Moving Beyond Boundaries

Transcription

1 Annual Report 2010 For the year ended December 31, 2010 (C ode: 4817) Moving Beyond Boundaries

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3 This annual report has been written with a focus on describing business conditions in the broadcasting and telecommunications markets serviced by the J:COM Group and definitively outlining the Group s business domain, competitive advantages, footprints, challenges, strategies, and other developments to a broad range of readers. We publish yearly and quarterly data for facilitating research and analysis by institutional investors and research analysts. We hope you will use this public data in conjunction with more detailed quantitative results in the fact book available on our IR website. Annual Report

4 Contents 3 Overview of the Company 4 Business Overview 6 Market Conditions and Our Market Position 8 Growth Drivers 9 Challenges and the Path Forward 10 Consolidated Results Highlights (U.S. GAAP) (Yearly Data) 12 Consolidated Results Highlights (U.S. GAAP) (Quarterly Data) Strategy Guide Section 15 To Our Shareholders and Investors 17 A Look Back at FY Market Conditions and Key Policies 20 Further Increasing Shareholder Value 21 Special Feature: Challenges for Growth Model Innovation 22 Interview: J:COM s Innovations and Specific Strategies 26 Focus: Highlighting New Products and Services Business Section 27 Review of Operations 28 Numerical Overview of Services 30 Cable Television Service J:COM TV 32 High-speed Internet Access Service J:COM NET 33 Telephony Service J:COM PHONE 34 Program Supply Business Organizational Structure Section 35 Management and Administration Structure / CSR and IR Activities 36 Corporate Governance 38 Directors and Statutory Auditors 40 Organizational Chart, Mission Statement, and Activity Guidelines Financial Section 45 Financial Information 41 Compliance 42 Corporate Social Responsibility 44 Investor Relations Activities 80 J:COM Group and Other Associates 81 Corporate Information 2 Annual Report 2010

5 Overview of the Company 4 Business Overview 6 Market Conditions and Our Market Position 8 Growth Drivers 9 Challenges and the Path Forward 10 Consolidated Results Highlights (U.S. GAAP) (Yearly Data) 12 Consolidated Results Highlights (U.S. GAAP) (Quarterly Data) Annual Report

6 Business Overview Cable Television Business 3.43 Million Households Total Subscribing Households* 1 as of December 31, 2010 J:COM is Japan s largest multiple system operator (MSO* 2 ) of cable television services, providing advanced integrated broadcasting and telecommunication services to 3.43 million households throughout the country. A Pioneer in Triple-play Services Jupiter Telecommunications Co., Ltd. (J:COM) began offering cable television services when it was established in 1995 and expanded services to encompass telephony (1997) and high-speed Internet access (1999). In this way, we have led the industry by building an innovative business model that combines broadcasting and telecommunication services. Today, our multiple broadcasting and telecommunication services are supplied to 3.43 million households in the five major metropolitan regions of Sapporo, Sendai, Kanto, Kansai, and Kyushu by 22 managed franchises with 50 systems. Multiple Cable Television System Operator Leveraging Economies of Scale J:COM s operating methods are unique. Cable television companies in the J:COM Group sign management guidance contracts (MSO* 2 contracts) to provide services in their respective service areas consolidated under the J:COM brand name. MSO schemes enable each service provider to leverage scale benefits from purchasing and procuring programs, equipment, and other assets and make major capital investments that take advantage of strong capital resources. Marketing and Follow-up Networks Rooted in Local Communities J:COM builds marketing and follow-up networks that are tailored to individual customers in each of its service regions. Through a diversified marketing network encompassing approximately 2,500 direct sales representatives and 98 J:COM Shops located nationwide, complemented by our own customer centers in nine locations throughout Japan, we have consistently maintained customer satisfaction backed by simple and easy-to-understand explanations of our service content and equipment. *1. Number of households subscribing to one or more of J:COM s services *2. Multiple system operator: An operator that integrates the operations of multiple cable television systems. Figures on page 4 are as of December 31, Providing Comprehensive Broadcasting and Telecommunication Services Watch Bundling All Three Services Connect Talk Servicing Five Areas Nationwide 3.43 Million Households Nationwide 310,000 Kyushu 1.16 Million Kansai 1.81Million Kanto 110,000 Sapporo 50,000 Sendai * Numbers are rounded off and thus do not match the total. 4 Annual Report 2010

7 Program Supply Business 17 Channels J:COM Investing in and Operating Thematic Channels J:COM is Japan s largest multichannel operator (MCO* 3 ) supplying programming. Sole Comprehensive Media Company of Both Platform and Content in Japan J:COM is not only Japan s largest multiple system operator (MSO) of cable television services but is also a leading multiple channel operator (MCO* 3 ) supplying programming. Currently, we invest in and operate 12 companies (five consolidated subsidiaries, three equity-method affiliates, and four other enterprises) with 17 channels that furnish services in cable television, satellite broadcasting, IPTV multicast, and other areas. These 17 thematic channels offer popular programs in a wide array of genres ranging from movies to dramas to financial news. By melding our cable television platform business with our content business supplying programming, we can offer viewers programs that reflect their ideas and interests as well as create and compile programming embraced by our customers. *3. Multiple channel operator: An operator that manages multiple program suppliers. Channels J:COM Operates and Invests In Basic channels Channel Movie Plus LaLa TV Act On TV Golf Network J SPORTS* 2 Channel Ginga Discovery Channel Company Jupiter Entertainment Co., Ltd. Jupiter Entertainment Co., Ltd. JUPITER VISUAL COMMUNICATIONS CO., LTD. Jupiter Golf Network Co., Ltd. J SPORTS Broadcasting Corporation Channel Ginga Co., Ltd. Discovery Japan Co., Ltd. Number of households with service available* million 6.54 million 4.04 million 7.13 million 7.63 million 3.64 million 6.86 million Ownership % (consolidated) % (consolidated) 90.00% (consolidated) 89.41% (consolidated) 80.50% (consolidated) 76.00% (consolidated) 50.00% (equity method) Basic channels Optional channel Channel Animal Planet AXN Kids Station Japanese Movie Channel SAMURAI DRAMA CHANNEL Nikkei CNBC Anime Theater X (AT-X) Company Animal Planet Japan Co., Ltd. AXN Japan Inc. Kids Station Co., Ltd. Nihon Eiga Satellite Broadcasting Corp. Nihon Eiga Satellite Broadcasting Corp. Nikkei CNBC Japan Co., Ltd. AT-X Co., Ltd. Number of households 5.83 million 7.10 million 8.37 million 7.14 million 7.68 million 7.62 million 0.13 million with service available* 1 Ownership 33.30% (equity method) 35.00% (equity method) 15.00% (other) 9.99% (other) 9.99% (other) 9.75% (other) 12.28% (other) *1. As of November 30, 2010 *2. J SPORTS provides J sports 1, J sports 2, J sports ESPN, and J sports Plus. Source: Data provided by each channel Annual Report

8 Market Conditions and Our Market Position Market Conditions for J:COM Million Households Size of Pay Multichannel Broadcasting Market in Japan The Japanese pay multichannel broadcasting market has been growing steadily. Diversifying Personal Tastes and Preferences Driving Market Growth The pay multichannel broadcasting market in Japan grew from million households in 2006 to million households in 2010, with growth averaging 4.3% annually. The market s expansion is being driven by the growing demand for specific thematic channels across a broad range of genres, including sports, movies, and news, as well as diversification in personal tastes and preferences. However, the household penetration rate is only about 22% in Japan, far below rates exceeding 50% in the UK and the United States. This suggests that the pay multichannel broadcasting market still has considerable room for growth in Japan. Cable Television: a Central Element in the Pay Multichannel Broadcasting Market Pay multichannel broadcasting is supplied through three platforms in Japan: (1) cable television, (2) satellite, and (3) IPTV multicast services. J:COM provides its broadcasting services through cable television, a market that has grown from 6.32 million households in 2006 to 7.35 million households in The pay cable television market is a central element in the pay multichannel broadcasting market, accounting for 62% of the total market. Viewer Formats Diversifying, VOD Market Growing The passive viewing of broadcasts in real time is a deeply rooted practice, but needs are rising for video on demand (VOD) services, which let viewers watch video content on their own terms and schedules. According to Nomura Research Institute, Ltd., the VOD market in Japan grew from 53.5 billion in 2009 to 64.7 billion in Japanese Pay Multichannel Broadcasting Market (Millions of households) CATV subscribing households SKY Perfect JSAT Corporation subscribing households IPTV multicast subscribing households Compound Annual Growth Rate (CAGR): 4.3% ( ) As of September 30 Sources: Number of Households Subscribing to Cable TV: December 2010 edition of HOSO Journal Number of Subscribers to SKY Perfect JSAT Corp.: SKY Perfect JSAT Corporation. publicly released materials; Number of Households Subscribing to IPTV: Ministry of Internal Affairs and Communications (MIC) publicly released materials Present State of Cable Television Household Penetration Rates for Pay Multichannel Broadcasting Services by Country ( ) Japan 50 UK Sources: Japan: As of March 31, 2010 Subscribers to pay multichannel broadcasting services denotes households with cable television subscriptions + individual subscribers to SKY Perfect JSAT services + IPTV multicast subscribers Total number of households: Ministry of Internal Affairs and Communications Local Administration Bureau report UK: Office of Communications, as of March 31, 2009 US: SNL Kagan report, as of December 31, US 6 Annual Report 2010

9 Our Growth Trajectory and Position in the Industry 8.1% Compound Annual Growth Rate (CAGR) in Total Subscribing Households ( ) J:COM is further strengthening and broadening its business foundations as a provider of comprehensive broadcasting and telecommunication services. Multichannel Market Share Continues Climbing J:COM s total subscribing households rose from 2.51 million at the end of 2006 to 3.43 million at the end of 2010, marking average annual growth of 8.1%. Households with J:COM TV subscriptions increased from 2.11 million to 2.69 million over the four-year period, due in part to the acquisition of other cable television companies. As a result, the J:COM Group s market share has reached 36% in the pay cable television market and 22% in the pay multichannel broadcasting market. Formidable Presence as a Broadcasting and Telecommunications Service Provider Meanwhile, total revenue generating units (RGUs) from services provided by J:COM rose by an average of 10.0% annually from 4.34 million at the end of 2006 to 6.36 million at the end of This included average annual growth of 6.3% in subscribing households to the J:COM TV cable television service. Over the same four-year period, households subscribing to the J:COM NET highspeed Internet access service and to the J:COM PHONE telephony service increased by averages of 11.2% and 15.2%, respectively, both impressive showings. Largest VOD Service Provider in Japan In addition to multichannel broadcasting, J:COM furnishes the J:COM On Demand VOD services to its cable television subscribers. J:COM On Demand is currently the largest and most comprehensive VOD service in Japan, offering approximately 28,600 titles in movie, drama, animation, and a number of other genres. Households with viewing access total 1.81 million* 1. *1. As of December 31, 2010 Market Size and Subscribing Households by Business J:COM J C K I (Millions of households) (As of September 30, 2010) 1. Pay Cable Television Market B B Z S 2. Internet Market J:COM s Total Subscribing Households NE NW S E J:COM K Others 4,000 (Thousands of households) CAGR: 8.1% ( ) 3,426 3,167 3,275 3,000 2,659 2, Telephony Market 2,000 1, FYE NE NW K J:COM Others Sources: December 2010 edition of HOSO Journal, J:COM s publicly released materials, Official announcement of the quarterly data concerning the number of telecommunication service subscriptions and market share for 2Q of FY2010 (September 30) The numbers of each company s subscribers are compiled from the above-mentioned sources. Annual Report

