P3, inc. mainly operates media content and ad distribution systems (media platforms) using digital signage that are installed in narrowly selected locations such as storefronts of specified businesses. Unlike television or radio for the general public, these systems deliver location-specific content that appeal to the targeted clienteles visiting these venues. P3’s digital signage are Internet of Things (IoT) devices, which the company designs in-house and outsources production to electronics manufacturing service (EMS) providers. P3 delivers media content (information and ads) to these devices via the cloud and earns ad revenue from the advertisers in return. The company handles the development/manufacture of the devices and operates the platforms, but relies on partner companies for marketing activities and content production. The ad revenue is shared among these parties according to the terms of the agreement for each project. The company formulates the general business scheme and chooses partners on a project-by-project basis.
As the first project in the media platform business outlined above, in FY01/21, P3 began rolling out a digital signage system for beauty salons. The signage comprises an in-house developed tablet-type device that is placed at the mirror stand of each styling chair. The plan is to install these devices at beauty salons across Japan and deliver beauty-related ads to a highly targeted audience via the cloud. This also involves recruiting advertisers and distributing their ads along with attention-grabbing content. The scheme comprises three players: P3 (handles device design/manufacture and service operation), a general wholesaler and consulting company in the beauty salon industry (handles device installation and marketing to salons), and an ad production company (handles production of the ads delivered to the devices).
P3 currently targets the installation of 18,000 digital signage devices at 3,000 beauty salons across Japan by end-March 2021; it had installed 10,911 units as of end-February 2021. For the beauty salon consulting company that handles the installation, the digital signage system serves as a business tool it can offer to client salons. The IoT devices can detect whether a salon customer is seated via a facial recognition feature (without taking personal information) and deliver beauty-related content, helping salons improve their service quality, promote in-store product sales, and lock in customers. For the ad production company, the system generates new digital ad opportunities targeting beauty salons. P3 does not disclose the size of the business or the respective revenue shares of the three parties involved, but it expects the Media Platform &IT Services (the business category of the media platform service) to drive its earnings growth.
The company was originally founded as Tranzas, Inc. in 1995 by current president Hidehiko Fujiyoshi. Tranzas specialized in the design of IoT devices such as set-top boxes (STBs) and wearables for commercial use. It stood out for low-cost manufacturing achieved through a combination of device designs featuring leaner functionality than for those intended for general use, selective procurement of materials that match the lean functionality, and use of contract manufacturers in China and Taiwan. In 2019, Mr. Fujiyoshi met Ryuichi Terayama, the current chairman and CEO of NSC Holdings, Inc. (unlisted)*, and they established the former P3, inc. as a joint venture, then also an equity-method affiliate of Tranzas, to develop a media platform business.
In FY01/21, the company (still called Tranzas) set out to build the former (then a consolidated subsidiary) P3’s media platform business, which employed a subscription business model, into a pillar for the group. This meant the addition of the recurring-revenue model to its original focus on in-house design and contract manufacture of devices. Along with these changes, the company (Tranzas) executed an absorption-type merger with the former consolidated subsidiary P3. In May 2020 the parent Tranzas changed its trade name to P3, inc.—a reference to the three Ps that compose the company’s business: platform, planning, and product. According to the company, the domestic digital signage market will grow at a CAGR of approximately 13% to reach 1.4x the 2020 level by 2023.
The company reports in a single segment: Terminal Solutions. Revenue by business in FY01/20, the final year as Tranzas, was JPY568mn (72.5% of overall revenue) in IoT Solution, JPY147mn (18.7%) in Information Technology, and JPY69mn (8.8%; practically only the results of Tranzas’ IT Services business) in Media Platform & IT Services. P3 had positioned the IoT Solution business, in which it sells devices, as its core business prior to the launch of the media platform business, but Media Platform & IT Services is set to make up the majority of its total revenue from FY01/21 onward.
In FY01/21, revenue was JPY586mn (-25.1% YoY). The company recorded an operating loss of JPY289mn (versus loss of JPY103mn in FY01/20), a recurring loss of JPY286mn (versus loss of JPY102mn), and a net loss attributable to owners of the parent of JPY367mn (versus loss of JPY122mn). During FY01/21, P3 launched its Media Platform business and began working on its first contract under that business—providing digital signage services to beauty salon operators. However, the implementation of the service was delayed by the onset of the COVID-19 pandemic. As a new initiative, the company entered into business alliances with new advertising partners (including Nagano Toyota Motor Sales Co., Ltd.), but none were in time to contribute to earnings in FY01/21. At its IoT Solution business, the company failed to win a large contract. As a result, revenue fell YoY. On the profit front, P3 saw operating losses widen as SG&A expenses soared even as revenue fell, the jump in SG&A spending being driven mainly by spending in support of business expansion.
