MEDIA DO Co.,Ltd. Q3 FY2026 earnings call

• Core Domestic E-book Distribution Position

  • Media Do is the largest domestic e-book distributor in Japan, holding direct contracts with nearly all domestic publishers, holding over 3.17 million total content titles, and supplying content to over 150 domestic e-bookstores. Total distribution volume hit 182 billion yen in the prior fiscal year, and is projected to near 200 billion yen this fiscal year, maintaining the second-largest position globally after Amazon Kindle.
  • The company's business model creates value by connecting over 2,200 publishers and over 150 e-bookstores: a publisher only needs to sign one contract with Media Do to distribute to multiple e-bookstores, and an e-bookstore only needs one contract to source content from multiple publishers, reducing transaction complexity and speeding up distribution.

• Updated Corporate Vision and Overseas Expansion of Japanese Content

  • The company updated its vision to prioritize spreading Japanese content globally, and targets becoming an irreplaceable gateway for delivering Japanese books to the world. Paper books are still overwhelmingly dominant in most global publishing markets: paper holds 88% of the US market, and 89% of the global average market, compared to 64% in Japan. Thus, the company is prioritizes entering the overseas paper book market, in addition to its core strengths in e-books and audiobooks.
  • The company developed MDTS (MediaDo Translation System), an AI-powered tool to support translator work, to drastically cut production time and costs. The system cuts the average timeline from translation to distribution from 5 months to a target of 2 months, and is already complete for text content, with development ongoing for image recognition for manga and magazines. The company aims to secure local paper distribution networks and launch full-scale distribution in 2026.
  • The company leverages its existing direct publisher contracts to secure content rights, leverages 30+ years of experienced retail distribution expertise from an in-house managing director, and uses existing overseas subsidiary Media Do International, Inc. and existing marketing tools NetGalley and Booktrovert for go-to-market.

• SC (Sustainability Creation / Regional Revitalization) Business

  • The business is split into two core areas: entrepreneur support and sports business, and builds the "Tokushima Model" in Tokushima Prefecture to expand nationwide. As of the call, entrepreneur support programs have expanded to 18 prefectures, with a target of 25 prefectures by the end of 2026 and 46 prefectures (excluding Tokyo) within 5 years.
  • The first SC Conference is scheduled for July 30, 2026, with 1,500 participants planned, and the company targets expanding to 10,000 participants next year and 100,000 participants within a few years, holding the event annually.
  • Additional local initiatives include the annual Uzushio Summit (a Tokushima-based regional Davos-style conference), and the officially adopted Tokushima version of Tobitate! Study Abroad JAPAN, which funds 50 study-abroad high school students per year with 30 million yen in combined funding from 14 local companies.
  • For the sports business, the Tokushima Gambarous basketball team (in B3 division) is currently ranked 1st out of 15 clubs with 9 consecutive wins, maintaining a sellout rate above the B1 average. The company will launch the "Gambarous Seven" fan engagement app, which will be renamed "B Seven (tentative)" and licensed to all 55 B.League clubs after testing. B.League will restructure into three new divisions next season, and Tokushima Gambarous has already secured entry into B.LEAGUE ONE, between B1 and B2 level. The company aims to leverage the planned Tokushima Arena development to drive further growth.

• Other Initiatives

  • The company introduced a basic policy against large-scale share acquisitions to maintain share liquidity and preserve the publishing distribution infrastructure, after institutional investor Koshitsu Co., Ltd. acquired up to 20% of shares as a pure investment.

