Sony Group Corp

Okay, it is time to start Sony Group Corporation's Consolidated Financial Results Announcement Session. And my name is Okada. I'm with the Sony Group Corporate Communications. First, let me introduce the people on the stage. First, we have President, COO, and CFO, Mr. Hiroki Totoki. And we have Senior Vice President in Charge of Corporate Planning and Control, Lead of Group Diversity, Equity, and Innovation, and Support of Financial Services Business and the Determined Area, Ms. Naomi Satsuki. And the Senior Vice President in Charge of Finance and IR, Mr. Sadahiko Hayakawa. And also, Sony Financial Group Inc. Corporate Executive Officer and CFO, Mr. Kazuhiro Yamada. These four will be presenting the second 2024 second quarter actual and full year forecast and then have the Q&A session in total of 70 minutes. Mr. Tatoki, please. Okay, thank you. Today, Matsuoka-san, Hayakawa-san, and Yamada-san will explain the contents shown here, and I will give a general summary at the end. Hayakawa-san, please. Okay, thank you. So, consolidated sales, excluding the financial service segment for the quarter, increased 9%. compared to the same quarter of the previous fiscal year, to 2,973.4 billion yen. Operating income increased 57% to 389.3 billion yen, a record high for the second quarter and the first half of the fiscal year. Consolidated sales, including the financial services segment, increased 3% year-on-year to 2,905,600,000 yen. Operating income increased 73% to 451,100,000,000 yen, a record high for the second quarter. And net income increased 69% to 338,500,000 yen. The results by segment for the quarter are shown on the slide. Next, I will explain our consolidated results forecast for FY24 full year. Consolidated sales, excluding the financial services segment, have been increased slightly from the previous forecast to ¥11,800,000,000. Operating income is unchanged at ¥1,165,000,000. And operating cash flow has been increased ¥40,000,000 to ¥1,440,000,000. Consolidated sales, including the financial service segment, have been increased slightly from the previous forecast to 12,710,000,000 yen over income and then income unchanged at 1,310,000,000 yen and 980,000,000,000 yen respectively. The full year forecast by segment is shown here. Now, I will move on to the explanation of the state of each business. The first is the GNNNS segment. Sales for the quarter increased 12% year-on-year to 1 trillion 71.5 billion yen, primarily due to an increase in third-party software sales despite a decrease in hardware sales. Operating income increased 184% year-on-year to 138.8 billion yen, a new record high for this segment in the second quarter due to an increase in the profit of hardware, third-party software, and network services. We have increased the full-year forecast for sales by 4% from the previous forecast to ¥4,490,000,000. Taking into account the results of the quarter, we expect operating income to increase 11% to ¥355,000,000, a new record high for profit for this segment. Now, I will discuss the state of the business starting from our platform business. The number of monthly active users across all PlayStation platforms in September increased 8% compared to the same month last year to 116 billion accounts, making the eighth a consolidated quarter of growth compared to the same period of the previous year. The total play time also increased 14% compared to the same month last year, and 11% on a cumulative basis since the beginning of the current fiscal year, compared to the same period of the previous fiscal year, demonstrating steady growth for the platform. PS Plus is providing a stable base of earnings as sales on a US dollar basis increased 18% year-on-year, This is due to an increase in ARPU, primarily resulting from the shift to higher tiers of service and the impact of price revisions. As for third-party software, sales significantly grew due to contributions from solid franchise titles as well as hit new IP, including a new sports title and an action RGP title from China. Next is the studio business. Astrobot, released on September 6th, has received a Metacritic score of 94 and has garnered high praise from the gamer community. It is a hit which has sold over 1.5 million copies in the nine weeks since its release. 37% of the users who purchased Astrobot had not purchased a first-party title from us in the last two years. The percentage of younger age groups and families purchasing the title was much higher than other titles, and the title is contributing significantly to a widening of the user base through the acquisition of new users and expansion of our title portfolio. We launched two live services, new services. Two live service games this year. Helldiver 2 was a huge hit while Concord ended up being shut down. We gained a lot of experience and learned a lot from both. We intend to share the lessons learned from our successes and failures across our studios, including in the areas of title development management as well as the process of continually adding expanded content and scaling the service after its release so as to strengthen our development management system. We intend to build on an optimum title portfolio during the current mid-range plan period that combines single-player games, which are our strength, and which have a higher predictability of becoming hits due to our proven IP, with live service games that pursue upside while taking on a certain amount of risk upon release. As the quarterly results show, the platform business has strong momentum and we expect to see stable expansion of user engagement and associated revenue growth in the second half and beyond. In the studio business, we expect sales and profits to decline in the second half of the fiscal year compared to the same period of the last fiscal year when Marvel's Spider-Man 2 and Helldiver 2 were huge hits. However, we are making steady progress in the development of new titles and improving our live service game process, starting with Ghost of Yohei, which is the sequel to the smash hit Ghost of Tsushima. We plan to continue releasing major single-player game titles every year from next fiscal year onwards.