For FY01/22, the company projects revenue of JPY1.2bn (+110.1% YoY), operating profit of JPY10mn (versus loss of JPY289mn in FY01/21), recurring profit of JPY4mn (versus loss of JPY286mn), and net income attributable to owners of the parent of JPY4mn (versus loss of JPY367mn). In making its forecast for FY01/22, the company recognizes that the COVID-19 pandemic and its lingering impact will continue to weigh on the economy and cloud the outlook over the year ahead. Against this backdrop, the company said the digital signage system business for beauty salons—its first project under the Media Platform business launched in FY01/21—may be pinched by the pandemic again in FY01/22. Nevertheless, the company is looking to get its newly established Media Platform business up and running at full speed with the help of new partners signed up in FY01/21 (such as Nagano Toyota Motor Sales Co., Ltd., Koyou Rentia Co., Ltd., and Hiroshima University) to generate enough additional revenue to cover fixed costs and finish the year out of the red and in the black. The company also renamed its segments, effective form Q1.
Although the company has not announced a medium-term management plan, it positioned Media Platform & IT Services as a pillar of its business starting in FY01/21, believing the business can drive a stable expansion in profits. Rather than taking a mass media approach, the company aims to build media platforms for specific fields and pursue growth through their operation based on a recurring-revenue model. It plans to first establish the digital signage business model for beauty salons and subsequently adapt it to other markets.
Shared Research sees P3’s strengths as: optimized material procurement through relationships with contract manufacturers in Taiwan and China, program module libraries that save labor on the design front, and media expertise and a wealth of personal connections.
We see the company’s weaknesses as: dependence on partners, difficulty achieving economies of scale due to limited target markets, and difficulty ascertaining market demand due to a sales system that uses resellers.
*NSC Holdings, Inc.
The holding company of News Service Center, Inc. News Service Center was founded in 1970 with the support of the political and business worlds in response to 63rd Prime Minister Eisaku Sato’s inquiries into the question of “how to inform the Japanese people of government activities.”
The first president was Heigo Fujii, a member of the House of Councilors, who was vice president of Nippon Steel Corporation (TSE1: 5401) and a mediator between the government and the private sector. The government contributed 40% of the initial capital, with the remaining 60% coming from the Asahi, Mainichi, Yomiuri, and Sankei newspapers, and advertising giants Dentsu Inc. and Hakuhodo Inc. (the main company of Hakuhodo DY Holdings [TSE1: 2433]). Employees were seconded from Nippon Telegraph and Telephone Public Corporation (currently Nippon Telegraph and Telephone Corporation [TSE1: 9432]). Receiving allotments from the national public relations budget, the company was the first to commercialize a telephone information service business in Japan. It established the Telephone Service Association, an organization comprising more than 400 member companies, and spread telephone information services across Japan.
The company provided breaking news from major outlets free-of-charge over the telephone, and sandwiched government PR messaging in between the programming. The advertising business expanded, and News Service Center came to own a group company publishing Weekly Japan, a free newspaper started by the government, which resulted in it creating a newspaper media business with a circulation of over five million. In the age of television, the company, supported by funds from the national budget, started a public relations business using video content to promote public facilities. It developed media in the three areas of telecommunications, newspapers, and television.
In 2000, News Service Center was privatized and temporarily became a subsidiary of the NTT Group before being spun off in 2013. The company transitioned to a holding company structure in 2015 with its news media business becoming a newly formed subsidiary News Service Center. Meanwhile, in 2001, The News, a media service operated by the company, became Japan’s largest news site with 4,600,000 registered members. The company currently operates The News, and has many users as a government-preferred mobile media operator. It operates a news media business that involves developing and operating news portal sites and providing ad space.
|Gross profit margin||43.7%||26.9%||29.3%||35.0%|
|Operating profit margin||20.0%||-||-||-||0.8%|
|Recurring profit margin||17.5%||19.5%||-||-||-||0.3%|
|Per-share data (JPY)|
|Shares issued (year-end; '000)||2,168||3,132||3,160||3,169||3,686||-|
|EPS (fully diluted)||-||55.6||-||-||-||-|
|Dividend per share||-||-||-||-||-||-|
|Book value per share||-||434.9||380.7||341.6||197.0||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,103||793||618||473|
|Total current assets||1,536||1,266||1,009||672|
|Tangible fixed assets||15||25||28||128|
|Investments and other assets||29||20||60||100|
|Total current liabilities||255||144||72||199|
|Total fixed liabilities||0||0||3||10|
|Total net assets||539||1,362||1,203||1,091||726|
|Total liabilities and net assets||703||1,617||1,348||1,167||936|
|Total interest-bearing debt||0||0||0||3||102|
|Cash flow statement (JPYmn)|
|Cash flows from operating activities||166||-260||-102||-116|
|Cash flows from investing activities||-42||-56||-75||-137|