1. E-book Distribution Segment: Third quarter cumulative sales revenue grew 8.3% year-over-year, with existing distribution channels growing 5.7% and new distribution channels contributing 2.6% growth. It added new distribution from "mechacomic" (Amutas Co., Ltd.) starting in July, with new channel growth of 4.2% from July to November. In the standalone third quarter, the segment posted operating profit of 1.195 billion yen, which increased year-over-year. This segment is the core growth driver for the company, with all quarters year-to-date outperforming prior year results.
2. Strategic Investment Segment: This segment is structured into three sub-businesses: International Business, IP & Solution Business, and SC (Sustainability Creation) Business. After excluding the impact from the sale of Everista at the end of the prior fiscal year, all quarters year-to-date grew revenue year-over-year. The segment had a cumulative operating deficit of 453 million yen for the first three quarters, which represented a 342 million yen improvement from the prior year cumulative deficit of 795 million yen, led by IP & Solution Business. However, in the standalone third quarter, the segment recorded a deficit of 206 million yen, with the deficit expanding year-over-year due to underperformance at Nihon Bungeisha. Adjustments including headquarter costs totaled 480 million yen, also with an expanded deficit year-over-year driven by increased R&D spending. Nihon Bungeisha, a subsidiary in IP & Solution Business, achieved post-acquisition peak profit in the third quarter from successful reforms in practical books, but its comic division underperformed year-over-year after a popular title ended, expanding the segment deficit. Flyer, another subsidiary, returned to growth in the third quarter after slow growth in the first half, and the acquisition of AIStep (a generative AI worker education support business) in September contributed to both revenue and profit starting in the third quarter.

• Full-year 2026 February fiscal year guidance is maintained unchanged despite the larger-than-expected deficit expansion in the Strategic Investment segment in the third quarter, driven by solid performance from the core E-book Distribution segment.
  • The company originally projected a full-year Strategic Investment segment deficit of 410 million yen, representing a 500 million yen improvement from the prior full-year deficit of 952 million yen. Due to the third quarter deficit expansion, the company now expects it will be difficult to hit the original full-year deficit reduction target, with cumulative deficit already at 453 million yen through three quarters and additional deficit expected in the fourth quarter.
  • Revenue progress against full-year guidance is 76% as of the third quarter, which is considered a strong result given the third quarter seasonally has lower revenue and profit than the second and fourth quarters. Progress against full-year guidance is 71.4% for EBITDA, 70.2% for operating profit, and 81.6% for net income attributable to parent shareholders, which is roughly in line with the prior year progress level.
  • The company targets full-scale overseas paper content distribution launch in 2026, and will announce the official direction for local distribution network construction within 2026.
  • The 5-year mid-term management plan does not include new businesses like overseas distribution, and the company is building the business to hit plan targets for the second and third years of the plan, accounting for potential investment costs and new revenue from new initiatives.

• Japanese population decline creates long-term risk of shrinking domestic content volume and declining sales, which the company aims to mitigate through expanding the value of Japanese content and pursuing overseas expansion.
  • The Strategic Investment segment is at risk of missing its full-year deficit reduction target due to unexpected underperformance at Nihon Bungeisha's comic division in the third quarter.
  • There is risk of large negative impact to management if Koshitsu Co., Ltd. sells its large 20% shareholding in a single large block after further increasing its stake.
  • Reforms at Nihon Bungeisha's comic division will not produce immediate results, so performance improvement is not expected until at least the next fiscal year.

Q: Regarding the focus on securing local distribution networks for overseas expansion, what specific structure will this take? Will you set up a local subsidiary, or partner with existing local logistics networks?

A: We are considering a wide range of options, including placing our printed content with existing distributors, partnering with existing local publishers, and establishing a joint venture with existing publishers. We are not yet ready to make an official announcement, but we plan to release an official direction by the end of the year, and will provide further details at that time.

Q: This is the first year of the mid-term management plan, and it looks on track to hit the first year target. What is the plan for progress tracking for the second and third years?

A: The mid-term management plan was built around the existing core business, and does not include new businesses like overseas distribution. We are building the business to hit plan targets for both the next two years, accounting for the potential for investment costs and new revenue from new initiatives.

Q: Demand for Japanese content overseas seems to have grown positively since the mid-term plan was announced, and progress for Tokushima regional revitalization also looks faster than originally expected. What differences do you see between current status and original expectations? Also, are you planning to add new revenue models for overseas content distribution beyond distribution fees?

