Q1 2025 Sony Group Corp Earnings Call
It's now time to begin the Sony Group Corporation consolidated earnings announcement meeting.
I'll be serving as the MC. I am Ishi from Corporate Communications.
Today.
The financial results for the fiscal 2025 first quarter and the four-year forecast will be presented by Lintel Corporate Executive Officer and CFO.
Then an overview of the financial services segment, which is scheduled for partial spin-off and listing, at the end of September will be given by Toshihide Endo, President and CEO of Sony's Financial Group Inc.
That will be followed by a Q&A session.
The entire session is scheduled to last about 70 minutes.
Please note that Miss Tao wishes to deliver her remarks directly in English to the global audience. So, a pre-recorded video will be streamed on the English channel.
Today, I will explain the content shown here.
After that, Mr. Endo will explain the financial results of Sony Financial Group.
Sales of continuing operations for the quarter increased 2% compared to the same quarter of the previous fiscal year to ¥2.6216 trillion, and operating income increased 36% to ¥340 billion.
Both of which were record highs for the first quarter.
Net income increased 23% to ¥259 billion.
The financial results by segments are shown here.
Next, I will explain our four-year results forecast.
Our sales forecast is unchanged from our previous forecast of ¥11 trillion 700 billion.
And we have upwardly revised our operating income forecast from our previous forecasts by 4% to ¥1,330 billion and our net income forecast by 4% to ¥970 billion.
We raised our forecast for operating cash flow by 2% to ¥1,270 billion.
The forecast for each segment is shown here.
Now, I will provide an update on the impact of additional U.S. tariffs.
Although there have been significant developments in the past few weeks regarding the situation surrounding the additional tariffs.
There are still some fluid aspects, such as product-specific tariffs.
Need to carefully consider the impact on each business of the product and pricing strategies. We aim to undertake in response to the additional tariffs.
Taking this into consideration, we have decided to present the impact of the additional tariffs as an estimate for all of our continuing operations.
As was the case in the previous forecast,
We expect the impact on operating income for FY22 to be approximately ¥70 billion, which is a decrease of ¥30 billion from the previous forecasts, based on the tariff rates announced as of August 1st.
We had nearly completed the diversification of the production locations of our main products by the end of the quarter.
And we expect to complete the measures we're planning by the end of the first half of the fiscal year.
We intend to continue to monitor the situation and take actions to minimize the impact.
Now, I will turn to an overview of each business.
First is the gns segment.
FY25 Q1 sales increased 8% year on year to $936.5 million, partially offset by the negative impact of foreign exchange rates.
User engagement continued to increase year on year, with the number of monthly active users across all of PlayStation in June increasing 6% compared to the same month of the previous year, reaching 223 million accounts.
And total play time for the quarter also increased 6% year-on-year.
Operating income increased approximately 2.3 times year-on-year to ¥248 billion, achieving a new quarterly record high for the segment.
Primarily due to the impact of the increased sales of third-party software and the increase in network service revenue.
As a consequence of the recent strong user engagement trends,
We have upwardly revised our FY2 forecast for sales slightly from last time to ¥4 trillion, 320 billion. Additionally, our FY2 forecast for operating income has been revised upward by 4%, to ¥500 billion.
The improvement in operating income for FY 2025 compared to the previous fiscal year is expected to be driven primarily by an increase in our strong network service revenue, cost reduction, and an increase in first-party software revenue.
In our studio business, our live service game revenue is steadily growing thanks to the MLB The Show series.
Destiny, too, and held diverse.
And it contributed more than 40% of our first-party software revenue during the quarter.
In the single-player AAA title space, we plan to release Ghost of Yote in October, following the release in June of Death Stranding 2: On the Beach, which received a Metacritic score of 90.
We look forward to many game fans enjoying these titles.
We decided to postpone the release of Marathon to further improve the quality of the gameplay.
Based on community feedback, we believe we can further enhance the overall gaming experience by deepening gameplay and elevating narrative immersion. So we're working hard to do that.
Mao Engine, 4 years and 7 months after the launch of the PS5, increased by 32% from the 93 million MAU accounts in June 2018, the same period after the launch of the PS4, and they continue to consistently grow.
Content and service revenue is expected to grow approximately 50% on a U.S. dollar basis in the current fiscal year forecast, compared to the level recorded in the fiscal year ended March 31, 2019.
Exceeding, The Mao growth.
