CyberAgent,Inc.

The Group is subject to regulation under a wide range of laws and guidelines, including the "Act on Improving Transparency and Fairness of Specified Digital Platforms," the "Act on the Protection of Personal Information," and the "Payment Services Act." Amendments to these laws or the formulation of new self-regulatory rules could impose new constraints on the business, and with respect to music copyrights, changes to usage fees or licensing conditions from organizations such as JASRAC could also affect business performance. Although the Group strives to maintain a legal compliance system, delays in responding to changes in the regulatory environment could have a material impact on business performance and business development.

The Group holds large volumes of personal information through its internet-related businesses and faces risks of information leakage due to cyberattacks, malware, or errors by officers and employees. Personal information protection laws in various countries, such as the EU's "GDPR" and California's "CCPA," may impose legal liability including significant fines, and since regulatory content and enforcement vary by country and region, differences in interpretation could result in fines or damages claims. Although the Group has established and strives to comply with its privacy policy, there is a risk of reputational decline from a social or ethical standpoint even in the absence of legal liability.

The Group's service infrastructure relies on computer networks, and system vulnerabilities, cyberattacks, malware, unexpected failures of cloud services, natural disasters, and other factors could result in damage such as leakage of important data, unauthorized alteration of programs, or service disruptions. If such risks materialize, they could affect business performance and business development through third-party damages claims, reputational decline, and lost revenue opportunities. The Group is working with partner companies to strengthen security, but cannot guarantee complete prevention of such incidents.

The Group utilizes generative AI across a wide range of areas, including the Internet Advertising Business, aiming to improve operational efficiency and enhance business competitiveness. However, if regulations on AI usage are strengthened, this could hinder efficiency improvements and lead to a decline in competitiveness. In addition, if trade secrets or private data are leaked externally due to an incident caused by a generative AI service, this could result in damages claims or reputational decline. The Group is working to strengthen governance through company-wide generative AI training and the formulation and revision of guidelines.

The Internet Advertising Business is highly susceptible to economic conditions, and if advertisers reduce advertising expenditure due to a deterioration in business sentiment, this would directly affect the Group's business performance. In addition, changes to trading conditions or product specifications resulting from Cookie restrictions imposed by OS operators or personal information regulations such as GDPR and CCPA could occur, and if it becomes difficult to continue transactions with media companies, this could hinder the procurement of advertising space. There is also a risk of declining profitability due to intensifying price competition with competitors, and the Group is working to strengthen sales and enhance its sales proposal capabilities.

The Game Business must respond to the diversification and shifting nature of user preferences, and if the Group is unable to provide attractive new content or prevent existing content from becoming obsolete, this could result in user attrition, affecting business performance and business development. Responses may also be required in light of changes in social circumstances, such as the World Health Organization's recognition of gaming disorder as an international disease, which could constrain business development. The Group is working to acquire and retain users through the development of new games, expansion of features in existing services, and collaboration with industry associations.

The Group regards the recruitment and development of human resources as an important issue for securing a competitive advantage in the internet business industry. If it becomes difficult to secure sufficient human resources, or if rapid hiring makes it difficult to maintain collaboration and cooperation within the Group, this would affect business performance and financial condition. In addition, if officers or executive employees—including the Representative Director—who possess specialized knowledge, skills, and experience retire or resign and it becomes difficult to recruit successors, this could have a material impact on business development. The Group implements ongoing recruitment and development measures, but competition for talent in the internet industry remains intense.

The Group's policy is to strengthen investment and financing, including M&A, in order to reinforce ABEMA-related businesses and enter new business areas. However, if unrecognized or contingent liabilities arise after an acquisition, or if business plans are not achieved, this could affect business performance, financial condition, and business development. In the Investment Development Business as well, there is a risk that investment recovery could become difficult due to increased valuation losses resulting from stock price movements of publicly listed companies or deteriorating performance of unlisted companies. The Group's policy is to proceed with M&A only after conducting as thorough a due diligence process as possible and carefully examining the associated risks in advance.

In the event of natural disasters such as earthquakes or typhoons, abnormal weather associated with climate change, terrorist attacks, or the spread of infectious diseases, the Group's business operations could be disrupted. In particular, because the Group's facilities and computer network infrastructure are concentrated in certain regions, a disaster occurring in these locations could result in substantial damage. The transition to a low-carbon society may also affect the Group's financial condition through expanded regulations, carbon tax burdens, and the need to transition to low-carbon technologies and equipment. In addition, the spread of infectious diseases could restrict the operation of sports and event businesses, and reductions in advertising expenditure by advertisers could also affect business performance.

The Group's policy is to expand its business domains through the creation of new businesses, establishment of subsidiaries, corporate acquisitions, and overseas expansion. However, additional expenditures are anticipated for new hiring, capacity expansion, and business development costs, and stable profitability is expected to take time to achieve. In overseas expansion, it may be difficult to address potential risks such as differing laws, regulations, political and social conditions, exchange rate fluctuations, and competitive environments in each country. If the Group's management systems fail to keep pace with business expansion and material deficiencies arise in the internal control systems of subsidiaries or affiliated companies, this could have a significant impact on business performance and may necessitate a restructuring of Group strategy. In addition, because the Group operates consumer-facing services, there is also a risk of brand image damage resulting from unexpected reputational harm.