Next is the music segment. Sales for the quarter increased 10% a year to 448.2 billion yen and operating income increased 12% to 90.4 billion yen, primarily due to an increase in live performance, merchandising and licensed streaming revenues. Streaming revenue for the quarter increased 9% year-on-year for both recorded music and music publishing, a 5% and 6% increase respectively on a U.S. dollar basis. The FY24 forecast remains unchanged from the previous forecast. We are expanding our business globally in markets where streaming is fast-growing, such as the emerging market, including through digital music distributions and artist services provided by the Orchard and Aval. On the other hand, in countries and territories where streaming is more widespread, the consumption of catalog music is increasing. For example, the share of consumption of catalog music released more than 18 months ago reached 73% in the recorded music market in the United States. Additionally, in the Spotify Global Top 200, the share of songs released more than 10 years ago has increased significantly from less than 5% in the calendar year 2020 to more than 20% through the end of July 2024. This is primarily due to a shift in the age demographic of users to a more mature age group in those countries and territories, as well as younger listeners having more opportunity to consume major hit songs from the past due to discovery on social media platforms. We have carefully selected and acquired evergreen music catalogs through investment or the signing of licensing agreements. These music catalog assets serve as a stable earnings foundation for the long term, not only from the consumption of streaming, but also from the use in the media such as movies and advisement. Additionally, by also acquiring names and image and likeness rights related to the music artist for some catalogs, we are pursuing additional monetization opportunities like merchandising and experiential live events that use these rights. Next is the picture segment. The sales in the quarter decreased 11% year-on-year to 355.8 billion yen, primarily due to a decrease in the number of television programs in part due to the impact of the strikes in the previous years. Operating income decreased 37% year-on-year to 18.5 billion yen, mainly due to the decline in sales. For F524, we forecast sales to decrease slightly from the previous forecast to 1 trillion 510 billion yen and operating income to decrease 8% to 115 billion yen. We have revised downward the forecast for the operating income from the previous forecast primarily due to a revision in the results forecast of our India business in the media networks. In motion pictures, It ends with us. A film adaptation of the best-selling novel released on August 9th generated box office revenue significantly exceeding our expectations and contributed to the result of the quarter. We are still recovering from the impact of the strikes, but the number of major films released after the end of the strikes has been increasing, such as Bad Boys, Ride or Die, released in June, and Venom, The Last Dance, released last month. We expect the television and video streaming services licensing revenues to recover from the second half of this fiscal year through the next fiscal year. The Crunchyroll is actively expanding its global user base, including partnering with the Amazon Prime Video Channels and then signing a distribution agreement with the YouTube Primetime Channels where the service is scheduled to launch towards the end of the year. Moreover, we have begun streaming many new anime titles from the second half of this fiscal year and aim to further increase engagement with anime fans around the world. Regarding our business in India, the operating environment is challenged primarily due to a softness in the app market and decreased viewers of paid television. However, under the new local management team that started in August, we are strengthening our operations and rebuilding our strategies to grow the business over the mid to long term, including continuing to improve viewership through re-strengthening of our programming. Next is the ET&S segment. Sales for the quarter were 619.8 billion yen, essentially flat year-on-year. Offering income increased 15% year-on-year to 70.2 billion yen mainly due to the favorable impact of foreign exchange rates and cost reduction effects. The F-524 forecast remains unchanged from the previous forecast. Major markets such as North America, Europe, China, and Japan remain generally stable during the quarter, and solid business operations enable us to achieve operating income exceeding the same quarter of the previous fiscal year. We continue to pay close attention to inventory control, and while overall segment sales remain essentially the same as in the same period of the previous fiscal year, we were able to reduce inventory by approximately 10% at the end of the quarter. On the other hand, the imaging business, which significantly grew year-on-year in the first quarter and then June 30, 2024, mainly in China, was essentially flat year-on-year in the current quarter. As a result, we have incorporated into our forecast a proactive change to a more cautious production inventory plan in preparation for the year-end selling season. In the sports business, which is a gross access area, we are working to further expand our business opportunity by collaborating with the partners and incorporating new technologies centered on Hawkeye, which provides referee decision support solution based on the video data. On August 1st, we announced technology partnership with NFL in the United States. Through this collaboration, we aim to advance the practical application of our cutting-edge sports-related technologies such as using Hawkeye to assist referee decision, improving the accuracy of measuring key game metrics such as yards gained through the video data analysis. Also, on October 15th, we completed the acquisition of the Kina Trucks, a U.S. company that uses high-precision motion capture technology and data analysis to provide support services such as those improving athlete performance. The company has a strong affinity with Hawkeye in terms of technology for acquiring highly reliable sports data. We expect great synergy in terms of maximization of data accumulation and use. Although the sports business is not large in scale, we expect it to generate stable and high profits and aim to continue to focus on expanding it.

