No.2006004 May 31, 2006 Press Release Columbia Music Entertainment, Inc. Columbia Music Entertainment Issues Notice of Consolidated Business Results Full Fiscal Year Ending March 2006 ~ Digital Music Sales Tripled and Financial Structure Strengthened ~ Columbia Music Entertainment Inc. (hereinafter CME; Head Office: Minato-ku, Tokyo; Chief Executive Officer (CEO): Sadahiko Hirose, Chairman: Strauss Zelnick) has today issued its consolidated business results, reporting the company’s overall performance for the fiscal year ending March 31, 2006 (FY 2005; April 1, 2005 ~ March 31, 2006). During the fiscal year under review, CME made steady progress towards the goal of continuing long-term profitability by strengthening its music entertainment business, by creating hit artists, and by expanding its digital business. The company has also continued pursuing comprehensive cost management and expense reduction, including the liquidation of unprofitable businesses. As a result of the company’s efforts, Kaela Kimura’s popularity grew rapidly as an artist, sales of digital music tripled compared with the previous fiscal year, and the company’s music entertainment business recorded a meaningful sales increase. In addition, CME divested its domestic CD and DVD pressing business and, in anticipation of a sale in the near-term, discontinued its U.S. CD and DVD pressing business. Both operations were non-core businesses that had been operating at a continuous loss. Given all of the above developments, we are confident that the CME will continue to record stable and growing profits from the coming term. "We are very pleased that CME has accomplished its major long-term goals of improving its balance sheet and focusing on it core growth business- music and entertainment content, marketing, and distribution," said CME Chairman Strauss Zelnick. "CME is now poised for growth across an array of music and entertainment markets, both traditional and digital, on a global basis. We thank our customers, our investors, and our business partners for their role in our success. Together our future is very bright indeed." With regard to the CME’s consolidated sales: In addition to strong sales of in-house produced titles and the very significant expansion of the company’s digital business, sales of CME’s third party distribution (consignee) business exceeded our initial forecast. However, because of the liquidation and discontinuation of its Japanese and U.S. CD and DVD pressing businesses respectively, sales of the CD and DVD pressing businesses, which totaled 4.8 No.2006004 May 31, 2006 billion yen during the previous fiscal year fell to just 500 million yen during the current term. Consequently, the CME’s consolidated sales for the fiscal year under review totaled 28,892 million yen, a 11.5% decrease compared with the previous fiscal year. Eliminating the revenue of the liquidated CD and DVD pressing businesses from last year and this year for comparative purposes, the company’s core (non-pressing) businesses grew by 571 million yen in revenue, from 27,821 to 28,392. As for CME’s profit and loss situation: Increases in income from the company’s in-house music entertainment business and the company’s digital business significantly contributed to profitability while CME’s custom sales business also performed favorably. On the other hand, rent expense increased due to the Head Office relocation and capital expenditure also rose due to an increase in digital archiving investment. As a result, CME recorded a consolidated ordinary profit of 481 million yen for the fiscal year under review, a 11.4% decrease compared with the previous fiscal year. Due to several one-time, non-recurring charges including expenses involved in the relocation of the Head Office, inventory disposal losses, losses on valuation of assets and receivables, and the balance of extraordinary profit and loss on the liquidation and discontinuation of the CD and DVD pressing businesses, CME booked a consolidated net loss for the fiscal year under review of 2,054 million yen, compared with a profit of 157 million yen for the previous fiscal year. The strengthening of CME’s financial structure also proceeded with the elimination of the accumulated loss by means of a capital decrease and the repayment of all outstanding debt from the proceeds of asset sales. <Full Year Business Result Forecast for Fiscal Year Ending March 31, 2007> At the present time, our forecast with respect to CME’s consolidated business results for FY 2006 (April 1,2006 ~ March 31, 2007) is for sales of 28,000 million yen, a profit and loss balance showing an ordinary profit of 350 million yen, and a net profit for the term of 175 million yen. In the company’s in-house music entertainment business, we will continue to actively pursue new artist development and profit-oriented production, and will continue to build an organization with a high level of flexibility and productivity. In addition, we will expand our Internet-based promotional functions through the establishment of an exclusive Internet promotion organization. Furthermore, in order to make even greater use of the extensive CME catalogue of in-house owned music, we have recently established the CME Intellectual Property Strategy Division. Simultaneously, in order to realize even higher levels of customer satisfaction and to build a company that reflects the customer’s voice in all of our future business, we have newly established a Customer Service Center. No.2006004 May 31, 2006 ― Artists and Titles Making Major Contributions to Sales― <Music Software> • Enka/Kayokyoku Dept. Kiyoshi Hikawa— Omokage no Miyako/Furusato wa Wagamune ni Ikken/Kiyoshino Morino Ishimatsu /Hikawa Kiyoshi Enka Meikyoku Collection 5: Hatsukoi Ressha Eisaku Okawa— Eki/Ano Ai o Mo Ichido Takashi Hosokawa— Ayairo no Koi/Naniwa no Kaze Jiro Kanmuri— Horoyoi Suikoden/Otoko no Michi • J-Pop, J-Rock, Dept. Yo Hitoto— Kagefumi, Kazaguruma, &, Hitoto Omoi Kaela Kimura— Rirura Riruha, BEAT, You, Circle • International Dept. THE WHITE STRIPES— Get Behind Me Satan ULTRA BRAiN— Neo Punk • Educational Dept. Fuuka, Wanwan, Uutan— Inai Inai Baa! Superwan no Uta ~ • Animation Dept. NoB— Go Go Sentai Bokenger theme song Takafumi Iwasaki, Sister MAYO—Maho Sentai Magiranger theme song/Jumon Korin ~ Magical Force Idol Master series • Classic Dept. Minako Honda— Amazing Grace, Ave Maria Crest 1000 series <Visual Software> Kaela Kimura— KAELA KIMURA 1ST TOUR FOR YOU Hibari Misora— gift ~ Ten Kara no Okurimono Yo Hitoto— Yumemachi Bansking ~ Hairanse ~ Fuuka, Wanwan, Uutan— Several titles in the NHK Inai Inai Baa! series <Mail Order Business> Misora Hibari Showa o Utau Natsukashi no Hibi ~ Samejima Yumiko Jojokashu Enka Ranman <Ring Songs-(Chaku-Uta)> Yo Hitoto— Hanamizuki, Kagefumi, Kazaguruma Kaela Kimura— Rirura Riruha, BEAT, You M i (“em ai”)— Mirai no Chizu <Third Party Distribution Business> • R and C Ltd. Downtown— DOWNTOWN no Gaki no Tsukai ya Arahende!! Series Gorie with Jasmine & Joann— Pecori Night • DREAMUSIC Inc Ayaka Hirahara— From To, Yottsu no L • Blow Wind Records Inc Navy & Ivory— Renai no ki, Yubiwa No.2006004 May 31, 2006 ■ Columbia Music Entertainment Inc. Company Name: Columbia Music Entertainment Inc. Address: Roppongi 21 Mori Bldg., 1-4-33 Roppongi, Minato-ku, Tokyo Representative: Representative Director and CEO Sadahiko Hirose Business contents: Production, manufacturing, advertising and sales of audio and video software, etc., and music artist management Paid-in capital: ¥1,000,000,000 URL: www.columbia.co.jp ■ For further information concerning this subject please contact: Columbia Music Entertainment, Inc. PR/ER Group, Strategic Planning Division email: [email protected] .