also devised plans using flat surface anima- the worldwide acceptance of the warmth of tion and computer graphics, but when I was stop motion animation. at a loss as to how to proceed, I discovered the doll created by Hirokazu Minegishi using Creator has to enjoy stop motion animation. I immediately sensed craftsmanship that this was it. As the character took on a Makuma-kun © NHK – dwarf three dimensional form through the story- Now, I want to build our own studio to cre- From Hikaru Utada’s “Boku wa Kuma”, an NHK’s boards, and I breathed life into it, I felt both joy ate our own production environment. Fortu- Minna-no-Uta (Everyone’s song) and wonder. nately, I have received assistance from both dwarf Inc. people and luck to create my own works. 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan There are some people who do not seem to TEL: +81-3-5719-4666 / FAX: +81-3-5719-4667 get a break, however, so I want our studio URL: http://www.dw-f.jp/ Date established: September 1, 2003 to be a place where they can work, too. This Capital: 30 million yen (Investment share of TYO company started out as a one-person opera- Productions: 100%) tion, and has grown to 10 employees. I’ve recently come to think that creating a movie is the same as creating a company, and that has to be conveyed to the viewer. I thought we must share the same dream. When Domo it would be wonderful if the creator and the began, there were consecutive days of dif- viewer could share the same enjoyment. ficult filming, but it ended with a dawn. At that Stop motion animation is time consuming, so time, Minegishi said, “Ah, that was fun.” I felt I want our works to be worth viewing decades the same way, but I also got a start. I thought, from now. I think that feeling will definitely be well, the creator also has to have fun, and that manifested in the quality of the work.

13 TYO Business Vol 3 Profiles of New Members of the TYO group

1st Avenue Inc. Concept First - Only One Boutique

Creative work that is not derived from existing work and is flexible about media is natural for them. A new boutique has been created that refines solutions for the client’s maximum benefit and creates all com- munication as own brand.

shrine. I thought that the younger genera- Creativity starts with formulating tion had to know more about it so that the concept this wonderful place and this event would continue forever. Then, I was gripped by 1st Avenue Inc. Kameda: We got our start seven years the powerful passion that conveying the President and COO: Katsumi Kameda Vice-President and CCO: Manjot Bedi ago at the Cannes Lions International wonder of the Ise shrine to the younger Advertising Festival, when we got an un- generation was our duty as creators. 1st Avenue Inc. expected chance to have a relaxed con- Kameda: We wanted to do socially sig- 1-7-13 Mita, Meguro-ku Tokyo 153-0062, Japan versation. Manjot’s ideas about creativity nificant work in a creative form, and were TEL: +81-3-5719-1900 / FAX: +81-3-5719-1901 URL.http://www.1st-avenue.jp/ and the direction in which he was headed able to create a new trend in advertising. Date established: October 2, 2006 were similar to mine. We thought we could More than anything else, this left a great Capital: 10 million yen (Investment share of TYO Productions: 75%) develop a new creative style and generate impression on our creative spirit. Business content: Advertising planning and production a good synergistic effect. Manjot: We shared the idea that being Work that creates needs close to the producer and director would have good results, and that we should be Manjot: For us, anything that can be seen involved with in-depth creativity. That was is the subject of creativity. Even if we have how we launched the company and be- only one idea, there are a lot of media for came part of the TYO group. Our creative developing that idea. We don’t merely partnership began as Production3, and want to respond to the client’s needs. We we launched 1st Avenue Inc. last October. want to create those needs themselves. Kameda: The creativity we’re aiming for Kameda: That’s why we have to evolve is based on the considerations of what we as the client evolves. To achieve that, we Client: Hawaiian Tourism Authority wish to convey and how we can express always have a creative structure in place Title: “Hula” version that. We get a firm fix on the core of the to respond instantly to changes. We in- idea, present a creative concept, and give crease the number of our ways by doing it form. That enables us to fulfill diverse jobs with different staff members for each client needs. new project to strengthen the network. In the future, we will be involved with cre- The encounter with Ise Shrine ative projects other than just commercials and advertising. We hope to provide total Kameda: This is the third year for our communication and total coordination as creative production for the Ise shrine, the Creative Boutique. Ise shrine poster which seems as if it could turn into my life’ Manjot: One of the meanings in our name s work. We creative people can become “1st Avenue” is to be the first to create a involved with many influential projects particular path. To do that, we have to go over a short time span. When taking the where no one has gone before. We want long view, however, as a creator I won- to create many paths, so that people will dered what I could leave behind for the find themselves suddenly thinking, oh, this next generation. At that time, I became was done by 1st Avenue too. involved with the Ise shrine and the cer- emony held for moving its location. Manjot: I too was deeply moved by the

Client: KIRIN BREWERY COMPANY, LIMITED significance and creative beauty of the Ise Title: Kirin Nodogoshi Draft, “Debut” version

TYO Business Vol 3 14 Profiles ofNew Members of the TYO group

Haxen International Inc. Documentaries move people because they present people.

Haxen’s status as one of Japan’s foremost documentary production compa- nies was created by an indomitable, steel-hard spirit for the conduct of inves- tigative reporting and its positive energy. Haxen has sprung into action to seek new ways to move people in an increasingly diverse society.

Driven by a sense of historical The world of documentaries that are mission created in a straightforward manner

Haxen International Inc. I got my start in the film industry working My policy is to create documentaries in a Satoshi Kanda as an assistant director for the director straightforward manner. It’s always impor- President Nagisa Oshima. After Sozosha, the film tant to have one’s antenna up, but even if Haxen International Inc. production company created by Oshima one gets a hint, the hard part comes later. 2-14-10 Shibuya, Shibuya-ku, Tokyo 150-0002, Japan and others, broke up, I became involved That’s digging into something and think- TEL: +81-3-3498-3811 / FAX: +81-3-3486-8060 in production work in a variety of areas. ing, this is it! URL.http://www.haxen.co.jp I think the key to success is whether one Date established: October 16, 2006 These included live radio shows, television Capital: 10 million yen (Investment share of TYO information programs, talk shows, sports can maintain the energy for the search. Productions: 100%) programming, and stage productions. The work of a documentary maker re- Business content: The production of television programs, commercials, videos; the production and marketing This experience gave me a great deal of quires the concentration involved in of DVDs, media-related operations, and creative sales confidence, and I began to understand changing one’s perspective when one promotions then that the basis for craftsmanship was runs into difficulties and finding a solution. the same for all of them. The field that fas- That is being straightforward. cinated me was documentaries. It is difficult for some people to produce The essence of documentaries is the overseas documentaries because they appeal of the people themselves who don’t have the ability to negotiate and arise during the course of human history. gain permission for conducting research. Whether we’re talking about structures or Our company has a strong network in ornaments, all of them are the historical China and Russia in particular, and we testimony of human intervention. Docu- have been able to conduct some difficult