Next is the INSS segment. Sales for the quarter increased 32% year-on-year to 535.6 billion yen, primarily due to increased sales of image sensors of mobile products and the impact of foreign exchange rates. Operating income approximately doubled year-on-year to 92.4 billion yen, primarily due to the benefit of the increased sales and the favorable impact of foreign exchange rates. For FY24, we forecast sales to decrease 4% from the previous forecast to 1,770,000,000 yen. percent to 250 billion yen. The global smartphone market continued its gradual recovery trend with positive year-on-year growth continuing in China and Europe and signs of recovery in the North America market. Mobile sensor sales during the quarter significantly increased due to an increase in unit prices resulting from larger die sizes and steady shipment of image sensors for new products to a major customer. This led to the segment overall recording. Its highest ever second quarter sales. On the other hand, with regard to the second half, we have downwardly revised our sales and profit forecast for mobile sensors to reflect revision in the production plan of our major customer. The introduction of AI functionality and services into smartphones, which is currently underway, may bring short-term volatility to the high-end market depending on the speed of rollout and initial reasons. However, in the mid to long term, we expect that convenience brought by AI will make smartphone functionality more attractive, revitalizing the market and encouraging a shift to high-end products. On the production side, improvement in yields for mobile sensors are progressing as planned since the beginning of the fiscal year, and we expect to achieve normal run rate in the fourth quarter ending March 31, 2025. Last is the financial services segment. Financial services revenue for the quarter decreased 167.2 billion yen year-on-year to a negative 63.3 billion yen, primarily due to the impact of market fluctuations at Sony Life. This was due to the significant appreciation of the yen during the quarter, which led to a significant decrease in the yen-based valuation of the asset under management for the foreign currency denominated insurance. However, since the valuation of liabilities declined in a similar manner, this did not have a significant impact on profitability. Operating income increased 50.1 billion yen year-on-year to 65.7 billion yen per annuity due to the impact of interest rate fluctuations at Sony Life. Insurance service results at Sony Life, which are the baseload of profitability for the business, continued their stable trend at 49 billion yen. The FY24 forecast remains unchanged from the previous forecast. Sony Life's new policy amount continues to be strong with a cumulative first-half growth of 14% compared to the same period of the previous fiscal year. Preparations for the partial spinoff and the listing of Sony Financial Group Inc. planned for October next year are progressing smoothly. As a part of those preparations and in order to strengthen its governance and accelerate its decision-making, SFGI transitioned to a company with three committees, corporate governance structure as of October 1st. Next, I will explain efforts to improve and stabilize our economic value-based solvency ratio, ESR, which is an important issue ahead of the listing. ESL is an indicator of financial soundness of financial services business. It shows the level of capital relative to amount of risk calculated based on conservative assumptions after assets and liabilities evaluated on economic value basis. As shown on this slide, the ESL of SFG on a consolidated basis is within the target range. However, the high sensitivity of ESL to interest rate fluctuations is an issue for the life insurance business. and we are implementing measures to reduce sensitivity in terms of both capital and risk amount. With regard to capital, which is a numerator of ESL, the assets held on the balance sheet, such as our bonds, exceeded insurance liabilities, resulting in an overhead situation and a structure in which net assets decrease when interest rates rise. In order to correct this, We sold the portion of our yen-denominated bonds so as to mitigate over-hedging, and we are currently undertaking transactions designed to curb capital fluctuations. The amount of risk, which is the denominator, also increases as interest rates rise. So we are working to refine our risk measurement methods and further improve our risk management. We have created a two to three-year roadmap improving and stabilizing ESL, and we will continue to report on our progress and results. Finally, I would like to give you an overall summary. The key performance indicators for the entire Sony Group in the fifth mid-range plan are the operating income of 10% or more and a three-year cumulative operating income margin of 10% or more, both on a consolidated basis excluding the financial services segment. The consolidated result forecast for this fiscal year announced today predicts a new record high operating income a year or near the gross rate of operating income of more than 10%, an operating income margin of about 10%. We believe that we have gotten off to a good start in the first year of this mid-range plan. In the second half, there will be no major first-party software title releases in GNNS, and there will be an adjustment in demand from major customer in INSS. As a result of this and other factors, consolidated operating income excluding the financial services segment, is expected to be slightly lower than the same period of the previous fiscal year. However, business momentum is currently good, particularly in the GNS and music segment. We aim to produce solid results in order to achieve the targets of our mid-range plan. Moreover, under the mid-range plan, we aim to strengthen shareholders' return. and the cumulative amount of shares repurchased through the end of October out of 250 billion yen authorized this fiscal year was 237.1 billion yen. Amid a rapid change in business environment, we will continue to manage our business in a way that will enable us to achieve sustainable growth across the entire group while addressing the various challenges that each business faces. That's all for my explanation.

