Investor Relations

Financial / Operational Data
Financial Review

Overview of 3Q FY 2011

In the lead up to the complete changeover to terrestrial digital broadcasting set for July 24, 2011,*1 competition with major telecommunications and related companies remained extremely harsh during the nine months (January 1 to September 30, 2011) of the fiscal year ending December 31, 2011.

Under these circumstances, the J:COM Group (J:COM together with its consolidated subsidiaries) made capturing terrestrial digital demand its most important priority. The J:COM Group implemented measures to expand its customer base, and worked to deepen ties with customers in order to reduce cancellations. Moreover, steps were taken to strengthen and expand business tie-up measures mainly in the “Telecom Business and Product Collaboration” fields under the alliance with KDDI CORPORATION (“KDDI”).

Taking into account the aforementioned, key performance indicators as well as cable television operating indicators for the nine months of the fiscal year ending December 31, 2011 are presented as follows.

*1 Excluding the three prefectures of the Tohoku area (Iwate, Miyagi and Fukushima)

Consolidated performance summary for the Nine Months of the fiscal year ending December 31, 2011

Billions of yen unless otherwise stated

*2 EBITDA: (Revenue) – (Operating and programming costs) – (Selling, general and administrative expenses)

Key operating indicators

*3 Number of households subscribing at least one service
*4 Total number of revenue generating units (RGUs) for services supplied
*5 Average number of RGUs per customer

Priority Measures in the Nine Months of the Fiscal Year Ending December 31, 2011

The J:COM Group worked diligently to secure new subscribing households while expanding its customer base. Before July 24, 2011, the Group concentrated on capturing the growing demand for terrestrial digital broadcasting. After the changeover to terrestrial digital broadcasting was completed, J:COM implemented a variety of measures including the marketing of wide-ranging products that match the increasingly diverse customers needs.

【Expanding the Customer Base】

As a result of implementing the following measures focusing primarily on tapping into the demand for terrestrial digital broadcasting using strategic products, the total number of subscribing households as of September 30, 2011 increased by 205,600 households, or 6.1% year on year, to 3,582,300 households.

Capturing demand for terrestrial digital broadcasting: Expanding sales of J:COM TV My style*6

J:COM TV My style is a product that caters to diversified customers’ needs such as a variety of viewing patterns and behavior. It allows viewers to enjoy programs of their choice as and when required. At the same time, J:COM TV My style is a readily available strategic terrestrial digital countermeasure. The J:COM Group concentrated on increasing the number of subscribing households by vigorously promoting this product by such means as airing TV commercials over terrestrial broadcasting. Focusing on the final spurt toward capturing demand for terrestrial digital broadcasting, the number of households subscribing to J:COM TV My style increased by 142,000 during the nine months ended September 30, 2011 to a total of 210,600.

Expanding subscribing households to incorporate latent customers: Bringing in unconnected communal reception households*7

Considerable emphasis was placed on efforts to negotiate with building management companies to capture the estimated 1,440,000 communal reception households residing within its service area. Reflecting its success, J:COM’s retransmission service of terrestrial digital broadcasting became available to a cumulative total of approximately 1,130,000 households by the end of September 2011.
At the same time, J:COM’s pay services were also promoted to these households. As a result, the Company acquired 42,000 RGUs during the nine months ended September 30, 2011.

Introducing new services: Expanding products focusing on Internet access services

The J:COM Group strove to strengthen and expand its products, focusing on Internet access services harnessing its wide-ranging product lineup. As a part of these endeavors, the J:COM Group has added the J:COM 1M Course, an easy access 1Mbps Internet service for which tenants can enjoy for free, to its existing Bulk Discount Plan, which formerly focused on medium- to high-speed Internet access, from July 15, 2011. It is targeted at households residing in multi-dwelling units. Later, from September 1, 2011 in Kansai and Kyushu area, the J:COM Group commenced sales of “J:COM NET PACK”—a product package comprising high-speed Internet access and telephony services that has been marketed to multi-dwelling units—to single-dwelling units. Working to further enhance the competitive advantage of its multi-channel services, from August 1, 2011, the J:COM Group launched sales of “Value Plan Mini,” another product package that combines “J:COM TV Digital,” a service that provides multi channels, and “J:COM PHONE Plus,” a telephony service that uses the KDDI platform. At the basic monthly user fee for J:COM TV Digital, the value-added package service allows users to also access the services of J:COM PHONE Plus for free of the basic monthly user fee*8 substantially.

*6 J:COM TV My style is the package service that includes retransmissions of terrestrial digital and BS digital broadcasts with access to such telecommunication services as high-speed Internet access and telephony, in addition to a selection from the “All you can watch package” of the “J:COM on Demand” video on demand (VOD) service.
*7 Communal reception households are defined as households that receive terrestrial broadcasts through communal reception facilities, installed to solve poor reception in shadow areas created by buildings, transmission lines and related structures.
*8 Responding to telephone call use, an extra fee will be charged separately.

【Deepening Customer Ties】

J:COM implemented various measures to deepen ties with customers so that these customers can utilize its services with more convenience for a longer period.