10 Growth Drivers Community Connections, Innovative Spirit, M&A J:COM s impressive growth is underpinned by marketing and follow-up networks closely tied to the communities where customers live as well as innovative services and aggressive M&A policies. Promoting Business Development as a Face in the Community Major telecommunications carriers have started offering triple-play services in the television, high-speed Internet access, and telephony fields in recent years. J:COM stands apart from these competitors, through its unique network of approximately 2,500 direct sales representatives that visit customers in person, explain products and services, and offer follow-up assistance after subscriptions are received. Having a face in local communities and building comprehensive marketing and follow-up networks affords J:COM major advantages that have propelled robust growth. High-quality, Innovative Services Anticipating Viewer Needs One of J:COM s strengths is the innovation it brings to its services. With customer viewing formats becoming increasingly diversified and needs for on-demand viewing rising, we have actively expanded the J:COM On Demand VOD service, nurturing it into the largest service of its kind in Japan. Furthermore, J:COM is at the cutting edge in digital services, as evidenced by its Blu-ray HDR set-top box installed with an internal hard disk drive for Blu-ray recording and playback of high-quality video, and its high-definition programming that immerses audiences in the pleasures of realistic images and sound. Actively Promoting M&A for Service Area Expansion The J:COM Group has also attained healthy growth by tapping into its extensive capital resources in the cable television industry for friendly M&A activities that have broadened its service areas. Since 2005, We have been particularly active in M&A, acquiring Odakyu Telecommunications Services Co., Ltd. (Odakyu Cable Vision), Cable West Inc. (Cable West), Mediatti Communications, Inc. (Mediatti), and other companies and converting them into consolidated subsidiaries. In February 2010, the J:COM Group acquired Suzuran Cable from the Keihanshin Cable Vision Foundation. The objective of M&A is not merely to increase the number of cable television companies under our umbrella but to expand the scope of our operations and further enhance efficiencies by introducing advanced J:COM services and management expertise. Expanding Customer Platforms through M&A Kanto Area Sakura Cable TV (April 2006) Kansai Area Kyoto Cable Communications (January 2008) Odakyu Cable Vision (September 2005) Taito Cable Television (December 2008) Mediatti (December 2008) Cable Television Kobe (November 2005) Kobe Cablevision (February 2008) Cable West (September 2006) Rokko Island Cable Vision (January 2006) Suzuran Cable (February 2010) Established J:COM Areas J:COM area acquisitions since Annual Report 2010

11 Challenges and the Path Forward Growth Model Innovation J:COM aims to sustain growth by continuing to create new growth models attuned to the times. Business Conditions Changing Dramatically In the cable television service market, the number of subscribing households continues rising, but at a slower pace in recent years. This is due to tepid economic growth, a lack of attractive content, and difficulties among service providers in adapting to changing viewing habits. New Challenges for Growth Model Innovation J:COM s marketing and follow-up networks tied to local communities have been instrumental in flexibly adapting to meet the changing demand for broadcasting services, integrated telecommunication and broadcasting services, as well as VOD and other services. These have been the foundations of three strategies fueling growth: our initiatives to broaden Group customer platforms (volume strategy), increase value-added services (value strategy), and enhance content quality (contents strategy). However, competition between service providers has intensified in recent years. Customer lifestyles, preferences, and needs are changing dramatically, as evidenced by the increase in nuclear families, the growth of demand for on-demand viewing, and mobile viewing. Against this backdrop, J:COM understands that it cannot count on its past successes and must innovate its growth model. Consequently, we are enthusiastically promoting change in two particular areas: in products and services and in the sales and marketing system. Challenges and Directions Ahead 1. Innovating Products and Services Providing products and services that attract new types of customers Strengthening competitiveness in telecommunication services through alliance with KDDI CORPORATION Developing innovative products and services See the special feature, Challenges for Growth Model Innovation: Innovating in Products and Services starting on page Innovating the Marketing System Moving from gross to net customer acquisitions Shifting emphasis from RGUs to total subscribing households Placing more weight on pull-type sales than push-type sales See the special feature, Challenges for Growth Model Innovation: Innovating the Marketing System starting on page 24. Annual Report

12 Consolidated Results Highlights (U.S. GAAP) (Yearly Data) Highlights of FY2010 Results Revenue, operating income, and net income attributable to J:COM shareholders* 1 renewed record highs. Operating income margin, ROE, and other indices increased further thanks to growth in subscribing households and improving operating efficiencies. Debt to equity ratio (D/E ratio)* 2 declined further due to debt reductions and other factors. *1. Growth in net income attributable to J:COM shareholders was 23.8%, significantly higher than growth in operating income (9.2%). This was principally because the liquidation of two intermediate holding companies of J SPORTS Broadcasting Corporation (J SPORTS), a consolidated subsidiary, reduced tax expenses by approximately 4.1 billion. Net income attributable to J:COM shareholders adjusted to exclude this extraordinary factor increased 10.3%. *2. Calculated using net interest-bearing debt for debt. Revenue Operating Income Net Income Attributable to J:COM Shareholders Revenue (left) Operating income (right) (Yen in billions) (Yen in billions) (Yen in billions) FY FY Operating Income Margin ROE Interest-Bearing Debt (Net) Debt to Equity Ratio (D/E Ratio) * 2 Operating income margin ROE Interest-bearing debt (Net) (left) Debt to equity ratio (right) (%) (Yen in billions) (Times) FY FY 10 Annual Report 2010

13 1. Operational data Changes Year on Year Homes passed (Thousand) 9,206 9,438 12,242 12,594 13, % Total RGUs (Thousand) 4,338 4,712 5,614 5,947 6, % Total subscribing households (Thousand) 2,512 2,659 3,167 3,275 3, % Average monthly churn rate (per RGUs) (%) Monthly average revenue per unit (ARPU) (Yen) 7,787 7,687 7,789 7,726 7,680 (46) Average number of services received per subscribing household (Bundle ratio) Financial data (Yen in millions) Operating results Revenue 221, , , , , % Operating income 31,582 42,816 53,675 61,159 66, % Income before noncontrolling interests and income taxes 28,684 39,389 49,733 57,834 63, % Net income attributable to J:COM shareholders 24,481 23,992 27,964 30,453 37, % EBITDA *1 85, , , , , % Capital expenditures 65,903 65,281 62,395 69,418 74, % Financial position Total assets 625, , , , ,763 15,106 Total J:COM shareholders equity 277, , , , ,151 35,249 Interest-bearing debt (Gross) 242, , , , ,144 (26,750) Interest-bearing debt (Net) 221, , , , ,932 (40,536) Cash flows Cash flows from operating activities 80,003 95, , , , Cash flows from investing activities (121,601) (52,728) (76,357) (56,558) (57,048) (490) Cash flows from financing activities 26,801 (40,094) (25,722) (24,145) (53,542) (29,396) Free cash flow* 2 14,101 29,944 38,296 54,207 50,356 (3,851) Per share data (Yen) Net income attributable to J:COM shareholders* 3 3,845 3,650 4,080 4,440 5, % J:COM shareholders equity* 4 43,446 48,195 50,940 54,650 59, % Cash dividend , Ratios EBITDA margin (%)* (0.8) Operating income margin (%)* Return on equity (%)* Debt to EBITDA (Times)* (0.34) Debt to equity (Times)* (0.14) *1. EBITDA = (Revenue) (Operating and programming costs) (Selling, general and administrative expenses) *2. Free cash flow = (Cash flows from operating activities) (Capital expenditures) *3. Net income attributable to J:COM shareholders and J:COM shareholders equity per share are based on the weighted-average number of issued shares during the year (excluding treasury stock) *4. Based on the number of ordinary shares outstanding at the end of each fiscal year (excluding treasury stock) *5. EBITDA margin = (EBITDA / Revenue) x 100 (%) *6. Operating income margin = (Operating income / Revenue) x 100 (%) *7. Return on equity (ROE) = Net income attributable to J:COM shareholders / ((Total J:COM shareholders equity at the previous year-end + Total J:COM shareholders equity at year-end) / 2) x 100 (%) *8. Based on net interest-bearing debt Annual Report

14 Consolidated Results Highlights (U.S. GAAP) (Quarterly Data) Important Operating Trends in FY2010 J:COM increased total RGUs and total subscribing households more rapidly in the second half of the year by capturing demand for digital terrestrial broadcasting and introducing strategic products. The bundle ratio continued climbing. The churn rate rose improved marginally, reflecting slowing economic growth, intensifying competition, and cancellations by analog subscribers who chose not to migrate to digital service. ARPU, or monthly average revenue per unit (subscribing household), declined slightly, owing partially to the launch of strategic products. Total Number of Revenue Generating Units (Total RGUs) Number of Total Subscribing Households (Thousand) 6,500 6,000 5,777 5,674 5,500 5,862 5,947 6,004 6,107 6,209 6,358 (Thousand) 3,500 3,400 3,300 3,219 3,200 3,181 3,247 3,275 3,293 3,338 3,377 3,426 5,000 3, Q 2Q 3Q 4Q 1Q 2Q 3Q Q 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q Q ARPU (Monthly Average Revenue per Unit) Bundle Ratio (Average Number of Services Received per Subscribing Household) Average Monthly Churn Rate (per RGUs) ARPU (left) Bundle Ratio (right) (Yen) 10,000 (Services) 2.0 (%) 1.4 8,000 7,703 7,732 7,711 7,756 7,688 7,683 7,673 7, ,000 4, , Q 2Q 3Q 4Q 1Q 2Q 3Q Q 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q Q 12 Annual Report 2010