TV Tokyo: Gaia no Yoake (Gaia’s Dawn) “Moeyo Sakhalin” mentaries are so moving because certain research there. For example, we covered people existed. the astonishingly successful Chinese track One recent project that was a historical and field athletes, dubbed Ma’s Army, scoop was the documentary produced as and in Russia, the Pushkin and Hermitage part of the 21st Century Project for TBS art museums. In both cases, there was a (Tokyo Broadcasting System Television). flood of offers from around the world to This documentary was about the search cover those subjects, but the gates were for the hidden treasures of the Chinese locked. And we turned them into docu- emperors, which had become lost due to mentaries in both cases, showing our net- TV Asahi: Suteki na Uchusen Chikyugo (The Splendid Spaceship the relocation of documents during the working capabilities and perseverance. Earth) “Namakemonoryu Kaiteki Seikatsu” Sino-Japanese War. These treasures filled Our guidepost for the future will be to es- 29,000 boxes. Some of them had been tablish five or six regular programs among taken to Taiwan, but no one knew where all documentary programs. Then, while about 8,000 boxes were. We went to Tai- using these as the basis of our operations, wan to hear the testimony of a 90-year-old we will continue to concentrate on docu- living witness, and we at last discovered mentary production, but use our technical the remaining boxes in a storehouse in skills to create corporate PR and product Nanjing. We got to experience the real promotion videos. thrill of getting a scoop and producing a documentary on a story of social signifi- cance that aroused a dormant period of NHK BS-2: Chikyu ni Kokishin (Curiosity about the Earth) “Panda Yasei no Nazo ni Semaru – Chugoku / Genshi no Mori history. de Naniga?”

15 TYO Business Vol 3 Profiles ofNew Members of the TYO group

DOGA KOBO Inc. The transformation of a long- established animation studio based on first-class production technology. The company was turned into an attractive studio where exceptional animators could work. The young executive talks about devoting his energies to develop- ing new sectors and creating mechanisms to improve the status of animators while upholding the transmission of techniques in an unbroken line. main character, called Kahei no Umi (The Sea Multi-process animation of Kahei). Takataya was born in the mid-Edo period, and rose from rural poverty to become Japanese animation has become extraordi- a rich merchant. Unlike previous projects, in DOGA KOBO, Inc. narily popular worldwide, and demand is rising which we were responsible for single process- Ryo Ishiguro abroad as well as at home. In conjunction with es, we produced everything ourselves. I sense President this, such work as video and color finishing is that this work raised the awareness of each of DOGA KOBO Inc. increasingly being outsourced overseas, and our employees and determined the direction for 4th Floor, Towa Building, 5-41-21 Higashi-Oizumi, other production processes are following. This our company. Nerima-ku, Tokyo 178-0063, Japan TEL: +81-3-3978-6393 / FAX: +81-3-3978-7221 has required that animation production compa- I studied civil engineering and city planning at URL.http://www.dogakobo.com/ nies employ strategic business operations. university, and I never thought I’d get involved Date established: July 11, 1973 Creating animations is a long-term job, in which Capital: Five million yen (Investment share of TYO in this industry. But I started this work by Productions: 70%) all the processes take about 10 weeks to finish. chance, and though I was unsure of myself at Business content: Animation production These include the picture storyboards, the orig- first, I gradually began to understand the ap- inal illustrations, the animation, the coloration, peal and motivation of this occupation. This in- Examples of work processes from Kahei no Umi (The Sea of Kahei) the filming, and the editing. In addition, much of volves properly creating the artwork in a limited the work is sent to other companies to perform, time and then gradually completing the project requiring strict control over the process and the itself. There is also the professional attitude of costs. This requires a solid financial bedrock, animators, and, more than anything, the power which is the cause of management-related of animation to move people. concerns. Becoming a member of the TYO group has become a source of great strength We want to carefully nurture the for our company, as it has allowed us to focus animation, and the animators on the creative work. We are convinced we will

1. The director of presentation and artwork gives expand the range of our work in the future. In the future, we want to become more involved instructions for modifying the original illustrations. with original animation and create children’s Our efforts to confront cartoons much like the masterpieces of the new challenges in our work past. There has been an increase in the num- ber of animations recently, but I am concerned Since our founding 30 years ago, we have been because I feel that the breadth of the stories an animation production company with an covered has deteriorated. Customers have established reputation for creating artwork and hailed our company for the quality of our art- the processes of the original illustrations and work, and we definitely want to create universal animation. We began to purchase equipment animation with lovely pictures that everyone 2. The animation work is performed based on those to digitize our filming in 2000, and we have from children to adults can enjoy. Our first pri- instructions. created a structure that enables us to com- ority is to create an environment in which it is plete all the processes in-house except for the easy for animators to work, so that they can re- backgrounds and editing. This was a turbulent spond to customer demands with excellent period for the animation industry. At present, quality. For example, France gives subsidies for we have five teams, each working separately animation to support the arts, but Japan still on different projects. We have worked with Stu- has a tendency to give priority to commerce. It’ dio Ghibli on many projects, and our full-length s unfortunate because the high quality of Japa- feature presentations include the science fiction nese animation is recognized throughout the comedy, Space Family Carl Vinson. In 2005, we world. Hereafter, we want to create works that 3. The work is completed after digitization, produced a work with Takataya Kahei as the raise the status of animation in Japan. colorization, and filming.