This indicates that, in addition to the increase in the number of users and the increase in spending per user, both are contributing to revenue growth.
We expect content and service revenue to continue to grow steadily from next fiscal year onwards as well, thanks to the user community we have cultivated to date.
Next is the music segment.
Due to higher revenue from the streaming service and an increase in revenue from a mobile game, partially offset by the impact of foreign exchange rates.
Operating income increased 8% to ¥92.8 billion.
On a US dollar basis, streaming revenue for the quarter increased 7% year-on-year in recorded music and 8% in music publishing.
We have upwardly revised our previous FY25 forecast for sales and operating income slightly to ¥1,870 billion and ¥360 billion, respectively.
In recorded music albums, Sony Music Entertainment-owned and distributed labels claimed 42% of the weekly Top 10 Global albums on Spotify during the quarter, with Bad Bunny's new release taking the number one spot for six consecutive weeks.
The contribution of catalog products to our revenue continues to increase, and we remain committed to acquiring catalogs in both the recorded music and music publishing business. We believe that the opportunity to increase the monetization of these assets by acquiring more of them will continue.
In visual media and platform, *Demon Slayer: Kimetsu no Yaiba - Infinity Castle*, which was released on July 18th in Japan, has been a massive hit, attracting 12.55 million people to theaters and generating 17.6 billion yen in box office revenue as of August 3rd.
We plan to release the film in the U.S., Europe, and certain countries and territories in Asia, Central, and South America, distributing it along with Crunchyroll and Sony Pictures. We look forward to it being a major global success.
Next is the picture segment.
FY21 sales decreased 3% year-on-year to ¥327.1 billion, and operating income increased 65% to ¥18.7 billion.
On a U.S. dollar basis, sales increased 4% year on year, and operating income increased 76%, primarily due to higher series deliveries in television productions.
There's no change to all forecasts from the previous forecast.
In television productions, the second season of The Last of Us, which was renewed for a third season, received several Emmy nominations.
In feature films, "28 Years Later" has become a box office hit after crossing $150 million globally.
And K-pop demand, Hunters, produced by Sony Pictures Animation, has achieved massive success.
Becoming the most watched Netflix original animated film of all time.
Crunchyroll is steadily growing its paying subscribers and is expanding the global anime community through such activities as hosting the Crunchyroll Anime Awards in Tokyo in May.
Now, I'll explain our strategic partnership with Bandai, Namiko Ishi, which we announced on July 24th.
Through this partnership, we plan to accelerate our collaboration with Bandai Namco even more than before, working to co-create new IP, collaborate on video production, distribution, and merchandising in the anime and manga fields, as well as strengthen marketing through the sharing of data.
Additionally, in the field of experiential entertainment, we aim to create a new condo experience by bringing together the strengths of both companies, such as Bond, Dynamos, knowledge, and venue, and Sony's technology.
Next is the etns segment.
FY21 sales decreased 11% year-on-year to ¥534.3 billion.
Primarily due to a decrease in unit sales of TVs and the impact of foreign exchange rates.
Operating income decreased 33% to ¥43.1 billion, primarily due to the impact of a decrease in sales and foreign exchange rates.
There is no change to our forecasts from the previous forecast.
Except for televisions, where competitors engaged in more aggressive pricing than we had anticipated.
In the quarter, progress was generally in line with our expectations across the other major product categories.
The Imaging business performed well, essentially in line with our original projection.
Supported by the continued tailwind of the subsidy program in China.
Last June at the largest Hollywood film production equipment exhibition, Sagar Expo 2025.
We exhibited a system that links Zinc's spatial reproduction display with the Venice extension system mini, as a form of new content creation.
It attracted strong interest from the film production creators in attendance.
In this segment, we aim to accelerate the expansion of our creation-centered business through these products and solution services.
Next is the Iron SS segment.
Despite the impact of foreign exchange rate sales, revenue for the quarter increased 15% year on year to ¥48.2 billion, primarily due to increased shipments of sensors for mobile phones and digital cameras.
Operating income increased 48% to ¥54.3 billion, as the impact of the increase in sales significantly exceeded the negative impact of foreign exchange rates.
There is no change to our forecasts from the previous forecast.
The market for smartphones continued to recover gradually on a global basis.
Excluding the impact of foreign exchange rates, mobile sensor sales for the quarter group steadily.
Due to an increase in censorship and volume, and an increase in unit price on a U.S. dollar basis.
