MIXI, Inc.

The majority of the Group's revenue is derived from game monetization sales in the Digital Entertainment business, with a high degree of dependence on a specific title, "Monster Strike." Due to changes in the market environment and user usage trends, this title is on a gradual downward revenue trend, and if competitors launch attractive titles or user attrition accelerates, the impact on business performance would be significant. The Group is working to stimulate usage through feature improvements, regular events, and promotions, while also promoting the development of new titles and releases in emerging overseas markets.

The Group's main businesses depend on providing services via smart devices, and the growth rate of the domestic mobile market is on a declining trend. Rapid and significant market fluctuations may occur due to the introduction of legal regulations, technological innovation, or changes in telecommunications carrier trends, and if the anticipated growth is not achieved, this could affect the business, performance, and financial condition. The Group operates its business on the premise of continued network speed improvements, lower prices, and continued smart device adoption, but recognizes the risk of market disruption due to unforeseen factors.

Services for smart devices have low barriers to entry, and competition is fierce with domestic and international companies superior in capital strength, marketing power, and development capabilities. There is also a risk of indirect competition from home video game consoles and video sharing services, etc., competing for users' leisure time, and intensifying competition and increased countermeasure costs could affect business performance. The Group strives to maintain its competitiveness through new service development and diversification of its business portfolio (Sports business, Lifestyle business).

Games for smart devices in the Digital Entertainment business are provided through platforms such as those of Apple Inc. and Google Inc., resulting in substantial dependence for system usage and user acquisition. If it becomes difficult to continue contracts with these platform operators or if their operating policies change, this would have a direct impact on game monetization sales, which account for the majority of revenue. The Group strives to build good relationships with these operators, but complete control is not possible.

The Group's business is subject to numerous laws and regulations, including the Telecommunications Business Act, the Act on Settlement of Funds, the Act on the Protection of Personal Information, the Act on Development of an Environment that Provides Safe and Secure Internet Use for Young People, and the Bicycle Racing Act, and business operations may be constrained by legal amendments or the establishment of new guidelines. In overseas operations as well, the Group is subject to various countries' sports betting regulations, consumer protection regulations, and anti-money laundering regulations, including Australia's Interactive Gambling Act 2001. Violations could result in administrative penalties such as business suspension orders or license revocation, which could have a material impact on the business, performance, and financial condition.

The Group holds large amounts of personal information such as user registration data, and if leakage, tampering, or unauthorized use occurs, this could result in damage claims, loss of credibility, and response cost burdens. The Group has implemented measures such as establishing basic regulations for personal information protection, using data centers with 24-hour management, limiting access rights, thoroughly conducting internal training, and taking out insurance covering personal information leakage response, but risk cannot be completely eliminated. Cases caused by inappropriate conduct by outsourced contractors are also anticipated, and there are limits to management and supervision.

The Group's services are operated using data centers and cloud services, and if the system goes down due to overload from surges in access, power outages, software malfunctions, unauthorized access, natural disasters, etc., this could result in decreased sales, recovery costs, and damage claims. The Group has implemented measures such as strengthening security, backing up data, and duplicating power supply equipment, but risks arising from unpredictable factors cannot be completely eliminated. System failures also directly lead to a decline in service reliability, posing a risk of user attrition.

The Group conducts M&A, equity investments, and joint ventures to expand its business portfolio, and records a substantial amount of goodwill on its consolidated balance sheet. If integration synergies are not achieved as expected, or if the performance of investees deteriorates, it may become necessary to recognize impairment losses on goodwill and intangible fixed assets, which could affect operating results and financial condition. Prior to executing M&A transactions, the Group conducts due diligence and cross-organizational risk assessments through the Risk Management Committee, but this cannot completely prevent delays in the integration process or the unexpected materialization of risks.

In the internet industry, the speed of technological innovation and changes in customer needs are rapid, with new services being introduced one after another. If the Group fails to respond appropriately and in a timely manner to such changes, its competitiveness in the industry could decline, affecting the business, performance, and financial condition. The Group is working to secure excellent engineers and pursue research into and adoption of cutting-edge technology systems, but there is no guarantee that it can always keep pace with rapid technological change.

With business expansion, it is necessary to continuously secure and develop excellent human resources such as business unit heads, but if this does not proceed as planned, it could lead to reduced competitiveness and constraints on business expansion. While the Group is committed to securing and developing human resources, competition for talent in the internet industry is fierce, and there is no guarantee that necessary personnel can be secured in a timely manner. A shortage of human resources also poses a risk of affecting the development of new services and the maintenance of quality in existing services.