|Cash flows from financing activities||661||6||1||108|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||FY Est.|
|Gross profit margin||26.8%||21.8%||23.1%||29.3%||30.9%||41.4%||35.6%||35.0%||23.7%||25.9%|
|Operating profit margin||-||-||-||-||-||-||-||-||-||-||0.8%|
|Recurring profit margin||-||-||-||-||-||-||-||-||-||-||0.3%|
|Gross profit margin||26.8%||16.8%||27.5%||36.9%||30.9%||46.3%||11.9%||33.7%||23.7%||28.3%|
|Operating profit margin||-||-||-||11.1%||-||-||-||-||-||-|
|Recurring profit margin||-||-||-||11.7%||-||-||-||-||-||-|
Quarterly operating profit
|Media Platform & IT Services||19||38||55||69||7||19||26||40||Platform, Planning & Product||8||21||28||40||23||82|
|% of total||11.5%||11.5%||12.7%||8.8%||6.4%||5.6%||6.2%||6.8%||% of total||7.4%||6.2%||6.6%||6.8%||24.3%||45.0%|
|IoT Solution Services||99||205||271||568||58||235||272||388||Made-to-order Product||58||235||272||388||42||48|
|% of total||59.8%||61.9%||62.5%||72.5%||53.4%||69.4%||64.5%||66.2%||% of total||53.4%||69.4%||64.5%||66.2%||44.3%||26.3%|
|% of total||56.2%||37.1%||31.6%||47.2%||9.2%||49.3%||45.3%||45.0%|
|% of total||3.6%||24.5%||30.9%||25.1%||43.3%||19.8%||19.0%||21.1%|
|Information Technology||46||87||106||147||43||83||122||157||Technical Service||43||83||122||157||29||51|
|% of total||27.8%||26.3%||24.4%||18.7%||39.6%||24.5%||28.9%||26.8%||% of total||39.6%||24.5%||28.9%||26.8%||30.6%||28.0%|
|Media Platform & IT Services||19||19||17||14||7||12||7||14||Platform, Planning & Product||8||13||7||12||23||59|
|% of total||11.5%||11.5%||16.6%||3.9%||6.4%||5.2%||8.4%||8.5%||% of total||7.4%||6.2%||6.6%||6.8%||24.3%||67.5%|
|IoT Solution Services||99||106||66||297||58||177||37||116||Made-to-order Product||58||177||37||116||42||6|
|% of total||59.8%||64.0%||64.4%||84.9%||53.4%||76.9%||44.5%||70.5%||% of total||53.4%||69.4%||64.5%||66.2%||44.3%||6.9%|
|% of total||56.2%||9.1%||3.2%||29.7%||9.2%||46.4%||5.7%||12.4%|
|% of total||3.6%||22.6%||12.2%||8.0%||43.3%||5.9%||3.1%||7.5%|
|Information Technology||46||41||19||41||43||40||39||35||Technical Service||43||40||39||35||29||22|
|% of total||27.8%||24.8%||18.5%||11.7%||39.6%||17.4%||46.9%||21.3%||% of total||39.6%||24.5%||28.9%||26.8%||30.6%||25.2%|
1H FY01/22 (February–July 2021) results
The business environment remained uncertain as the repeated declarations and extensions of the state of emergency over the COVID-19 pandemic affected consumer spending and other economic activity.
The Platform, Planning & Product business (PPP business) grew substantially centered on the digital signage system business for beauty salons, which the company had been developing as the first step in its business development initiatives. Revenue in the Made-to-Order Product and Technical Service businesses fell as the company concentrated its resources on the PPP business. On the profit front, the company posted operating loss as SG&A expenses of JPY244mn exceeded gross profit of JPY47mn, due to the company’s efforts to strengthen R&D activities in the PPP business and an increase in headcount following the merger on May 1, 2020. The company is reviewing its profit structure with the aim of being in profit at the operating level for the full year. In Q2 (three month period), it will work to offset the cost impact of a rising Taiwan dollar and improve efficiency through integration of its development bases in Japan. Therefore, the Taiwan branch was closed (July 31, 2021) Note that on March 31, 2021, the company sold its entire stake in consolidated subsidiary Tranzas Asia Pacific Pte. Ltd., and as a result of the sale, changed from reporting consolidated earnings results to parent earnings results starting Q1 FY02/22.
1H revenue: JPY82mn (+281.9% YoY, versus parent revenue; YoY figure given as a reference, same below)
1H revenue consists of digital signage business for beauty salons, sales for Nagano Toyota Motor Sales Co., Ltd., and other signage-related businesses. In the business for beauty salons, the company has made good progress with installations in salons, and media reach has expanded to 1.1m per month. As a result, advertising revenue from media operations was booked as revenue in the quarter. In addition, the company also booked revenue for some advance services provided for Toyota Motor Corporation in Nagano, which will become a full-fledged business from the second half of the year, as well as revenue related to signage for commercial buildings (VIEWGATE) and for existing P3 business (distribution for major convenience stores).
1H revenue: JPY48mn (-79.3% YoY)
Revenue fell in the mainstay set-top box (STB) business. The reason for this was that the projects that slipped from Q1 to Q2 were booked as planned, but projects that were scheduled to be accounted for in Q2 pushed back to Q3 due to difficulties in procuring semiconductors and other components. The company is reviewing the business structure of the group as a whole and concentrating resources on the PPP business, where it is narrowing down the scope of the business.
1H revenue: JPY51mn (-38.5% YoY)
Sales decreased, as the company reviewed its customer contracts. The company is also beginning to review its business operations in this segment as it concentrates resources on the PPP business.
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||FY Est.|
|Cost of revenue||259||295||554||199||182||381||135|
|Gross profit margin||21.8%||34.8%||29.3%||41.4%||26.4%||35.0%||25.9%|
|Operating profit margin||-||-||-||-||-||-||-||19.7%||0.8%|
|Recurring profit margin||-||-||-||-||-||-||-||20.0%||0.3%|
The company has renamed its business categories effective from FY01/22, but business category content remains essentially unchanged.