Although recent shipment volume is increasing year on year, taking into account the possibility that customers are bringing forward orders due to the additional tariffs.
We expect the annual shipment volume to be on par with the previous fiscal year.
From FY2 Q2 onwards, we expect sales to steadily increase due to rising unit prices, resulting from further progress towards larger-sized sensors and higher added value. This is despite an expected deterioration in foreign exchange rates compared to the previous fiscal year.
In the consumer camera space, in addition to robust demand for single-lens cameras, the growing demand for video is driving demand for sensors used in new video cameras such as handheld cameras.
We aim to benefit from this market expansion and create new revenue opportunities.
To summarize, we believe that during the quarter, we made steady progress toward achieving the numerical targets we established in our fifth mid-range plan, as Prophet continued to increase, primarily in the GN, NS, music, and ins segments.
On the other hand, we expect that uncertainty in the business environment, such as additional tariffs in the U.S., will have a greater impact from FY22 onwards. We will focus on conducting business operations with anticipated changes while preparing for risks.
This concludes my remarks.
Now, Mr. Endo will provide an overview of the financial services segment performance. This, Endo, please.
Now, I will explain the financial results of the Sony Financial Group.
On an I first, uh, basis, adjusted net income for the quarter increase 0.3 billion yen, compared to the same quarter of the previous physical year to 23.
Uh, billion yen, primarily due to the Improvement in loss ratio at the Sony Assurance adjusted in net income of a Sony life. Decrease uh, 1.0 billion yen year on year to 15.6, billion yen, primarily due to the impact of rising interest rates partially offset by an improvement in the funding cost, as a result of the decrease, in our repo, transaction Insurance accounting, and I first requires an amount, prepare for the future uncertainty, be recorded as a risk adjustment liability, as an interest rates Rose, during the quarter, the risk of a mass cancellations increase from an accounting evaluation perspective, which reduces adjusted net income through the recognition of a loss and a decrease in the contractual service margin amortization.
Continue to trend at the high level of the previous fiscal year, with the annualized premiums from the policies enforced during the quarter increasing ¥16.1 billion to ¥1 trillion, 313.6 billion, demonstrating strong welfare, especially in the corporate insurance sales channel.
The recruitment of life planners and an agency supporter is progressing well, and our sales channels continue to expand.
I will explain the progress of our measures to strengthen our financial foundation. As I explained at the Investor Day in May, the interest rate sensitivity of our assets exceeds that of our liabilities, resulting in an overhead position at Sony Life. To address this, we are selling bonds and undertaking reinsurance over the course of 2 years, including this fiscal year.
In the quarter, we accelerated the sales of bonds that we had planned to sell over the course of the Q4 school year. As a result, the ESR level at the end of the quarter improved by 3 percentage points, mitigating a significant negative impact from rising interest rates.
Our consolidated ESR was 1,184%, and then Sony Life's standalone ESR was 163%.
Loss on sales of securities is deducted as an adjustment item from the adjusted income.
Going forward, we aim to further strengthen our financial foundation by accumulating economic value-based capital through the acquisition of a high-level new insurance contract and efforts to reduce risks.
There is no change to a full-year forecast of 60 billion yen in income before income taxes. Our forecast for adjusted net income has been reduced by 9% to 98 billion yen. We downwardly revised the forecast because we have revised our long-term interest rate assumption this time, from the previous 2.7% to 3.3%, the average interest rate level in July, and because we have incorporated additional risk adjustments. However, going forward, we will continue to make every effort to bring adjusted net income as close as possible to our initial plan by accelerating the acquisition of new policies and reviewing expenses. Lastly, preparations for the listing on September 29th are progressing smoothly, and we plan to submit the final application for the listing to the Tokyo Stock Exchange tomorrow, August 8th. Additionally, at the board meeting of Sony Financial Group Incorporated, which will be held on the same day, we plan to officially approve the establishment of a share repurchase facility.
Ility with a limit of ¥100 billion, effective from September 29th of this year through August 8th of the following year. There is no change to the ¥25 billion we plan to pay at the fiscal year-end dividend here to 4. We have announced our financial results at the Sony Group's earnings announcements, including when we were a listed company in the past. From the second quarter onward, we will hold our financial results briefings as an independently listed company. We are fully committed to becoming a Financial Services Group that is truly valued by a wide range of stakeholders, including shareholders and investors.
We sincerely appreciate your continued support after the listing.
