Medium-Term Business Plan: Progress and Outlook

Medium-Term Business Plan: Progress and Outlook In the Multichannel Pay TV Business, the SKY Perfect JSAT Group is focusing on maintaining its subscriber base in today s changing operating environment by promoting a shift to the SKY PerfecTV! HD service, while simultaneously working to increase the number of new subscribers, centering on the SKY PerfecTV! e2 service. In the Space & Satellite Business, we are working hard to reinforce the domestic business base and increase our overseas sales ratio, with the aim of securing the leading position in Asia and Oceania, both in name and in reality. Group Goals of the Medium Term Business Plan Revenues Operating Income EBITDA (Billions of yen) (Billions of yen) (Billions of yen) 25 15 155 25 15 17 6 4 42 5 1 1 5 5 12 16 (Target) 12 16 (Target) 12 16 (Target) (Years ended March 31) Progress of the Medium-Term Business Plan Multichannel Pay TV Business Space & Satellite Business Intensive Measures Increase new subscribers to mainly SKY PerfecTV! e2 Strengthening of the base for the domestic satellite communication business Intensive Measures Start of new BS channels > New subscriptions hit a record high To promote the shift to SKY PerfecTV! HD and maintain the number of subscribers Start of the distribution of receivers to subscribers with high ARPU > Further acceleration is necessary Swift response to the temporary increase in demand after the earthquake disaster Cultivation of new customers of BCP-related businesses Enhancement of the overseas satellite communication business To relocate Horizons-2 to the orbital position above the Indian Ocean Successful launch of JCSAT-13 (May 12) Intensive Measures To develop the Internet and mobile services Active efforts in the new business fields Start of the TV program information service Teleco! Start of SKY PerfecTV! On-Demand Expansion of the cloud storage service > Establishment of a specialized section, and strengthening of its operation Intensive Measures Marketing from the viewpoint of subscribers Promotion of the space business Active campaigns for sales promotion Strengthening of the loyalty program Discussion on the involvement in governmental missions Proposal for the use of Japanese satellite infrastructure around the world >Medium to long-term theme Intensive Measures Drastic reform of the cost structure Drastic reform of the cost structure Reform of the structure of the customer center > Cost was reduced by about 1 billion yen Integration and streamlining of the satellite control and services > About % cost reduction in satellite control due to integration 16

To Our Shareholders and Investors Consolidated Financial Highlights Who we are Multichannel Pay TV Business Q1 In Japan, % of households subscribe to multichannel pay broadcasting services, compared with 8% in the United States. Looking ahead, how do you view the potential for growth in this area? The subscription rate will not stop at % Viewers in Japan reap the benefits of having one of the world s best terrestrial broadcasting infrastructures at their disposal. The country s public broadcaster, NHK, as well as terrestrial broadcastings that use advertising revenue to deliver programs, offer viewers content that encompasses a diverse range of genres, including news, sports, movies, drama, and variety shows. Subsequently, viewer satisfaction is high in Japan. In the case of the United States with its huge land area, a large number of viewers receive terrestrial Q2 What kinds of changes are taking place? 17 broadcasts via cable television. This audience, plus the audience for high-resolution multichannel broadcasting services like DirecTV that use satellites to cover the entire country, have created a high diffusion rate for multichannel pay television in that country. In view of this huge disparity in background factors, simply comparing subscription rates is meaningless. Nonetheless, because the full digitization of television in Japan is rapidly transforming the market environment and viewer demand, we believe that an increase in the subscription rate beyond the % level is inevitable. SKY PerfecTV! e2 tuners in nearly every household in the country First, there is the improvement in accessibility to our services. Owing to the completion of the switchover to digital-only television in the year under review, nearly all households replaced their televisions with digital televisions with a built-in SKY PerfecTV! e2 tuner that uses the satellite in the 11 degrees east longitude orbital slot. Consequently, viewers are now able to subscribe to multichannel services without having to buy a separate settop-box, which had previously been a major obstacle. In October 11, moreover, we launched the BS SKY PerfecTV! channel (using a new BS frequency band) as part of BS digital broadcasting services, which are accessible to many households and are the core services of the same satellite in the 11 degrees east longitude orbital slot. The BS SKY PerfecTV! is a showcase channel that offers the content available on SKY Perfec- TV! to some 22 million households that can receive BS digital broadcasts directly using a BS satellite antenna. Corporate Data Financial Section Corporate Social Management Policy Review of Operations Responsibility and Framework