15 1. Operational data Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Homes passed (Thousand) 12,380 12,466 12,526 12,594 12,739 12,825 12,940 13,067 Total RGUs (Thousand) 5,674 5,777 5,862 5,947 6,004 6,107 6,209 6,358 Total subscribing households (Thousand) Average monthly churn rate (per RGUs) (%) Monthly average revenue per unit (ARPU) (Yen) Average number of services received per subscribing household (Bundle ratio) 3,181 3,219 3,247 3,275 3,293 3,338 3,377 3, ,703 7,732 7,711 7,756 7,688 7,683 7,673 7, Financial data (Yen in millions) Operating results Revenue 80,808 81,670 83,490 87,756 88,146 89,392 90,212 92,362 Operating income 15,479 14,919 14,589 16,172 17,432 15,469 16,271 17,583 Income before noncontrolling interests and income taxes 14,700 13,653 13,420 16,061 16,678 14,476 15,595 16,418 Net income attributable to J:COM shareholders 6,949 7,360 7,246 8,898 8,400 11,824 8,418 9,048 EBITDA *1 35,176 34,643 36,756 37,757 38,568 37,009 37,416 39,605 Capital expenditures 15,035 16,588 16,020 21,775 14,643 18,734 20,041 20,602 Financial position Total assets 759, , , , , , , ,763 Total J:COM shareholders equity 354, , , , , , , ,151 Interest-bearing debt (Gross) 252, , , , , , , ,144 Interest-bearing debt (Net) 222, , , , , , , ,932 Cash flows Cash flows from operating activities 25,906 31,596 31,783 34,341 25,431 34,608 28,133 36,204 Cash flows from investing activities (11,289) (11,964) (11,215) (22,090) (11,530) (13,894) (15,442) (16,182) Cash flows from financing activities (6,068) (9,989) (930) (7,158) (7,272) (7,901) (24,171) (14,198) Free cash flow* 2 10,871 15,008 15,763 12,566 10,788 15,874 8,091 15,603 Ratios EBITDA margin (%)* Operating income margin (%)* Debt to EBITDA (Times)* Debt to equity (Times)* *1. EBITDA = (Revenue) (Operating and programming costs) (Selling, general and administrative expenses) *2. Free cash flow = (Cash flows from operating activities) (Capital expenditures) *3. EBITDA margin = (EBITDA / Revenue) x 100 (%) *4. Operating income margin = (Operating income / Revenue) x 100 (%) *5. Based on net interest-bearing debt Annual Report

16 Embracing Challenges for Further Growth Instead of resting on its laurels, J:COM is embracing new challenges in order to reach the next growth stage. 14 Annual Report 2010

17 Strategy Guide Section To Our Shareholders and Investors 17 A Look Back at FY Market Conditions and Key Policies 20 Further Increasing Shareholder Value Annual Report

18 To Our Shareholders and Investors On March 23, 2011, I, Shuichi Mori, was appointed President and CEO, replacing Tomoyuki Moriizumi upon the passage of resolutions put before the 17th Ordinary General Meeting of Shareholders and the Board of Directors. The broadcasting and telecommunications industry faces a period of unprecedented upheaval owing to the convergence of broadcasting with communication services and the progress of digitization. As the birthrate declines and the elderly account for a higher portion of the population in Japan, local communities are placing greater trust in as well as higher expectations for community-based cable television companies. Against this backdrop, the J:COM Group aims to further strengthen and enlarge its business platforms through user-friendly services tailored to meeting rapidly changing customer needs with pinpoint accuracy. Moreover, through our alliance with KDDI CORPORATION now getting underway in earnest, we are working to maximize enterprise value by providing innovative services that enrich the lifestyles of our customers. I thank our shareholders and investors for their continuing support of J:COM. Shuichi Mori President & CEO 16 Annual Report 2010

19 To Our Shareholders and Investors A Look Back at FY2010 Record Income as Costs Associated with a Complete Digital Migration Absorbed In fiscal 2010, ended December 31, 2010, the J:COM Group s revenue increased 7.9% year on year to billion, and operating income rose 9.2% to 66.8 billion. Operating income has reached record highs for seven consecutive years since 2003, when the Group turned profitable. We nearly completed migrating all television services to digital format faster than our industry peers, but were able to absorb the large costs involved and register record-high income once again, a major accomplishment. Net Growth in Cable Television Services Rising Again J:COM continued recording growth by striking a good balance between initiatives for expanding its customer base (volume strategy) and for increasing value-added services (value strategy) while working to further enhance content quality (contents strategy). However, competition has been intensifying with major telecommunication carriers in recent years, especially in multichannel and other broadcasting services. As the digitalization of terrestrial broadcasting moves forward, television viewing formats are changing and evolving, as evidenced by increased demand for on-demand viewing. Amid these trends, the J:COM Group focused resources on increasing subscribing households for cable television services (volume strategy) and introduced strategic products in Of particular note, we launched J:COM TV My style* 1 in July 2010 to meet the growing VOD-type viewing needs. This unprecedented service is geared toward new types of customers, including households of the younger generation and senior citizens that were not especially attracted to our established services. The new service has been instrumental in increasing net subscriptions to cable television services by more than 10,000 households monthly. Moreover, the J:COM Group maintained its focus on tapping into demand for digital terrestrial broadcasting from the previous year. We reached agreements with facility management companies for supplying services to properties that have a combined total of approximately one million households, or 70% of communal reception households* 2 in the Group s service area, by the end of the year. We also worked to obtain pay subscriptions with households under these agreements and have accumulated more than 130,000 RGUs (services supplied) as a result. Continuing to Add Value to Cable Television Services In cable television services, J:COM tied up with terrestrial broadcasters. At the same time, we enhanced the catch-up episode viewing service available through J:COM On Demand and began initiatives to obtain exclusive rights to programs before they would normally be available on terrestrial broadcasts as part of our efforts to increase the attractiveness of VOD services. We also endeavored to bolster both the quality and volume of our cable television services by developing high-definition channels, expanding the 3D content lineup, and other means. Alliance with KDDI Proceeding Smoothly In February 2010, KDDI CORPORATION (KDDI) acquired a stake in J:COM, and since then the two companies established a working group to explore agreements in five areas: telecom business and product collaboration; sales and marketing cooperation; technology and infrastructure; media business; and cable television business. Some of these measures are already starting to yield tangible alliances. The details are on the following page. *1. See page 26 for service details. *2. Households obstructed by buildings, power lines, or other shadowing that need to share terrestrial broadcasting reception equipment (communal reception facilities) to receive a television signal. Strategy Guide Section Net Growth in Cable Television Services (Households) 20,000 J:COM TV My style Launched 15,000 15,900 15,300 11,200 10,000 8,700 7,100 5,000 4,700 5,700 3,600 4,100 2, ,100 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 Enrollment of Communal Reception Households Around 1.4 Million Households in J:COM Service Area (As of December 31, 2010) 540,000 Households (As of Dec 31, 2009) Added 460,000 Households in FY 2010 Total Agreements Signed Cover One Million Households Annual Report

20 To Our Shareholders and Investors Market Conditions and Key Policies Promoting Changes for Surviving Intensifying Competition The pay multichannel broadcasting market continues expanding, but competition among operators is intensifying, owing partially to new participants from the telecommunications industry. Additional growth under these conditions will require that J:COM actively promote changes to its product and service lineup as well as further enhance operating efficiencies. Expanding Sales of Strategic Products to Address Changing Viewer Needs J:COM is actively launching strategic products to address the changing lifestyle, preferences, and needs of viewers in order to enhance its competitive edge. For example, we are working to further increase subscribing households through additional sales of J:COM TV My style, a strategic service geared toward meeting the growing needs for VOD-type viewing and increasing demand accompanying the digital migration of terrestrial broadcasting. We are also aggressively stepping up commercial advertising and other promotional activities using a more efficient and focused approach targeting single people, the younger generation, senior citizens, and other households. Furthermore, we are working to further enhance the quality of our VOD content and the title lineup through our All-you-can-watch package, a service that offers unlimited viewing of any title within the menu. Increasing Competitiveness through Closer Ties with KDDI J:COM is bolstering its efforts to further strengthen its competitiveness by swiftly expanding its tie-up with KDDI. Since December 2010, we have begun offering our high-speed Internet access subscribers J:COM WiMAX* 1, a high-speed mobile Internet service supplied by UQ Communications Inc., an affiliate of KDDI. Meanwhile, J:COM introduced KDDI s telephony service for cable television companies as J:COM PHONE Plus* 2, and began offering services in April Now households subscribing to J:COM PHONE Plus and to KDDI s telephony services, and users of au mobile phones, can call each other free of charge. Collective billing now underway for services from alliance partners and other joint practices have greatly enhanced convenience for users. J:COM and KDDI plan to steadily expand cross-sales promotion by leveraging each other s sales channels. These joint promotions were kicked off in the Kansai area and will gradually expand nationwide. Fiscal 2011 will be an important year for shifting the alliance with KDDI to the actual execution stage following the tests and trials undertaken to date. Utilizing Strategic Products to lncrease the Number of Subscribing Households 1 J:COM TV My style Sales and Marketing Strategies Proper Approaches for Targeted Customers (singles, younger generation, seniors) Developing Effective Advertising and Promotional Activities Capturing Demand Associated with the Digital Migration of Terrestrial Broadcasting 2 J:COM PHONE Plus Policies for Increasing Product Attractiveness Bolstering All-you-can-watch package for VOD Improving Content Quality Enlarging the Product Lineup Increasing Customer Satisfaction and New Subscriptions by Enhancing Convenience Capturing au/kddi Users Promoting Alliances with KDDI Principal Achievements in FY2010 Telecom Business and Product Collaboration Began Offering J:COM WiMAX Sales and Marketing Cooperation Cross-sales Promotion (Kansai area) Technology and Infrastructure Developing Next-generation Set-top Boxes Media Business Centralized Procurement of VOD Content Mutual Content Delivery Cable Television Business Joint Promotion with Japan Cablenet Limited (JCN) Cross-referrals with JCN of Customers Moving between Each Other s Service Areas Key Initiatives in FY2011 Telecom Business and Product Collaboration Beginning Supply of J:COM PHONE Plus Beginning Free Calling to and from au Mobile Phones Starting J:COM all-in-one billing Sales and Marketing Cooperation Cross-sales Promotion Nationwide (planned) (actively using au shops) Technology and Infrastructure Greater Collaboration for Sophistication and Efficiency Media Business Actively Using KDDI-produced Content 18 Annual Report 2010