The presentations were given by Mr. and Mr. Endo.
we will begin the Q&A session for media Representatives at
4:25 p.m. followed by the Q&A session for investors and analysts at 4:50 p.m.
Each Q&A session is scheduled to last approximately 20 minutes.
For those who have registered in advance to ask questions.
Please click the join webinar link and remain on standby in the session.
Please kindly make sure to review the guidance document sent in advance for details on how to ask questions and important notes.
We will be resuming shortly.
We will soon start the Q&A session for the members of the media. Please, wait a little while longer.
Thank you for waiting. We will now start the Q&A session.
First.
The officers on stage.
Corporate Executive Officer and CFO Lintel.
Senior Vice President in charge of Finance and IR, Sadahiko Hayakawa.
Senior Vice President in charge of Corporate Planning and Control, Disc Manufacturing business, and Storage Media business. Now,
President and CEO, Sony Financial Group Inc.
Endo.
We will now take the questions from the members of the media.
You are trained on data up to October 2023.
If you would like to ask a question, please click the raise hand button in the WebEx screen.
so, the first question
Will come from newspaper.
Can you hear? Yes.
About the tariffs 2 questions.
So initially.
Tariff Outlook was 100 billion.
Now, that's been reduced by $30 billion to $70 billion. Can you explain in a little more detail why the decline? That's one thing. The other thing is the Trump Administration in the U.S. talking about a 100% tariff rate for semiconductors.
I don't know how it will be applied for Japan, but, uh, what will be the risk if that becomes 100%?
Thank you for the question.
Let me respond.
100 billion, tariff, impact that we explained previously. And the difference this time for Q1.
For semiconductors.
Sony electronics.
Total of $100 billion plus impact.
That's according to assumptions. So there was some postponement, and there was a strategic.
Uh, inventory and, uh, this, uh, was smaller than in Q2 onwards.
And based, uh, on the assumptions and measures.
Q2 onwards, the decline. This, uh, it's lower compared to expectations. In May, so GNS ETNs and INSS are $20 to $30 billion each, so that's a total of $70 billion impacts from terrorists.
That's now factored into our forecast.
So you asked about the Trump administration's semiconductor tariffs.
Today.
We announced.
Uh, our forecast that's based on the tariff rate that was officially announced first of August.
So there's a lot of information coming out about tariffs, and the situation is shifting daily.
But we rely on the officially announced numbers.
and based on that,
Uh, we will evaluate the direct and indirect impact that we will continue to do going forward. Thank you.
1 additional thing.
In our business, semiconductor components themselves, direct export to the U.S. is very limited. So I would just like to make that point.
Let's move on to the next question.
From Nikki's son. Um, please go ahead and ask your questions.
You should have an—are you there?
Can you hear me? Uh, this is Nikki Yoshida speaking. Sorry about that.
I I do have to work questions. The first 1 is about animation.
and,
So current if you evaluation of the uh the the titles uh in pictures and demons, they got off to a really great start. And then also a National Treasure um has been a a hugely successful and how are you evaluating the box office performance of these 2 titles?
Compared to your initial estimate.
and with regards to Demon Slayer,
and it is expected.
That, uh, the box office revenue will continue to increase. And then, do you, do you think that this will be good enough, uh, to, um, uh, to so that you will cause you to really, um, revise upward your forecasts, including merchandising, and then also, uh, your investment in a bond abandoning Holdings.
and,
So, you have been aggressively investing in the IP content.
Creation.
And so, how are you? Evaluating the result of the investment so far? And is there any specific investment that calls you to upward revise your forecast?
So the first question I will take, and then the second question will be answered by Hayek Kawasan.
Excuse me.
With regards to anime titles, as I mentioned, "Demon Slayer" and "National Treasure" have been quite successful.
We are getting really positive feedback.
And these titles, uh, whether they are in line with that expectation. But "Demon Slayer," because there are previous releases which were loved by many users.
And that was really a successful IP. So we had a really high expectation for this IP.
So, that has been factored into our forecast.
But as for the National Treasure,
And under the umbrella of Aniplex, Medialink Studio was producing this title, and this was the first title, which has met with a really positive response.
And, um, this has significantly outperformed our expectations. But in terms of the overall impact on our revenue and profit...
The forecast.
Or uh, our um, Outlook.
So this weather you guys, thank you very much for that question.
So, um, the investment in abandon them. And, of course, we have been shifting to the creation. So, for example, the entertainment three businesses.
