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Risk Factors

Risk Factors

The following passages will describe major possible risk factors related to the business operation of the CyberAgent Group (the Group.) In addition, items that do not correspond to these risk factors but are considered important for investment judgment will be mentioned below, from the viewpoint of proactively disclosing information to investors. The Group will recognize these risks and implement some measures for avoiding or coping with these risks.
Future-facing items noted in these passages have been judged based on circumstances as of the submission date of this document.

Business trend

In the past, CyberAgent saw continued growth in the internet media, internet advertising, and game markets, due to the expansion of internet markets, the increases in internet users, the proliferation of smart devices (smartphones, tablet terminals, etc.), and increases in internet users engaged in corporate economic activity. While we believe these trends will continue into the future, if there emerges a hindrance to the growth of internet media markets, game markets, or if business confidence worsens, and affects the internet ad market, the Group’s business performance and financial standing may be affected.

Fluctuations in business performance

(i) Business outlook
The Group provides a variety of services in the internet industry, and it may affect the performance of the entire group if future trends in Japan’s internet population and the scale of internet-related markets, etc., are not favorable, or if we are slow to respond to new business models, etc.
In addition, as policy, the Group shall, as needed, actively engage in hiring human resources, establishing subsidiaries and affiliated companies, investing, forming business alliances, etc.
The performance of the Group in past years has fluctuated significantly in each period for each business/subsidiary, with a tendency for the proportion of profit contributed by each business to the Group overall to also fluctuate significantly in each period. In addition, we may be impacted by market conditions, etc., so the evaluation of the Group’s business outlook cannot be entirely based on the business results of previous years. For that reason, when announcing our business outlook, due to changes in the business environment, etc., actual results may differ from those in the announced business outlook. In such cases, we shall promptly announce the revisions to our business outlook.


(ii) Changes in accounting standards
In recent years, as the development of international rules for accounting standards has progressed, the Group has made prompt and appropriate revisions to its standards. However, if accounting standards or taxation systems are changed considerably in the future, it may affect the business performance and financial standing of the Group.

Legal regulations

The Group’s field of business is regulated by various laws and regulations, such as the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms, the Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers, and the Right to Demand Disclosure of Identification Information of the Senders, the Act on Prohibition of Unauthorized Computer Access, the Consumer Contract Act, the Act on Securing Quality, Efficacy, and Safety of Products Including Pharmaceuticals and Medical Devices, the Act Against Unjustifiable Premiums and Misleading Representations, the Act on Specified Commercial Transactions, the Act on the Protection of Personal Information, the Act on Establishment of Enhanced Environment for Youth’s Safe and Secure Internet Use, the Payment Services Act, and the Food Sanitation Act, and procedures and guidelines from supervisory government agencies. The Group’s business may be subject to new restrictions, and business performance and future business expansion may be impacted as a result of the enactment or revision of rules and regulations, the strengthening of existing regulations, or the formulation or revision of new guidelines or voluntary-regulatory rules. In addition, third parties who have suffered damage or loss from illegal acts within our services may file lawsuits against us as the service operator to claim damages.

Furthermore, with regard to music copyrights, The Group’s business performance and future business expansion may be impacted should the necessity arise for copyright royalties, changes in license terms, or new grants of rights, etc., other than music copyrights to copyright management organizations such as the Japanese Society for Rights of Authors of Music (JASRAC), etc., or neighboring-rights holders, including holders of master copyrights.

Internal control systems

The Group takes various measures for maximizing the value of each group company while considering that our important managerial mission is to enrich our corporate governance. In addition, in order to maintain the credibility of our fair practices and financial reporting, we create, maintain, and operate effectively functioning internal control systems in related areas.

However, if the development of sufficient internal control systems cannot keep up with the rapid expansion of our businesses, etc., it may become difficult to operate our businesses appropriately, affect the business performance and financial standing of the Group.

Dependence on specific management and recruitment

The Group positions the hiring and development of personnel as an important management issue to secure our advantage in the internet business world and continuously carries out a wide range of measures related to the hiring and development of personnel. However, if it becomes difficult to secure sufficient personnel, or if it becomes difficult to maintain the Group’s collaborative, cooperative systems due to rapid hiring of personnel, the business performance and financial standing of the Group may be affected.
If board members, including the president or executive who has technical knowledge, skills, or experiences resigns or retires for some reason and there are no successors, the business performance and future business expansion of the Group may be affected.

