Production I.G. President Talks about Mag Garden Merger

In early July, Production I.G. announced its plan to acquire manga publisher Mag Garden on December 1st, 2007 through a stock swap.

Production I.G. has been experiencing a steady decline in profit for the last three and a half years. Last week Nihon Keizai Shimbun (Japan Economic Times) interviewed the president of Production I.G., Mitsuhisa Ishikawa, about the merger of the two companies and their business strategy.

Below is a translation of a part of the interview:

What is the motivation behind this merger?

Many anime are created based on manga. After the merger, we will have an entire line of original manga to base our new anime on. Mag Garden owns the rights to 106 manga titles, like the masterpiece Aria. That's way more than the 14 titles owned by Production I.G. The capacity of the animation market is roughly 200 billion yen while the manga market is worth 500 billion yen. This merger will open the door to a huge new market for us.

There is another important reason, Mag Gardan and Production I.G. have collaborated since November 2006. The cultures of the two companies are very similar.

How do you expect employees of both company to react to the merger?

Mangaka contracted by Mag Gardan will favor this merger, because this merger will offer them the opportunities to have their work adapted into anime by Production I.G, the same studio that created popular works like Ghost in the Shell. The combination of two functions, creating manga and anime, will also attract new precious talents.

Moreover, I expect new titles to be created from the cooperation between mangaka and anime creators. Mangaka from Mag Garden mainly creates manga aimed at teenagers. Most fans of Production I.G are in their 20's. Mangaka from Mag Garden will be able to create new titles for the older generation.

Why is having control over the original manga so important?

Anime has always relied on making profits from DVD sold to anime fans. The gap between a title's success and failure is becoming larger. Holding the rights to the original manga enables us to make profits from goods, movie distribution, and any other forms of media. Holding the original profitable comic is a key to success in the business.

Mag Garden's latest financial report in 2007 didn't look too good, Mag Gerdan seems to be in a difficult situation.

The results of the deficit were due to the depletion of Mag Garden's manga stocks, as well as the writing off of funds offered to an anime producing committee. Both were already disposed of as the cost, so most of the income from DVD sales will result in profit from now on.

What are your expectations regarding profit and future sales plan after this merger?

We will be able to save up to 50 million yen in costs to keep the listing in the stock market each year. On the other hand, and we estimate the cost of the goodwill amortization to rise to 20 million.

That estimation was based on the synergistic effect of the merger. This is just a simple estimation, the total figure of the two companies' sales will be 8,700 million yen (+57%), and the profit will be 720 million yen (+260%).

Translated by T. Ohara