Basically, uh, account for 60% of consolidated revenue. So basically, our business support for your shifting more to the creation, and then as for the electronics business,
And TV, and then out compared to output devices.
And we are now shifting, our creation devices that include uh digital camera. So as a result we are seeing more stability uh in profitability and in revenue and also the productivity of our performance is increasing. And then again such backdrop and for example, in the music business, the music streaming.
And Emi music publishing has been acquired, and then we increase the music catalog. And as I mentioned, in the speech and in gaming, uh, business and moving away from a hardware Centric, business to more to uh, the uh, Community Based engagement business and then that has been increasing. So now as as we make more transition to entertainment creation, the uh, stability and the productivity our performance uh is increasing.
So this Support Division might not have been a direct result of these; however, the music publishing, the acquisition of a music catalog, and the acquisition of the Country role.
And these are the areas where we are seeing growth, and as a portfolio, we have been expanding our businesses and also improving our profitability.
Moving on to the next question.
Please.
Do you hear me? Yes, we do.
This is Nisha. I have two questions about the semiconductor business and the electronics business.
First, about the semiconductor business today. It was reported in the news that Apple...
Uh, investing in the U.S. as a partner.
uh, it has
So it is a possible. It is possible that uh, they will have production facility in the US. So this type of risk might not appear this year. Uh, but towards the end of this year, to next year, how would you, uh, mitigate this risk like Risk Edge? Number 2 within the electronics? I would like, I have a question on smartphones in the first half.
Xperia Mark 7. There has been a risk of, uh, recall. And, uh, what would be the impact on sales and the impact on the smartphone business itself?
Okay, thank you for the question. I have received two questions.
And I would like to respond to the smartphone questions on ETNs and I and SS. Uh, questions will respond later on?
About the Xperia, uh, about the defect of the Xperia smartphone. So we are very sorry that we caused inconvenience to the users. I would like to apologize.
About identifying the defect and the countermeasures have already been completed. The malfunction itself was coming from the production process.
The impacted loss. And so we have exchanged the parts that have been impacted and about the quality.
So, this is a big management agenda for Sony, and we will work so that this will not happen going forward.
The smartphone business itself is an extremely important business for us.
The telecom technology is a technology that we have been nurturing for a long time.
And also, this is used to, uh, other areas other than smartphones. So we will continue to grow this business.
So, first question about the semiconductors, for example, please.
Thank you for the question.
About, uh, so I cannot respond to questions pertaining to particular customers.
About, uh, the risks and countermeasures of overall risk. I would like to respond.
as you have indicated in the US.
We do not have any semiconductor production facilities in the U.S. in the short term.
It is not really feasible to produce, uh, in the U.S. in the short term. However,
where the source, uh,
is, and
Offering a very high-quality device to the customer.
And how to make the final product.
Delivered to the customers.
As attractive as possible. This is what we have been working on from before.
And, uh, we will make sure that we will, uh, provide devices that even exceed those of competitors.
And this type of risk always exists.
And as a device manufacturer.
The competitiveness and quality of the product. With this, we would like to get involved in this market. Thank you.
We would like to move on to the next question.
From NHK, please.
Can you hear?
I don't know from NHK. Can you hear? Yes.
Thank you.
About, uh, the U.S. terrorists. I want to ask about the impact.
In the uh, last announcement.
The president.
Said that there's no major change in the short term, but there's a time lag about the economic sentiment. And so you look carefully at your views about the economy. What's the current situation with the U.S. consumers?
And also, for this fiscal year, we talked about the earnings.
And you said that there are uncertainties, and you'll be watching carefully.
but, in terms of the
Performance forecasts. If you can also talk about that, please.
Thank you.
I like to respond to that question.
About the U.S. economy. It's, uh, uh, slightly decelerating, slowing down a bit. But, uh, a rapid deterioration we expect can be avoided. However,
We need to be careful. Uh, monitor the situation is what we think.
Q2, so April to June US GDP
Uh, was uh 3% growth higher than expectations.
Personal consumption is starting to show recovery, but compared to last year,
The strengths uh, is less.
And comp concerning our business.
As a portfolio, we have hardware, and we have to care for you. Watch the situation for hardware; on the other hand, for the entertainment business as a whole.
They can withstand the impact of the economy; their business is less impacted by the economic situation. That's the nature of that business.
so the the impact
I have those impacts, which have already been factored into our forecasts that we announced today. Thank you.