So that was the presentation by Mr. Totoki, Ms. Matsuoka, Mr. Hayakawa, and Mr. Yamada. Thank you for waiting. Now I would like to start the Q&A. We'd like to respond to the questions from media people. And as was the case with the presentations, we have these four people who have made the presentations responding to your questions. Now I would like to start the Q&A. We ask you to limit your questions to just two questions. And if you have a question, please press on your screen. I have two questions. First, ISS downward revision. The overall market is recovering, but the ISS is revising downward. What is the outlook for the next fiscal year? And smartphone has been getting image sensor becoming larger and larger. But isn't there any risk having a consolidated business with a large maker? And the next question is about the game business. Two years ago in 22, Totoki-san mentioned about the issues. And then you have became risk management and then the cutback of the personnel and some studio closure as well. And how much of that reform has progressed as of now? Thank you for your questions. The first question about the ISSS, second question was about game and network services. I will answer both questions. First about INSS, the market is said to be recovering but it's very slow so I think it is just provisional. and for this particular quarter our customer has revised their production plan and we followed our outlook revision downward but there are different reasons for production adjustment and so it is part of the business as usual and so it is not to impact the next fiscal year so as so we have not changed any forecast for the um and also your comment about the risk of having a concentrated customer base and that has that is not a new product issue challenge and we hope to continue to work on expanding our customer base And about the gaming and we are reform. We are not only changing the business structure, but also game development approach. We are taking a new look and also portfolio concept to be introduced. regardless of the personnel we have different cost cut in different areas and also optimization of investment in sales and marketing we are doing all these and As a combination, I think we got very good results. Now, the question of to what extent this reform has progressed, and this is kind of a Kaizen improvement we need to continue to do, which we surely intend to do.

So let's move on to the next questions. Iwato-san from Nikkei Business, please go ahead. This is Iwato from Nikkei Business. I hope you can hear me. Yes, I can hear you fine. So I have one question with regards to game. In live service game, the current status, what do you make of that? And you have the huge hit and also you discontinue certain services. And basically, how are you managing the portfolio in terms of development? Thank you very much for your questions. But currently, we are still in the process of learning. And basically, with regards to new IP, of course, you don't know the result until you actually try it. So for us, for our reflection, probably we need to have a lot of gates, including user testing or internal evaluation and the timing of such gates, and then we need to bring them forward. And we should have done those gates much earlier than we did. And also we have a siloed organization. So going beyond the boundaries of those organizations in terms of development and also sales, And I think that could have been much more smoother. And then going forward, in our own titles and in third-party titles, we do have many different windows. And we want to be able to select the right and optimal window so that we can deploy them on our own platform without cannibalization so that we can maximize our performance in terms of title launches. That's all I have.

