ANNUAL REPORT

LETTER TO SHAREHOLDERS AND BUSINESS REVIEW
The continuous contraction of CME’s music entertainment market requires further structural reform
under a new management structure
During the fiscal year ended March 31, 2009, CME reported
revenue of JPY 18,170 million, compared to JPY 18,569 million a
year earlier. Excluding sales from Creative Core, acquired in
November 2007, and contributing for a full fiscal year for the
first time, CME’s revenue for the fiscal year ended March 31,
2009, amounted to JPY 15,046 million, down 11.2% compared to
the previous fiscal year. Increased sales of CME’s custom sales
business and the growing digital business were offset by
decreasing sales from J-Pop titles as CME considerably reduced
the number of J-Pop artists in an attempt to eliminate
unprofitable business in a shrinking CD market.
The operating loss of JPY 693 million during the fiscal year
ended March 31, 2009, compared to JPY 1,508 million a year
earlier, was favorably affected by the reversal of estimated
royalty payments (JPY 456 million). CME’s net loss for the fiscal
year ended March 31, 2009, amounted to JPY 519 million and
included JPY 434 million restructuring costs associated with
early termination of artist contracts and retirement allowances.
business. Finally, CME is implementing a new voluntary
retirement program and cutting back on its temporary work
force to reduce staff by 78 people.
In addition to the net loss reported in the table on the previous
page, the Company reviewed the recoverable amount of certain
intangible assets recorded in its consolidated financial
statements following the purchase price allocation upon the
contribution of CME in March 2005. In view of the deteriorated
financial performance, the reduced scale of CME’s business and
the uncertainty around the economic recovery and the impact
thereof on CME’s business, the Company recorded an
impairment charge of JPY 7,645 million in its consolidated
income statement for the fiscal year ended March 31, 2009, on
certain intangible assets recognized as a result of the initial
purchase price allocation. This impairment charge is only
recorded in the Company’s consolidated financial statements
and not reflected in CME’s results shown in the table on the
previous page.
Throughout the fiscal year ended March 31, 2009, CME
continued to implement cost rationalization measures to
mitigate the effects of a declining CD market. Several structural
reform measures were initiated and will continue to be
implemented during the fiscal year ending March 31, 2010.
Among such measures, the number of J-Pop artists was
drastically reduced and the J-Pop organization was downsized
accordingly. CME further sharpened its focus on historically
profitable segments such as Enka music products and future
growth areas such as digital music and the games business.
CME rationalized its organizational structure to the scale of its
business by consolidating its sales-and marketing organization
and radically downsizing Creative Core’s educational software
CME’s management expects to return to profitability and
publicly disclosed forecasts for the fiscal year ending March 31,
2010, prepared under J-GAAP, which included sales of JPY
18,500 million, operating profit of JPY 100 million and net profit
of JPY 400 million. The projected net income includes an early
lease termination gain of JPY 590 million, associated with
planned relocation of CME’s head office in September, 2009.
21