Toho — Company History

A raid on the gap in Marunouchi: the Hankyu line model transplanted to Tokyo

In August 1932 Kobayashi Ichizo (小林一三), founder of the Hankyu railway, established Tokyo Takarazuka Theatre Co. at Hibiya in Tokyo. The plan was to transplant into Tokyo the model Hankyu had built in Osaka — placing theatres and department stores along a railway line to draw passengers — and it was the starting point of a business that ran theatrical promotion and property management as one. When the Tokyo Takarazuka Theatre opened on New Year's Day 1934, the exhibition war between Toho and Shochiku began in Tokyo. A business magazine of the day recorded that the Nichigeki, the Toho and the Hibiya Eiga had gathered in Marunouchi — the gap in an entertainment district until then concentrated in Asakusa and Shinjuku — and that a new pleasure quarter had appeared there, casting it as a raid on Shochiku's stronghold (実業の世界, 11 August 1935). In 1937 the company merged four film-related businesses, among them Photo Chemical Laboratory and J.O. Studio, to form Toho Eiga, and so acquired a production arm. In 1943 Tokyo Takarazuka Theatre and Toho Eiga merged to create Toho Co., Ltd., settling a vertically integrated structure in which one company handled film production, distribution and exhibition alongside stage promotion.

In 1948, after the war, Toho cut some 1,200 jobs, and the studio was occupied by union members for a long period in what became the third Toho dispute. President Watanabe Tetsuzo (渡辺鉄蔵) announced it publicly as major surgery Toho carried out because there was no other way to bring itself back from the brink, and said the company had dismissed a number of uncooperative and rebellious elements (読売新聞, 17 April 1948); actors and staff who were members of the Communist Party were among those marked for dismissal. The Yomiuri Shimbun of 20 April 1948 reported the cuts not as a simple reduction of surplus headcount but as one of the moves of the early Cold War to drive Communist Party members out of Japanese companies (読売新聞, 20 April 1948). The actor Asada Kenzo (浅田健三), on the union side, pressed Watanabe with the words not only will there be bloodshed, there will be killing — will you still go through with it? (経済時代, December 1958), but the dismissals were not withdrawn.

In 1949 the company listed on the Tokyo, Osaka and Nagoya stock exchanges, settling its place as a film major alongside Shochiku and Daiei. During the post-war recovery Kobayashi Ichizo described Toho's property value by saying that the Nichigeki alone, put up for sale today, would fetch a million dollars — that is $1M (¥360m) — and if a buyer came forward, twice that, two million dollars or $2M (¥720m) (実業の世界, 1 August 1952), showing the true face of a property company rather than an exhibition company. The first Godzilla, released in 1954, drew an audience of 9.61 million; the IP, made by director Honda Ishiro (本多猪四郎) and special-effects director Tsuburaya Eiji (円谷英二), has continued for more than seventy years and is recognised by Guinness World Records as the longest continuously running film franchise. In 1957 the monthly takings of Toho's directly operated cinemas were $694,444 (¥250m) against Shochiku's $416,667 (¥150m). The two were close in number of houses — Shochiku 49, Toho 46 — but the difference in the quality of each house produced the difference in revenue. A hundred directly operated cinemas was Kobayashi Ichizo's dream, and the reason Toho could push it through on borrowings rather than share issues was that Kobayashi could draw the money out on his own personal credit (実業の世界, May 1957).

“Covered by rental income alone”: the revenue base in which film and property changed places

From the 1960s the spread of television caused cinema attendance to fall sharply. Annual admissions to Japanese films had peaked at more than 1.1 billion in 1958 and kept declining, and every film company was forced to review how it was run. Toho cut back the number of films it produced while shifting resources into property development, using the theatre sites and land it held in the prime districts of Hibiya, Yurakucho and Shinjuku. In 1962 Diamond magazine analysed why Toho alone continued to run comfortably through the decline: president Shimizu Masashi (清水雅) had moved theatre management towards the commercial logic of department stores and property, and his method of letting out even the staircases, the walls and the spaces of a building was called the Shimizu high-utilisation method. Half-year profits of $1.4M (¥500m) to $1.7M (¥600m) could be covered by rental income alone, so that swings in the takings of films and stage shows did not shake overall earnings (ダイヤモンド, 3 September 1962).

The origin of this emphasis on property lies in the Real Estate Utilisation Committee that Shimizu set up at head office in May 1958. The committee turned into organisational policy the redevelopment of theatre roofs, walls and the idle space around them into sites for new businesses, and a run of composite buildings followed. Unlike the older type made up of several theatres, a composite building put the offices of other companies in as its principal tenants and bundled a theatre and small and medium-sized lettable shops inside. The Toho Sendai Building came in 1963, the Toho Yuraku Building in Hibiya and the Toho Umeda Building in Osaka in 1965, and in 1966 the Kokusai Building and the Imperial Theatre opened on the site of the old Imperial Theatre, held in sectional ownership with Mitsubishi Estate. The pattern of urban development that embedded a cinema in the lower floors as a device to draw crowds while earning from rent-paying tenants above took its settled form in this period (東宝五十年史, 1982).

