TBS HighLights

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With the launch of digital terrestrial television on December 1, 2003 in the three greater metropolitan areas of Tokyo, Osaka and Nagoya, television has finally entered a new era. I believe that TBS can aggressively exploit new business opportunities arising from the start-up of digital terrestrial broadcasting after the transfer of all terrestrial television broadcasting to the digital format scheduled for July 2011.

Digital terrestrial television will be expected to further raise the quality of broadcasting. It is the mission of the TBS brand to serve as an inspiring and reliable source of information that transcends generational barriers. In broadcasting operations, TBS made a strong start, leading the field successively in average ratings in the "golden" and prime time bands in the first and second weeks of digital services launched in April 2004. Higher ratings are not the be-all, end-all for TBS, but we consider them an important tool for measuring whether or not we are offering our viewers and listeners satisfactory services. Going forward, we plan not only to pursue higher ratings but also to continue to improve our program content, so that we can further enhance the TBS brand image.

The launch of digital broadcasting and spread of broadband technologies have brought dramatic changes to the operating environment surrounding the broadcasting industry. While closely monitoring these developments and watching where next-generation technologies for the broadcasting industry are likely to emerge, TBS overhauled its organization in April 2000. The ‘in-house company’ system we have adopted fosters a better management mindset and more thoroughgoing cost-awareness. However, the main goal of the change is to revitalize program production by ensuring that each new autonomous ‘company’ spares no effort in creating superb content. This reorganization has also acted as a catalyst for improved earnings, with TBS Radio & Communications, Inc., our autonomous radio operations division, coming first in every monthly ratings survey since August 2000.

We anticipate showing solid progress in cost management and other areas at three new ‘in-house companies’ handling television production, TBS Entertainment, TBS Live, and TBS Sports. In a further round of structural overhaul of television operations to strengthen our program production capabilities, we merged these three entities on October 1, 2004 into a new company, TBS Television, Inc.

TBS Television's brief will cover not only program production, but also the full range of television functions, including editing and marketing, as well as operations of the rapidly growing projects division. By pooling the capabilities of each of these functions, we plan to offer cutting-edge, top-quality broadcasting services making full use of the latest technologies. As a core company of the TBS group, TBS Television will build on the deep-rooted program-making expertise it inherits from the three entities it replaces. We aim to make it a first-class content producer, capable of quickly delivering a wide range of news services to our viewers.

Under an arrangement with program production and other operations transferred to TBS Television, the parent company Tokyo Broadcasting System, Inc. (TBS) will continue to hold TV broadcast licensing and editing rights as well as copyrights and final authority over other current operations. This new arrangement will create a stronger framework for program production.

As of the end of August 2004, over 6.5 million households were capable of receiving broadcast satellite-based digital broadcasts, thanks in part to increased sales of flat-screen digital TVs since the launch of digital terrestrial broadcasting. This figure is expected to further increase. The Group's digital broadcasting satellite company, BS-i, is making every effort to cement its position as a leader in this industry, through high-quality programming and better interactive content. And C-TBS, our new digital communications satellite broadcaster, is developing pay-to-use services such as JNN NEWS BIRD and tbs channel with its portfolio of prestigious drama classics as a new revenue source. In addition, we are researching and developing broadcasting services for broadband and mobile media, with the aim of creating practical applications and business models.

In other business, the TBS-supported animated movie APPLESEED featured revolutionary three-dimensional computer graphics and baseball team, the Yokohama BayStars, brought fresh vigor to their playing style from 2003,which helped further the media strategy of TBS Group including its consolidated subsidiaries.

In the TBS Akasaka re-development project, demolition of existing facilities began in the summer of 2003. This development is intended to support our core broadcasting operations, as the project involves efficient use of approximately 33,000 square meters of company-owned land, and we are conducting thorough profitability studies to ensure it becomes a steady source of future revenues. Completion of buildings centered on an approximately 180-meter office block for rental use is scheduled for fiscal 2007.

In broadcasting operations, increased depreciation expenses impacted profits as equipment acquisitions peaked ahead of the launch of digital broadcasting in April 2004. But we are working to strengthen the operating base to meet funding needs from the switch to the digital format and the re-development at Akasaka by increasing cash flow from operating activities through higher market share from enhanced content.

As part of structural reforms to reduce personnel expenses, TBS is also aggressively streamlining pension systems, writing off approximately 10.4 billion yen in actuarial shortfalls (difference between actual and assumed pension fund returns) under retirement benefit accounting in the period under review. This was a preventative measure taken to ensure that pension and other personnel expenses do not erode profits in future.

The TBS Group, including consolidated subsidiaries, faces a period of major upheaval in core broadcasting businesses. While tirelessly seeking new ways to strengthen our operating base, we aim to raise the value of the TBS brand, and become a leading content provider of digital, media, and combined services.

	1 October, 2004 Hiroshi Inoue President Tokyo Broadcasting System