Next, the move on to the next question. From Nikkei, Omichi-san, please. Omichi from Nikkei, and can you hear me? Well, can you just speak more loudly? Okay. Oh, Michi from Nikkei. Can you hear me? Yes, we can hear you. Thank you. I have two questions. And the first question is that in the U.S., the election that Trump had a victory, so foreign exchange or the tariff, there will be change. How do you perceive the impact of his election on your business? And this year, you actually acquired Pink Floyd or Queen, the rights. And for the Michael Jackson, the IP of his music has been acquired by you. And so for those, the music, what is the role? For instance, the stable, the revenue or synergy effect on other businesses. What is your role? expectation about those new business. So first, the impact of U.S. presidential election on our business. Second, with regard to music, Matsuoka-san will answer your question. And as regard to the impact of presidential, U.S. presidential election, on our part, we respect the choice of U.S. public. And so that means that election results How it impacts on the global economy or geopolitical situation, I'm not expert on that. And there are many experts on those areas.

So we'd like to just depend on their analysis. But when it comes to the impact on our own business, the United States has a very broad impact on the global economy and also has a very large geopolitical impact. And so, of course, that will directly impact on our business. Therefore, we would like to observe the facts of the matter and make analysis about them, and we would like to look at the future and do what we are able to do. And when it comes to tariff issue, that has been very often discussed recently. But that is just a general discussion and so we have to have a very accurate prediction and we have to think about the optimum level of shipment, which country becomes a producer and in what way we conduct shipment and how we are able to optimize a plan and how we are able to look at the pricing for that. And so, of course, we have been doing that, but we have to, once again, look at this and study this carefully. So the second, the question about music, Matsuoka-san will answer your question. Thank you for your question. And which catalog? We haven't identified particular catalogs, but those catalogs and the... our plan to acquire them will contribute to the stable source of recurring income. And so that may generate the stable return. And so we have many use opportunities. And so we are able to create opportunities upside. And for IP value of Sony as a whole, for instance, there is a likeness or image rights. So those are peripheral, the nil, the rights. And by acquiring those catalogs and across the sonic group, we are able to expand the usage of catalogs. Therefore, in that sense, of course, we should have always disciplined approach and to look at the opportunities for acquisition of catalogs. Thank you. If I may supplement, in my speech, as I mentioned, recently in the market, particularly in the streaming market, service users and listeners, their age, the group, has become more of a mature age group. In other words, evergreen music has been more often listened to by those groups. So for us, I believe that that is a very important asset. And the fact that we have evergreen catalogs, that also shows our attitude of commitment to the artists, and therefore through A&L activities. And so we would like to use it as an asset to give very good spin-off effects.

Okay, let's move to the next question. Furukawa-san of Bloomberg, please. Thank you. This is Furukawa of Bloomberg. Can you hear me? Yes. Please go ahead. I have two questions. The first about the game business. This quarter, PS5 hardware is that remain the target 13 million units. It's unchanged. And Pro is released. So it will be, some people say it will be difficult to have a wide user base with 120,000 yen. What is the plan for sales of Puro as well? And the second, additional investment to WS. And have you made the additional investment? If yes, what is the reason for the additional investment? Okay, thank you for the question. And the first question about the PS5 cells, 18 million units, is that unchanged? Short answer is yes, will remain. First quarter was slightly weaker than planned and second quarter pretty much a target. And that has been the actuals in the first half. For the second half of this fiscal year, we will have some sales promotion in our plan. And in the first half of the year, we did not introduce a price reduction which we had for PlayStation 4 in the past. So we have been able to sell through without the discount. Now PS5 Pro unit numbers are included in this. PS5 Pro is rather high-end unit. core, hardcore users are the target of this hardware. So we don't have a large contribution in corporate and compared with the PS5, I think it is in fact stronger. And in terms of the pricing, many people made different comments on that. But pricing for PS5 Pro has not had a negative impact, I don't think. And second question about the Lapidas additional investment. And we, I apologize, we do not make comments on individual specific projects like this. But our basic thinking is that the semiconductor industry is needed for the growth of the economy and also for the economic security as such is very important. We are one of the members of that industry if the semiconductor industry is to be enhanced and we believe that will strengthen the infrastructure and the technology personnel base and that's good for industry. So we want to make a due contribution to that.

