PAPYLESS CO.,LTD.

Computer network systems are essential for the operation of the E-Book Business, and if a failure occurs due to hardware malfunction, communication line failure, new types of viruses, natural disasters, fire, power outage, etc., business activities may be suspended; the importance of this risk is explicitly stated to be high. Revenue and earnings will decrease depending on the scale of the failure. As countermeasures, the Group is continuously implementing redundancy measures such as distributing servers across external data centers, installing uninterruptible power supply units, and duplicating communication lines.

Advertising expenses are essential costs for customer acquisition and sales growth in the e-commerce business, and their cost-effectiveness directly affects revenue and earnings, so the importance of this risk is explicitly stated to be very high. If the advertising strategy fails to achieve the expected effect, revenue and earnings will decrease in proportion to the decline in cost-effectiveness. As countermeasures, the Group conducts its own analysis of advertising effectiveness and has built a system for formulating and implementing advertising strategies based on trial-and-error effectiveness verification and accumulated know-how.

There are no barriers to entry such as patents in the e-book sales business, and many companies have entered the market, resulting in already-manifested competition with rivals. If competitors implement superior services or customer acquisition measures, there is a risk that the Group's revenue and earnings will decline. As countermeasures, the Group is promoting improvements to advertising effectiveness through AI adoption, enhancement of site usability, development of next-generation content, and expansion into overseas markets.

Since e-books are electronic data, there is a risk of illegal distribution, and the damage caused to the e-book industry by "Manga-Mura" in the past is estimated at ¥320 billion. It is judged that the importance and level of this risk will increase in proportion to the expansion of the market size, and this will have an adverse effect on the healthy development of the e-book market. As a countermeasure, five e-bookstore operators established the "Japan E-Bookstore Association" as founding members, formulating the ABJ Mark and implementing anti-piracy measures and awareness activities.

The Group has entered into copyright licensing agreements with publishers and others regarding the content it carries and pays copyright royalty fees; however, there is a possibility that royalty rates may rise or contracts may become unable to be continued with some major publishers. If the royalty rate rises, the ratio of cost of sales to net sales will increase, decreasing earnings. As countermeasures, the Group strives to build good relationships with content holders while also strengthening its in-house production system for digital-born content.