Information security, communication network, and system risks

The Group, with the cooperation of the Group business partners, promotes the strengthening of information technology security, etc., including in the computer networks necessary to provide the Group’s services.
However, there are risks of the leakage of important data, the unauthorized falsification of computer programs, system failure, and disruption of the provision of the Group services due to such occurrences as remarked below: defect in computer systems, deterioration in existing security measure, malware or computer viruses, unauthorized access to computer networks, an error of executive, employee, or business partner, unexpected failure of a cloud service provided by a business partner, natural disaster and temporary overload by the increase of access. It may result in a third party’s claim for damages, fallen credibility of the Group, and/or loss of revenue opportunities, etc., thereby affecting the business performance and future business expansion of the Group.

Risks from managing personal information

The Group holds personal information obtained through businesses such as our internet media business and strives to manage that personal information in keeping with our Privacy Policy, which has been prepared in accordance with the Act on the Protection of Personal Information. However, if personal information is leaked or an issue arises in the process of collecting personal information due to events such as a computer system defect, a computer virus, unauthorized access of a computer from an outside source, an error by an executive, employee, or business partner, natural disaster, or sudden mass network access, or if, with the growing interest in the handling of personal information, a situation arises in which the Group is not legally liable but is held responsible from a social or moral point of view, the Group may incur damage due to a claim against us or deterioration of trust in the Group and our business performance and future business expansion may be impacted.

Risks related to intellectual property rights

The Group makes efforts to protect our intellectual property rights that accompany technological innovations in the internet industry and the expansion of our intellectual property rights business and reinforces awareness of our intellectual property rights and our internal management structure so that our officers and employees do not violate the third party intellectual property rights. However, if a third party files a lawsuit against the Group regarding intellectual property right infringement or the Group receives a claim to stop using the intellectual properties based on the content of the intellectual property rights held by the third party, extensive funds and time may be required until that situation is resolved, and the Group’s performance and future business expansion may be impacted.

Risks related to natural disasters

If there is an event such as a natural disaster (including an earthquake or a typhoon), a terrorist attack, or an infectious disease epidemic, the Group's business may be greatly impacted or fall into a state of confusion. If there is a natural disaster or similar event, the Group will make efforts to appropriately and promptly carry out emergency measures or restoration measures. However, we do not guarantee that the impact of any interruption to or termination of the computer system due to a natural disaster or similar event can be completely prevented, and business activities may be impacted, our brand image may be harmed, or there may be physical damage or personal injury as a result of that event. Further, our base and the computer network infrastructure are concentrated in a certain area according to the services. Therefore, if a natural disaster or similar event occurs at that location, there may be significant damage and our performance and future business expansion may be impacted.

In addition, if in order to prevent the spread of the novel coronavirus, sports and entertainment events are not held as usual, if constraints are applied to the business activities of other businesses as well, and if there are impacts from reduced advertising spending by advertisers, the business performance and future business expansion of the Group may be impacted.

Risks in future business operation

The group operates internet media and game businesses and provides a wide array of content and services including “ABEMA,” blogs, social media, games, videos, music, and informative websites. We plan to increase and retain users, by developing new content, enriching the functions of existing services, stabilizing our business operation via the accumulation of further know-how, and so on. However, if we cannot offer attractive content and services liked by a broad range of users, the business performance and future business expansion of the Group may be affected.

Our company takes various measures when necessary, for the purpose of promoting the sound development of markets related to the usage of social games incorporated in user environments, promoting appropriate use of social games by users, etc. However, if system adjustment and improvement is delayed or an unexpected event occurs, the business performance and future business expansion of the Group may be affected.
In addition, the internet media businesses and game businesses handled by the Group offer services in accordance with the contracts with the credit card companies, platform operators, telecommunications carriers, etc. If there are changes in the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms or other laws and regulations, technical specifications, revisions to contracts, cancellation of contracts, or other unexpected events, and if we are not timely in responding to such, the business performance and future business expansion of the Group may be affected.
 

Risks in the internet media and the game business

The Group operates internet media and game businesses and provides a wide array of content and services including “ABEMA,” blogs, social media, games, videos, music, and informative websites. We plan to increase and retain users, by developing new content, enriching the functions of existing services, stabilizing our business operation via the accumulation of further know-how, and so on. However, if we cannot offer attractive content and services liked by a broad range of users, the business performance and future business expansion of the Group may be affected.