We are running out of time. So we have time for two more persons for questions. And please press asterisk and then number if you wish to ask a question. Suzuki-san from Weekly Diamonds. And my name is Suzuki from the Weekly Diamond. I hope you can hear me. And please limit your question to only one in the interest of time. I'd like to ask you a question about game business and live service business. And then you fail the Concord and also you gain success. and you have two different experiences, and I'm sure that will have given you out of learning, and that's what you explained. Can you talk a little bit more about that, and what didn't work, and what really worked? Can you elaborate on that? Thank you very much for your question. I might be repeating myself, but... And in terms of what didn't work, and we need to have more detailed confirmation or validation, and we should have done those more. And then we need to have more detailed gates to make sure that we check the user test, or we need to repeat those gates more so that we could have caught more. and I want to determine whether that will be accepted by the users or not. And we need to have more information that will enable us to make more sound decisions, and I think that's the overall reflection. And in terms of what worked, and looking back on what worked, and we usually don't do that, but And if things are really working, and then, of course, all the things that I have said work really well to really produce great results and look back on the past. So I think we need to go back to the basic and then make it really stronger. That's all.

So the next question will be the last question. Sato-san from Nikkei, please. Sato from Nikkei. Can you hear me? Yes. Please just reconfine your question to one. Regarding Concorde, I have a question. Actually, polychrome, well, it's not easy to pay attention to that. And for Sony Group, anime, films, and game, well, you have diverse contents. So you have produced diverse content. And so how you are going to combine them from Concorde, the lessons, how you're able to take advantage of the lessons from Concorde. So regarding that matter, as a lesson, we have learned a lot. But the way to face the issues regarding PC, for instance, the PlayStation accounts that we have offered, and, well, actually, By offering them, for instance, sometimes that tends to invite pushback. But for the live service games, so in order to maintain order of the gaming so that anybody can enjoy the game safely, And we need to create environment conducive to that. Of course, enjoying the game freely and having some restrictions. I may not call it rule, but to ask the users and gamers to follow the manner. And those balance is very important. We have to continue to seek the best way to achieve this. So the time runs out. So now we would like to bring an end to the question and answer from media.

Thank you for your patience. Now we would like to start the Q&A session for investors and analysts. My name is Kondo. I'm with the IR group of Sony Group Corporation. And as is the case with the media session, we have these four persons responding to questions. And when you ask questions, we have sent you the introduction included in the invitation. We ask you to limit your questions to just two questions at the most. So we'd like to start. So if you have a question, please press asterisk and number one on your phone. So SMBC Nikko Securities, Katsura-san, please. Okay, thank you very much, SMBC Nikko Securities, Katsura. I would like to talk about INSS and ETS, one each. For INSS, in the additional documents, page 20, wafer production capacity is now at full. And you will continue, we will start adjusting that. And what will be the period you will be adjusting, making adjustment? And also on page 8, there is an inventory level. So with the addition of the impact from the Forex, has there been any change in the outlook? That's the first question. And the second question about ETS. is about the digital camera you have become more cautious about your outlook for digital cameras market now that revision is limited to that only or ETNS as a whole you are taking another look and as a result we have flat unchanged as a whole but the plus and minus is you could expand on thank you for your question and regarding INSS utilization rate Currently, as you know, full production capability is utilized. For the third quarter, we plan to have the same situation of full operation. And as of now, we have, regarding the inventory, I think as of late end of March, we have a little bit more production at the inventory. I talked about the production control adjustment, so we will cut back the inventory a little bit as such. And so we do not consider it's needed to adjust the production. um much and as for ets as a whole there is some change ets as a whole that is the china the market the tv market is softening and worldwide Not much change though. So that's how we view the TV market. And for the increased cost for logistics, that is now included as a risk in the October assumption. And imaging, because of a competitive condition, There is an increase in the sales promotion cost and also Chinese market risk is also incorporated. But initial plan, we had overall risk as a whole as well. We did not change the forecast for operating income this time. Thank you, Katsura-san.