A: First, regarding demand for Japanese content overseas: Japanese content already had high global demand, but we have seen even stronger demand since we announced the mid-term plan. The Japanese government, including METI, MEXT, and other related agencies, has increased focus on promoting Japanese content globally, and budgets for subsidies and grants have expanded. Translation already receives substantial support, but we still see insufficient support for distribution, so we will continue negotiating to access support for distribution. We align closely with the Japanese government's official push to promote JAPAN Content globally including manga, text, and anime, and will continue to expand in partnership with the government. For the SC business, when we announced the mid-term plan last April, we only outlined the entrepreneur support and sports businesses, and did not have a clear plan for the platform to host these initiatives. After last September's event, which received strong demand from stakeholders, we clarified that the core purpose of the SC business is to build a platform that connects people, provides opportunities for meeting, information sharing, and learning. The business has progressed much further than originally expected, with a clear structure now in place that was not visible last April. Regarding new revenue models for overseas distribution: The market for Japanese content is clearly growing and maturing globally. The key priority is controlling translation costs, and we will negotiate cost sharing with each publisher individually. Historically, when small and medium Japanese publishers pursue overseas expansion, agents only act as intermediaries and do not handle distribution itself. We take responsibility for distribution, which differentiates our position. Entering the paper book segment, which we have never operated in domestically, is itself a new business model for Media Do, so building out this distribution system is our core new initiative.

Q: What is the expected scale of upfront investment for 2026 overseas expansion? Will you start small or commit to a meaningful scale?

A: We are currently exploring all possible options. We believe we need to focus on distribution, not agency work, which requires deep alliances with local companies. Depending on the structure, this could require balance sheet investment, and investment in system development that impacts the profit and loss statement. Most of the required investment will go toward the paper distribution space, rather than digital AI initiatives. We are still in the research and adjustment phase, and cannot provide specific details at this stage.

Q: What is the outlook for performance improvement at Nihon Bungeisha's text and manga businesses, which dragged on the Strategic Investment segment this quarter?

A: For text content, especially practical books, performance has improved steadily since the new president took office in May of the year before last, and reforms are progressing well. For manga, performance was supported by media adaptations and hit titles through the second quarter, but mid-term structural issues became visible in the third quarter after a popular title ended. We have already started expanding the editorial department and restructuring the organization, but these changes will not produce immediate results, as performance ultimately depends on content creation. We expect to see signs of improvement starting next fiscal year. We are also pursuing cost reduction and organizational restructuring starting in the fourth quarter, and we expect some initiatives to produce results relatively quickly.

Q: What is the current trend for new trading partners in the distribution agency business?

A: We cannot disclose specific names of potential new large partners, but across the industry, the number of campaigns and content files in e-book distribution has grown substantially, and the value of distribution agency services is being re-recognized, with growing importance. We will continue targeting new distribution channel partnerships similar to Piccoma and mechacomic going forward.

Q: Can the audiobook market become a growth driver for Media Do?

A: We believe there is substantial room for growth in the Japanese audiobook market compared to overseas markets. We partner with Amazon Audible, and we have seen strong growth from the partnership. However, unlike overseas markets where multiple players like Spotify and Audible compete to drive market growth, Japan currently has very little player participation beyond Audible. Historically, the Japanese e-book manga market grew rapidly thanks to new entry from multiple players that activated the market, so we hope to see similar activation in the Japanese audiobook market going forward.

Q: What are the advantages of Media Do's business model for e-book distribution? Do you have pricing power over competitors, and how does price competition look?

A: The Japanese e-book distribution agency model is rare in other countries, due to Japan's unique market structure: market share is not concentrated among a few large publishers, there are huge numbers of small and medium players, and there are many different e-book platform players. We work with over 2,200 publishers and over 150 e-bookstores, creating an efficient one-stop distribution model that reduces transaction work for both sides. We expect our growth rate will align with the overall e-book market growth rate, and our existing channel growth will be very close to overall market growth.