The company defines the Platform, Planning & Product (PPP) business as “a business that builds comprehensive location-specific media in places where people gather to receive services.” Revenue is forecast at JPY1.0bn (+2,387.6% YoY). Revenue in this business is heavily weighted towards the second half of the year, and the rate of progress in sales in 1H against the full-year forecast was only 8.2%.
As for revenue in the second half, firstly, digital signage systems for beauty salons are performing well in terms of advertising revenue, despite the impact of the pandemic. The company and its partners will continue to expand the number of units installed, generate advertising revenue, and continue sales activities to increase media distribution revenue.
The company provides devices for beauty salons, but the number of units shipped to Dalia, one of its partner companies, has increased from 15,614 at the end of July to 17,000 in October. The short-term target is 18,000. According to Digital Garage, one of the partner companies, the media distribution business already has about 11,000 installed units at the end of July. 1H revenue also includes distribution revenue from these advertisers.
In addition, in the second half of the year, the company expects to have its business with Nagano Toyota Motor Sales (partnership established in the previous year) up and running at full speed. It plans to introduce the flagship model of the next-generation showroom service in the Nagano Toyota Motor Sales headquarters building and main stores, and to gradually expand this to other stores once it has installed LEDs and developed the required software. In terms of the business partnership with Koyou Rentia, the company plans to gradually expand the installation of signage terminals and video distribution systems in the construction site market in the second half. In addition, the company plans to expand its signage business (VIEWGATE) for commercial buildings, and to launch a new media platform-related business in partnership with Hiroshima University. It also plans to absorb fixed costs by increasing revenue from the PPP business once it is fully up and running and move into profit at the operating level for the full year.
The company defines the Made-to-Order Product business as “a business that sells P3-designed and developed products on a made-to-order basis.” It integrated the formerly separate Hospitality and Enterprise categories of the IoT Solution business into the business as part of the recent segment reorganization, and transferred its media distribution operations to the PPP business. Revenue is forecast at JPY131mn (-66.3% YoY). The progress rate of this business for 1H against the annual revenue forecast is 37.1%.
Core product lines include set-top boxes (STBs), and Cygnus wearables. In STBs, the company aims to capitalize on 4K resolution replacement demand. For Cygnus, it looks to continue business with existing customers. It expects STB sales to account for the bulk of its revenue forecast with growth expected in the education support field.
The company defines the Technical Service business as “a systems development & maintenance and engineer dispatch business.” Revenue is forecast at JPY95mn (-39.2% YoY). The company expects a decline in revenue from contract services due to a review of its contracts with clients. At end-1H, Technical Service revenue achieved 53.5% of the full-year forecast.
|Results vs. Initial Est.||FY01/17||FY01/18||FY01/19||FY01/20||FY01/21|
|Revenue (Initial Est.)||-||-||1,500||888||1,545|
|Results vs. Initial Est.||-||-||-53.7%||-11.8%||-62.0%|
|Operating profit (Initial Est.)||-||-||271||20||81|
|Operating profit (Results)||0||252||-145||-103||-289|
|Results vs. Initial Est.||-||-||-||-||-|
|Recurring profit (Initial Est.)||-||-||269||17||81|
|Recurring profit (Results)||184||245||-147||-102||-286|
|Results vs. Initial Est.||-||-||-||-||-|
|Net income (Initial Est.)||-||-||178||17||68|
|Net income (Results)||112||152||-166||-122||-367|
|Results vs. Initial Est.||-||-||-||-||-|
In FY01/19, the company initially forecast revenue of JPY1.5bn, but actual revenue was only JPY694mn. The result is mainly explained by underperformance in IoT Solution, which recorded revenue of JPY478mn (-51.8% YoY), JPY695 short of the JPY1.2bn forecast owing to lower-than-expected sales of newly developed IoT controllers for hotels and lodgings. On the profit front, the company posted an operating loss as it felt the fixed cost burden more keenly due to a significant decline in revenue.
In FY01/20, the company put a halt on expansion of the automatic check-in devices for lodgings (the company books these device sales under Hospitality and after-sales subscriptions under IT Services) that it had been promoting in the IoT Solution business due to changes in market conditions. This caused Hospitality and IT Services (integrated into Media Platform & IT Services in FY01/21) revenue to fall JPY185mn below plan. In Enterprise, the adoption of wearables in large factories pushed performance JPY94mn above plan, but not enough to cover the decline in Hospitality and IT Services.
In FY01/21, the company launched its Media Platform business and began working on its first contract under that business—providing digital signage services to beauty salon operators. However, the onset of the COVID-19 pandemic caused delays in the installation of the terminals used for digital ads and the receipt of advertising budgets from sponsors. As a new initiative, the company entered into business alliances with new advertising partners (including Nagano Toyota Motor Sales Co., Ltd.), but none were in time to contribute to earnings in FY01/21. At its IoT Solution business, the company failed to win a large contract. As a result, revenue fell YoY. On the profit front, P3 saw operating losses widen as SG&A expenses soared even as revenue fell, the jump in SG&A spending being driven mainly by spending in support of business expansion.