TYO Business Vol 3 16 Corporate Information

Group Outline

he TYO group consists of TYO Productions Inc. tent production companies with TYO serving as the T and 37 consolidated subsidiaries and equity operational holding company. The Group’s 37 compa- method affiliates. The Group is engaged in advertising, nies, with TYO Productions at the center, seek to es- Web, entertainment, content solutions, and Interna- tablish themselves as the top brands in their respective tional businesses with the goal of expanding and de- visual content markets while simultaneously expanding veloping the “Creative Business City” based on its core into related visual content businesses. The Group as a medium-term management strategy of multi-branding, whole strives to create an innovative business model that is, forming a Group comprising many leading con- for the visual content business.

● Location of Head Office 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo ● TYO Group Executives Officers and Auditors

President and CEO,and CEO of Director and Group the Group Hiroaki Yoshida Executive Officer Koichi Iida

Director and Senior Group Executive Officer Katsumi Kimura Auditor Hidejiro Matsuda

Director and Senior Group Executive Officer Kazuyoshi Hayakawa Auditor Keisuke Morishima

Director and Group Executive Officer Shuji Kakimoto Auditor Shigeyuki Mito

Managing Director, Chief Manager of Productions and GroupExecutive Officer Minoru Ui

(As of September 30, 2006) ● Capital ¥1,077 million (as of September 30, 2006) ● Number of group companies 37 (as of March 31, 2007) (including equity method affiliates) ● Number of group employees 654 (as of September 30, 2006) ● Consolidated net sales ¥21,054 million (as of September 30, 2006)

Group Companies

Advertising Business Planning and production of television commercials and advertising

TYO Productions Inc. TV MONSTER FILMS Inc. TV Operating Holding Company commercial Investment share of TYO Productions: 80% commercial 2-21-7 Kami-Osaki, Shinagawa-ku,Tokyo 141-0021, Japan planning and 4-2-14 Roppongi, Minato-ku, Tokyo 106-0032, Japan planning and TEL: +81-3-5434-1580 production TEL: +81-3-6229-1611 production FAX: +81-3-5434-1595 FAX: +81-3-6229-1622 M-one Productions Inc. TV Camp KAZ Productions Inc. TV Investment share of TYO Productions: 100% commercial Investment share of TYO Productions: 100% commercial Hiroo Alpha Bldg., 4-5-48 Minami-Azabu, Minato-ku, planning and B1 floor, MT3 Bldg., 1-12-24 Mita, Meguro-ku, planning and Tokyo 106-0074, Japan Tokyo 153-0062, Japan production production TEL: +81-3-5447-6751 FAX: +81-3-5447-6755 TEL: +81-3-5725-6321 FAX: +81-3-5725-6322

SASSO Films, Inc. TV Kirameki TV Investment share of TYO Productions: 70% commercial Investment share of TYO Productions: 80% commercial 3-17-39 Nishi-Azabu, Minato-ku, Tokyo 106-0031, Japan 2-9-21 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan planning and planning and TEL: +81-3-5785-3011 TEL: +81-3-5795-0702 FAX: +81-3-5785-3012 production FAX: +81-3-5795-0703 production OK Planning and Produce Corporation Ultra Inc. Investment share of TYO Productions: 80% Advertisement Investment share of TYO Productions: 100% Planning and Kaname Bldg., 4F, 1-4-20 Minami-Azabu, Minato-ku, planning and 1-1-4-604 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan Tokyo 106-0047, Japan production TEL: +81-3-5475-6922 production TEL: +81-3-5442-8391 FAX: +81-3-5442-8392 FAX: +81-3-5475-6923 Strategia Inc. 1st Avenue Inc. Investment share of TYO Productions: 90% Advertisement Investment share of TYO Productions: 75% Advertisement Bungei Shunju Ginza Annex, 5-5-12 Ginza, Chuo-ku, planning and 1-7-13 Mita, Meguro-ku Tokyo 153-0062, Japan planning and Tokyo 104-0061, Japan production TEL: +81-3-5719-1900 production TEL: +81-3-3569-1555 FAX: +81-3-3569-1565 FAX: +81-3-5719-1901

17 TYO Business Vol 3 Web Business Planning and production of interactive content

TYO Interactive Design Inc. colab Inc. Investment share of TYO Productions: 100% Web Investment share of TYO Productions: 51% Web 6th Floor, RE-KNOW Meguro Bldg., production 2nd Floor, TYO Main Office, 2-21-7 Kami-Osaki, production 3-1-4 Kami-Osaki Shinagawa-ku, Tokyo 141-0021, Japan Shinagawa-ku, Tokyo 141-0021, Japan TEL: +81-3-5793-8500 FAX: +81-5793-9030 TEL: +81-3-5434-8815 FAX: +81-3-5434-8816 COM Co., Ltd. Theoria Communications Inc. Investment share of TYO Productions: 53% Investment share of TYO Productions: 87% 3rd Floor, New TYO Wing, 1-7-13 Mita, Meguro-ku, Web 1st Floor, MO Bldg., 3-14-15 Higashi, Shibuya-ku, Web Tokyo 153-0062, Japan production Tokyo 150-0011, Japan production TEL: +81-3-5724-5639 FAX: +81-3-5724-5654 TEL: +81-3-5774-8558 / FAX: +81-3-5774-8557

Planning, production and sales of game software, planning, production and sales of music videos, computer graphics (CG), plan- Entertainment business ning and production of animation and other digital content, planning and development of characters, broadcast program planning and production. Digital Frontier Inc. CG and digital GEMBA, Inc. Digital content Investment share of TYO Productions: 100% content Investment share of Digital Frontier: 85% and CG 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan planning and 1-1-5 Kami-Meguro, Meguro-ku, Tokyo 153-0051, Japan planning and TEL: +81-3-5794-8444 TEL: +81-3-5724-4442 production production FAX: +81-3-5794-8445 FAX: +81-3-5724-4443