21 To Our Shareholders and Investors Increasing Enterprise Value as a Comprehensive Media Company While further bolstering its cable television and communication services, J:COM is striving to strengthen its programming business. As an important step, J SPORTS Broadcasting Corporation (J SPORTS), a consolidated subsidiary, will begin offering all four of its channels over a new BS digital broadcasting format to be introduced beginning in October Complementing traditional cable television and satellite broadcasting, the new BS platform will increase name recognition not only for J SPORTS but also for the whole J:COM Group. Other efforts are centered on strengthening our position as an operator of community-based channels. These channels (accessible to around nine million households) support local communities by serving as a media outlet for information on local activities and local government measures and help forge stronger community ties. Looking ahead, we plan to deliver appealing programming on a nationwide basis by further strengthening program production and packaging and elevate our status as an independent media provider, thereby increasing our advertising revenue. The J:COM Group is the only comprehensive media company in the Japanese multichannel broadcasting industry, developing both platform and programming businesses. We aim to use these tools to gain direct insight into our customers lifestyles, viewpoints, and demands, to reflect what we learn in formulating and packaging programs, and then maximize our advantages over competitors in order to further increase enterprise value. Enhancing Operating Efficiencies Further Promoting changes to our business operating systems and strengthening product and service offerings are essential for overcoming tough competitive conditions. In recent years, we have made major strides by expanding operations through the acquisition of cable television companies and other efforts. At the same time, we recognize there is still much scope for improving management efficiencies in the Group overall. Consequently, we are pursuing additional gains through our regional block system introduced in We are also focusing resources on reducing customer acquisition costs by upgrading customer centers and websites and other actions aside from door-to-door sales activities. We intend to further streamline operations by creating databases for customer payment information and enacting other strategies to revamp operations and by working to consolidate broadcasting production and transmission equipment and other assets across the Group s programming companies. *1. See page 32 for service details. *2. See page 26 for service details. For growth strategies, see our special feature, Challenges for Growth Model Innovation (pages 21 26). Strategy Guide Section Bolstering Programming Business Improving Operating Efficiencies Expanding Operations through Foray into BS Satellite J SPORTS Making Headway through BS (starting from October 2011) Improving Operating Income Margin FY % FY % (forecast) Achievements So Far Community-based Media Delivering Community-tailored Information Fortifying Community Channels Major Fortification Points Ahead Media Aimed at Broader Geographies Delivering Local Community Infomation Nationwide Reducing Customer Acquisition Costs (promoting diversification of sales channels) Consolidating Broadcasting/Production Equipment and Other Facilities Bolstering Operating Capabilities and Efficiencies Expanding Viewer Base Increasing Revenues Annual Report

22 To Our Shareholders and Investors Further Increasing Shareholder Value By steadily enacting the policies outlined earlier, J:COM aims to record revenue of 370 billion (up 3% year on year) and operating income of 73 billion (up 9%) in FY2011. At the same time, we will be working actively to develop and introduce products and services in new domains that further enhance our growth potential over the medium and long term. These include (1) TV Everywhere services* 1, which enable customers to enjoy video content using a variety of devices virtually anywhere, (2) network DVR* 2 and other new services, (3) high-speed Internet access services capable of higher speeds and greater capacity, and (4) T-commerce services* 3 that use and deploy billing platforms operated in tandem with cable television services. From its origins as a cable television service provider, J:COM has proactively broadened its domain into the telephony and Internet fields and undergone dramatic changes since its inception, adding programming businesses and thereby emerging as a comprehensive media company. The J:COM Group intends to continue recording consistent growth by swiftly addressing contemporary needs and flexibly adapting to changes in its business conditions. In addition, raising our enterprise value will require that we continually increase growth potential by developing and launching innovative new products and further increasing capital efficiency. Consolidated ROE has increased for three straight years, from 7.9% in 2007 to 9.6%* 4 in Looking ahead, we aim to further increase ROE through management efficiency gains. The J:COM Group plans to consistently provide stable returns to shareholders on the back of successful efforts in raising enterprise value. In this way, we raised dividends per share by 520, from 980 in 2009 to 1,500 in In 2011, we plan to raise the dividend by 300, to 1,800. *1. The service enables customers to view and listen to programming anytime and anywhere over the Internet from their PCs, tablet devices, mobile phones, or other devices. *2. Network digital video recorder services using online servers as DVR. *3. Commercial transactions using the television (Internet shopping). *4. FY2010 consolidated ROE was 8.6% when adjusted to deduct one-off gains ( 4.1 billion) associated with consolidated subsidiary J SPORTS from net income attributable to J:COM shareholders ( 37.7 billion). Consolidated Forecasts for FY2011 (Yen in billions) FY2010 (Results) FY2011 (Forecast) Changes Year on Year Revenue % Operating income % Income before noncontrolling interests and income taxes % Net income attributable to J:COM shareholders (0.5%)* 1 EBITDA* % *1. In 2010, net income attributable to J:COM shareholders was 33.6 billion when adjusted to subtract one-off gains ( 4.1 billion) associated with J SPORTS from net income attributable to J:COM shareholders which totaled 37.7 billion. We forecast that net income attributable to J:COM shareholders in 2011 will rise 11.7% to 37.5 billion from the adjusted income in *2. EBITDA = (Revenue) (Operating and programming costs) (Selling, general and administrative expenses) Dividends per Share Year-End Interim Period (Yen) 2,000 1,500 1, , , * (FY) (Forecast) * Includes special dividend ( 250). 20 Annual Report 2010

23 Strategy Guide Section Special Feature: Challenges for Growth Model Innovation 22 Interview: J:COM s Innovations and Specific Strategies 1. Innovating Products and Services 2. Innovating the Marketing System 26 Focus: Highlighting New Products and Services 1. J:COM TV My style 2. J:COM PHONE Plus Annual Report

24 Special Feature: Challenges for Growth Model Innovation Interview: J:COM s Innovations and Specific Strategies J:COM is working diligently to strength its product and service capabilities amid intensifying competition between industry players. Toru Kato General Manager, Business Strategy Unit 1 Innovating Products and Services Why do you need to accelerate changes to your growth model? Having a More Aggressive Attitude On two separate fronts, business conditions are undergoing important changes. The first regards competition among industry players. Companies, especially major telecommunications carriers, are using their broadband networks to enter the video distribution market, consequently competition between players is intensifying. Second, customer preferences, needs, and lifestyles are diversifying. Nuclear families are evolving, households with only one resident are increasing, and the younger generation, in particular, is spending more time on the Internet. Demand is rising among consumers using smartphones and tablet devices for enjoying communications and watching video wherever and whenever they like. As a result, we need to seize business opportunities from these changes among consumers and actively embrace these changes ourselves. J:COM has traditionally promoted and developed a stocktype business model known for its stability, where revenue and income steadily increase in tandem with gradual growth in subscribing households. It is our sense of urgency that unless we boldly embrace the challenges that we face and become more aggressive about introducing new products and services, it will be difficult to maintain the edge we have over rivals as competition intensifies. Tell us about J:COM TV My style, one of your new services. What are the goals and the accomplishments you want to achieve? Cultivating New Types of Customer Most J:COM TV subscribers are family-occupied households. For this type of customer, we offer Big Basic, a package of more than 70 thematic channels in a variety of genres. On the other hand, customers living alone often do not need so many channels. In addition, the number of customers who prefer to watch their favorite programs when they want to using VOD is rising faster than customers who passively view programming. J:COM TV My style, which meets the needs of new types of customers, is starting to play a major role in winning new subscribing households. Also, when these customers living alone, start families, or change their living circumstance in other ways, they may at some time choose to migrate to Big Basic and multichannel cable television services. As such, J:COM TV My style is a strategic product that not only attracts new types of customers but also will play an important role in guiding them into Big Basic and multichannel cable television services at a later date in the future. 22 Annual Report 2010

25 Special Feature: Challenges for Growth Model Innovation Besides J:COM TV My style, what other products and services are you developing? Enhancing Communications Services and Promoting Integrated Services 1) Invigorating Competitiveness in Established Communications Services J:COM, which traces its roots to being a cable television company, has grown and developed by expanding into high-speed Internet access and telephony service domains as well as by bundling these services. However, with competition now becoming more heated in these fields, increasing the competitiveness of our communication services will be crucial. Given this, we want to bring the alliance with KDDI CORPORA- TION (KDDI) to its full fruition. In telephony services, for example, we have introduced the Cable-plus telephony service offered by KDDI and began rolling it out as J:COM PHONE Plus in April As a result, by expanding our free calling service to include KDDI s fixed-line telephones and au s mobile phones, we have greatly increased convenience for subscribing households to our telephony service. Moreover, acting as an MVNO* 1 in high-speed Internet access services, in December 2010 we started offering UQ WiMAX services from KDDI s affiliate UQ Communications Inc. as an option to subscribing households to J:COM NET under the J:COM WiMAX brand name. example of how we are meeting entirely new challenges in offering new products and services. This service enables J:COM TV customers to view video content not only on their televisions, but also on personal computers, tablet devices, and mobile phones. The service is scheduled to begin in The full conversion of all of the Group s cable television services to digital paves the way for using spare bandwidth to offer services such as Network DVR* 2 that provide online applications and for deploying T-commerce services* 3 using billing platforms from cable television services. *1. Mobile virtual network operator. Services are provided using wireless infrastructure leased from other companies. *2. Network digital video recorder. Services using DVRs connected with online servers. *3. Commercial transactions using televisions (Internet shopping). Strategy Guide Section 2) Developing and Supplying New Products and Services Initiatives to revamp and modify products and services are not limited to our established domains. The TV Everywhere service is one Annual Report

