By Mark Schilling
Japan's media moguls have long regarded the film business as secondary, the TV
business as primary to the health of their bottom lines. No wonder: The revenue curves of
the two industries intersected in the 1960s, with TV on the upward, film on the downward
path -- trends that continued for decades. The film departments of Japanese TV networks
may generate blockbusters -- the Fuji-TV produced Bayside Shakedown 2 grossed
Y17.35 billion ($158 million) in 2003 -- but the nets still regard films mainly as tools for
extending the lives of hit TV dramas and generating high ratings. (BS2 was based on a
Fuji TV show that became a cult sensation.) The US media giants that own both networks
and studios have no exact counterparts in Japan.
Kadokawa Holdings, which will celebrate its 60th anniversary in 2005, has adopted a
radically different strategy, however, and has become, since the turn of the millennium, a
major presence in film production and distribution. Japan's Big Three -- Toho, Shochiku,
Toei -- is now a Big Four. This strategy, which had its start three decades ago, when the
Japanese film industry seemed headed toward oblivion, has had its detractors, but
Kadokawa can point to both a string of box office successes and strong revenue gains,
boosting the company from a mid-level publisher to a media powerhouse.
For fiscal 2004, the company projects $125,921,000 in sales of "software," which it
defines as films, videos and games. This represents a 22.2% gain over the $103,058,712
recorded for fiscal 2003 (Note: exchange rate: $1 = 105.6). Total sales for 2004 are
expected to amount to $708,558,000 -- nearly the same as the previous year. In other
words, with book and magazine sales flat, software has become a main engine driving
growth -- and Kadokawa is well positioned to benefit from further gains in the years
ahead.
Founded in 1945 by Genyoshi Kadokawa, Kadokawa quickly gained a reputation as a
leading publisher of serious literature and non-fiction, including dictionaries and
textbooks. In 1975 Genyoshi died and his eldest son Haruki succeeded to the presidency.
Impressed by the book-movie synergy of The Graduate, Haruki produced The Inugami
Family, a 1976 Kon Ichikawa film based on a best-selling Seishi Yokomizo mystery --
and flogged both with the sort of saturation ad campaign, including posters in seemingly
every commuter train in the country, then rare in the conservative Japanese movie
business.
Over the next seventeen years, Haruki made a succession of high concept films and
promoted them with flamboyant PR tactics that won him scorn from the sterner critics,
but also drew audiences. One, the 1990 samurai epic Heaven and Earth, which Haruki
also directed, earned Y5.05 billion ($46 million) in distributor revenues -- the
third-highest figure ever for a domestic film.
Haruki also had a taste for excess, both professional and personal, that finally led to his
arrest on a drug charge in 1993. When his younger, more conventional brother Tsuguhiko
succeeded him, he found the company's finances in disarray, its future in doubt.
An experienced and talented magazine publisher, Tsuguhiko found a key to company's
revival in the hot-selling series of "Walker" city magazines published in major urban
centres around the country. He and his team also restructured the company with the goal
of transforming it into a "mega software publisher" for the entire range of media,
including the new one of the Internet. With the aid of veteran producer Masato Hara,
whose production and distribution outfit Ace Pictures joined the Kadokawa group in
1995, Tsuguhiko also relaunched Kadokawa into the movie business.
In 1998 the company had major hits with the Yoshimitsu Morita romantic drama Lost
Paradise and the Hideaki Anno animation The End of Evangelion, based on a cult
sensation TV series. The glory days were here again.
That same year Ace Pictures merged with indie distributor Asmik to become Asmik Ace
Entertainment, a joint venture between Kadokawa and Sumitomo Corporation. The hits
kept coming, including a double bill, The Ring and The Spiral, that launched the
worldwide Japanese horror boom.
In March 2004 Kadokawa took a 43 percent stake in Nippon Herald, an old-line
independent film distributor that was bleeding red ink despite co-distributing the Lord of
the Rings trilogy. A month later Kadokawa announced a $100 million investment in
Dreamworks SKG, for a 2.83% equity stake, in return for the right to distribute
Dreamworks films in Japan. In April the company launched Kadokawa Pictures, an entity
merging the film-related divisions of Kadokawa Holdings with Kadokawa Daiei -- a
producer and distributor Kadokawa had purchased the year before from Tokuma Shoten
Publishing. Though boasting a 1,700 film catalog and an illustrious past -- it had
produced Kurosawa's Rashomon and the Zatoichi series with Shintaro Katsu -- Daiei
now exists only as a DVD and video label.
That same month Kadokawa Holdings was established as the group's holding company,
with the aim of further integrating and unifying its various units, including core
companies Kadokawa Shoten Publishing (magazines and books, particularly mass market
paperbacks), Media Works (video game publications), Kadokawa Entertainment (video
and DVD sales) and Kadokawa Pictures.
Finally, on September 1, Kadokawa-Daiei Studio, in the Tokyo suburb of Chofu,
reopened after the completion of $9 million in renovation work. Covering 12,000 sqare
metres, the studio has five sound stages, as well as screening rooms, meeting rooms,
workshops and the Kitchen Cafe Gamera -- named for the giant turtle that is a Daiei
symbol.
The dust from this flurry of activity has yet to settle -- but Kadokawa Pictures is already
moving aggressively forward with plans to produce a slate of high-profile films to mark
the parent company's 60th anniversary. Included in its line-up for 2004 and 2005 are One
Missed Call 2, the follow-up to Takashi Miike's horror hit about deadly mobiles, The
Yokai Wars, a family film featuring goblins and other spooks from Japanese folklore,
again helmed by Miike, and G.I. Samurai 1549, a loose remake of a Mitsumasa Saito film
about Japanese Self Defense Force soldiers who time travel back to the days of samurai
and swords. All three will have higher budgets and splashier CG effects than the industry
norm. "We have to make big films if we are to be competitive," says Kadokawa Pictures
president Kazuo Kuroi. "You can't win in this market with little ones."
How competitive? Tsuguhiko, now president and CEO of Kadokawa Holdings, told the
press that The Yokai Wars, budgeted at Y9 billion ($8.1 million) and scheduled for an
August 2005 release, was the first installment in a series that will "rival Harry Potter of
the US and Lord of the Rings of New Zealand in its worldwide appeal."
Also, Kadokawa Pictures is shifting the main focus of its business toward film
production, away from distribution, leaving that part of the business to Nippon Herald
and Asmik Ace. "TV networks can make most of their profits from broadcasting but a
company like ours has to have its own films to survive in this market," says Kuroi. "Film
production is not a do-or-die business for them -- but it is for us."
In September, Kadokawa Pictures launched Japan Film Fund Co., Ltd., a film fund that
will raise as much as Y3.6 billion ($33 million) for the production of Kadokawa films.
The total investment period is for seven years, though partners may opt to cash out after
five. Including Kadokawa, fund partners are Kadokawa Shuppan Kikin, Konami,
Imagica, Development Bank of Japan and Mizuho Financial Group, with the last serving
as the partners' main bank. "We hope to turn the initial investment into Y20 billion ($181
million)," commented Kuroi.
Several film funds were launched in the heady days of Japan's bubble economy of the
1980s and early 1990s -- all ended in tears. What give Kuroi and his Kadokawa team the
confidence that they can succeed? "Hollywood films are in decline," says Kuroi. "They
have less and less to say to Japanese audiences today. We think we can do better."