SARUCHIN COMPANY Digital content, Mazri Inc. Music clip Investment share of Digital Frontier: 80% games and Investment share of TYO Productions: 100% planning and 2-7-2 Kitazawa, Setagaya-ku, Tokyo 155-0031, Japan CG planning 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan production TEL: +81-3-3467-5505 and production TEL: +81-3-5434-8751 FAX: +81-3-3467-5642 FAX: +81-3-5434-5530 Suzak Inc. Sting Inc. Investment share of TYO Productions: 100% Game Investment share of TYO Productions: 80% Game 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan software 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan software TEL: +81-3-5724-5912 development TEL: +81-3-5768-6234 development FAX: +81-3-5724-5913 FAX: +81-3-5768-6682 dwarf Inc. HAL Film Maker Co., Ltd. Investment share of TYO Productions: 82% Character Investment share of TYO Productions: 82% Animation 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan planning and 4th floor, Ogikubo Fukuchi Building, 1-10-6 Kamiogi, planning and TEL: +81-3-5719-4666 development Suginami-ku, Tokyo 167-0043, Japan production FAX: +81-3-5719-4667 TEL: +81-3-5347-9330 FAX: +81-3-5347-9337 REAL-T Inc. Yumeta Co., Ltd. Investment share of HAL Film Maker: 80% Post Investment share of TYO Productions: 80% Animation 4-38-19 Naritahigashi, Suginami-ku, Tokyo 166-0015, Japan production for Yokoyama Bldg., 1-42-20 Matsuyama, Kiyose-shi, planning and TEL: +81-3-5929-1695 animations Tokyo 204-0022, Japan production FAX: +81-3-5929-1694 TEL: +81-424-95-5116 FAX: +81-424-95-5117 5pb Inc. TV commercial Build Up Inc. Planning, Investment share of TYO Productions: 80% Investment share of TYO Productions: 80% image production, planning and and modeling for 28-11 Sarugaku-cho, Shibuya-ku, Tokyo 150-0033, Japan production, Music 1-7-13 Mita, Meguro-ku, Tokyo 153-0062, Japan movies, CM, games, TEL: +81-3-5457-3567 TEL: +81-3-5768-2520 and amusement production FAX: +81-3-5457-3568 FAX: +81-3-5768-2521 facilities

DOGA KOBO Inc. Haxen International Inc. Broadcast Animation Investment share of TYO Productions: 70% Investment share of TYO Productions: 100% program planning and 5-41-21 Higashi-Oizumi, Nerima-ku, Tokyo 178-0063, Japan 2-14-10 Shibuya, Shibuya-ku, Tokyo 150-0002, Japan planning and TEL: +81-3-3978-6393 production TEL: +81-3-3498-3811 production FAX: +81-3-3978-7221 FAX: +81-3-3486-8060

Provision of platforms (editing space, editing equipment, etc.) and editing technology for Content Solutions Business visual content production / Operations related to filming of visual materials Post Production Center Inc. Crank Inc. Post Investment share of TYO Productions: 73% Investment share of TYO Productions: 100% Filming-related 3F-4F, Minami-Azabu Shibuya Bldg., 4-11-30 production B1 floor, Landic Minami-Azabu Bldg., 4-11-21 operations Minami-Azabu, Minato-ku, Tokyo 106-0047, Japan for films Minami-Azabu, Minato-ku, Tokyo 106-0047, Japan TEL: +81-3-3473-2861 FAX: +81-3-3473-2566 TEL: +81-3-5447-6081 FAX: +81-3-5447-6082

International Business Overseas development centers for interactive content and animation

Da Lian Eastern Dragon Cartoon Development Co., Ltd. TYO International B.V. Investment in Europe (equity method affiliate) Animation Investment share of TYO Productions: 100% and the United Investment share of TYO Productions: 35% planning and Stille Veerkade 36, 2512BG Den Haag, The Netherlands States, and corporate No. 610, Huangpu Road, Dalian High-tech Industrial production TEL: +31-70-3265604 operations and Zone,Liaoning Province, China FAX: +31-70-3265666 management Cailoghi s.r.l. Great Works AB Web Investment share of TYO International B.V.: 80% Investment share of TYO International B.V.: 60% Interactive advertising Via dei Bardi 36, Firenze ITALIA Sveavagen 66, 111 34 Stockholm, Sweden AgencyWEB 制作 TEL/FAX: +39-055-245-855 production TEL:+46-8-52-80-77-70

Great Works, S.L. Great Works America Inc. Investment share of TYO International B.V.: 60% Interactive Investment share of TYO International B.V.: 60% Interactive C/Santa Eulalia, 5-9, 08012 Barcelona, Spain Agency 401 Park Avenue South, New York 10016, USA Agency TEL:+34-93-217-34-58 TEL:+1-646-403-9740

Group management services

TYO Administration Investment share of TYO Productions: 100% Administration 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan operations TEL: +81-3-5434-1585 FAX: +81-3-5434-1595

TYO Business Vol 3 18 Advertising Business

his business is being handled by 10 T companies. These include seven Users / Viewers companies producing television commer- Advertisers cials, our primary business since its estab- Television broadcasts lishment. These also include ULTRA Inc. Advertising orders (Watching) and Strategia Inc., two companies whose primary work involves advertising from Advertising agencies, etc. Broadcasting companies planning to production, and 1st Avenue

Inc., which was spun off as an indepen- (In some cases there is direct Productions ordering and the designation of dent unit in October 2006. In addition to production companies) further strengthening our brand strength Production orders and sales capabilities, these 10 compa- nies will continue to offer creative work Television commercials Advertising planning fulfilling client needs through advertising and production TYO Productions Inc. planning and production as advertisers 1st Avenue Inc. MONSTER FILMS Inc. SASSO Films, Inc.

adopt diversified advertising strategies. Ultra Inc. M-one Productions Inc. Kirameki

OK Planning and Strategia Inc. Camp KAZ productions Inc. Produce Corporation

Web Business

ur Web business, which we estab- O lished as an independent segment Users / Viewers this year, is being handled by four compa- nies, including COM Co., Ltd. and Theoria Advertisers Communications Communications Inc., which became part (Browsing / Use) of the corporate group last year through Advertising orders the merger and acquisition process. Our workload continues to increase in con- Internet Advertising agencies, etc.

junction with the growth of the Internet (In some cases there is Productions advertising market in an environment in direct ordering and the which more advertisers are aggressively designation of production Production orders companies) employing the Internet as a primary me- dium to rank with television commercials. colab Inc., the former Nexis Communica- Web tions Corporation, formed a capital tie- TYO Interactive Design Inc. up with SEPTENI HOLDINGS CO., LTD. in colab Inc. December 2006 to beef up their sales ca- COM Co., Ltd. pabilities. In the future, we will aggressively Theoria Communications Inc. pursue business growth by producing and offering communication tools integral to corporate advertising, with each company utilizing their individual strengths.