26 Special Feature: Challenges for Growth Model Innovation Interview: J:COM s Innovations and Specific Strategies Given the sense of urgency and opportunities from change under newly competitive conditions, J:COM is sustaining growth in its customer base and raising its cost-competitiveness. Kunimasa Takahashi Officer, General Manager, Business Promotion Unit 2 Innovating the Marketing System What do you mean by making changes to the marketing system, and why are changes needed? Sense of Urgency and Opportunities from Change For J:COM, which now operates under broad business platforms, achieving additional growth requires that we have a sense of urgency about changing sales and marketing strategies currently tailored for regional monopolies in order to accommodate the intensified competition we now face. As a result, we are altering the three main strategies that we pursue by placing more weight on: a net rather than a gross customer acquisition strategy; total subscribing households rather than RGUs; and pull-type rather than pushtype sales. These changes will enable us to attract new types of customers and take advantage of business opportunities for earnings growth. What, specifically, do you mean by placing more weight on a net rather than a gross customer acquisition strategy? Providing Greater Customer Satisfaction Previously, penetration rates within our service areas were low, and competition with other companies was limited, meaning we could increase revenue by promoting marketing strategies that focused on acquiring new customers (gross customer acquisitions). However, major changes in business conditions in 2011 now dictate that we focus on preventing subscription cancellations, or churn, by increasing customer satisfaction among existing customers. To that end, we need to adopt a net customer acquisition strategy emphasizing net growth in subscribing households. To do so, we have introduced a new incentive system that reflects the duration of subscription periods after new contracts are signed, so as to encourage our direct sales representatives to be thorough in following up with subscribers. In addition, our technicians responsible for service installation courteously do a better job explaining how to operate equipment using remote control devices. Our customer centers offer channel subscription plans based on customer preferences and introduce more affordable plans to enhance the level of service to our customers. Furthermore, all business units in contact with customers are more conscious of customer needs and are doing their utmost on all fronts to prevent subscription cancellations. Moreover, we are promoting marketing policies aimed at capturing demand associated with the digital migration of terrestrial broadcasting slated for July 2011, increasing sales of J:COM PHONE Plus offered through the KDDI alliance, and taking other steps in order to continue attracting new customers. 24 Annual Report 2010

27 Special Feature: Challenges for Growth Model Innovation Please explain the increased focus on total subscribing households rather than RGUs. Competing Against Retransmission Services Offered by Competitors Communication service providers have increasingly promoted sales of retransmission services for terrestrial digital and BS digital since last year in preparation for the full digitalization of terrestrial broadcasting beginning in July To counter these moves, we introduced J:COM TV My style in July In doing so, our focus is not only on reducing the outflow of customers to competing services, but also on attracting new types of customers, including households with younger generations and single residents. Also, by increasing the percentage of long-term service contracts such as Value Plan* 1 and MDU Telecommunication Pack* 2, we will seek to better retain and increase captive customers. Whereas we previously focused on increasing the number of services provided (RGUs), we now plan to ensure future growth by promoting sales policies that maintain and increase the number of subscribing households. Additionally, we aim to increase ARPU by promoting Blu-ray HDR and other value-added products and VOD services. *1. Long-term, discounted triple-play service combining multichannel cable television, high-speed Internet, and fixedline telephony services. *2. Long-term, discounted double-play service combining high-speed Internet with telephony services for apartment complexes. Strategy Guide Section Finally, what is the strategic importance of your shift to pull-from push-type sales, and what are your specific measures? Door-to-door Sales Representatives Customer Centers Websites J:COM Shops Mass Retailers/ Property Managers Diversifying Sales Channels Traditionally, we have offered services encompassing an extensive product lineup within a limited service area characterized by a low penetration rate. For these reasons, we have mainly counted on push-type sales by sales representations visiting households, explaining services, and making direct sales talk. This enabled us to make detailed sales proposals geared toward individual Diversifying Sales Channels Raising Productivity Playing a Larger Role Cultivating New Types of Customers Lowering Customer Acquisition Costs communities, which was one of our strengths. However, growth in the number of condominium complexes with tighter security and single-person households has made more households inaccessible to direct contact with customers. Consequent ly, we also use television commercials, newspaper advertising, ads on mass transit, and other mass media outlets to stimulate demand from customers. We have bolstered these sales channels for the purpose of directing customers to customer centers and other pull-type sales channels. The introduction of these sales practices has been fueled by our M&A track record, which has helped us expand into neighboring service regions. Moreover, we are bolstering sales through outbound call centers, J:COM Shops, mass merchandisers, property managers, and other outlets. Using these means to diversify sales practices attuned to customer lifestyles, we have effectively enhanced the appeal of our services. Meanwhile, increasing pull-type channels as a proportion of all sales channels should result in lower new customer acquisition costs. Annual Report

28 Special Feature: Challenges for Growth Model Innovation Focus: Highlighting New Products and Services 1 J:COM TV My style The most significant characteristic of J:COM TV My style is the fact that it allows subscribers to choose from a variety of services to match their needs. Subscribers may view digital terrestrial and BS digital broadcasts and are offered their choice of J:COM s telecommunication services, choosing from high-speed Internet access services, telephony services, or both; and one of J:COM s All-you-can-watch VOD packages that allow them to view unlimited content for a set monthly charge. This kind of service with VOD at its core is highly advanced and still has not been introduced by overseas cable television companies. Subscribing households to J:COM TV My style has increased sharply since the service began in July 2010 on the back of growing needs for on-demand viewing of programs specifically desired by customers when they want to view them. J:COM is working to enhance the quality of our All-you-can-watch package to increase the attractiveness of the service. As of December 31, 2010, the package made available a total of 31 different packages including the latest overseas dramas and other programs from Warner TV, and Discovery Channel unlimited view 100 offers, a rich array of documentary programming from Discovery Channel. Introducing Products Tailored to Customer Characteristics Established J:COM Customer Characteristics Family Households Diverse Collection of Preferences and Lifestyles Real-Time Viewing Cable Television J:COM TV Digital (multichannel broadcasting) Terrestrial Digital Broadcasting VOD Services BS Digital Broadcasting Value Plan High-Speed Internet Access 40Mbps or 160Mbps Telephony New Customer Types Single, Younger generation, and Senior Couples Selections Hewn from a Diverse Menu On-Demand Viewing Terrestrial Digital Broadcasting BS Digital Broadcasting J:COM TV My style Cable Television VOD Services (All-you-can-watch package) High-speed Internet Access 12Mbps to 160Mbps Telephony 2 J:COM PHONE Plus J:COM started offering customers J:COM PHONE Plus, a telephony service using the KDDI platform, Toll-Free Service for Existing and New Subscribers Current J:COM PHONE Toll Free Tokutoku Talk Toll Free Toll Free* 1 Toll Free* 2 New J:COM PHONE Plus au Mobile Phone Subscribers All au Mobile Phones KDDI Phones Toll Free* 1 Toll Free* 2 Toll Free Telephone Cable Plus Phones Toll Free* 1 in April Among the telephony services we have provided in the past, households using services with circuit switches (legacy phones) will be migrated to J:COM PHONE Plus. Once the transition is complete, both IP phone and legacy equipment will no longer need to be maintained, affording considerable cost benefits for J:COM. In addition, J:COM PHONE Plus subscribers can talk with other subscribers and with au mobile phone users toll free. This increases the convenience for customers and is expected to help in acquiring new subscribing households and lower the churn rate. *1. Requires registration with J:COM (Free of charge) *2. Requires au My Home Discount service (Free of charge) 26 Annual Report 2010

29 Business Section Review of Operations 28 Numerical Overview of Services 30 Cable Television Service J:COM TV 32 High-speed Internet Access Service J:COM NET 33 Telephony Service J:COM PHONE 34 Program Supply Business Annual Report

30 Numerical Overview of Services Total RGUs (Total number of revenue generating units for services supplied) All Three Services Increased Favorably Cable Television 2.69 million (+3.6%) Composition of Households by Number of Services Subscribed Percentage of Households Subscribing to All Three Services Rose 3 services 29.0% (+2.2 points) High-speed Internet Access 1.70 million (+7.0%) 2 services 27.6% ( 0.4 points) Telephony 1.97 million (+11.8%) 1 service 43.4% ( 1.8 points) (Thousands) 7,000 6,000 5,000 4,338 4,000 1,120 3,000 1,109 2,000 2,109 1,000 4,712 1,313 1,212 2,188 5,614 1,570 1,487 2,557 5,947 1,763 1,585 2,599 6,358 1,971 1,696 2,691 (%) FYE FYE In the year under review, amidst growing competition from telecommunication carriers and other companies, we advanced a marketing strategy focused on increasing the number of subscribing households especially to our mainstay cable television service. As part of this strategy, we unveiled new offerings, such as the J:COM TV My style service package, and worked actively to acquire new subscriptions. As a result of these efforts, we saw a favorable increase in the customer base of our three core services: cable television, high-speed Internet access, and telephony. In the year under review, subscribing households to Value Plan a bundle package including cable television, high-speed Internet access, and telephony services increased favorably. We also saw increases in the number of subscribing households to J:COM TV My style, a service that has a high percentage of subscribers who choose all three of J:COM s services. These factors resulted in the percentage of subscribing households to all three services rising significantly, from 26.8% to 29.0%. Key Point 1 Progression of Service Bundling One of the major successes in our operations during the year under review was increasing the bundle ratio. Subscriptions increased for both Value Plan, a service package bundling all three of our services, and J:COM TV My style, a service package in which two or three of our services are bundled together. Accordingly, the bundle ratio (average number of services received per subscribing household) rose from 1.82 at the end of the previous fiscal year to 1.86 at the end of the year under review. Bundle Ratio (Average Number of Services Received per Subscribing Household) (Services) FYE Annual Report 2010

31 Numerical Overview of Services Average Monthly Churn Rate Climbed Due to the Termination of Analog Services Subscription Fees Steadily Increased for All Three Services Cable Television 1.22% (+0.10 points) Cable Television billion (+3.1%) High-speed Internet Access 1.24% (±0.00 points) High-speed Internet Access 87.0 billion (+4.2%) Telephony 0.85% (+0.02 points) Telephony 50.4 billion (+4.4%) (%) FY (Yen in billions) FY Business Section In the current harsh operating environment characterized by poor economic conditions and increased competition between providers, we focused on acquiring new subscribers and improving the satisfaction of existing customers. Our efforts to improve customer satisfaction included further enhancing the quality of our aftersales follow-up services and continuing to increase our offerings of high-definition programs. However, in the year under review, we discontinued analog services through our cable television service. Accordingly, some subscribing households to analog services cancelled their service instead of migrating to J:COM digital services. This contributed to a slight increase in the churn rate in comparison with the previous fiscal year accordingly. The number of subscribing households to cable television, highspeed Internet access, and telephony services grew steadily. This resulted in a favorable increase in subscription fees in each category. Key Point 2 Further Expansion of High-valueadded Services In the year under review, we further expanded our lineup of high-value-added services, which is one of J:COM s key strengths. Specifically, we enhanced the contents offered through J:COM On Demand, Japan s largest VOD service featuring the most expansive content library in the industry, consisting of approximately 28,600 titles. This resulted in an 18% year-on-year increase in revenue, to approximately 3.7 billion. Additionally, we achieved significant increases in the number of subscriptions for our Blu-ray HDR and other HDR set-top boxes equipped with hard disk drives, with the total number of contracts totaling 570,400 at the end of the year under review, up 15% year on year. J:COM On Demand Number of Purchases and Revenue Number of purchases (left scale) (Thousands) 10,000 7,500 5,000 2, , , , FY 8, Revenue (right scale) (Yen in billion) 9, HDR STB with Internal Hard Disk Drive (Contracts) 600, , , , , , FYE 495, , Annual Report