Our company takes various measures when necessary, for the purpose of promoting the sound development of markets related to the usage of social games incorporated in user environments, promoting appropriate use of social games by users, etc. However, if system adjustment and improvement is delayed or an unexpected event occurs, the business performance and future business expansion of the Group may be affected.
In addition, the internet media businesses and game businesses handled by the Group offer services in accordance with the contracts with the credit card companies, platform operators, telecommunications carriers, etc. If there are changes in the Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms or other laws and regulations, technical specifications, revisions to contracts, cancellation of contracts, or other unexpected events, and if we are not timely in responding to such, the business performance and future business expansion of the Group may be affected.
 

Risks in the internet advertising business

The internet advertisement business handled by the Group may be affected by business trends, including the reduction of ad spending by advertisers due to market changes or changes in economic trends. In addition, we may have to fulfill the obligation to pay additional ad fees to the media due to deterioration in the financial standing of advertisers, the wrong distribution of ads, etc.

In addition, the internet advertising business depends on making purchases from media companies due to the nature of the transaction format. If we become unable to procure ad spaces or products due to the discontinuance of transactions with media firms, or if transaction conditions and product specifications related to the regulation of personal information both in Japan and abroad such as Cookie regulations by OS developers, GDPR, e-privacy regulations, the California Consumer Privacy Act (CCPA), etc., are changed, the business performance of the Group may be affected. Furthermore, there are multiple competing companies in the internet advertising business. We are actively working to strengthen our company’s and the Group’s media sales and the strength of our sales proposals, intensifying price competition to acquire customers, which invites lower profitability, etc., and may affect the business performance and financial standing of the Group.

In the ad technology and AI businesses, we are actively working on the development and improvement of ad delivery systems, additional functionality, the introduction of new methods for data analysis and marketing, etc. However, if new technologies or methods for advertisement are invented, the competitiveness of services we offer may decline considerably against competing companies. As for advertising utilizing ad technology for smart devices, it is possible that changes to guidelines or functionality by the providers of OSs for smart devices, changes to the specifications of provided browsers, or the proliferation of ad-blocking tools will affect the business performance and future business expansion of the Group.

Risks related to the investment development business

Public companies that we invest in may see a decrease in the gain on valuation or an increase in the loss of valuation due to share price trends. In addition, investments may not be collectible due to future performance by the companies that we have invested in, and the Group's profit and loss may be impacted.
Unlisted companies may experience a deterioration in performance due to uncertain factors in the future, and the Group's performance, financial standing, and future business expansion may be impacted.

Risks related to the EC business

As the Group operates its EC (E-commerce) businesses, we comply with relevant laws and regulations, manage product control systems, and sign contracts with suppliers thoroughly, but if the product we sold goes against the law or has defects, producing problems of safety, etc., our business performance may be affected by occurrences of liability for damages, loss of trust, etc.

Risks related to the sports business

CyberAgent carries out sporting business, including the operation of sporting exhibits and events, and in the case of sporting exhibits, there may be an accident due to attendance by a large number of spectators. The necessary prevention measures are taken, but the Group’s performance may be impacted due to incidents of liability for damages or a loss of confidence.

Risks related to M&As

The Group, for purposes of further growth, attaches great importance to diversification of earnings through entry into and strengthening of business peripheral to “ABEMA,” and entry into and strengthening of new business fields, such as a business that utilizes resources and know-how of the existing business. One method to achieve that is to strengthen investments and lending, including M&As. The target business is investigated in detail beforehand as much as possible, and once the risk is sufficiently considered, the M&A is proceeded with. However, if issues arise post-acquisition that were unable to be ascertained beforehand, such as the identification of unrecognized liabilities or the emergence of contingent liabilities, or post-acquisition business expansions do not proceed as planned, the Group’s performance, financial standing, and future business expansion may be impacted. In addition, if new areas of business are added to the Group through M&A or similar means, risk factors specific to those businesses will be taken on by the Group.

Risks related to the food and beverage business

The Group operates restaurants and has thorough quality control and hygiene management. However, if a food related incident arises due to certain circumstances, the Group’s performance may be impacted due to incidents of liability for damages or a loss of confidence.