19 TYO Business Vol 3 Corporate Information

Entertainment Business

ur core enterprise is the entertainment business. production using animation and computer graphics. O We conduct operations over a wide range of We continue to diversify our visual content production fields, including the production of animation, computer sector, adding documentary program producer Haxen graphics, game software, music videos, and documen- International Inc. to the group in October 2006. tary programs, as well as character planning and pro- In the future, we intend to devote additional resources duction. to business expansion, focusing as much as possible Our objective is to further boost our earnings and invest on the core businesses of our group, by enhancing the some of those earnings in production committees and brand strength of each enterprise, investing in produc- acquire rights while reaping steadily rising earnings from tion committees, establishing new companies, and the production of content of exceptional quality, includ- acquiring existing companies through merger or acqui- ing television programs and films, and game and music sition.

Broadcast Broadcasting Movies Characters Modeling Stations dwarf Inc. Build Up Inc. Partical Investment Digital Frontier Inc. Computer Screening Movie Theaters GEMBA, Inc. Graphics SARUCHIN COMPANY

Yumeta Co., Ltd.

Limited HAL Film Maker Co., Ltd. Clients DVD Sales Sales Companies Liability Partnership REAL-T Inc. DOGA KOBO Inc.

Animation Documentaries

Game Equipment Haxen International Inc. Game Software and Software Sales Manufacturers 5pb Inc.

Suzak Inc. Mazri Inc. DVD Sales Record Sting Inc. Music CD Sales Companies Games Promotion Videos

TYO Business Vol 3 20 Content Solutions Business

his business involves the provision of T solutions to visual content production Users / Viewers companies. Our efforts are comprised of Advertisers two business models—the post produc- Television broadcasts tion division and the filming-related opera- (Watching) Advertising orders tions division. The post production division uses the Broadcasting Advertising agencies, etc. companies most advanced platforms and editing technology for productions of all types Productions ordering / Production that handle visual content. The filming- Television commercial related operations division sends camera production company operators and lends filming equipment to filming projects. In the future, these two Provision of solutions divisions will further expand the range of the solutions they provide as business opportunities in conjunction with overall Crank Inc. group growth, while providing high quality technology. Filming / Equipment Post Production Center Inc.

Post production

International Business

ur group’s multi-brand strategy is to broaden a content market and distribution network. We took our O our overseas expansion, develop our produc- first step in that direction by taking a capital stake in a tion function overseas with a focus on the Internet and European website production company. animation, and create an international creative network In the animation production sector, group company between talented creators and the TYO group. Dalian Eastern Dragon Cartoon Development Co., Ltd. In the website production sector, we established the established in Dalian, China, is involved in television pro- new overseas intermediate holding company TYO Inter- gram production and preparing to take the plunge into national B.V. in The Netherlands in March 2006 to create feature film broadcasting.

21 TYO Business Vol 3 Corporate Information

Medium-Term Management Plan

he objective of our group is to establish ourselves the sales and ordinary income ratio. We plan to estab- T as the leading brand in the video markets in which lish standard numerical targets for each segment for all our group companies operate. In addition, we will con- the group companies in the first half of fiscal year ended tinue to expand our business into different visual content 2007 and concentrate our operational efforts on achiev- sectors with the intention of creating a new business ing them. model that is not limited to the existing visual content We will redouble our business development and earn- business. Our aim is not merely to expand profits by ings management efforts in the future as we work to boosting our shares through continued multi-branding achieve our mid-term business targets. We particularly in each business segment. We also will rebuild the busi- want to strengthen our presence in the Web and enter- ness portfolio for the entire group and ameliorate busi- tainment segments, so we will concentrate our attention ness risk caused by changes in the economic climate. on them as we aggressively continue to form new com- Our goal over the mid-term is for sales of 40 billion yen panies and acquire others through mergers and acquisi- by 2010, achieving our plan as outlined below. tions. Achieving this goal will require a definite improvement in

Fiscal year ended Fiscal year ended Fiscal year ended Fiscal year ended Fiscal Term September 2007 September 2008 September 2009 September 2010

Net Sales (¥ billion) 24.0 29.0 34.5 40.0

Ordinary Income (¥ billion) 1.22 1.68 2.28 3.00 Sales and Ordinary Income Ratio (%) 5.1 5.8 6.6 7.5

Challenges Ahead

ur most pressing challenges as we work to business areas including overseas development, thor- O achieve our group’s mid-term target of 40 billion ough implementation of cost management, and invest- yen in sales by 2010 include a further expansion of our ments in all our production committees.

1 Thorough profit management We will define standard numerical values for sales and ordinary income ratios in every segment to identify the mission of all our group companies, and strive to establish solid profit management with a dedicated concentration to conducting business that achieves these figures.

2 Promoting mergers, acquisitions, and the establishment of new companies There was an increase in the number of group companies from 25 to 37 by the end of the consolidated fiscal year ended September 2005. In the future, we intend to strengthen our brand through an active program of mergers, acquisitions, and the establishment of new companies in the Web and entertainment segments in particular. We also aim to expand our business with the intention of exchange listing individual group companies.

3 Group development overseas The Web and animation businesses are part of the international market, so we plan to conduct aggressive overseas business development, including mergers, acquisitions, and the establishment of new companies, to expand our business opportunities.

4 Investment business development In addition to the production of animations, films, and games in our entertainment business, we will acquire window rights and copyrights by investing in production committees to obtain greater profits.

TYO Business Vol 3 22 Corporate Information

Our Basic Stance on Corporate Governance

ur basic stance is to strengthen the corporate based on our multi-branding strategy. While guidelines O governance of TYO Productions and the Group and auditing represent standard control mechanisms, as a whole. We recognize that corporate governance we believe we must refine the incentives and other structures for the entire Group and for Group subsid- means offered to Group companies to encourage rou- iaries and equity-method companies constitute an im- tine compliance in the course of our corporate activi- portant factor in expanding our creative business areas ties.