Moving on to J.P. Morgan, Ayata-san. Over to you. This is Ayata from J.P. Morgan. And I have two questions with regards to game. The first one is, in the second quarter... And there was a huge shock. So I'd like you to take a pause. And then there was an increase in profit by 85 billion yen because of the foreign exchange. And then also the third-party network. What was the profit contribution of each? And in terms of hardware... And I think you made a profit in the second quarter. And also you mentioned this profit improvement of the hardware in the second quarter. What was the driver behind that? That was the first question. And the second question is looking at the game, especially hardware in the second half, And the third-party software lineup in the second half, not compatible to PS4, but some titles are only compatible with the PS5, and there has been an increase in the number of that. And what's the thinking before that? And after that, are you expecting an accelerated transition from PS4 to PS5, or... And because we are talking about third parties, and those users with the PC and PS4, they might be able to purchase a full PC, and there might be such a risk. And how do you view such risks and opportunities? And I know that you are over-delivered in the second quarter, so maybe you might have decided to increase the market promotional costs in the second half. So with regards to game, in the second quarter, in terms of operating income growth, and you have given us your analysis, and then our view is very close to what you have said, and then also the sequence that you mentioned, you are correct. So in terms of profit growth, and we haven't disclosed that, but... Speaking about the reason for the improved profitability of hardware, in last year's second quarter, compared to the current second quarter to the last year's, we made a switch to the new models, which means that the cost structure improved, and that also created generated a positive contribution to the profit. And then also, we launched new models in the third quarter of last year, so basically the cost structure remains unchanged compared to the second half of last year, but the average selling price has improved, which is expected to generate the profit improvement year-on-year. And with regards to the third quarter, as you know, which is the volume driving quota and of the year. So, yes, we have included a marketing promotional expense increase and not drastic increase. And so if you look at focus on only that, you might see that there will be a slight deterioration of the profitability. But that's all I have. Thank you. Sorry, I forgot to address one more question with regards to upgrades. So the third-party lineup for only for PS5, and then you said that there might be an increase in the number of the titles, but... Because of the timing and because of the late stage of the console cycle, and naturally we have more titles for PS5, but if the transition from PS5 and PS5 continue, we believe that transition is happening as we expect. So if you upgrade to PS5, basically... And, of course, there will be upside in software purchases, and then we see that as a possible opportunity. And then as for the risk for third-party software for PC, we don't see that as a risk, and we haven't seen that as trend emerging. That's all I have. Thank you.

The next question is Citigroup. Ezra-san, please. Ezawa from Citigroup. I have two questions. And regarding hardware and the results of the game, the relation between it, and also another question pertains to music. As for game, operating income forecast, the 34 billion yen upward, the revision, And the first half and the second quarter results are better than your plan. So is that just a mere addition of that increase on the second quarter, just in terms of number? Because hardware profitability improvement seems to be the major factor to increase the results of second quarter. And the cost structure has improved and the profit has increased. So that may increase the profit of the second quarter, but that is not reflected. So I just wonder whether that is reflected in the second quarter results or forecast. And the second question pertains to music. Evergreen, the music, has been more often listened to by users. And until a few years ago, the hit chart of new songs, Sony Music Artists, the portion share was the largest and you put a lot of emphasis on that. In Latin America and Indies, you have made a lot of the emphasis in order to increase the hit songs of the new artists or new songs. The fact that the change happens reflects the change of your position of the music business or generally in the music industry, this is a general trend of music industry that people listen to the older music more often than just the new songs. Thank you. Regarding the game, answering your question during the Q2, The reason the sales was so solid, that is also reflected in the second half. And hardware, the profitability magnitude is larger during the first half. And because a new model was introduced during the first half. The timing was important. And during the second half, sales and marketing, we have to spend more money. And so that is the reason for this difference. And as for Q4, the fourth quarter, there will be slightly more upside. and I expect that great deal, but I should not have any predetermined forecast for that. So we actually formulate a forecast as is presented now. And regarding your question on music, I ask Matsuoka-san to speak, and then I will supplement her comment. Now, in my presentation, as I mentioned earlier, for PSB, for the maturity, the market, in other words, in the developed countries, the age group has become older, and also in SNS. Some of the old songs have been listened to more often than before. So what is called evergreen music or songs, the share and also frequency of that music being listened to has been increasing. That is a general trend of the music industry. But in emerging the market where the potential is expected like Latin America or India, There are many pieces of music which have been listened to and we also pay attention to that to acquire the new label, etc. So in terms, rather than the preference of users, the composition of the market itself has changed. I think that is a way you should interpret the music, the market right now. So to supplement, on our part, the evergreen catalogs that results over our investment, they have been listened to more than we expected. That leads to upside our profitability. So that we welcome very much. And in addition to that, say, new songs, in Latin America, that does not mean that they compromise the new songs from Latin America. So we would like to put emphasis on the Bose so that we can enjoy the upside of the profitability from the Bose. Thank you.

