USEN CORPORATION

In the 41st fiscal term of the USEN GROUP, in line with our plans for long-term growth, we were able to record significantly positive results. From this point on USEN, as a “Media Contents Company,” is aiming to provide new value centering on GyaO.

Looking back on the 41st fiscal term

Birth of a new content distribution environment
The 41st fiscal term (September 1, 2004 ? August 31, 2005) was a year in which the USEN GROUP achieved the following results in the information and communications sectors in Japan. Our broadband services, which make high-speed high volume telecommunications possible, had 20.55 million subscribers (year-on-year increase of 24.1%) as at the end of June, 2005. Subscriptions to FTTH alone rose to 3.41 million (year-on-year increase of 93.3%). These results reflect the steady growth of the broadband environment as a part of social infrastructure. As this information infrastructure becomes further accepted throughout Japanese society in the 21st century, the foundations for a completely new style of content distribution have been laid.

Creation of a foundation for long-term growth
In our 41st fiscal term the USEN GROUP’s timely connection of optical fiber broadband services to housing complexes has attracted new customers and given us a leading edge in the broadband market in major cities throughout Japan. Building on this foundation USEN has been actively expanding through capital and corporate tie-ups for the purposes of providing the content expected in the broadband era, acquiring ownership of superior music and video content and ensuring the latest content distribution technologies. These activities have resulted in major advancements in USEN’s businesses. Further, USEN has been successful in creating platforms that satisfy the needs for new avenues of distribution in this digital era, such as GyaO, a free broadband broadcast media, and the Internet download music site Ongen. The 41st fiscal term was one of extreme significance for USEN in which we established a “Model that provides superior content to users at any time and in any place” that has set the stage for our long-term growth.

“GyaO”

The birth of a revolutionary media
The USEN GROUP has entered the next stage of its development into a fully-fledged “Media Contents Company” that incorporates both the media and content businesses expected from the digital society of the 21st century. At the heart of this evolution is our free to user broadband broadcaster GyaO. GyaO is able to distribute free content on-demand to users through the revenues generated from advertisers. In terms of long-term growth for the USEN GROUP, GyaO is expected to provide a new source of revenues. In just 6 months since its launch, GyaO has attracted over 3 million registered viewers. This figure has by far exceeded the original expectations of our company. This is because GyaO is a revolutionary media format with enormous customer pull. Given the features of this business model the most effective way of blocking entry by our competitors is to develop our business sooner to ensure our customer base. Accordingly, through future promotions it is our strategy to increase registered viewers to ensure the profits due to us as the pioneer in this type of business.

Media effect on the group
GyaO is the perfect media to assume the key role in the USEN GROUP’s evolution into a “Media Contents Company.” Through utilizing GyaO’s power to attract viewers, it is believed that promotions related to the businesses of other companies within the USEN GROUP will be even more effective. The major theme for the development of GyaO as a media format is the expansion and upgrading of content. USEN is striving to expand content not merely through maximum utilization of the high quality content that the USEN GROUP itself already possesses, but also through independent production and active procurement from other companies both within Japan and abroad of visual and music content. To achieve this goal, USEN is building wide ranging strong relationships with superior content holders in Japan and overseas.

Toward further development and expansion
As the strength of the power to attract viewers is directly linked to the ability to influence society, a further increase in USEN’s brand power is expected. From this point on, the USEN GROUP will continue to provide a variety of information of value to society through GyaO. USEN’s “Model of reciprocal provision and use of the content of each company by other companies in the group” creates synergies in the business resources of the group as a whole. Through this model, USEN is aiming to not only expand corporate value but also to maximize both customer satisfaction and company revenues. I would like to take this opportunity to ask for the continued support and understanding of all our shareholders.