Curtailing cancellations

As a part of the Company’s efforts to provide highly dedicated customer support, J:COM made great efforts to structure its follow-up procedures and ensure that its sales and call center representatives adhered strictly to a policy of after-sales service. At the same time, the Group worked diligently to improve the rate at which inquiries are handled by increasing the number of operators at inbound customer call centers and also the Group added sophisticated training programs aimed at further enhancing the skills of operators in order to upgrade its call center structure and systems.
Furthermore, the J:COM Group continued to promote product package subscriptions (long-term contract products) encompassing such services as Value Plan and J:COM TV My style in an effort to secure contracts over a longer period. As a result, the ratio of subscribing households with long-term contract products to the total number of subscribing households increased by 10 percentage points from 13% as of September 30, 2010, to 23% as of September 30, 2011. In addition to the aforementioned measures, and on the back of the successful shift to digital cable television services by nationwide systems as of the end of April 2011, the average monthly churn rate per RGU for the nine months ended September 30, 2011 improved substantially, from 1.14% to 0.99%.

Promoting the use of high value-added services

With respect to its VOD services, J:COM joined with Dentsu Inc. to develop the new Video-on-Demand (VOD) advertising model “CM Wari,”which was launched on a three-month trial basis from September 1, 2011. CM Wari is an innovative advertising model under which advertisers in place of customers bear a portion (105 yen including tax) of the program viewing fee at the time commercials are viewed by customers in conjunction with VOD programs. Moreover,working in collaboration with terrestrial broadcasting stations, the J:COM Group stepped up its efforts to upgrade and expand its VOD lineup by exclusively broadcasting serial television dramas prior to their terrestrial airing from this fiscal year. This included “Ouran High School Host Club,” a serial drama produced and owned by TOKYO BROADCASTING SYSTEM TELEVISION, INC., and first broadcast from July 2011. Through these and other means, the number of VOD purchases increased 31.9% compared with the corresponding period of the previous fiscal year to 9,181,700 titles for the nine months ended September 30, 2011.
In addition, the J:COM Group is endeavoring to develop TV Everywhere-type products and services. With this in mind, on July 26, 2011, the J:COM Group launched the free-of-charge “J:COM Appli” application service targeting smart phones and tablet terminals. Through this initiative, customers are now able to view certain free VOD programming contents and a list of programs available using their smart phones or tablet terminals. Looking ahead, steps are being taken to introduce a verification system for subscribers to the Company’s services. In the future, this system will provide subscribers with highly convenient access to the Group’s VOD pay-per-view services using smart phones, tablet terminals and personal computers. This, in turn, is expected to substantially enhance the enjoyment of VOD services for an increasing number of users.

【Alliance with KDDI】

J:COM expanded measures centered on the “Telecom Business and Product Collaboration” fields.
In specific terms,The J:COM Group concentrated its energies on capturing subscribing households for its J:COM PHONE Plus service as well as for “J:COM WiMAX,” a high-speed mobile Internet service provided by UQ Communications Inc., an equity-method affiliate of KDDI. As a result, the number of subscribing households to J:COM PHONE Plus and J:COM WiMAX rose to 184,100 households and 8,000 households, respectively as of the end of September 2011. In addition, with respect to the Sales and Marketing Collaboration, both companies continued to pursue the cross-sales promotion of the J:COM Group’s services and the au Mobile services of KDDI that began in August 2010. Buoyed by these efforts, the Company acquired 7,600 RGUs during the nine months ended September 30, 2011.

【YCV Joint Acquisition】

J:COM and Tokyu Corporation (“TOKYU”) concluded an agreement with Sotetsu Holdings, Inc. (“SOTETSU”) to acquire 51% and 49%, respectively, of the issued and outstanding shares of YOKOHAMA CABLE VISION Inc.(“YCV”), a wholly owned subsidiary of SOTETSU, on September 22, 2011. The transfer of shares was completed on October 7, 2011, at which point YCV became a J:COM consolidated subsidiary. The joint acquisition of YCV and the collaboration between J:COM and TOKYU is recognized as a conduit through which J:COM, Japan’s largest cable television operator, and TOKYU, a company acknowledged for its railway business and town building capabilities, can better develop and deploy new life-supporting services based on the CATV field. Moving forward, J:COM and TOKYU will leverage their respective management resources and know-how, while considering ways in which they can further promote alliance opportunities as a part of comprehensive efforts to ensure the development of CATV services into a major service media and a pillar of the community.

【Media Business】

In the media business, and with respect to new BS digital broadcasting that commenced on October 1, 2011, J:COM’s consolidated subsidiary, J SPORTS Corporation (“J SPORTS”), which operates thematic sports channels, launched broadcasting of J SPORTS 1 and J SPORTS 2. In the future, the J:COM Group will place additional importance on showcasing the appeal of J SPORTS to viewers through the new BS broadcasting platform. In addition to increasing the number of J SPORTS subscribing households, the J:COM Group will work toward expanding the multi-channel market. Plans are also in place to transfer J SPORTS 3 (formerly J sports ESPN) and J SPORTS 4 (formerly J sports Plus) to BS broadcasting in March, 2012.