Increase in elderly subscribers A second change is the increasing number of subscribers in the active senior segment. This demographic, which possesses a certain level of savings and spending power, enjoys a wide range of hobbies and has a considerable amount of free time, and thus represents a sizeable part of the Group s current subscribers. The programming of Japan s terrestrial broadcastings is centered on advertisers target groups, which are mainly women aged 34, called the F1 category and teenagers (the trend leaders and key to product hits). Consequently, there is a growing mismatch between the viewing needs of the elderly and program scheduling. At one time, live broadcasts of Nippon Professional Baseball regular-season games, especially those featuring the Yomiuri Giants, captured huge audiences. Today, however, such broadcasts are fast disappearing from peak viewing schedules on terrestrial networks. Yet, those in the older age group are still interested in watching professional baseball. This is borne out by the popularity of a SKY PerfecTV! subscription package that includes live broadcasts of all baseball games, which is attracting more and more subscribers aged in their fifties and sixties. SKY PerfecTV! offers more channels via satellite than any other provider in Japan s pay TV business. Therefore, we will be able to steadily increase the number of subscribers by designing products to incorporate the needs of viewers that cannot be met by the comprehensive programming of regular terrestrial broadcast networks. Forecasted Population Composition for Japan 1 9 Male Female 8 7 6 5 4 3 1 1, 1, 8 6 4 4 6 8 1, 1, (Thousands) National Institute of Population and Social Security Research Source: Estimated future population of Japan (Estimated in January 12) Q3 Video on demand (VOD) services are gaining attention amid diversification of and advances in viewing devices, while competition is expected to intensify. How do you plan to differentiate your company from others in the market? Differentiation through live broadcasts for multiple devices and other offerings In October 11, we launched the SKY PerfecTV! On- Demand service under the slogan SKY PerfecTV! Anywhere, Anytime. This was in response to the huge changes taking place owing to the availability of myriad devices with advanced functions. We also launched our Teleco! TV program information service, which enables viewers to conduct simple searches for terrestrial digital, BS, and CS programs from an enormous database. In today s environment of multiple transmission 18

routes and devices, we should be mindful that viewers foremost concern is watching content they want to see, not technical matters. The key, therefore, is to address viewer preferences by offering the optimal viewing styles. For this reason, we are focusing on improving subscriber satisfaction ratings for all of our services. Adopting a viewer-centered perspective, we are leveraging our satellite broadcasts to bundle VOD services that can be accessed via a variety of devices. We already offer a popular service for multimedia devices that enables viewers to watch live games in Japan s professional soccer league. We decided to also offer live streaming of entire matches played in Italy s top professional soccer league, Serie A, via our VOD service in December 12. Through my many years in this industry, I can identify with people wanting to watch television programs Q4 Service cancellations accompanying shift from old service The Group s current medium-term business plan assumes a compound annual growth rate (CAGR) of around 7% for subscribers to the SKY PerfecTV! e2 service through March 16. On the other hand, by the end of March 15, we plan to stop the standard-definition (SDTV/MPEG-2 format) service of SKY PerfecTV!, which has been in operation since 1996 using communications satellites in the 124/128 degrees east longitude orbital slots. It is imperative that we promote the smooth transition of subscribers from our SDTV service to SKY PerfecTV! HD service, which offers programs in the HDTV/H.264 format. Unlike our SKY PerfecTV! e2 service, however, viewers still need a separate set-top-box to access this HD service. Therefore, we anticipate that we will lose some subscribers during the transition process and when we stop the SDTV service. Accordingly, the March 16 target of more than 4 million subscribers for all services is by no means an easy one. We will, however, work hard to cross the 4 million milestone as soon as we can. in real time. In addition to live