32 Review of Operations Cable Television Service J:COM TV Service Overview Wide array of thematic channels to match the diversifying tastes and preferences of viewers (over 70 channels) Extensive VOD service offering, the industry s largest content library, to meet the growing demand for on-demand videos (28,600 titles) Convenient HDR set-top boxes equipped with hard disk drives featuring recording and start-over* functions * The start-over function is a feature that allows a program to be viewed from the beginning even if it is currently being recorded. Cable Television Subscription Fees (Yen in billions) 200 Fundamental Strategies of this Service Focus on Expanding the Number of Subscribing Households In the year under review, we advanced sales and marketing initiatives focused on expanding the subscriber base to reach a broader range of potential subscribers These initiatives included introducing new strategic products. One of the core elements of this strategy was launching the new J:COM TV My style service a package service that allows customers to enjoy digital terrestrial broadcasts, BS digital broadcasts, J:COM s telecommunications services, and All-you-can-watch VOD (A menu of 31 VOD packages available as of December 31, 2010; offered at a fixed monthly rate.) In recent years, there has been an increase in the number of households consisting of 50 nuclear families or unmarried people living alone. Accordingly, the demand from customers to view specific programs from a certain genre whenever they want has also FY been rising. By responding to this demand, this new service has enabled the J:COM Group to acquire new customers in specific customer demographics, such as unmarried people, the younger generation, or elderly couples living alone. In this way, J:COM TV My style is contributing to efforts to acquire new contracts. The J:COM Group sees this service as a gateway service that will help raise interest in multi channel broadcasting service. In addition to acquiring new subscribers for this service, we aim to encourage subscribers of this service to switch over to our mainstay J:COM TV Digital multi channel broadcasting service going forward. Further, we continued the initiatives to address the demand created by the digitalization of terrestrial broadcasts scheduled for July In particular, in the year under review, we concluded agreements with the facility management companies of 460,000 communal reception households. This raised the total number of households for which we have concluded agreements with to approximately 1.0 million of a total of 1.4 million such households in J:COM s service area. Under these agreements, J:COM will coordinate with the facility management companies of these households to offer digital terrestrial broadcast retransmission services. Also, by encouraging the households for which we have concluded agreements with to subscribe to J:COM s paid services, we succeeded in acquiring approximately 90,000 additional RGUs in the year under review. 30 Annual Report 2010

33 Review of Operations Home screen of J:COM On Demand Harry Potter and the Deathly Hallows: Part 1 Available from April 21 to September 20, 2011 HDR Blu-ray HDR Initiatives to Improve Customer Satisfaction The J:COM Group is developing a sales and marketing strategy that aims to acquire new contracts and decrease the churn rate by improving customer satisfaction. As one facet of this strategy, we established the Customer Satisfaction Promotion Division in July Subsequently, we began implementing initiatives to bolster the quality of our follow-up services after customers subscribe to our services as well as improving services offered by being more receptive to customer comments and opinions. Further, taking advantage of the benefits stemming from the digitalization of cable television services, we are using the bandwidth previously occupied by analog broadcasts to offer additional HD channels, leading to improved quality of the programs we offer. J:COM customers are currently able to enjoy 49 channels, approximately 60% of our channel lineup, in high definition. These channels are spread across a variety of genres including sports, movies, and entertainment. In the VOD service, we began transmission of the first 3D content in Japan in April We also offered exclusive transmission of certain terrestrial broadcast programs, such as Tokyo Broadcasting System Television, Inc. s serial drama Clone Baby, before they were broadcast. Through these and other new initiatives, we continued to strengthen our VOD service. Review of Operations in the Year Under Review Business Txt Section Transmission of 3D content through the VOD service began in April Growth in Subscribing Households Exceeded Growth in the Market In the 2010 calendar year, the overall size of the cable television market grew 3.1%, based on the number of subscribing households. In comparison, the number of subscribing households to J:COM TV grew 3.6% from the end of FY2009, to 2.69 million households as of the end of FY2010. We attribute achieving growth that exceeded the growth of the market to the initiatives mentioned in the Fundamental Strategies of this Service section above (1) introducing strategic products such as J:COM TV My style, (2) addressing the demand created by digitalization, and (3) improving program quality. However, the J:COM Group s average monthly churn rate for the CATV service rose 0.10 percentage points, to 1.22%, due to increased cancellations of subscribing households to analog services accompanying the termination of analog services. The ARPU of J:COM TV increased 32 year on year, to 5,503, due to increased use of high-valueadded services such as VOD and HDRs. Accordingly, J:COM TV subscription fees were up 3.1% year on year, to billion. Annual Report

34 Review of Operations High-speed Internet Access Service J:COM NET Service Overview Various connection speeds available to meet diverse Internet-usage needs (160 Mbps, 40 Mbps, 12 Mbps, 1 Mbps) Strong support systems and free security services to enhance customer satisfaction Fundamental Strategies of this Service High-speed Internet Access Subscription Fees (Yen in billions) Strengthen Service Lineup and After-sales Follow-up Service Systems to Meet a Wide Range of Customer Needs We have entered an era in which the Internet is no longer confined indoors, but rather is available to be enjoyed outside as well. Accordingly, the J:COM Group is working to expand its J:COM NET service more than ever. UQ Communications Inc., an affiliate of KDDI CORPORATION, offers a WiMAX high-speed mobile Internet access service. In December 2010, as a mobile virtual network operator (MVNO), J:COM began offering this service to J:COM NET subscribers under the name J:COM WiMAX. J:COM NET customers have access to this service for an additional 3,600 a month (tax included; with 12-month contract), allowing them to easily enjoy Internet connections with download speeds of up to 40 Mbps and upload speeds of up to 10 Mbps anytime, anywhere. Also, by utilizing the extra bandwidth made available by the digitalization of J:COM TV, we will be able to develop and subsequently introduce Internet services that are faster and offer greater data transmission capabilities. This extra bandwidth will allow us to better support the increased use of videos, games, and other high-data-volume content FY Review of Operations in the Year Under Review Ultra 160 Mbps Internet Access Service Continued to Expand In the 2010 calendar year, the overall size of the broadband market grew 1.4% based on the number of contracts. In comparison, the number of subscribing households to J:COM NET grew 7.0% on a year on year basis, to 1.7 million households the end of the year under review. Also, our Ultra 160 Mbps Internet access service, which allows users to enjoy videos, games, and other high-data-volume content easily and without the Monthly charge: 3,600 (tax included; with 12-month contract) stress of long download times, grew an impressive 58.2%, to 290,000 households at the end of the year under review. The average monthly churn rate in the year under review was 1.24%, relatively unchanged from the previous fiscal year. ARPU, however, fell 116 Characteristics of J:COM WiMAX High-speed Mobile Internet Service year on year, to 4,339, as a result of increased subscription discounts Transmission speeds capable of downloading and High-speed mobile transmissions uploading large volumes of data and playing streaming video (Download speeds up to 40 Mbps) offered to customers bundling the J:COM NET service with other Expanding service area Systematically expanding a service area that currently includes all prefectural capitals and major cities J:COM services. The overall result was a 4.2% year-on-year increase in subscription fees, to 87.0 billion. Compatibility with smart phones, music players, portable gaming devices, and other devices that use Wi-Fi Various Wi-Fi router-type portable devices, including smart phones and portable gaming devices, can be connected to the Internet through a single PC 32 Annual Report 2010

35 Review of Operations Telephony Service J:COM PHONE Service Overview Primary IP telephony service featuring basic charges and call charges with superior cost competitiveness Solid service that offers the same voice quality as standard telephony services Fundamental Strategies of this Service Accelerating the Speed of Subscription Acquisition through the Alliance with KDDI J:COM aims to acquire new contracts and avoid contract cancellations by leveraging the significantly enhanced convenience of its telephony services made possible by its busi- Telephony Subscription Fees (Yen in billions) ness alliance with KDDI CORPORATION (KDDI). Specifically, in April 2011, the J:COM Group introduced and began offering the J:COM PHONE Plus telephony service over KDDI s service platform. Subscribing households to J:COM PHONE Plus can call households currently subscribing to J:COM PHONE, the KDDI Group s telephony services, or any au mobile phone free of charge. By communicating this advantage to consumers to the greatest extent possible, we hope to increase the number of new subscribing households to the J:COM PHONE plus service. Also, by systematically encouraging subscribing households to our legacy telephony service to switch over to J:COM PHONE Plus, we hope to improve customer satisfaction and prevent churn. When the migration to J:COM PHONE Plus is complete, we will no longer need to Business Txt Section 20 continue to maintain our legacy telephony equipment, thereby greatly reducing the J:COM Group s costs FY Review of Operations in the Year Under Review Continuing to Achieve Double-digit Growth in the Number of Subscribers In the 2010 calendar year, the overall size of the telephony market fell 0.2% based on the number of contracts. In comparison, the number of subscribing households to J:COM PHONE grew 11.8% year on year basis, to 1.97 million households at the end of the year under review. The number of subscribing households to IP telephony services increased greatly, rising from 850,000 households at the end of the previous fiscal year to 1.13 million households at the end of the year under review. While the average monthly churn rate in the year under review rose 0.02 percentage points year on year, to 0.85%, it still remained low, below 1%. APRU fell 155, to 2,211, as a result of increased subscription discounts offered to subscribers bundling the J:COM PHONE service with other J:COM services and decreased revenues from call charges. Overall, these factors resulted in J:COM PHONE subscription fees rising 4.4% year on year, to 50.4 billion. Annual Report