The Yomiuri Shimbun of 9 November 1971 recorded that income from land and building rentals accounted for 11.6 per cent of Toho's total revenue. Of the thirteen buildings it owned, cinemas were confined to the first and second floors, and 70 to 80 per cent of the total floor area was let to tenants such as shopping arcades, restaurants and bowling alleys — that was the reality of how Toho ran its buildings at the time (読売新聞, 9 November 1971). It was a judgement that put high-earning tenants first rather than making the cinema the base layer of the property, with the cinema placed there purely as a device to draw crowds. The Yurakucho Centre Building was completed in 1984 and the Toho Hibiya Building (Mullion) in 1987, and Nikkei Business at the time held that the opening of Mullion had widened a trading area centred on Ginza 4-chome out into the Yurakucho and Hibiya zone (日経ビジネス, 18 May 1987). While the film industry as a whole went on shrinking, rental income became the pillar of the financial base, and the structural difference that separated Toho's fortunes from those of Shochiku and Daiei.

In FY04 the film business produced an operating profit of $132.2M (¥14bn) and the property business $103.6M (¥11bn), the two earning at almost the same scale. Adding the theatrical business at $25M (¥3bn) gave the three pillars that made up Toho's segments at the time. Consolidated operating revenue moved around $1.8B (¥200bn), and recurring profit sat in a range between $184.9M (¥20bn) and $231.1M (¥25bn). Where the film business swung with the presence or absence of a hit, property generated steady cash flow from tenant rents and theatre operations, and the structure in which property absorbed the swings of film supported Toho's financial base over a long period. Shochiku was forced in the 2000s to sell its Ofuna studio and shrink its asset base, whereas Toho, because property earned for it, did not have to hurry the rationalisation of film production. The model of a film major surviving on property was settled at Toho first, and became the reference point for the companies that followed.

The Imperial Theatre as a stabiliser, and the cross-media use of IP

The Imperial Theatre, merged into the company in 1938, remained the core of its theatrical business. The old Imperial Theatre was demolished and rebuilt in 1965, and in 1976 the running of the theatre was transferred within the group to Toho's own property arm, taking the company into operating property and theatre as one. Musicals and stage productions played at the Imperial Theatre throughout the year, and Toho's theatre business had a revenue structure that filled its seats steadily, without the swings of film. President Shimizu Masashi said anything that does not make money, stop it all — that is my thinking, and that he had judged by looking only at the balance sheet (日経ビジネス, 24 October 1977), recalling that he had improved results by holding out the prospect of closing loss-making theatres such as the Geijutsuza. The theatrical business was smaller in scale than film, but like property it worked as a stabiliser for the business, carrying a model in which the fixed assets of Toho-owned theatres earned over the long run.

In FY04 the theatrical business produced an operating profit of $25M (¥3bn) — small beside film and property, but with a stable margin. From the 2000s, riding the expansion of the musical market, the company staged more overseas-licensed works such as Les Misérables and Elisabeth, moving, as in the film IP business, towards managing and exploiting the rights to works in-house. In the 2020s stage adaptations of anime works including Spirited Away and SPY×FAMILY were realised, and the theatrical business took on the role of extending the value of anime IP through a different channel. Restaging an original work that has already been filmed makes it easy to convert the recognition of the source material directly into ticket sales, and is aimed at raising the hit rate of new productions. A cross-media strategy of reusing the IP obtained from film and anime in the theatre took root as a small but reliable source of earnings.

From the Virgin acquisition to a single in-house exhibition network

In April 2003 Toho acquired the entire share capital of Virgin Cinemas Japan and renamed it TOHO Cinemas. It was a period in which the number of screens in Japanese exhibition was rising while single-screen houses closed, and the shift to multiplexes was accelerating. The acquisition gave Toho a nationwide multiplex chain; in October 2006 it transferred its own exhibition division to TOHO Cinemas by corporate split, and in March 2008 it consolidated four regional exhibition subsidiaries into a single nationally managed structure. The parent narrowed itself to production, distribution and property, and a division of labour was settled in which a specialist subsidiary handled exhibition. Single national management also created a mechanism by which exhibition data came straight back to the production side, speeding up decisions on distribution schedules and screen allocation.

In parallel, Toho made Kokusai Hoei a wholly owned subsidiary in 2011, and Toho Real Estate and Toho-Towa wholly owned subsidiaries in 2013, tidying up and consolidating the group. In March 2017 it absorbed Toho Real Estate into the parent, switching to a structure in which the property business was run directly by the parent company. The aim of this run of group reorganisation was to concentrate the three businesses of film, theatre and property in the parent and to speed up decision-making. After it, Toho moved from a holding-company style of management to an operating company that allocated its own resources, and the ground was laid for the concentration of resources on the anime IP business that came next. Choosing to run the businesses directly as an operating company rather than converting to a holding company was a judgement that put speed of decision-making at the top of the group's priorities.