sports and news programs, there is firm demand for watching drama and entertainment programs here and now, even in households where viewers can record and replay programs. I believe that our point of difference rests in making skillful use of today s multi-device environment while drawing on our knowledge and understanding of viewer psychology. The top page of SKY PerfecTV! On Demand Given the beneficial changes occurring in today s operating environment, isn t your target of more than 4 million subscribers by March 16 (up around, from March 12) a little on the conservative side? 19 SKY PerfecTV! s Subscriber Forecast We target more than 4 million subscribers in the midium-term business plan. (Millions of subscribers) 4 3 2 1 (SD: MPEG-2) Migration (HD: H.264) 11 12 13 14 15 (FY) 11 Results and 12 Forecast are NOT reflected Potential market of approximately 12 million households Having said that, we are in an advantageous position, having built a framework for marketing the content of SKY PerfecTV! broadcasts directly to the roughly 22 million households that view BS broadcasts via satellite. With digital televisions in around 5 million households nationwide, we investigated the extent to which various changes to products and communications Who we are Consolidated Financial Highlights To Our Shareholders and Investors Corporate Data Financial Section Corporate Social Management Policy Review of Operations Responsibility and Framework

would increase subscriber numbers. We conducted a profile analysis of a sampling of 5, households, based on a distribution pattern of Japan s approximately 5 million households. As a result, we confirmed that a potential market of around 12 million customers exists for our services. This figure assumes changes and improvements to current products and communication methods, so there are various hurdles to overcome in order to gain access to this potential market. Consequently, we plan to undertake radical reforms together with the various broadcasters. Summary of the Survey regarding SKY PerfecTV! Potential Subscribers Survey covering a sample of 5,194 households with a similar makeup to total Japanese households (approx. 5 million) Total Japanese households: Approx. 5 million Future target niche Approx. 12 million households Subscribing because attracted by all-new products/services not currently available Subscribing because attracted by the existing products/services currently available Existing subscribers 7 468 119 8% and higher Households with very low potential to subscribe 34 5% % and higher Subscription probability * Figures in diagram taken from household sample Maximum potential subscribers: Approx. 12 million (Approx. one-quarter of total target market) Q5 What specific measures are you taking to ensure a smooth transition to the SKY PerfecTV! HD service? Projected 54.7% of subscribers will shift to HD service in fiscal 12 We are adopting a range of measures (involving both hardware and software) to encourage a shift to the SKY PerfecTV! HD service. For example, we have reduced subscription package fees while expanding our lineup of HD receivers to include DVRs and commercially available Blu-ray Disc recorders with built-in HD tuners. We have also begun distributing receivers free-ofcharge to subscribers with a high ARPU,* and launched a campaign offering subscribers a free multi-satellite antenna and free installation. As a result of these measures, as of March 31, 12, 32.5% of subscribers had shifted to our HD service, compared with 19.2% a year earlier. Projections for March 13 put this figure at 54.7%. This is based on a considerable increase in the number of HD channels in the autumn of 12, as well as a free receiver campaign and boosting promotions within program slots. * Average Monthly Revenue Per Unit HD Migration Plan (%) 1 8 6 4 HD Ratio 54.7% 4Q/FY12 9 1 11 12 13 14 1.% 4Q/FY14 (FY) Q6 The shift to terrestrial digital television and the launch of new BS services helped boost the number of new subscribers in the year ended March 12. Taking these special factors into account as well, please tell us about the challenges you face going forward, as well as the Group s growth strategies. Making things simple by thoroughly adopting the subscriber s perspective As mentioned earlier, in order to acquire new subscribers from the potential market of 12 million households, we must overcome various issues that came to light in the recent market survey. As a matter of urgency that