General Shareholders’ Meeting

Appointment Appointment Appointment

Board of Directors

Accounting auditors Concurrent positions Audit Board of Auditors Alliances

Audit President

Management Productions Alliances Planning Division headquarters

Internal audits Audit TYO Administration Inc. Internal audits

Group internal auditing office

Budget control Administration work / Internal audits Budget control

All company auditing reports

Board of Directors Auditors

Audit

President Our group companies

23 TYO Business Vol 3 Financial Information

Results for the Consolidated Fiscal Year ended 2006 Under Review

ur corporate group is an aggregation of several both the parent and the consolidated subsidiaries) were O exceptional content production companies with successful. The six companies that did not achieve their one capital foundation. We continue to grow through a targets posted a decline in profits, and the 25 compa- mechanism that maximizes overall group performance nies that did reach their goals were unable to offset this in which each production company freely pursues prof- decline. Therefore, our performance fell short of our its as an independent brand. Our industry has steadily stated forecast figures at the start of the term. become more aware of this mechanism, called the Owing to these factors, our consolidated business re- Creative Business City, since the previous term. The sults for the 25th fiscal year were 1,279 million yen in op- number of group companies rose from 25 at the end of erating income (a 0.1% slide from the previous consoli- consolidated fiscal year ended 2005 to 32 at the end of dated fiscal year), 1,185 million yen in ordinary income (a consolidated fiscal year ended 2006. 1.8% decline) and 450 million yen in current net income As a result of each group company’s efforts to achieve for the term (a 7.8% drop) on sales of 21,054 million yen the business targets, 25 of 31 companies (including (a 6.1% increase).

* The number of group companies is that as of the end of September 2006

Net Sales (Unit: ¥ Million) Operating Income (Unit: ¥ Million) 24,000

21,054 20,000 19,839 1,400 1,280 1,279 1,200 16,000 14,966 1,000 980

12,000 800

600 8,000 400 4,000 200

0 0 Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year ended ended ended ended ended ended September 2004 September 2005 September 2006 September 2004 September 2005 September 2006

Ordinary Income (Unit: ¥ Million) Current Net Income (Unit: ¥ Million)

1,400 500 20000 489 1,207 1,185 450 175001,200 400 150001,000

842 300 12500800 1400

10000 600 1200 200 206 7500 400 1000 5000 100 200 800 2500 0 6000 0 Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year ended ended ended 400 ended ended ended September 2004 September 2005 September 2006 September 2004 September 2005 September 2006 200

0

1400 TYO Business Vol 3 24 1200

1000

800

600

400

200

0 Sales by Business Segment

Advertising Business Unit: ¥ thousands

The company posted operating Fiscal year ended Fiscal year ended Year-on-year Difference income of 1,276 million yen, a 2.7% September 2005 September 2006 change year-on-year rise, on 14,394 million Sales 13,015,977 14,394,201 1,378,223 110.6% yen in sales, a 10.6% increase. Ad- ditionally, 46 million yen in goodwill (Customers) 12,930,565 14,349,044 1,418,479 111.0% amortization from mergers and (Inter-segment Sales) 85,411 45,156 40,255 52.9% acquisitions is included in selling, general and administrative expens- Operating cost 11,772,926 13,117,250 1,344,324 111.4% es. Operating income 1,243,051 1,276,950 33,899 102.7%

Entertainment Business Unit: ¥ thousands

The company posted operating in- Fiscal year ended Fiscal year ended Year-on-year Difference come of 140 million yen, a 533.8% September 2005 September 2006 change year-on-year surge, on 4,639 mil- Sales 5,254,012 4,639,064 614,947 88.3% lion yen in sales, an 11.7% decline. Additionally, 110 million yen in (Customers) 5,224,833 4,574,384 650,449 87.6% goodwill amortization from merg- (Inter-segment Sales) 29,179 64,680 35,501 221.7% ers and acquisitions is included in selling, general and administrative Operating cost 5,231,806 4,498,315 733,490 86.0% expenses. Operating income 22,206 140,749 118,542 633.8%

Content Solutions Business Unit: ¥ thousands

The company posted operating Fiscal year ended Fiscal year ended Year-on-year Difference income of 334 million yen, a 2.6% September 2005 September 2006 change year-on-year drop, on 2,883 million Sales 2,399,599 2,883,881 484,281 120.2% yen in sales, a 20.2% jump. Ad- ditionally, 15 million yen in goodwill (Customers) 1,684,236 2,131,323 447,087 126.5% amortization from mergers and (Inter-segment Sales) 715,362 752,558 37,195 105.2% acquisitions is included in selling, general and administrative expens- Operating cost 2,056,606 2,549,768 493,162 124.0% es. Operating income 342,992 334,112 8,880 97.4%

25 TYO Business Vol 3 Financial Information

Consolidated Cash Flows

Cash flows from operating activities Cash flows from operating activities The funds derived from operating activities totaled 785 Cash flow from investing activities (Unit: ¥ Million) million yen, 847 million yen above last year’s total. The factors contributing to the increase in these funds were Cash flow from financing activities primarily increases in net income before income taxes, depreciation expenses, goodwill amortization amounts, 1,200 increases in advances received, and a decrease 1,136 in accounts receivable. In contrast, the factors contributing to a decline in these funds included a rise 900 in inventory assets and corporate tax payments. 785

600 567 Cash flow from investing activities 485 300 The funds used for investing activities totaled 1,217 million yen, 411 million yen more than last year’s total. 176 The primary factors contributing to the acquisition of 0 these funds included income derived from the sale of subsidiaries’ stock and the reversal of insurance -61 reserves. In contrast were the acquisition of tangible -300 and intangible fixed assets, investments in production committees and other capital partnerships, and investments in affiliated companies. -600

-900 -805 Cash flow from financing activities -866 Fiscal year Fiscal year The funds derived from financing activities totaled 567 -1,200 ended ended million yen, 390 million yen more than last year’s total. September 2004 September 2005 The factors contributing to this result included both -1,217 Fiscal year expenditures for the repayment of both short-term and ended long-term borrowings, and contracting for new long- September 2006 term loans.

