Sony Group Corp

Thank you very much for taking time to join us today. We will now begin the Sony Group Corporations Corporate Strategy and Earnings Announcement presentation. I am Ishii from Corporate Communications. I'll be serving as MC. First, Hiroki Totoki, President and CEO of Sony Group Corporation, will explain our corporate strategy. This will be followed by Lin Tao, who will present the FY2025 financial results and the full year forecast for FY2026. Please note that to ensure our international participants can hear from the speakers directly, the English version of the presentations will be delivered via a pre-recorded video. Afterwards, we will move on to the Q&A session. The total duration is scheduled to be approximately 100 minutes. Toto Kisan, please.

Hello and thank you for joining us. Today, I'd like to share a brief update on Sony's business, our corporate priorities and direction as we enter the final year of our current mid-range plan. It has been a truly exceptional year for Sony since our last corporate strategy presentation, a year marked by strong performance and record results across many of our key businesses as we continue to focus and build on our creative entertainment vision. And we continue to evolve our business portfolio as we seek new opportunities for growth and meet new challenges in a rapidly changing market. Two years ago, we kicked off the current mid-range plan, highlighting the evolution of our business direction in entertainment, IP, content creation, and real-time creation technology, and we launched our creative entertainment vision, our long-term vision, which seeks to leverage the power of technology to empower creators, deliver new experiences across both physical and digital space, and maximize the value of IPs. Sony's purpose to fill the world with emotion through creativity and technology is at the heart of our creative entertainment vision and is driving success and potential growth opportunities across our Sony Group businesses, including our G&N segment, whose PlayStation platform now hosts over 125 million active users around the world who enjoy their favorite titles wherever they are and connect with their friends through gameplay. Sony's music businesses, which have enjoyed tremendous success and growth through their efforts to nurture and build strong relationships with a growing roster of outstanding talent, digital streaming platforms, and global audiences. Our pictures business, which continues to produce and distribute strong film and TV content and serve as an important hub for cross-company collaborations such as many PlayStation productions, film and TV adaptations of game IP. Our ET&S segment is expanding its sports business by advancing officiating technologies and fan engagement initiatives and investing in athlete performance tracking solutions while inspiring creators by enabling high-quality innovative content production. And underpinning that creativity at this very core is the evolution of image sensors in our INSS segment. We also have anime which cuts across several of our businesses and remains an important growth sector for Sony and a key part of our creative entertainment vision. Sony's strengths come from the synergies and collaboration effort that exists across Sony group companies and with our strategic partners, spanning production, fan engagement, marketing, and global distribution to deliver anime at scale to worldwide audiences. The explosive worldwide growth of anime is demonstrated by last year's massive global hit film, Demon Slayer, Kimetsu no Yaiba, Infinity Castle, features produced by Aniplex and our partners, and in the rapid growth of Crunchyroll. Crunchyroll now serves more than 21 million paid subscribers globally as an anime distribution platform with a library of more than 50,000 episodes including many of the most popular and current series from Japan, subtitles, and dubbed in 13 languages. In addition, we enabled expanding global fan participation in voting through MyAnimeList for the first time for the upcoming Crunchyroll Anime Awards through our partnership with Gaudi. And this fall, Crunchyroll will host its first-year Crunchyroll Anime Future Forum in New York, bringing together readers across anime, gaming, music, film, and emerging technology to strengthen relationships with Japanese publishers and creators globally. During this MRP period, we also continued to shape our world portfolio. Last fall, we completed the partial spin-off of the financial service business, and in March, Sony Corporation entered into definitive agreement with TCL, forming a strategic partnership for Gravia TVs, B2B flat-panel displays, home theater, and home audio components. strengthening the resilience of each of those businesses. All the while, we have continued to invest and lean into areas where we see ongoing growth and competitive advantage. Building on the strategic partnerships announced with Bandai Namco Holdings last summer, we are further strengthening our position in anime, an important growth sector for us in addition to other areas. Our recent agreement with Wild Brain to acquire their stake in Peanuts Holdings increased Sony's ownership stake to 80% to expand its beloved and globally recognized brand. An ongoing investment in music, following major deals to acquire the Pink Floyd and Queen catalogues, Sony Music Group recently announced a partnership with GIC. the Singapore Sovereign Web Fund, to further build our music IP investments. Together, these strategic decisions reflect the ongoing evolution of Sony Group's business direction towards entertainment, IP, and creation technology, which now represents 67% of Sony's consolidated sales. Overall, it was a very strong year in terms of performance, We will change direction on a few strategic initiatives, pivoting better position on us moving forward. We decided to wind down our pixel-mono visual effects business and focus on new technologies. We downwardly revised our projections and recorded an impairment loss against a long-lived asset at Bungie. And due to Honda's reassessment of its EV strategy, we discontinued the development and production of Sony Honda Mobility's Afeera models. These strategic shifts were made on the back of strong fiscal year 2025 performance to position the company for future growth. You'll hear more details on each of these moves as well as our financial results from our CFO, Lin Tao, shortly. And now I would like to turn to the topic of AI. When we think about further growth at Sony Group, AI is one of the most important themes for us to consider, especially the potential it holds for us across Sony Group businesses to unlock new value creation and capture new opportunities for growth across our entertainment businesses. Let me start by stating a core principle that guides our thinking about AI. Human creativity must remain at the center. AI is a powerful tool but is not a replacement for artists or creators. It is an amplifier of human imagination and catalyst for new possibilities. Great content comes from deep personal experiences, unique perspectives, and a strong inner motivation to express something meaningful. Fans are drawn to such stories, characters, and words that offer a deep emotional connection. We believe the most memorable experiences will always be created by humans and enjoyed by people. AI can assist in that process, but it will not replace human imagination, creativity, and emotions. AI brings new opportunities to the world of entertainment, not only in terms of efficiency, but in empowering creators to expand their creativity. Additionally, we believe AI will make it easier to take on more innovative and ambitious projects. Projects that were previously difficult to pursue due to constraints of cost and time. For example, this shift represent a significant opportunity for PlayStation as a platform. As more diverse and innovative content is created and overall game industry continues to evolve, PlayStation can connect more fans with more games, further strengthening its value. At Sony Pictures, we are scaling AI and other advanced technology across workflows to accelerate production timelines. and increased output and have invested more than $50 million to date in AI capabilities across production planning, content protection, enterprise productivity, data analytics, innovation, and 3D conversion. Sony Music is encouraged by the increased number of companies who agree that intellectual property rights need to be and therefore want to negotiate licenses for new products with them. These partnerships will lead to business expansion that will also benefit consumers and creators. To drive such efforts, Sony Music is actively pursuing an industry-wide standard to label AI content for further transparency with consumers. Alongside our own efforts, we are currently engaged in a collaborative pilot initiative with Bandynamic Holdings to explore how generative AI and the latest technologies can most effectively contribute to realizing a creator's vision in the realm of video production. Through these explorations, we have identified massive gains in speed and productivity per person as well as how to concretely address the shortcomings of generative AI based on the understanding of the strengths and weaknesses of the models. One example of the weaknesses is the lack of consistency and controllability, which is demanded by creators and those involved in production. We have accumulated know-how to resolve such issues by utilizing various AI models as well as fine-tuning models with technology and proprietary data to consistently generate output of intended style with accuracy and cost that will be necessary for deployment. On the other hand, we have also identified opportunities where AI can produce highly and realistic outputs which were not feasible before due to production time constraints. We hope to contribute to the overall growth of the industry through such collaborations and by combining Sony's expertise in audio, video processing, spatial and 3D technology with generative AI to create a first-production environment that is safe and secure to use while maximizing their artistic sensitivity and output. Now I would like to introduce Hideaki Nishino, President and CEO of Sony Interactive Entertainment, to say a few words about how we see AI strengthening our efforts in one of our most important growth areas, games.