requires a drastic resolution, we must address the perplexity and complexity of the services we offer, as well as their names. In the past, each merger, integration, or addition of a new transmission route led us to add new services and products. Although these enhanced our lineup, they required significant explanation to our customers. Therefore, to prevent these services from discouraging new subscribers, we will review both service content and communication methods from a totally customer-oriented perspective and make them easier to understand. Q7 Reinforcement of database marketing In addition to making things simpler, another future challenge will be to study efficient ways of capturing new subscribers and encouraging former subscribers who have cancelled our services to re-subscribe. At present, we are working to create a new customer management system. Specifically, this involves promoting accurate and efficient database marketing by first ascertaining the attributes and viewing the preferences of individuals and households that subscribe to our services or that are receiving free trials of our services. We are also considering various measures aimed at increasing the ARPU, extending subscriptions, and reducing subscription cancellations. One such initiative is to reinforce our customer loyalty program to encourage stronger customer relationships. Despite the projected increase in subscribers, the Multichannel Pay TV Business is forecast to post an operating loss of 8 million in the year ending March 31, 13. What reforms are you taking to improve the cost structure? Generating profits over the long term In contrast to the Space & Satellite Business, the business model for the Multichannel Pay TV Business tends to generate a disparity of performance in the short term owing to the subscriber acquisition cost (SAC) and the cyclical nature of major program content. However, under the current medium-term plan, by the end of March 16, we will fortify our earnings base by increasing the number of subscribers, and work to create a system that generates steady profits over the long term. In the immediate term, we will incur considerable costs in connection with promoting subscriptions and the shift to our HD service. Even so, the extent of the loss recorded by the Multichannel Pay TV Business will decrease with each successive year as we move steadily toward improved profitability. The main reforms to the cost structure are outlined below. Reduce the SAC through efficient marketing The proliferation of digital televisions with built-in tuners that can receive the SKY PerfecTV! e2 service and increased use of the website have made efficient direct marketing feasible. Because these factors have contributed directly to reducing costs associated with acquiring new subscribers via home appliance mass retailers, we will be able to steadily decrease SAC. 21 Ongoing reductions in operational costs Furthermore, structural reforms of our customer centers enabled us to reduce costs by around 1 billion in the year under review. In April 12, we opened a new customer center in Naha City, Okinawa Prefecture. As a result, the functions of the customer center located in Yokohama will shift to the Sapporo and Okinawa customer centers. In addition to strengthening the deployment of business continuity planning (BCP) in the event of a natural disaster, this strategy is expected to deliver operational savings of around 3 billion in the three-year period to March 14. Simplification also reduces costs considerably In addition to fomenting customer dissatisfaction and impeding new subscriptions, the difficulty in understanding current service content is a significant factor in the cost of customer center operations. We believe that the synergies created by the reforms to our subscriber management system (SMS) in the next fiscal year, as well as the effective use of the Internet and simplification of services, will create ample scope for cost reductions. Who we are Consolidated Financial Highlights To Our Shareholders and Investors Corporate Data Financial Section Corporate Social Management Policy Review of Operations Responsibility and Framework

Space & Satellite Business Q8 The Great East Japan Earthquake sparked a sudden increase in reassessments of disaster preparedness and BCP in Japan. What is the situation in the domestic satellite market with regard to securing new customers? Ongoing market development underpinned by diverse service lineup In the year ended March 12, national and local government entities, as well as electric power companies, telecommunications carriers, railway, and other essential services, made greater use of satellite communications during the disaster rescue and relief stages, as well as for later restoration and reconstruction efforts. While the temporary escalation in demand will no doubt ease, clearly, there is wide recognition of the effectiveness of satellite communications for crisis management and BCP in the event of a disaster. Going forward, we will take advantage of this awareness to cultivate new customers by developing tailor-made sales proposals for each customer, emphasizing costeffectiveness. As for profitability, we have sought to enhance the efficiency of satellite control, transponder monitoring, and other areas. As a result, by the end of the year under review, we had achieved a % reduction in operational costs compared with October 8, when JSAT and Space Communications Corporation integrated their satellite operations. We will continue promoting efficiencies in order to compete with leading overseas satellite operators. Q9 A key component of your growth strategy is the enhancement of the overseas satellite communication business. What is the status of your overseas business development? Addressing demand in Asia, especially Indonesia Accompanying economic growth, emerging markets are seeing an increase in middle-income earners, which is fuelling a surge in demand for satellite multichannel broadcasts. The Group has received many inquiries from such countries. SKY Perfect JSAT is not only the owner of the largest number of communications satellites in Asia, but is also a pioneer in multichannel pay TV broadcasting in Japan. Our aim is to leverage our combined know-how to expand our overseas satellite business. Specific examples of such efforts include opening a representative office in Jakarta, making it our second office in Asia after Hong Kong. In May 12, we launched JCSAT-13, the successor to JCSAT-4A, which Area Coverage of JCSAT-13 Image of JCSAT-13 was positioned at 124 degrees east longitude and delivers SKY PerfecTV! services. The new satellite is also equipped with a Southeast Asian beam. We concluded an agreement with Indonesia s Lippo Group that allows Lippo to use the satellite s transponders to deliver its direct-to-home satellite TV broadcast service in Indonesia. Through these and other initiatives, our aim is to build a robust business foundation in the Asia-Oceania region and become a Global Player. Japan Beam, Southeast Asia Beam Pointing Examples (2 Steerable Beams) * Subject to change 22

Who we are Financial Strategies and Shareholder Return Q1 SKY Perfect JSAT is making proactive investments in strategic growth areas. What are your thoughts with respect to cash flow management? Renewed emphasis on capital efficiency by the Group financial system Our policy is to maintain ample capital to support the entire Group. To this end, we have set the amount of capital necessary to ensure the Group s liquidity at approximately 6 billion, with an additional commitment line of 1 billion. As of March 31, 12, the Group s balance of interest-bearing debt was 62.5 billion, and the Group s balance of cash and cash equivalents was around 66 billion. Therefore, net interest-bearing debt became minus. In other words, we became essentially Q11 Strategic deployment of working capital In the year ending March 13, our capital investment plans will cover remaining procurement-related outlays for the JCSAT-13 communications satellite, as well as upgrading terrestrial equipment to cope with increased SKY PerfecTV! HD channels. We may also incur outlays for the procurement of next-generation satellites. However, we expect our capital expenditure requirements, including all these outlays, to be a maximum of around 23 billion. This can be covered adequately by consolidated operating cash flows, which exceed 35 billion annually. Even after considering the scheduled repayment of debt, we believe we have ample access to working capital for the year, with a minimal need for new borrowings. a debt-free company. In the past, financial management (capital management and borrowings) of Group members has been performed on a company-specific basis. However, we have introduced a Group cash management system (CMS) centrally controlled by SKY Perfect JSAT Corporation, the core company of the Group. Our aim here is to further bolster our cash-rich operations and strengthen consolidated Group management. Through the pooling of capital at SKY Perfect JSAT Corporation, we will strive to further enhance Group-wide capital efficiency. What are your investment and financing plans and shareholder return policies for the year ending March 13? 23 Reassess shareholder return criteria while monitoring progress of medium-term business plan With respect to shareholder return, our basic policy is to maintain stable dividends while taking account of overall factors, such as our financial position, level of earnings and payout ratio. At the same time, we seek to bolster internal reserves to prepare for proactive business advancement. Based on this policy, we plan to maintain annual cash dividends at 1, per share for the time being. An important management priority is to ensure an ample return of profits to all shareholders over the long term. To this end, we place top priority on allocating capital to swiftly achieve profit and subscriber targets outlined in the medium-term business plan. Depending on the progress of the plan, therefore, we may reassess our shareholder return criteria in the future. Consolidated Financial Highlights To Our Shareholders and Investors Corporate Data Financial Section Corporate Social Management Policy Review of Operations Responsibility and Framework