36 Review of Operations Program Supply Business Fundamental Strategies of this Business Invest in and operate 17 thematic channels as Japan s largest multiple channel operator (MCO) Supply programming to cable television, satellite, and IP multicast providers Fundamental Strategies of this Business Increasing the Number of Households with Service Available by Improving Program Quality and Starting New BS Digital Broadcasts From October 2011, the consolidated subsidiary J SPORTS Broadcasting Corporation (J SPORTS) will begin BS digital broadcasts of four channels, making it the largest BS broadcaster in Japan. Going forward, utilizing the new medium of BS broadcasts, we plan to fully communicate the appeal of J SPORTS to our customers and subsequently increase the number of subscribing households to J SPORTS. At CS Broadcast Channels Ranked by Number of Subscribing Households the same time, we will continue leveraging our unique strengths as a comprehensive media service company. Specifically, we will Rank Channel Name Total Number of Data Collection gather opinions and comments directly from subscribing households. By incorporating this feedback into the scheduling and Subscribing Data Households ANIMAX SPACE SHOWER TV Kids Station 8,816,292 8,570,200 8,449,680 12/31/10 12/31/10 12/31/10 production of programs, we will further improve the quality of our programs and consequently continue to differentiate ourselves from competitors. Next, the J:COM Group will strengthen its community 4 Super! drama TV 8,126,500 12/31/ Channel NECO SAMURAI DRAMA CHANNEL MTV 7,925,520 7,754,566 7,699,700 12/31/10 12/31/10 12/31/10 8 Nikkei CNBC 7,637,806 2/1/11 channels. The J:COM Group s community channels com- prise a major media venue viewable by approximately 9 million households. Going forward, we will strengthen these channels in terms of program production and scheduling, while broadcasting appealing programs across the country. We believe this will 9 J sports ESPN, 1, 2, and Plus* 7,629,000 11/30/10 10 Movie Plus 7,537,583 11/30/10 improve the value of J:COM s in-house media, thereby leading to increased advertising revenues. 15 Japanese Movie Channel 7,209,251 12/31/10 17 AXN 7,178,693 12/31/10 18 Golf Network 7,136,900 11/30/10 21 Discovery Channel 6,861,129 11/30/10 24 LaLa TV 6,546,655 11/30/10 28 Animal Planet 5,832,001 11/30/10 32 Act On TV/Entertainment and lifestyle information for adults 4,750,000 11/30/10 39 Channel Ginga 3,640,564 11/30/10 The thematic channels that J:COM invests in and operates * The figure for J sports ESPN, 1, 2, and Plus represents the total number of subscribing households to all four channels. Source: B-maga, February Annual Report 2010

37 Organizational Structure Section Management and Administration Structure / CSR and IR Activities 36 Corporate Governance 38 Directors and Statutory Auditors 40 Organizational Chart, Mission Statement, and Activity Guidelines 41 Compliance 42 Corporate Social Responsibility 44 Investor Relations Activities Annual Report

38 Corporate Governance J:COM believes that the fundamental objective of corporate governance is to ensure the transparency of management processes in order to improve management efficiency and to maintain sound operations. Accordingly, we are striving to develop a management structure that is optimal to J:COM s operations, and are continually improving and enhancing corporate governance in order to maximize corporate value from the standpoint of shareholders and other stakeholders in the medium to long term. Corporate Governance Structure (As of April 1, 2011) Board of Directors The Board of Directors has 10 members, including 4 outside directors, and meets once a month, in principle, while also holding special meetings as needed. The Board makes decisions regarding management policies, management strategies, business plans, the acquisition and disposal of important assets, as well as other important decisions related to the organization and human resources of the Company, while also overseeing the business execution of J:COM and its consolidated subsidiaries. Further, in September 2004, the term of service for directors was set at one year from the date of appointment to further enhance corporate governance and establish a management structure that can respond swiftly to changes in the business environment. Corporate Officer System and Meeting of Division Managers In March 2008, the Company introduced a corporate officer system to further clarify the responsibilities and authority of executives and improve their ability to properly execute their duties. Further, the Meeting of Division Managers is a groupwide organization consisting primarily of full-time directors and other corporate officers that was established to discuss important management issues, including managing the performance of the Company and its consolidated subsidiaries. Board of Statutory Auditors The Board of Statutory Auditors, which consists of statutory auditors and external auditors, has 4 members, including 3 outside auditors and 1 full-time auditor. One of the external auditors qualifies as an independent officer under the guidelines established by the Osaka Securities Exchange. The statutory auditors, acting in accordance with the audit plans developed by the Board of Statutory Auditors, review all aspects of J:COM s business operations, including its policies, planning, the appropriateness of procedures, business effectiveness, and compliance with all relevant laws and regulations. The statutory auditors also attend meetings of the Board of Directors and other important meetings, inspect critical corporate documents, conduct examination-based audits of consolidated subsidiaries, and make reports to the Board of Statutory Auditors. Moreover, as needed, the statutory auditors receive reports and explanations in relation to the auditing activities of the outside auditing firm as well as examine the financial statements and annexed specification. Stock Option System The Company believes that an increased focus on shareholders by directors and other corporate officers when making management decisions will consequently lead to the J:COM Group achieving improved business results and enhanced corporate value in the medium to long term. Accordingly, starting in the fiscal year ended December 31, 2006, we began awarding stock acquisition rights to directors, statutory auditors, and other corporate officers as reward-based stock options. For further information pertaining to this system, please refer to page 76 of this annual report. Compensation of Corporate Officers (As of December 31, 2010) Total compensation (Yen in millions) Amount of compensation by category (Yen in millions) Basic compensation Stock options Bonuses Number of people Directors* Statutory auditors* Outside directors and auditors *1. Excludes outside directors *2. Excludes outside auditors Notes: 1. The figures above include the 3 directors, 1 auditor, and 1 outside corporate officer that resigned from their post following the 16th General Shareholders Meeting, held on March 25, At the end of the year under review, there were 11 directors and 3 statutory auditors. 3. At the 13th General Shareholders Meeting, held on March 27, 2007, the upper limit for compensation for directors was set at 600 million per year for monetary compensation and 250 million for reward-based stock options (used as a medium- to long-term incentive). 4. At a special meeting of shareholders, held on September 29, 2000, the upper limit for compensation for statutory auditors was set at 100 million per year for monetary compensation, while at the 13th General Shareholders Meeting, held on March 27, 2007, the upper limit for reward-based stock options (used as a medium- to long-term incentive) was set at 5 million. 36 Annual Report 2010

39 Corporate Governance Internal Audit System and Structure The core of the Company s internal audit system is the Auditing Division, which reports directly to the president. Contained within that division are the Internal Auditing Department and the Internal Control Department. The members of both of these departments do not hold concurrent positions in other departments and are therefore completely independent. Internal Auditing Department The Internal Auditing Department has 13 members. These members comprehensively audit the Company and each of its consolidated subsidiaries at least once every two years in accordance with the yearly auditing plans. J:COM s cable television subsidiaries are audited once every year. The audit results are submitted to the president in an audit report that is also provided to statutory auditors and other related directors and corporate officers. Also, the audited divisions and companies are periodically compared against the corrective action points identified in the audit reports to assess their degree of improvement. The Internal Auditing Department and the Board of Statutory Auditors are independent of each other; however, audit reports are shared between the two bodies, and both bodies also meet regularly to remain in close contact with regard to other related matters as well. Internal Control Committee and Internal Control Department To develop an internal control framework and disseminate information regarding important issues related to internal control throughout all J:COM Group companies, we established the Internal Control Committee. This organization is chaired by J:COM s CFO and reports directly to the president. It conducts internal audits in compliance with the Financial Instruments and Exchange Act. We have also established the Internal Control Department, which works under the Internal Control Committee and within the Auditing Division. This department consists of 8 members that handle detailed internal control planning and verification activities. Specifically, the Internal Control Department incorporates a variety of controls into all operating processes of Jupiter Telecommunications Co., Ltd., which operates as the J:COM Group s headquarters functions, and its principal subsidiaries including workflow process diagrams and check points. These controls are examined continuously to ensure their effectiveness. Additionally, the Internal Control Department, while considering the effect on the internal control audits, works in cooperation with the external auditors by sharing the results of the audit of the financial statements and through other cooperative initiatives. Further, to strengthen the internal control system throughout the entire company, the Internal Control Department works in cooperation with the statutory auditors and the Internal Auditing Department, exchanging information on a regular basis. Diagram of Our Corporate Governance Structure (As of April 1, 2011) Selection Board of Directors General Shareholders Meeting Selection & Supervision Discussion & Reporting Audit Statutory Auditors Board of Statutory Auditors Reporting Selection Investigation Reporting Selection Organization Structure Section Outside Lawyer Internal Control Committee Compliance Committee Representative Director, President Audit Accounting Auditors Audit Group Companies Information Security Committee Reporting Business Execution Section Internal Audits Internal Auditing Sections Auditing Division Internal Auditing Department Internal Control Department Internal Audits Annual Report

40 Directors and Statutory Auditors (As of April 1, 2011) Directors (Standing) Shuichi Mori Representative Director, President & CEO General Manager, CATV Business Group General Manager, CATV Business Unit Shunsuke Oyama Representative Director, Executive Vice President General Manager, Business Strategy Group Tomoya Aoki Representative Director, Senior Managing Director & CFO General Manager, Corporate Planning & Strategy Unit Mineo Fukuda Senior Managing Director President s Aide Toru Kato Director General Manager, Business Strategy Unit Masayuki Matsumoto Director Assistant to GM, CATV Business Unit President, J:COM West Co., Ltd. 38 Annual Report 2010

41 Directors and Statutory Auditors Directors (Outside) Daisuke Mikogami Director Yoshio Osawa Director Hirofumi Morozumi Director Makoto Takahashi Director Organization Structure Section Statutory Auditors Kunio Fujimoto Toshifumi Shibuya Kenichiro Takagi Katsuyuki Yamaguchi Standing Statutory Auditor Statutory Auditor Statutory Auditor Statutory Auditor Annual Report

42 Organizational Chart, Mission Statement, and Activity Guidelines Organizational Chart (As of April 1, 2011) Shareholders Meeting Board of Directors President CEO Board of Corporate Auditors Internal Control Committee Compliance Committee Information Security Committee Executive Vice President Business Strategy Group CATV Business Group Business Strategy Unit Senior Managing Director & CFO Corporate Planning & Strategy Unit Human Resources, Administration, Information Technology Unit CATV Business Unit Business Coordination Committee Media Business Unit Technology Unit Auditing Division Service Strategy Division Budget & Financial Management Division Corporate Strategy Division Finance & Accounting Division Corporate Communications Division Human Resources Division Administration Division AIT Division Sales Promotion Division Direct Sales Channel Promotion Division New Channel Development Division Marketing Division Customer Satisfaction Promotion Division Customer Relations Division Operation Division Tokyo Block Kanto East Block Kanto North Block Kanto South Block Shonan Block Hyogo Block Kansai North Block Kansai Central Block Kansai South Block Kyushu & Yamaguchi Block Media Planning & Strategy Division Sales Division Broadcasting & Production Division Ad. Sales Division Technology Division Mission Statement and Activity Guidelines Mission Statement At J:COM, it is our mission to provide video, voice, and high-speed Internet access services through our advanced broadband networks, while offering the benefits of digitalization through a variety of high-quality products that meet the needs of our customers, as well as to add rich entertainment and information experiences to the lives of our customers. We understand that relationships with our customers and local communities are core elements of our business foundation, and we will continue to nurture these precious assets. Recognizing the importance that local communities place on the credibility of a service provider, we pursue further growth with sound financial fundamentals, and return the benefits of our business activities to local communities, shareholders, and employees. Ultimately, we strive to become an excellent company that actively contributes to society. Activity Guidelines Compliance All employees of J:COM are required to comply with customary laws and regulations as well as with the company s rules and directions. Local Communities All employees of J:COM should understand the social values of each community, and should fulfill the obligations and responsibilities required to build relationships of mutual trust with communities and contribute to their development. Customer-Centered Approach As members of a high-quality information and entertainment service provider, all employees of J:COM are responsible for maintaining a customer-centered approach in order to enhance customer satisfaction. Commitment All employees of J:COM are required to commit to achieving J:COM s mission and its corporate goals. They understand the J:COM management orientation, proposing and implementing plans for higher productivity. They continually seek out new growth opportunities through interdepartmental cooperation and information sharing, and respond rapidly to challenges with maximum flexibility. Personal Development All employees of J:COM should be aware of the role they play within J:COM as a corporate group that provides advanced broadband services. They strive to learn and comprehend the latest information, marketplace intelligence, and technologies. They realize that as they engage in various levels of information and idea exchanges through their day-to-day work, they are also pursuing personal advancement. 40 Annual Report 2010