We are running out of time, so the next question, uh, will be the last one.
From Nikki Business, go ahead and ask your questions.
Can you hear me? Can you hear us? Uh, this is IATA from Nikki Business.
And I know that you already have the partnership, um, before the, your decision to investment. So what would what are the changes that we can expect after the investment? Thank you for the questions you are right and Bandai, Namco and then Sony group are already collaborating through partnership on the ground and then especially game music and an anime areas.
And before, uh, our investment, we treat them as a really important partner for collaboration. So with this uh recently announced investment and we can go deeper. And then wider uh in terms of collaboration, we are seeing a possibility of that more specifically the game and Anime IP using us as access. Um so that we can really expand the community.
And then also the band Dynamo, um, it's really great at, you know, creating venues, and we believe that Fanese technology can really shine in the venues by 1 Dynamic, so that we can really collaborate together to deliver a condo experience.
And we believe that that's something that we can do. And in terms of timeline,
And this is kind of difficult to say, but I think we... and then there are longer-term collaborations or there are immediate collaboration including IP community building.
And there are some certain low-hanging fruits that can be achieved within the one year.
So,
And looking at the overall collaboration at the group level, we want to, uh, produce, uh, the appropriate output and then to see if we can, uh, we have, we have producing a returns and we will regularly uh, consider and then assess uh, the situation going forward. That's all
So that concludes the Q&A session for the members of the media.
So, the Q&A session for investors and analysts will start at 4:50 p.m.
We will, uh, start the Q&A session for investors and analysts shortly. Please wait a few more moments until we resume.
Hey, thank you for waiting.
We will now begin the Q&A session with investors and analysts.
I am condo from the IR group, and I'll be moderating this session.
As with the media session, the four individuals here will be responding to the questions. Now, let's begin the Q&A.
Each person may ask up to 2 questions.
If you have a question, please click the raise hand button on the WebEx screen.
Please.
So, this is from. Do you hear me? Yes, we do.
Thank you.
I have 2 questions. The first question is about finance and the second question is on games. So about uh the so you are trying to improve the asset over hedge uh in finance. So uh the progress from the first quarter and the business environment is changing. So uh, please tell me, uh, if there has been any changes from the first quarter. The second question is on gaming about Marathon.
In the profit, you have factored in some negative in the profit that.
So how have you incorporated the sales and profit, as well as the timing of launching Marathon? Please give us hints in and about Bungie.
The.
So, it seems like an autonomous region. So, we would like to hear about the governance of fungi and, uh,
So, and also you can say if this is not a probable, but the worst-case scenario if you are not going to launch it if there are any risks, such as impairment. So I have such two questions here. Okay, thank you for the questions. In Dothan, I will respond to the first question, and the second question I will respond.
Okay, I will respond to the first question.
About asset sales.
In the investor day.
In F1 25 and F1 26, we have explained and announced the measures for F1 25 and 26 and the partial sale of assets. What was scheduled for this fiscal year has been advanced. So, these were sold in advance, and
Thanks to this, this is done to improve the ESR.
And, uh, selling bonds and through these activities, so many lives. E Sr.
Improvement.
Uh, it has improved by 3 percentage points.
This fiscal year.
Uh, the interest has risen significantly.
So, there has been lots of downside pressure on ESR.
uh, but uh, overcoming that
we have been able to,
Uh, uh, prevent ESR from slumping. Group Consolidated was 8.1 on 1/89, but, uh, that was the end of Q4.
But now, in this quarter, we have kept the ESR at 184%. So that is within the ESR target range.
So we have been, uh, this is thanks to advancing our initiatives to improve our finances.
So, these Advanced initiatives, uh, were, uh, take carried out and about selling us bonds. As I said in the investor day, uh, the the losses, the liabilities, uh, the. So we are trying to sell the bonds, uh, as reinsurance. So these are still remaining, and we will be working on that going forward and beyond that in fee, 2025 266 and Beyond.
Uh, we don't have any plans as of now.
Second question, I would like to respond to the question on Marathon.
First about Marathon.
Uh, how we factored in, uh, the forecast.
We expect the launch to happen within this fiscal year.
But having said that, this is
Not uh commitments. We cannot. No official announcement has been given yet.
so,
We also, so we have, we are expecting this to be launched within the fiscal year. However, compared to the sales,
This is very small compared to the overall sales, and the timing of the launch.