Although the company has not announced its medium-term management plan as of FY01/21, Shared Research thinks the name change it made in FY01/21 from Tranzas, Inc. to P3, inc. hints at its medium-term policy. During the so-called Tranzas era that lasted through FY01/20, the company focused on selling inexpensive IoT devices with appropriate functionality by utilizing in-house designs and EMS companies. It designed set-top boxes (STBs), wearables, and other devices, and outsourced their manufacture at low cost. Chairman Terayama and President Fujiyoshi established P3, inc. as an equity-method affiliate before bringing it into the group as a consolidated subsidiary in 2019. This led to subsidiary P3’s Media Platform business becoming an important one for the group. So important, in fact, that the company positioned it as its core business in 2020, and changed its name to P3 in May of the same year. The company says it is considering disclosing a medium-term management plan depending on the performance of businesses it is currently promoting.
The company launched a digital signage system for beauty salons in FY01/21 as the first project of its core Media Platform business. The project is a collaboration between P3 and two other companies, with P3 responsible for the design and outsourced production of IoT devices and the operation of the media platform, Dalia Incorporated (Fukuoka, Fukuoka Prefecture; unlisted) handling installation of IoT devices as business tools for beauty salons, and Digital Garage, Inc. (TSE1: 4819) in charge of ad agency functions such as creating media content and digital ads. Earnings for this service come in the form of advertising revenue and are shared by the three partners (details of the arrangement undisclosed).
Concurrently with business from the beauty salon industry, the company has also launched several media platform projects for content distribution using its line of signage devices. It is shifting its focus from product development, manufacture, and sales to content business utilizing those products.
The company has its origin in the design and outsourced production of Internet of Things (IoT) devices, an ongoing business since the time it operated under the trade name Tranzas. In the more recent Media Platform business, the company develops devices catering to a narrow business domain, uses them to distribute media content (information and ad content) to a specified audience, and receives ad revenue from advertisers in return. The latter business model positions the operation of media platforms as the main earnings pillar.
The business under the trade name Tranzas had centered on the low-cost manufacturing and sales of in-house designed devices. Since changing its name to P3, however, the company shifted focus from the simple sales of devices to the provision of services using them (i.e., adding information distribution functions and offering their use as part of a media platform). Taking the TV media as an example, the role of P3’s Media Platform business is analogous to a TV broadcaster that also manufactures the TV and functions as an ad agency.
The operation of media platforms is based on a recurring-revenue model in which the company can charge recurring fees for its services. As Tranzas, the company designed and sold IoT devices fitted to client demand and market trends, outsourcing the materials procurement and production to Taiwan and China. However, since Tranzas’s IoT devices tended to be tailored to specific clients and were unsuitable for mass production, a manufacturing-centered business model left the company vulnerable to significant losses when market demand fluctuated. In fact, in FY01/19, it launched a service support system for small lodging facilities where it foresaw an increase in demand, only to discontinue marketing efforts the following year. In FY01/21, the company changed course from pursuing these kind of device sales to creating a platform business grounded in recurring revenue. Still, the company’s traditional expertise in design and outsourced production remains central to its strategy since IoT devices are also key to advancing the service-centered business model.
P3 positioned Media Platform as its core business in FY01/21 after changing its name from Tranzas. Prior to FY01/21, revenue composition was weighted toward sales of hardware such as set-top boxes (STBs) and wearables. The pre-FY01/21 business model aimed to provide clients with high-quality, low-priced devices through its own lean design tailored to specific uses and production outsourced to EMS companies in Taiwan and China.
The term value-added reseller (VAR) generally refers to companies that add functions to existing hardware or software and resell the resulting products. Examples of this can be found in electronics, which are combinations of hardware and software. For example, a company that purchases existing computer parts, assembles them, adds the necessary applications, and sells the resulting product as a fully functional PC would be considered a VAR. In this example, the customer saves labor and time spent obtaining and assembling computer parts when they purchase a PC from the VAR.
The company had 43 employees as of end-FY01/20. Its sales team is relatively small considering the number of personnel involved in design, production outsourcing, and management. The company’s business format relies substantially on VARs to carry out its sales functions.
P3 uses different VARs depending on product type. For example, the company does not deliver its set-top boxes (STBs) directly to hotels, but to systems integrators that provide content services for hotels. These then deliver the STBs to end users after networking them. Similarly, the company does not deliver its digital signage devices developed for beauty salons directly to end users, but provides them to a wholesaler and consulting company operating in the beauty salon industry that distributes the devices to salons as a part of management support services.
Some of the added value created by VARs comes from intellectual labor such as systems integration, customization, consulting, training, and translation. Value-added may also be generated by developing a specialized use of the product so as to resell it as a new product tailored to client needs. In the case of P3’s STBs, systems integrators add value by incorporating the devices into their systems to add various content and services.
P3 designs IoT devices in-house and outsources their production. While the company is a manufacturer, it has a different take on design and production than most companies, based on founder and president Fujiyoshi’s experience in observing manufacturing sites in Taiwan and China—the so-called “world’s factory”—when he set out to produce set-top boxes (STBs).
Since its establishment in 1995, the company has cultivated its method of outsourcing production, one of its distinguishing characteristics, based on Mr. Fujiyoshi’s experience in designing and manufacturing electronics. P3 outsources to companies in Taiwan and China that shoulder global manufacturing instead of using companies in Japan. Through direct, ground-level observation of the local manufacturers, Mr. Fujiyoshi has concluded it was difficult to create value-added through in-house manufacturing; rather, what was important was to have an eye for the right contractors that can procure low-cost materials and have adequate production capabilities.