Consolidated Net Assets (Unit: ¥ Million) Consolidated Total Assets (Unit: ¥ Million) 2,800 14,000 2,633 12,996 2,439 2,400 12,000 12,119 11,071 2,000 10,000

1,600 1200 8,000 1,441

1,200 900 6,000

800 600 4,000

400 300 2,000 0 0 0 Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year ended ended ended ended ended ended September 2004 September 2005 September 2006 -300 September 2004 September 2005 September 2006 -600 Consolidated Equity Ratio （％） Consolidated Return on Equity Ratio （％） 20 20.1 -900 12500 18.1 25 25.2 15 10000 20 13.0 18.8

10 750015 15.3

500010 5 5 2500

0 0 Fiscal year Fiscal year Fiscal year 0 Fiscal year Fiscal year Fiscal year ended ended ended ended ended ended September 2004 September 2005 September 2006 September 2004 September 2005 September 2006

2500 TYO Business Vol 3 26 30 2000

25 1500 20 1000 15

500 10

0 5

0

20

15

10

5

0 Consolidated Balance Sheet

(Unit: ¥ thousands)

Fiscal Term Previous Consolidated Fiscal Year Consolidated Fiscal Year Under Review Difference (as of Sept. 30, 2005) % (as of Sept. 30, 2006) % Item Amount Ratio Amount Ratio Amount

(Assets) I. Current Assets

1. Cash and cash equivalents 1,359,200 1,511,731 152,530

2. Notes and accounts receivable 3,953,720 3,785,717 (168,003)

3. Inventories 1,686,705 1,823,034 136,328

4. Deferred tax assets 99,344 98,345 (998)

5. Other 188,387 309,319 120,931

6. Allowance for doubtful accounts (18,194) (17,659) 535

Total Current Assets 7,269,163 60.0 7,510,488 57.8 241,324 II. Fixed assets 1. Tangible fixed assets

(1) Buildings 1,122,970 1,238,000

Accumulated depreciation 459,312 663,658 525,157 712,843 49,185

(2) Land 746,208 746,208 －

(3) Other 547,158 715,621

Accumulated depreciation 295,100 252,058 429,933 285,688 33,630

Total tangible fixed assets 1,661,925 13.7 1,744,740 13.4 82,815

2. Intangible fixed assets

(1) Business rights 44,565 － (44,565) (2) Consolidated adjustment account 579,345 － (579,345) (3) Goodwill － 465,947 465,947

(4) Other 271,564 193,813 (77,750)

Total intangible fixed assets 895,475 7.4 659,760 5.1 (235,714) 3. Investments and other assets (1) Investment securities 564,201 492,847 (71,353)

(2) Contribution to capital － 515,382 515,382 (3) Investment in affiliated companies 23,673 227,144 203,470 (4) Deferred tax assets 240,515 280,506 39,991

(5) Insurance reserves 832,711 860,480 27,769

(6) Lease deposits 388,714 488,798 100,084

(7) Other 280,801 222,719 (58,082)

(8) Allowance for doubtful (37,555) (6,009) 31,545 accounts Total investments and other assets 2,293,061 18.9 3,081,869 23.7 788,807 Total Fixed Assets 4,850,462 40.0 5,486,371 42.2 635,909

Total Assets 12,119,626 100.0 12,996,860 100.0 877,234

27 TYO Business Vol 3 Financial Information

(Unit: ¥ thousands)

Fiscal Term Previous Consolidated Fiscal Year Consolidated Fiscal Year Under Review Difference (as of Sept. 30, 2005) % (as of Sept. 30, 2006) % Item Amount Ratio Amount Ratio Amount (Liabilities) I. Current Liabilities 1. Accounts payable 2,238,100 2,261,995 23,895 2. Current portion of long-term bonds 100,000 50,000 (50,000) 3. Short-term borrowings 4,020,358 3,292,357 (728,000) 4. Accrued liabilities 606,704 581,033 (25,670) 5. Income taxes payable 470,108 287,854 (182,253) 6. Advance received 493,116 622,249 129,133 7. Allowance for bonuses 114,202 103,862 (10,340) 8. Allowance for customer benefit program － 919 919 9. Other 124,121 207,518 83,397 Total Current Liabilities 8,166,711 67.4 7,407,790 57.0 (758,921) II. Fixed Liabilities 1. Bonds 135,000 85,000 (50,000) 2. Long-term loans 598,510 2,416,232 1,817,722 3. Allowances for retirement benefits 18,115 19,802 1,687 4. Allowances for retirement benefits and compensation for executives. 426,701 368,683 (58,018) 5. Other 71,925 65,864 (6,060) Total Fixed Liabilities 1,250,252 10.3 2,955,582 22.7 1,705,330 Total Liabilities 9,416,963 77.7 10,363,373 79.7 946,409 (Minority interests) Minority interests 263,481 2.2 －－ (263,481) (Shareholders’ Equity) I. Capital stock 1,076,952 8.9 －－ (1,076,952) II. Capital surplus 1,040,843 8.6 －－ (1,040,843) III. Retained earnings 542,923 4.5 －－ (542,923) IV. Net unrealized gain on other securities 64,855 0.5 －－ (64,855) V. Treasury stock (286,394) (2.4) － － 286,394 Total Shareholders’ Equity 2,439,181 20.1 －－ (2,439,181) Total Liabilities, Minority Interests and Shareholders' Equity 12,119,626 100.0 － － (12,119,626) (Net Assets) I. Common stock 1. Capital stock －－ 1,077,582 8.3 1,077,582 2. Capital surplus －－ 1,029,124 7.9 1,029,124 3.Retained earnings －－ 636,857 4.9 636,857 4. Treasury stock －－ (429,011) (3.3) (429,011) Total common stock －－ 2,314,553 17.8 2,314,553 II. Evaluation and conversion difference 1. Net unrealized gain on other securities －－ 20,469 0.2 20,469 2. Foreign currency translation adjustment －－ 16,085 0.1 16,085 Total evaluation and conversion difference －－ 36,554 0.3 36,554 III. Minority interests － － 282,378 2.2 282,378 Total net assets －－ 2,633,487 20.3 2,633,487 Total liabilities and net assets －－ 12,996,860 100.0 12,996,860