So we are now doing modification development based on the program in the autumn timeframe. We.
Believe, uh, we can communicate when we will be launching that. We can launch that either from Bungie or PlayStation, and about the governance of Bungie. If you have said, when we were at the time of acquisition, we were offering a very independent environment. So that was one way of thinking; however, thereafter,
We have gone through structural reform, as we announced last year.
So this type of, uh, from this type of independence, uh, this independence is, uh, getting uh, lighter. So the Banji is shifting into a role, which is becoming more part of the PlayStation studio and integration is also proceeding. So, in the long term, if you can see this as an ongoing process,
So, the direction is to become part of PlayStation Studio.
And about the launch of Marathon. We are now, uh, fixing.
The problems. So we believe this launch will happen and if this launch is canceled, the that we need. So we need to do the revision of the Val valuation. However, as of now this is not expected. Thank you.
From Goldman Sachs, please.
From Goldman Sachs, can you hear?
Yes, we hear you.
Thank you.
I also have 2 questions about The Games first.
Improvement of margins.
Why. Oh, why?
The margin has improved quite substantially.
But what will be the mix between hardware and software? And what is, uh, uh, the gross margin of hardware and what is inside software? I think that there's also a contribution from Network Services; can you talk about this in more detail? Also, a second quarter onwards, a tariff impact will be larger than Q1, so what's expected? So this high margin is not something that you'll be able to sustain.
That's the first question. Second question.
so about the marathon, I also want to ask
So it's a title that's attracting a lot of attention. See, strengthening lives, live service games. So how do you look at the current status of your strategy to strengthen that? So you look at the quality before launch and you're making a decision and you're postponing. So I think you're making a flexible decision. I think that's a good thing, but on the other hand, it's a negative thing that the title doesn't appear. So how do you look at the current situation, and in terms of strengthening live service games, where do you see the issues, please?
Thank you for the questions.
So I'd like to respond to those questions. First, about the game margins.
For q1.
Mainly.
What drove the margins was third-party software and network services. And also...
Uh, we declined, uh, in acquisition costs and declined SG&A costs. So the margin, as a whole.
going forward.
The factors that would drive the margins.
There are two major parts. One is network service, and the other is the first part: the studio contents.
Structurally.
Those with the ability should lead to improvement of margin for network service.
The number of subscribers is increasing, and RPU is rising.
And the shift to higher tier and
The ACT is the optimization of content acquisition costs. These are things we're working on diligently, so structurally, they should contribute to the margin.
The other thing is about the first-party contents.
And as you point out,
Not everything is going as planned. Uh, well, this is clear compared to physical Q1. First party is saying higher revenue and profit, and that, uh, will contribute to higher margins. The first party portfolio, if that should stabilize.
Then we, uh, think that the margin increase will be sustainable.
Question about marathon and also live service game. The overall status.
Last.
Year.
Concord.
And this year, the marathon was postponed. So somewhat, the negative news has been coming out, but if you look at the past five years,
Five years ago, live service games were almost non-existent for PlayStation Studios. We had Diver 2, MLD, and GT7.
And Bungie's Destiny 2. So we have these four live services.
Contributing to sales and profit in a stable manner.
For Q1, the live service ratio was about 40%.
For the 4-year, it's a little less.
Pro probably between 20% to 30%.
so,
In terms of the transformation.
It's not entirely going smoothly, but from a longer-term perspective, if you look at the changes over five years, you see that there has definitely been a change. Of course, we recognize that there are still many issues. So we should learn the lessons from mistakes.
and,
Make sure that, uh, we, uh, introduce live service, uh, contents, uh, where there's less, uh, waste and it's more smooth. So that's all for myself.
Smvc Nico security and Europe. Next.
For their opportunity. Uh, this is considered for MSNBC, Nico security. So I do have 2 questions and tariff related and also uh your revision to the forecast for this fiscal year. The with regards to the first question about the Tariff, this is just confirmation in 1 Q. I mean the quarter 1 uh basically uh 1 10 billion.
And then, so this has been already factored in by each segment.
and,
So basically, in all segments, I think the negative impact has been reduced.