43 Compliance The Company believes that good compliance is a prerequisite for its business activities. Therefore, it has developed compliance systems and is working to thoroughly incorporate compliance into all aspects of its business operations. Compliance System J:COM has established the Compliance Committee, which is chaired by the head of the Human Resources, Administration and Information Technology Unit and reports directly to the company president. This committee has developed a compliance manual, which is distributed to all full-time and contract employees of the Company and its consolidated subsidiaries, as well as the full-time and contract employees of the equity-method affiliates Discovery Japan, Inc. and Animal Planet Japan Co., Ltd. Through these and other efforts, the Compliance Committee strives to develop an understanding of compliance-related issues and cultivate compliance awareness among all J:COM Group employees. Further, compliance is a core theme in all forms of corporate training, including management training and training for new employees. In these ways, the Company is spreading compliance awareness Speak Up System J:COM has introduced the Speak Up System as a safeguard against situations in which, for whatever reason, it may be difficult for employees to report compliance-related issues under the normal chain of command. This system provides an avenue for employees to speak up about compliance issues by reporting them to the Compliance Committee either directly or through consultation with an outside lawyer or the Company s standing statutory auditor. In principle, employees reporting compliance issues are required to use their real name so that the Compliance Committee could specify to whom to respond. However, information regarding both the person reporting the issue and the issue that they are reporting are kept confidential and thus there are no drawbacks to reporting such issues. Standing statutory auditor Contact Report/Consultation Report/Consultation Contact Compliance Committee Reporter Response Outside lawyer Contact Report/Consultation and developing a universal understanding of compliance throughout the J:COM Group. Information Management Structure In order to strengthen information security initiatives at J:COM, the Information Security Committee, which is chaired by the head of the Human Resources, Administration and Information Technology Unit, periodically convenes meetings. In addition, J:COM is taking measures to eliminate security holes* throughout all its network systems. Additionally, the use of USB media is restricted for all employees and advance approval from the head of the Internal Security Committee is required to take data outside of company premises. In regard to protecting personal information, we have acquired the Privacy Mark certification offered by the Japan Information Processing Development Corporation (JIP- DEC) for nearly all J:COM Group companies. Through these initiatives, J:COM is developing effective systems for handling and managing personal information. * A security hole is a problem with or weak point in software or a network. If these security holes are left unaddressed, they present a risk that unauthorized computers may gain control of, or access to, the system, and consequently the Company s information database may be put at risk. For this reason, periodical testing and repairing of these threats is essential. Risk Management Structure In order to ensure a stable supply of broadcasting and communications services, the J:COM Group has established a system to implement 24-hour monitoring of the networks of each J:COM Group company, there by enabling a quick response to any problems that may arise. We have also developed an Emergency Response Manual and emergency contact system as another facet of our risk management structure. Additionally, we conduct regular disaster drills to ensure our ability to respond appropriately in the event of a large-scale earthquake or other disaster. Organization Structure Section Annual Report

44 Corporate Social Responsibility As a regional service provider and broadcaster, J:COM believes that corporate social responsibility (CSR) is of the utmost importance. In practicing good CSR, we focus on two different types of activities: (1) activities through which the Company fulfills its responsibility as a good corporate citizen and (2) community-based activities in which we work together with our customers and the residents of community in which we operate. We have come to call the latter activities Nicology Activities, and we are constantly promoting participation in these activities. Donations on Demand Sales vehicles are being replaced with low-co2 emission vehicles. Recycling Equipment is disassembled, circuit boards are removed and dismantled, and all components are restored to their original state as raw materials. Vehicles have signs posted on them reading Neighborhood Patrol in Force. Activities through which J:COM Fulfills its Responsibility J:COM s Services Following the establishment of the Services and Supports for Persons with Disabilities Act in 2006, J:COM began offering the Heartful Pack, a service package that allows customers with disabilities and their families to enjoy J:COM s high-speed Internet access service for only half the regular charges. This service package helps people with disabilities achieve independence and participate more in society. Also, the J:COM Group is utilizing its twoway interactive service, J:COM On Demand, to offer the Donations on Demand (DD) program, which allows customers to make donations to charitable organizations simply by purchasing a video using their remote controllers. Customers can choose which organization to donate to from among two charitable organizations; the Japan Committee for UNI- CEF or the World Food Programme. In addition, customers can also choose to donate to the disaster relief fund that is created when a major natural disaster occurs. In 2010, we made donations through such organizations as the Japan Cable and Telecommunications Association and the Japanese Red Cross Society. These donations were used to help communities affected by an outbreak of footand-mouth disease in Miyazaki Prefecture as well as to offer support to communities affected by the heavy rainfall in Yamaguchi, Hiroshima, and Kagoshima Prefectures. Environmental Activities In consideration of the environment, J:COM has begun replacing its fleet of installation and sales vehicles with low-co2 emission vehicles. Installation vehicles are being replaced with vehicles that use clean diesel. Sales vehicles, particularly in Tokyo and other metropolitan areas, are being downsized, with cars being replaced by Gyro three-wheeled scooters and the current Gyro scooters by bicycles. Starting in 2008, J:COM began sending its year-end and new-year greetings in the electronic format. The paperless e-cards conserve resources and reduce CO2 emissions. Additionally, J:COM recycles materials used in the equipment it provides to its customers, including the home terminals and set-top boxes used to view multichannel broadcasts as well as Internet modems. After being collected from the residence of customers, the equipment is disassembled at a garbage disposal facility. Components of these devices are then separated into their raw materials, such as iron and plastic, and are subsequently reborn as new resources through recycling. Community Activities J:COM values the communities it serves. Accordingly, J:COM employees occasionally participate in events and activities held in their community. Further, J:COM reporters to cover community events and broadcast the coverage on the J:COM Channel at a later date. J:COM sales and installation employees drive vehicles provided with a sign that reads Neighborhood Patrol in Force. Each of our employees is aware of the importance of engaging in anticrime activities as a part of their business activities. Accordingly, these anticrime activities represent the wish of J:COM employees to make local communities a better place to live. Additionally, the J:COM Channel works in cooperation with local police departments to offer local news and information related to crime prevention, helping to make these communities safer. 42 Annual Report 2010

45 Corporate Social Responsibility Green curtain Community-based Activities Conducted together with Customers (Nicology* Activities) Environmental Activities Since 2009, the J:COM Group has been promoting increased awareness of the benefit and usage of green curtains. A green curtain uses vine plants by a window to create a natural curtain that helps to block out the heat of the sun. In 2010, we distributed a total of 55,000 packets of goya (bitter melon) seeds to subscribers and members of local communities through J:COM Shops and other facilities, as well as through our direct sales representatives. Through these efforts, the J:COM Group encourages people to reduce the use of air-conditioning during summer to save electricity. * Nico (Japanese for smile ) + Ecology Community Activities The J:COM Group is actively involved in regular community cleanup activities. Starting in 2008, all J:COM Group companies and systems, from Hokkaido to Fukuoka, hold an annual CLEAN UP OUR TOWN event on the same day. On Sunday, September 5, 2010, over 8,000 people including J:COM customers and members of local communities engaged in clean up activities together with J:COM employees. These cleaning events were held at 68 locations across Japan and succeeded in collecting approximately 14 tons of garbage. In addition, the J:COM Group launched the Iki-Iki Project in May 2006 as a way to invigorate local communities. The goal of this project is to enrich the everyday lives of people in local communities. J:COM provides opportunities to those who want to make the most of their skills within their own communities or to those who want to network with members of local communities. Each community holds a number of popular activities, from computer classes to walking events. These activities are managed with customers who have registered as Community Leaders in their community playing a central role. In 2010, 660 Community Leaders organized 910 such events across Japan, which were attended by approximately 11,000 community members. Organization Structure Section The Iki-Iki Project At the CLEAN UP OUR TOWN event, J:COM employees work together with customers and members of local communities to clean up local communities. Annual Report

46 Investor Relations Activities The J:COM group is constantly implementing initiatives geared toward improving the quality of its investor relations (IR) activities in order to be highly evaluated by our shareholders and investors through timely and fair disclosure of information. Enhancing IR Activities At J:COM, we are constantly aspiring to provide timely and fair disclosure of information to our shareholders and investors and to all participants in the securities markets. For this reason, we hold quarterly earnings presentations on the same day as the release of our financial results. Additionally, in order to allow as many people as possible the ability to view these presentations, we offer streaming video of these presentations in both English and Japanese on our IR website. We also proactively hold information sessions that offer explanations about the Company for both individual and overseas investors. These initiatives have been highly regarded, and as a result J:COM s IR activities have received awards from a variety of bodies. Going forward, we at J:COM will continue to aim to further enhance our IR activities. Introduction of Information Sources 1. IR Website ( On J:COM s IR website, there is a variety of information regarding J:COM, including basic corporate information, growth strategies, and past financial and operating data. Additionally, the For Individual Investors section (Japanese only) explains J:COM s operations in a fun and easy-to-understand manner through a variety of methods. 2. IR Publications The annual report that we release after the end of the fiscal year attempts to explain J:COM s financial and operating data, as well as J:COM s long-term strategies and future course, in a manner that is easy to understand. In addition to the annual report, we also send our shareholders interim and full-year business reports (Japanese only). All of these documents, as well as materials from presentations and the corporate fact book, which contains detailed information regarding performance indicators, are also available for download on J:COM s IR website. Interim business report (J:COM Report) IR website top page Fact book 44 Annual Report 2010