TYO Business Vol 3 28 Consolidated Statements of Income

(Unit: ¥ thousands) Previous Consolidated Fiscal Consolidated Fiscal Year Under Fiscal Term Year Review Difference (Oct. 1, 2004 to Sept. 30, 2005) % (Oct. 1, 2005 to Sept. 30, 2006) % Item Amount Ratio Amount Ratio Amount I. Net Sales 19,839,635 100.0 21,054,751 100.0 1,215,116 II. Cost of Sales 15,525,208 78.3 16,398,135 77.9 872,926 Gross Profit 4,314,426 21.7 4,656,616 22.1 342,189 III. Sales, General and Administrative Expenses 1. Provision for allowance for doubtful accounts 4,609 2,107 2. Executive compensation 898,515 953,846 3. Salaries and bonus 493,750 570,033 4. Provision for accrued bonus 31,152 35,127 5. Business consignment fee 261,012 349,053 6. Rent expenses paid 149,030 156,842 7. Provision for allowances for retirement benefits and compensation for executives 17,246 14,982 8. Retirement benefit cost 10,652 12,601 9. Depreciation of consolidated adjustment accounts 182,476 － 10. Goodwill depreciation － 216,742 11. Other 985,409 3,033,856 15.2 1,066,046 3,377,382 16.0 343,525 Operating Income 1,280,570 6.5 1,279,233 6.1 (1,336) IV. Non-operating Income 1. Interest income 774 5441 2. Insurance refund 35,351 27,670 3. Dividends from investment in associations 51,402 52,320 4. Other 21,115 108,644 0.5 25,443 110,876 0.5 2,232 V. Non-operating Expenses 1. Interest expenses 81,404 72,939 2. Loss on sale of accounts receivable 25,466 32,447 3. Equity in losses of affiliates － 2,878 4. Commission expenses 23,552 21,992 5. Depreciation on investments in associations 29,459 62,017 6. Other 21,636 181,520 0.9 11,982 204,257 1.0 22,737 Ordinary Income 1,207,693 6.1 1,185,852 5.6 (21,841) VI. Extraordinary Income 1. Gain on sales of equity in affiliates － 141,627 2. Gain on sale of securities 42,050 42,050 0.2 － 141,627 0.7 99,577 VII. Extraordinary Loss 1. Loss on disposal of fixed asset 13,484 3,212 2. Loss due to expropriation of fixed asset 60,536 － 3. Provision for prior year allowances for retirement benefits and compensation for executives － 43,532 4. Valuation loss on investment securities － 74,021 0.4 62,800 109,545 0.5 35,524 Income before income taxes and distribution of net income/loss to silent partnership 1,175,722 5.9 1,217,935 5.8 42,212 Distribution of net income/loss to silent partnership －－ 8,009 0.1 8,009 Net income before income taxes 1,175,722 5.9 1,209,926 5.7 34,203 Income taxes - current 714,696 680,351 Income taxes - deferred (132,440) 582,255 2.9 (8,214) 672,137 3.2 89,882 Minority Interests 104,425 0.5 87,104 0.4 (17,320) Net Income 489,042 2.5 450,684 2.1 (38,357)

29 TYO Business Vol 3 Financial Information

Consolidated Statements of Shareholders’ Equity

(Unit: ¥ thousands)

Evaluation and conversion Common stock difference Stock Net Foreign Total Minority Total net Total unrealized valuation purchase interests assets Capital Capital Retained Treasury common gain on currency and warrants stock surplus earnings stock stock other translation conversion securities adjustment differencet

Balance at September 1,076,952 1,040,843 542,923 (286,394) 2,374,325 64,855 64,855 12 263,481 2,702,675 30, 2005 －

Difference in amount during fiscal year

New stock issuance 630 642 1,272 1,272 (¥ thousand) －

Distribution of surplus (Note) (¥ thousand) (154,702) (154,702) － (154,702) Appropriation of profit as directors’ bonuses (Note) (202,047) (202,047) － (202,047) (¥ thousand)

Net income (¥ thousand) 450,684 450,684 － 450,684

Disposal of treasury stock (¥ thousand) (12,361) 51,638 39,277 － 39,277

Acquisition of treasury stock (¥ thousand) (194,256) (194,256) － (194,256)

Difference in amount (net) in items other than shareholders’ equity during － (44,386) 16,085 (28,300) (12) 18,897 (9,415) fiscal year (¥ thousand) Total difference in amount during fiscal year 630 (11,719) 93,934 (142,617) (59,772) (44,386) 16,085 (28,300) (12) 18,897 (69,187) (¥ thousand)

Balance at September 30, 2006 1,077,582 1,029,124 636,857 (429,011) 2,314,553 20,469 16,085 36,554 － 282,378 2,633,487

Note: Profit appropriation items as presented to the regular general shareholders’ meeting held in December 2005.

Consolidated Statements of Cash Flow

(Unit: ¥ thousands)

Previous Consolidated Fiscal Year Consolidated Fiscal Year Under Review Difference Fiscal Term (Oct. 1, 2004 to Sept. 30, 2005) (Oct. 1, 2005 to Sept. 30, 2006) Item Amount Amount Amount

I. Cash Flows from Operating Activities (61,570) 785,763 847,333

II. Cash Flows from Investing Activities (805,457) (1,217,248) (411,790)

III. Cash Flows from Financing Activities 176,872 567,835 390,963 IV. Foreign Exchange Adjustments on Cash and Cash Equivalents (3,686) 19,079 22,766 V. Increase (Decrease) in Cash and Cash Equivalents (693,841) 155,430 849,271 VI. Cash and Cash Equivalents at Beginning of Year 2,050,142 1,356,300 (693,841) VII. Cash and Cash Equivalents at End of Year 1,356,300 1,511,731 155,430

TYO Business Vol 3 30 Special Report:Web Strategy

Part1 The nnewew TTYOYO town block; emergency The WEB x 4 roundtable discussion WEB x TV-CM

Part2 In the vanguard of creativity Toward an international ● dwarf Inc. The world of craftsmanship that brings happiness to TYO Productions Inc. Creative creator and viewer alike 2-21-7 Kami-Osaki, Shinagawa-ku, Tokyo 141-0021, Japan http://group.tyo.jp/ JASDAQ Securities Code: 4358 Network Neｗ Face ● Theoria Communications Inc. ● COM Co., Ltd. ● 1st Avenue Inc. ● Haxen International Inc. ● DOGA KOBO Inc.

Management Strategy Interview TYO 2007 Creative Business City Town Block Planning Today, success or failure is determined by originality and quality in the true sense of the terms. The various brands of the Creative Town Block are working together to move to the next stage.