Okay, let us move to the next questions. And we have Yasisan of UBS. securities thank you once again my name is yasi i like to ask you questions and in terms of a music streaming business since summer that the streaming growth is slowing down that's what the competitors are saying and that's getting some attention and it used to be double digit growth but now single digit And also your performance in dollar base was 5% growth only. So it is temporarily slow down or is that kind of structural, if you could comment on that. And the second about semiconductor, second quarter portability and about 17% to 18%. profitability in the past second quarter it was like a 20% and above so 70 to 18% is rather slow with better yield full production I would imagine the better portability and the wafers input is increasing in dollar base as well and the way for cost with the change of forex rate and if you could comment on that situation. Thank you for the question. First question about the music, Matsuoka-san will respond, and on ISS, second question, I will respond. Matsuoka-san, please. Regarding streaming, which has two aspects, publishing and production, and streaming growth trend is pretty much in line. It's still stable growth, but Compared with the past, like first quarter of 2023 and before, there are multiple DSPs which raised their price. And that kind of made it look like they are growing rapidly. But in terms of music production, of the streaming, the audio portion has grown from quarter one to quarter two. As for video, streaming service growth is slowing down, that's true. And as a whole, that is kind of bringing down the growth rate. So that's where But the overall structure has not changed. So the DSP price hike timing and so on may change the streaming growth rate and DSP paid subscribers are still increasing and I think there is a room for price raise in the future and so those are the some of the factors at work and in the background okay let me talk about INSS which was the second question and And OP margin was 11.4% and this year 17.3% operating profit margins of last year and this year. And last year was slow because of the yield issue we had and also Q2. did not have a full shipment as we expected. So last year's second quarter was not a good quarter. But this year, as far as the shipping is concerned, that has recovered and brought us to the 70.3% of the profitability. Now, can we expect higher? For high-end sensor development, we are making investment in that and also increasing its capacity so the capital investment depreciation will have to be accounted and we are not 100% successful in terms of investing and still getting enough profitability but we intend to continue to improve that profitability.

So we are running out of time, so the next person will be the last person to ask a question. And please limit your question to only one. Nakane-san from Mizuho Securities, please go ahead. Thank you. My name is Nakane from Mizuho Securities. And operating cash flow, and that's what I'd like to ask you about. And the financial service and operating cash flow, $40 billion, and has been revised to $1.44 trillion. And what's the upside and downside from this? And we can forecast a profit, but what are the other aspects, especially inventory, and then also at this point in time? And I know the network business is doing really well. So what about the operating capital? And there might be some impact. And then towards the end of the year, apart from the profit, are there any factors that will affect the operating cash flow? And can you at least talk about the factors that will impact the operating cash flow? Thank you very much for your question. So operating cash flow, excluding a financial, has been upward revised by $40 billion. Thank you very much for that question. As you pointed out, an upward revision by 40 billion yen, that is driven by the improved profitability of the game business. And as you said, compared to last year, operating cash flow has increased significantly. That is driven by the improvement in the working capital in the game business. With regards to inventory situation compared to last year, each business has a better control of the inventory, and we are tightly controlling the inventory. And as we gear up for the year-end selling season, the gaming industry, ET and SS businesses, of course, we need to watch closely the market development so that we can accurately forecast the operating cash flow. Thank you very much. So with regards to the question as to other key factors that pay attention to. So I don't think there are any notable upside downsides apart from the working capital. And for us, as we get closer to the year-end selling season, what sort of inventory level that we need to have? And of course, we need to have a processing process in place to normalize that. And then we need to do that in timely manner, and then that will have an impact on the cash flow. So how diligent and how detailed, granular we will be able to do that, and I think that will have an impact on the working cash flow, operating capital. With that, we would like to conclude the Sony Group Consolidated Financial Result Announcement Session. Thank you very much.