According to P3, manufacturing is currently in its third phase, where combining existing technologies is essential. The company recognizes that in this phase services utilizing the end product are more important than manufacturing the product itself. This is one of the reasons why P3 does not carry out in-house production.
According to P3, transitions in the phases of manufacturing have proceeded as follows. The first phase represents the production of goods by physically assembling components and building mechanisms, as was undertaken by many Japanese home electronics manufacturers in the early stages of their development. This covered, for example, machines that operated by combinations of electric currents such as radios and telephones. From there, as internet protocol (IP; communication method by which data is exchanged via the internet) surfaced and societies underwent digitization, application software became the center of functionality rather than hardware. Mr. Fujiyoshi calls this the second phase. He was interested in the second phase, in which application software became an important element in hardware, and shifted the company’s trajectory toward software-oriented manufacturing.
According to Mr. Fujiyoshi, the turning point in the second phase was the advent of the Android operating system, which led to the creation of a layer between hardware and applications (the company calls this “middleware”). Subsequent hardware development progressed through the combination of modules, enabling anyone to create hardware. The middleware layer also allowed anyone to create the application software above it.
As manufacturing entered its third phase, the technological innovations at each stage became more mature. For example, IP technology and video technology have matured for the most part, leaving little room for brand new functionality. However, the services they provide can change greatly depending on how these technologies are combined. For example, a simple-function landline telephone uses an analog signal to transmit voice depending on the strength of electrical energy. Most telephones today do not work the same way; instead, calls are often powered by IP technology (using an IP connection and a mechanism to convert analog voice to digital signal and vice versa). Moreover, they have gone much farther in functions: they connect to the cloud and WiFi, transmit data, and are equipped with displays. The company believes that the third phase of manufacturing consists of creating things by aggregating various intellectual properties that have been handed down from the past.
Another reason why P3 does not carry out its own manufacturing is that it believes that software, not hardware, is what adds value. In its early days, the company ran a business of bringing internet connection to condominiums. In that context, it began communicating with Taiwanese companies in search of products that could not be found in Japan. When the company posted information on products manufactured by one of these Taiwanese companies on its website, it received inquiries about a certain set-top box (STB) that was not available in Japan at that time, leading the company to eventually decide to manufacture the device.
However, as the production of STBs progressed, Mr. Fujiyoshi realized that it was not the production of hardware that was important, but the engine that was installed inside, that is, the software. Manufacturing can be carried out at low-cost at a local manufacturer in Taiwan. The company came up with the idea that it should focus on its software development capabilities rather than competing based on manufacturing costs. The company’s basic stance on manufacturing is to make use of the network of Taiwanese partners built by Mr. Fujiyoshi, while focusing on the in-house development of high value-added software.
In digital signage hardware, most of the material costs go to the display panel. The company’s signage is constructed by combining rectangular LED modules each with dimensions of several dozen centimeters, which allows the overall size of the panel to be freely adjusted. The company imagines these displays being used at entrances of commercial buildings or in stores that want to create luxurious spaces. They have already been introduced at multiple stores of a domestic telecommunications carrier. P3 procures the LED modules in Asia, and creates the engine controlling the displays in-house.
President Fujiyoshi met Mr. Terayama, the current chairman, around the time when he was becoming aware of the importance of services and other intangible aspects in product creation over manufacturing. According to the company, Mr. Terayama is very knowledgeable about the media industry and has many connections in related fields to the extent that he is said to be an industry heavyweight.
Mr. Terayama is chairman and CEO of P3, and also serves as chairman of NSC Holdings, Inc. (unlisted). Mr. Terayama comes from News Service Center, Inc., the de facto predecessor of NSC Holdings, where he also serves as president. News Service Center, Inc. was founded in 1970 with the sponsorship of players in the political and business worlds after inquiries by the then-Prime Minister Eisaku Sato. The Japanese government contributed 40% of the initial capital, with the remaining 60% coming from the Asahi, Mainichi, Yomiuri, and Sankei newspapers, and ad agency giants Dentsu Inc. and Hakuhodo Inc. Employees were seconded from Nippon Telegraph and Telephone Public Corporation (currently Nippon Telegraph and Telephone Corporation [NTT]). Almost all of the major media outlets at the time had a hand in establishing the company.
Receiving allotments from the national public relations budget, News Service Center, Inc. was the first to commercialize a telephone information service business in Japan. It established the Telephone Service Association, an organization comprising more than 400 member companies, and spread telephone information services across Japan. The company provided breaking news from major outlets free-of-charge over the telephone, and sandwiched government PR messaging in between the programming. The advertising business also expanded. News Service Center came to own a group company publishing Weekly Japan, a free newspaper started by the government, which resulted in it creating a newspaper media business reaching circulation of over five million. In the age of television, the company, supported by funds from the national budget, started a public relations business using video content to promote public facilities. It developed media in the three areas of telecommunications, newspapers, and television.