From distributor to producer: where TOHO animation begins

In the middle of the 2010s Toho put its business of investing in anime production committees on a full footing under the label name TOHO animation. Until then Toho's model had centred on receiving distribution fees for works produced by others, and its share of production risk had been small. TOHO animation reversed that weighting, involving the company from the production stage of television anime series and capturing the merchandising and secondary-use revenue that came with a series as it grew. The change of business model from distributor to producer starts here. The template for chained earnings that runs from television anime to a theatrical feature and on to merchandising and live events was fixed in the middle of the 2010s. Because even within the same production-committee format later earnings turn on the investment share and the thickness of the rights acquired, Toho adopted a strategy of securing a senior investment position in its principal series.

Shin Godzilla, released in July 2016 with Anno Hideaki (庵野秀明) as chief director, took $75.8M (¥8bn) at the box office. It was the first domestically made Godzilla film in twelve years, and it showed the standing of the Godzilla IP at home. In FY19 consolidated operating revenue reached $2.4B (¥263bn) and recurring profit $504.5M (¥55bn), and the film business's operating profit of $311M (¥34bn) was 1.8 times the property business's $170.6M (¥19bn). The profit growth in film can be read as the overlap of hits among the anime works run through TOHO animation with the shift to an in-house production model in which Toho bore most of the production cost. The long balance between film and property began to break, and a policy of leaning resources towards film and anime took hold. The change of stance — from a company that merely took a distribution fee to one that invested at the production stage of a series and went after the rights — became plain in the second half of the 2010s.

<em>Demon Slayer</em> and ¥40.4bn: the chain from television to cinema to merchandise

Demon Slayer: Kimetsu no Yaiba — The Movie: Mugen Train, released in October 2020, took $378.3M (¥40bn) at the Japanese box office, the highest of all time. Worldwide it grossed a cumulative total of about $484.2M (¥52bn) and became the highest-grossing film in the world in 2020. TOHO animation had joined the production committee, and the case carried the success of the ufotable-made television series through into a theatrical feature, showing the force of chained earnings spreading from a television series to a film and on to merchandising. The success settled Toho's decision to direct its resources towards the anime IP business. A structure in which a single anime work produces more profit than all the other segments combined moved the centre of gravity of the business portfolio towards film and anime. Because the production-committee format lets the investment share and the rights acquired determine the division of profit, the relationship in which the depth of involvement from the start of a series feeds straight through into the profit on the film was demonstrated here.

The flow from television anime to theatrical feature continued with works such as Jujutsu Kaisen, SPY×FAMILY and My Hero Academia, and the anime IP business became the pillar driving profit growth in film. In FY21 the film business's operating profit recovered to $225.9M (¥25bn), and in FY23 it reached $318.1M (¥45bn). That is 2.5 times the $179.3M (¥18bn) of FY13 ten years earlier, and most of the difference is accounted for by earnings related to anime IP. Moving from a trade based mainly on distribution fees to a model that takes risk at the production stage in order to maximise the return replaced the profit structure itself. The definition of a Japanese film major shifted towards being measured by the weight of in-house production rather than of distribution. With the change from distribution-led revenue to production and rights-led revenue, the volatility of earnings rises rather than falls, but the return when a work lands is of a different order.

In-house production and the GKIDS acquisition: owning the chain from studio to overseas distribution

After the success of Godzilla Minus One, Toho deepened its involvement in the upstream stages of content production. In June 2024 it made the anime studio Science SARU a subsidiary, going beyond investment in production committees to bring the production function itself in-house. In October 2024, through Toho International, it made the North American anime distributor GKIDS, Inc. a subsidiary, assembling a North American distribution network on two channels, Toho International and GKIDS. The share of overseas sales reached the 10 per cent level for the first time in FY24. The building-out of the distribution network and the expansion of production capacity proceeded in parallel, and a shift began from a domestically centred model towards a structure that took overseas earnings into view. Taking in an anime production company and an overseas distribution network at the same time widens the reach of the vertical integration Toho is aiming at, at home and abroad alike.

In FY24 consolidated operating revenue was $2.1B (¥313bn) and recurring profit $425.1M (¥64bn). The film business's operating profit of $335.3M (¥51bn) was three times the property business's $110.9M (¥17bn), and the centre of gravity of the profit structure had moved to the film and anime IP side. Interest-bearing debt stood at $12.5M (¥2bn), keeping the company effectively free of borrowing, and a financial base with shareholders' equity of $3.2B (¥478bn) is the source of funds for future investment and M&A. Compared with FY13 ten years earlier, the film business's operating profit is about three times as large, and that growth is the outcome of the earning power of anime IP and the establishment of an in-house distribution model. The balance of dependence on property that long defined the profit structure of a film company has broken, and the growth business has come to the front. In terms of the financial figures, the outline has changed from the Toho whose largest earner was property in Hibiya to a Toho that is a production company growing its profits on the IP it makes itself.