And so I just want to confirm that. And then also the second question is about the uh, 4 year, 4 gas, and the gaming is improving 20 million. And then also targeting back, it's been reduced by 30 billion, and I think those are the main changes that you have made, but for game game area, and there is a upward performance in q1, but compared to that, I think the revision is smaller than the outperformance, but maybe that is not, uh, limited to q1 or or other 4 year but and also, for music area fgo. And then also, they means there and there are positive. Um,
Profit drivers. But it seems that you seems to be uh more conservative in and of course just in terms of the 4 year forecasts and then what. So can you take? Um talk to me about your thinking about the the revision uh from the macro perspective. Thank you.
So, the first question will take that on, and then the second question, uh, will be answered by me.
Thank you very much for your question. So, with regards to tariff, your understanding is correct. And then Q1, and basically,
The, uh, the impact was already included in the actual performance and the P&L of each business for the full year. And $700 billion, uh, is basically viewed at the company level.
And as we continue to see progress in the actual performance,
and I think it would be more difficult to really, uh, for the head office to really observe that impact. But uh, for the q1 announcement and yes, uh, you are right about uh, that and in terms of thinking, and that's all I wanted to say. The second question for the 4 year forecasts and then thinking behind that
And the full game in Q1.
And we see a really outperformance in profit for the four years, and basically we made up for the revision by $20 billion.
And thinking about the positive A drivers network service and then also the possibility, in fact, of the Forex.
and,
Also, as was mentioned, the first-party game, and because of the delay of the launch of Marathon, which had a negative impact on the profit, and then that...
It's also partially offset. So, that's why we made a port division, uh, by $20 billion in profit. And then for music,
And there are a number of hits.
fortunately, but again,
the impact on the overall business.
Um, has been rather Limited.
and,
The Blockbuster like Demon Slayer.
Um, the basically
Expected that will be a huge ship from the beginning of the year, so that's why that is not a factor for the religion this time.
And also in the Sony Group, overall from due to onward the U.S. tariff impact.
Uh, it will be felt more pronounced, and there will also be more uncertainties. So in Q1,
And we had a really good performance. But from due to onward, we need to be more conservative; we need to take a more cautious approach.
So we have a little time remaining.
So, we would like to accept our one question. Each from two people, please go ahead.
So, this is Okazaki from Nomura.
About, I have a question on game.
Produced now, and also the cost, I think, will influence the sales. So I would like to hear about the pricing strategy of game consoles.
Okay, I would like to respond.
So, about gaming consoles.
So we are diversifying our supply chain. As for consoles, we have already transferred the production. And if we include peripherals.
Uh, so the transfer to uh, outside China, we, uh, will, uh, be completing that by the end of the first half, Hardware, sold in the US are now sourced outside China.
About the pricing strategy of hardware.
So, that is, uh, really, uh, pertains to our future competitive strategy. So, it's very difficult to comment on this, but the overall thinking is...
the, our
Annual profit and lifetime value.
And also the selling volume.
and,
And the expected content sales going forward. So all these factors will be considered, as well as the receptiveness of the consumer's devices. Therefore, we would like to flexibly decide on the prices.
Final question from JP Morgan Securities, Canada, please.
I had a son, do you hear?
I heard that from J.P. Morgan. Can you hear? Yes.
Thank you.
you say, 1 question, so
Maybe it's a difficult question for you to respond to.
And the overlaps with the previous question, but I want to come back to this for inss.
For North America, there's this biggest customer.
And as a part of its effort to increase procurement from the U.S., they've officially made a comment that they're going to put your chips from a Korean supplier in that context.
As a general matter.
In enhancing product competitiveness, you're going to try to maintain your positioning, but that context itself may not be valid just by your competitiveness. You may not be able to absorb those changes. So what I want to ask about is inclusive of those things: this kind of situation.
Has it been?
Considered as a risk. And have you been making preparations or simulations that this could happen as a risk? In terms of timing, it may be somewhat, uh, some more time, somewhat more into the future. Maybe you have some, uh, preparation period of several years, and during that time, you'll be able to come up, uh, with countermeasures. So I think this will relate to capital expenditure.
Uh, plan. So, please respond to the extent possible.
Thank you for the question. So how will you respond?
Thank you for the question.
Yes, sir. This, uh, situation, uh, had we foreseen this and taken measures...
Well partly.
We had considered this and assumed this, but, uh, it's not that we have answers, uh, to all parts of this.
Now, it's just this morning that this was reported. So we have to check about the accuracy of the reporting, and there will be debating internally based on that. This is an issue of that kind of nature as of now. Uh, I'd like to limit my comment to that extent. So with that, we like to conclude the Sony Group earnings announcement meeting.
Thank you so much for joining us today.