Through the experience of leading this company, Mr. Terayama has established a wide range of connections with major Japanese newspapers, major advertising agencies, and the telecommunications industry, in addition to knowledge of the advertising media business. When Mr. Fujiyoshi, who was searching for a way to shift from manufacturing and selling devices to a stable recurring-revenue business, met Mr. Terayama, the two agreed on the primacy of service provision and took this as a jumping-off point from which to experiment with the establishment of a new business—P3, inc.
P3 was originally an equity-method affiliate of Tranzas, which was a listed company. Mr. Terayama says when he first met Mr. Fujiyoshi, he was reminiscent of a character in the popular novel Downtown Rocket who is deeply passionate about engineering. However, he also felt that a business built on manufacturing, or engineering, alone would hit a wall in terms of profits. With a president with manufacturing know-how and a chairman with media expertise, however, it became feasible to transform the original hardware sales-focused business to one centered on content management for hardware that is based on a recurring fee model.
The company’s businesses can be broadly divided into those that are continuations of Tranzas businesses and those that have been added since the trade name was changed to P3 in FY01/21. The current business categorization put to effect in FY01/21 breaks down to Media Platform & IT Services, IoT Solution, and Information Technology. Revenue by business for FY01/19 and FY01/20 shown in the table below have been retroactively adjusted to reflect these new categories.
|Segment sales and profit||FY01/17||FY01/18||FY01/19||FY01/20||FY01/21|
|Media Platform & IT Services||63||69||40|
|% of total||9.1%||8.8%||6.8%|
|IoT Solution Services||444||568||388|
|% of total||63.9%||72.5%||66.2%|
|% of total||-||-||45.0%|
|% of total||-||-||21.1%|
|% of total||27.0%||18.7%||26.8%|
The company reorganized its business categorization at the start of FY01/20. Then, in FY01/21, it added Media Platform & IT Services—its new growth driver—to the FY01/20 categorization (the former IT Services category was merged into the new category).
In FY01/20, the former IoT Solution was split into IoT Solution, Information Technology, and IT Services. The new IoT Solution included two subclassifications based on client type: Hospitality and Enterprise, instead of the previous three that were based on operation. The main business in this category is the provision of IoT devices and solutions.
From FY01/21, the company added Media Platform to its businesses. It integrated this new business with existing IT Services to form Media Platform & IT Services, which is P3’s focus. Meanwhile, the company positioned IoT Solution, which mainly handles manufacturing and sales, as a legacy business undergirded by its traditional manufacturing focus. IoT Solution subclassifications, Hospitality and Enterprise, have not changed since being reorganized in FY01/20.
The company plans to revise business categories again from FY01/22. There will be no change to business content, but the company will redefine its various business lines as Media Platform & IT Services becomes the company’s core business.
In line with the name change to P3 in FY01/21, the company positioned Media Platform & IT Services as its core business where it aims to achieve a full-blown expansion. Currently, the business is centered on providing digital signage for beauty salons, which the company began pursuing in August 2020. The company collaborates with the following two companies that act as VARs in this business. The division of roles of the three companies is as follows.
Dalia (unlisted) is a general trading company handling beauty products. It was founded in 1946 and is headquartered in Fukuoka. In addition to product sales, the company provides management support, marketing support, and creative planning for beauty salons. Founded in the era of postwar shortages, it procured and sold cold perm liquid. It also lent “electric perm” equipment to beauty salon owners free of charge on a deferred payment agreement, which played a part in the spread of the perm hairstyle after the war. Digital Garage is listed on the First Section of the Tokyo Stock Exchange. It operates multiple businesses including an advertising business, a payment business, and an investment business.
P3 has developed an originally designed digital signage optimized for beauty salon environments. The equipment is a tablet-shaped IoT communications device with a built-in stand. The company handled the development and design, and has it manufactured by EMS companies in Taiwan and China. The signage usually runs at about JPY35,000. The company is able to set prices cheaper than low-spec tablet models through careful selection of functions and procurement of low-cost materials. The hardware is characterized by anti-glare glass and doubled screen brightness to offset the bright lighting of beauty salons.
As for performance, the digital signage is equipped with a system called “eve”* that detects whether a salon customer is seated in front of it. The device also streams content likely to be of interest to beauty salon customers, with the help of a dedicated media (Sakizaki Teruko) and P3’s proprietary program distribution cloud network. As of August 2020, installed units numbered 5,667 at 947 locations nationwide, with a monthly reach of 450,000. The company plan is to have 18,000 units installed at 3,000 locations nationwide by March 2021.
eve: A P3-developed patent-pending monitoring system based on facial recognition. The system is installed in digital signage terminals designed and manufactured by the company to measure the number of effective playbacks by confirming the presence of customers in salon chairs. Effective playbacks exclude those when a customer is not seated in front of the terminal. This enables the company to record data per each piece of content or ad played in the salons. The monitoring system only obtains anonymized data related to when a customer is seated and does not record any footage or audio. This system complies with the Sensing Signage Guidelines established by the Digital Signage Consortium (DSC, Minato-ku, Tokyo; 109 members) for the purpose of protecting privacy.
