KADOKAWA CORPORATION

Under the sale-with-right-of-return system, there is a risk that a discrepancy between the estimated amount of returns and the actual amount of returns received for publications distributed to wholesalers and bookstores could affect the Group's business results. Since shipment amounts and return rates are not constant, this is recognized as a risk that can arise at any time. As a countermeasure, the Group aims to reduce the return rate by improving the accuracy of market demand forecasting, promoting planned publication, and building a production and logistics system that enables small-lot, just-in-time manufacturing and delivery.

As the print publishing market continues to shrink, there is a persistent risk of declining creditworthiness among companies and retail stores that make up the industry, and if this risk materializes, it could affect the logistics system and lead to an increase in returns. As a countermeasure, the Group conducts careful credit management and is working to build and expand an autonomous logistics and delivery system that enables direct shipment from the Company to retail stores.

When schedule changes or increases in production costs occur in the commercialization or visualization of IP from Publishing, Animation, and Games, there is a risk of missing the appropriate timing for market launch and deteriorating profitability. In particular, since film/video and game works require significant time and cost to produce, the impact per title is relatively greater than that of publications. As a countermeasure, the Group strives to conduct market research, closely track publication plans, and implement appropriate project management.

In IP creation, part or all of the production work may be outsourced, and there is a constant risk that an outsourcing partner could go bankrupt before completing delivery of the work. If this risk materializes, it could lead to increased production costs from re-ordering to another company or production delays, potentially causing the Group to miss the appropriate timing for market launch. As a countermeasure, the Group sets appropriate credit terms and conducts continuous credit management when placing orders with outsourcing partners.

As climate change intensifies, increases in electricity and raw material costs and the worsening of extreme weather events may affect the Group's business operations. As a member of society, the Group is also expected to fulfill its responsibility toward realizing a sustainable society, requiring responses such as greenhouse gas reduction and energy conservation. As a countermeasure, the Group is promoting specific initiatives to address climate change risk based on its sustainability policy.

The Group is subject to a wide range of laws and regulations, and if legal or compliance violations occur, there is a risk of decline in social credibility and adverse impact on business results. In fact, in December 2025 and June 2026, the Group received recommendations from the Japan Fair Trade Commission for violations of the Freelance Act, and has since implemented internal training, review of business processes, and continuous monitoring to prevent recurrence. To prevent legal violations by employees, including bribery and insider trading, the Group continues to develop compliance regulations and operate its internal reporting system.

With the advancement of DX promotion and work-style reform, dependence on the IT environment has increased, giving rise to risks of server and network failures as well as data tampering and information leakage due to cyberattacks. Should such events occur, business interruptions could become prolonged and materially affect the Group's earnings. As a countermeasure, the Group continues to promote the development of an IT environment of appropriate scale and quality.

If the resale price maintenance system (saihan system) recognized for copyrighted works such as printed books and magazines were abolished, it could have a significant impact on the publishing industry as a whole and on the Group's business results. While the Japan Fair Trade Commission considers abolition desirable from a competition policy standpoint, the system is expected to remain in place for the time being. As a countermeasure, the Group is expanding its e-book business and promoting businesses that span multiple business areas such as Animation and Games, aiming to diversify its revenue base.

In the video community service "Niconico," competition has intensified due to the entry of domestic and overseas video posting and live streaming services as well as video content rights holders, and the number of monthly paid (Premium) members has continued to decline. If user needs are not adequately addressed, growth in the number of users cannot be expected, posing a risk to the Group's business results. As a countermeasure, the Group continues to provide highly distinctive services and content backed by innovative ideas and strong network technology capabilities.

As the Group promotes mutual expansion of domestic and overseas content under its "Global Media Mix with Technology" strategy, there is a risk that changes in expression-related regulations or shifts in sentiment toward Japan in various countries and regions could prevent the Group from achieving expected revenue. The degree of impact increases in cases of high dependence on specific regions. As a countermeasure, the Group aims to maximize revenue by promptly grasping conditions in each region and expanding business across multiple business areas and media.