At PlayStation, our goal is always to be the best place to play and the best place to publish. We see AI as a powerful tool to help us in this mission. For our players, this will mean gaming experience like never before. More immersion, more adventures, and fresh ways to enjoy their favorite characters. For our publishers, this will mean a more efficient production environment and a better discovery to ensure their games reach the right audience. AI is lowering the barriers to creation, accelerating the development cycles, and enabling more creators to enter the market. As a result, we expect to see a meaningful increase in the volume and diversity of the content available to the players. Our platform's role will be critical in ensuring players find the right content in an increasingly crowded landscape. Our studios and their IP will also continue to be a key differentiator. When players have more choice, they will gravitate towards trusted franchises they know will deliver the high-quality experiences. Within our studios, game developers are automating repetitive workloads, improving software engineering productivity, and accelerating areas like quality assurance, 3D modeling, and animations through new AI-powered tools. For example, our teams created a tool we call Mockingbird that quickly animates 3D facial model based on the performance capture. Importantly, we're not replacing human performers, but rather optimizing how we process the data from these live captures. With Mockingbird, animation work that would have taken hours can now be completed in a fraction of a second. We've already seen the teams at Nolidoc San Diego Studio, and other adaptive tools, including in released titles like Horizon Zero Dawn Remastered. Another example is a tool we built for animating hair. This is often a labor-intensive process given the volume of strands that must be created. Our teams have accelerated this process by taking videos of real hairstyles and having an AI tool output a 3D model with hundreds of strand models. These practical applications allow our teams to spend less time on manual, high-effort tasks and to instead reinvest their time into building richer worlds and gameplay for our players. AI tools in the hands of our teams will enable not only efficiency, but also new types of experiences for fans. For example, Gran Turismo's AI-powered racing agent, Sofi, has added a level of competitive gameplay for even our most seasoned drivers. Taking this further, our world-class creatives have already shown the ability to create amazing prototypes where NPCs with their own personalities can create a living, dynamic world for the players to explore. As AI capabilities evolve, the role of our creators will remain unchanged. The vision, the design, and the emotional impact of our games will always come from the talent of our studios and performers. AI is meant to augment their capabilities, not to replace them. AI is also already a part of our platform business. To take one example, over the last few years, AI-powered tools ensured that transactions were routed efficiently over the payment networks, generating over 700 million of incremental revenue. We are building on this success with ongoing projects that will use machine learning to provide the best value possible to our customers. As AI brings more choices to players than ever, the value of our platform will lie in its ability to recommend and personalize at scale. We've already seen how AI models can outperform manual curation, and this will continue to improve. our AI capabilities will evolve into a consumer-centric experience that not only suggests the next game a player might enjoy, but also the next game play moment, subscription, accessory, or merchandise that best reflects their passion. Beyond the store, our recently updated PlayStation Spectral Super Resolution, available on the PS5 Pro, uses machine learning to enhance image quality delivering 4K visuals at high frame rates. With PSSR, games like Saros and Ghost of Yore have never looked sharper. Through our investments in AI and machine learning, we will continue to push the Fidelity frontier forward. We believe AI will unleash the creativity of our studios, power a more curated platform, and enhance the PlayStation experience for both players and creators. With our global player base, deep library of IP, and integrated ecosystem, AI is a powerful tool for us to deliver a truly cutting-edge entertainment experience.