Sakizaki Teruko, the digital signage media distributed on the company’s device, is based on the concept of “everyone is comfortable in his or her own skin.” The content consists of information of use to beauty salon visitors, covering topics in beauty, fashion, food, lifestyle, and entertainment, among others. Sakizaki Teruko also distributes original content including a trouble consultation segment in which a character (with the same name as the media) answers customer questions from her own perspective, and a fortune-telling segment; in addition, it delivers ad content. Digital Garage, which produces the content, says that customers generally tend to spend a long time in beauty salons, meaning they are more likely to absorb the content. From the beauty salon side, the content encourages communication between hairdressers and customers, providing greater opportunities to promote hair styling products and shampoos.
Digital Garage, the content producer, says this is its first attempt to enter the Digital Out of Home (DOOH) market. Current analysis indicates that the transaction volume of the DOOH market, which to date mainly comprises transit ads, is expanding owing to an increase of in-store media tailored to the characteristics of stores and facilities. As a part of this trend, Digital Garage is creating original content and ads optimized for beauty salon environments.
The company has publicly disclosed three companies placing ads alongside content: FANCL Corporation (TSE1: 4921), Lion Corporation (TSE1: 4912), and Kao Corporation (TSE1: 4452). According to Digital Garage, video ads are offered in 30-second slots for up to 90 seconds played within 30-minute video content segments.
In FY01/21, the company rolled out its Media Platform business primarily with the abovementioned digital signage systems for beauty salons. In the future, P3 envisions developing platforms for other industries with the same business concept. Key business initiatives it has already announced include the following:
Nagano Toyota Motor Sales Co., Ltd. (Head office: Nagano Prefecture, unlisted) is one of Japan’s leading domestic auto dealerships handling Toyota cars. P3 and Nagano Toyota jointly plan and develop next-generation showroom services using large-screen digital signage developed by P3 for Nagano Toyota’s head office and dealership stores. Nagano Toyota had traditionally conducted sales activities using actual vehicles and catalogs at the dealership stores, but with the next-generation showroom, its salespeople will operate tablets developed and provided by the company to control large-screen digital displays in the showrooms. This will allow them to instantly change the body color, wheel shape, and interior of the car they are showing according to customers’ wishes, and to show an image of what the car looks like when it is running.
P3 plans to install flagship model of next-generation showroom services in Nagano Toyota’s head office and major dealership stores. It aims for LED device installation and development around 2H FY01/22, and gradually expand to other dealership stores from there.
Koyou Rentia Co., Ltd., (TSE JASDAQ Standard: 7081; headquartered in Minato-ku, Tokyo) is in the business of equipment rental for construction sites, offices, and event venues. P3’s objective is to create a media platform using digital signage devices for construction sites. Specifically, leveraging the network Koyou Rentia has thus far cultivated in the furniture, fixtures, and equipment rental business, the two companies plan to set up P3’s proprietary program distribution cloud network and Digital Out of Home (DOOH; refers to a mode of advertising that utilizes digital signage devices installed out of home, or in areas accessible to the public, including public transport such as trains and taxis) devices at construction sites throughout Japan with the aim of integrating all of these signage devices and video distribution systems. Further, the two companies plan to distribute information and ad content that is of interest to construction workers to the DOOH devices installed in temporary offices or break/smoking rooms on the construction sites, thereby developing an advertising business targeting the consumer group whom it has up till now been difficult to reach.
Hiroshima University conducts R&D on the sterilization effects and effective use of ultraviolet rays against a wide range of viruses including the novel coronavirus and drug-resistant bacteria. P3 has been jointly planning, developing, and marketing new products in partnership with Hiroshima University, and it aims to develop UV-sterilized IoT products in FY01/22.
Business alliance with B&P
B&P Co., Ltd. (TSE Mothers: 7804) supplies sales promotion advertisement items to ad agencies, and manufactures and sells home supplies such as wallpaper, flooring, and other interior goods. The business alliance with B&P aimed at deploying P3’s digital signage platform business, targeting the advertising, interior, and other markets. Specifically, P3 will plan equipment and service, and provide visual content via a cloud network to B&P. B&P will use the content, equipment, and systems provided by P3 to develop a digital signage service that is different from the conventional one, for the network of its established clients in the interior design industry.
P3 discloses IoT Solution results under two subcategories: Hospitality and Enterprise. However, there are cases when the company develops devices with similar functions that cater to both markets. Therefore, the IoT Solution business can be regarded as having two very broad subcategories based on client type. Effective FY01/22, the company renamed the business the “Made-to-Order Product business,” encompassing both the Hospitality and Enterprise subcategories.
The P3 group develops, manufactures, and provides devices and systems equipped with the functions required by its value-added reseller (VAR) partners. These VARs—mainly systems integrators, trading companies, or software developers—provide content and system services to their clients by using the various devices and systems developed by the P3 group. To provide its partner VARs with what they need, the P3 group leverages the latest technology and its development expertise to develop dedicated software (mainly firmware and middleware), in addition to developing the hardware in-house. IoT Solution services comprise sales of the software, devices, and systems.
Firmware: Software that is built into the main body of a device to control the main body itself, including operating speed and electricity usage.
Middleware: Software in between the operating system and applications. It saves developers time by allowing them to reuse parts of application software common to multiple applications, which can lead to more efficient system development and introduction. Examples include database management systems and software that controls relay between servers and devices.
Application software: Software designed and developed for a specific purpose, which provides the functions required by the users based on their operation/inputs.