Sony Aktie

Thank you very much for taking time to join us today. We will now begin the Sony Group Corporation's 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 FY 2025 financial results and the full year forecast for FY 2026.

Please note that to ensure our international participants can hear from the speakers directly, the English version of the presentation will be delivered via a prerecorded video. Afterwards, we will move on to the Q&A session. The total duration is scheduled to be approximately 100 minutes.

Totoki-san, 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 GMS 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 friend through game play.

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 continued to produce and distribute strong film and TV content and serve as an important hub for cross-company collaborations such as miniaturization productions, film and TV adaptations of game IP.

Our ETN segment is expanding its sports business by advancing offsetting technologies and high 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 I&SS 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 exist 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, which was produced by Aniplex and our partners and 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 in 13 languages. In addition, we enabled expanding global fund participation in voting through MyAnimeList for the first time for the upcoming Crunchyroll Anime Awards through our partnership with Gaudiy.

And this fall, Crunchyroll will host its first year Crunchyroll Annual Future Forum in New York, bringing together leaders across anime, gaming, music, film and emerging technology to strengthen relationships with Japanese publishers and creators globally. During this MRP, we also continue 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 BRAVIA 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 WildBrain to acquire their stake in Ping Holdings increased Sony's ownership stake to 80% to expand its beloved and globally recognized brand and ongoing investment in music, following major deals to acquire the Pink Floyd and Queen catalogs, Sony Music Group recently announced a partnership with GIC, the Singapore sovereign wealth 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 pushing us moving forward. We decided to wind down our Pixomondo visual effects business and focus on new technologies. We downwardly revised our projections and recorded an impairment loss against long-lived assets at [Fung ].

And due to Honda's reassessment of its EV strategy, we discontinued the development and production of Sony Honda Mobility's Filer models. This strategic shift were made on the back of strong fiscal year 2025 performance to position the company for future growth. You will 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 it's 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.

[indiscernible] to such stories, characters and worlds that of 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 represents 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 time lines and increase 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 respected 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 Bandai Namco 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 sophisticated 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 3G technology with generative AI to create a creative 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 low 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 workflows, improving software engineering productivity and accelerating areas like quality assurance, 3D modeling and animation through new AI-powered tools.

For example, our teams created a tool we call [indiscernible], 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 [ Noida ], San Diego Studio and other adaptive tool including in these 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 hair styles 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 task and to instead invest their time into building richer worlds and game play 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, Sophy, has added a level of competitive game play or 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 3 years, AI-powered tools ensure the 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 clarity, delivering 4K visuals at high frame rates. With PSSR, games like SAROS and Ghost of Yotei have never looked sharper. Through our investments in AI and machine learning, we will continue to push the [indiscernible] 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.

Thank you, Nishino-san. I would like to now turn to our Imaging & Sensing Solutions, I&SS business. Sony's imaging sensors have evolved as electronic [ eye ] that accurately capture the real world, driven by our relentless proceed of fundamental advancement that go beyond competing on specifications alone.

Our #1 priority is to deliver the best possible imaging experience for our customers. To do so, we scrutinize and optimize every aspect of the sensor from the pixel structure, stacking and layering technologies through to the [indiscernible] processes and final packaging. Sony possesses deep expertise cultivated over many years in analog domain spanning design, development and manufacturing together with our comprehensive ability to integrate and refine these elements as a whole. This is our competitive strength, and it's not something that can be easily replicated.

Starting from our core mobile applications, we are developing higher density by advancing process technologies with enhanced fabrication precision, together with stacking technologies to further improve performance. At last year's corporator strategy presentation, I discussed our direction for pursuing growth in the I&SS business and improving profitability with a strong focus on financial discipline.

As part of that effort, today, we announced the signing of a nonbinding memorandum of understanding with TSMC to form a strategic partnership for the development and manufacturing of next generation image sensors.

Under the proposed partnership, we intend to establish a joint venture with Sony being the majority and controlling shareholder to set up development and production lines in Sony's newly constructed farm in Koshi City, Kumamoto. As part of our partnership, we intended to explore emerging new opportunities in fiscal AI applications, such as automotive and robotics, paving the way for future growth innovations and expanding technological advancement.

I'd like to close today by addressing the technological and geopolitical disruptions which together have greatly impacted international supply chains and drastically upbranded traditional ways of doing business around the world. One such technological disruption is the current memory shortage, which is being driven by surging AI infrastructure demand and is impacting entire industries including gaming, smartphones, laptops, memory cards and other products.

Our businesses are managing this issue very carefully. As I will be able to contain a negative impact of increased memory cost in the current fiscal year and is engaged in ongoing negotiation with suppliers to miss demand beyond the current fiscal year. In our I&SS business, while a volume-driven low-end smartphone market is impacted by the rising cost of memory, our main customer base and demand in the high-end segment remains strong. We will continue to monitor and proactively manage the situation and you will hear more about this in the upcoming earnings presentation.

Looking ahead, we are optimistic about the environment in which we are operating and the strength and diversity of our businesses and employees in driving continued success for Sony. At the same time, we are very aware of the seismic changes taking place in the world in which we all live and work.

With ongoing unrest in the Middle East and unpredictable shifting tariff pressures we are navigating a period of geopolitical complexity that present us with new challenges and uncertainty across market, partnerships and supply chains. In this environment, adaptability will be crucially important. We cannot rely on assumptions that have supported us in the past, and we remain ready to pursue innovative ways of finding growth in the future. Thank you. I will now hand the meeting over to Lin Tao.

Hello, everyone. Today, I will explain the content shown here. Sales of continuing operation in FY '25 increased 4%, compared to the previous fiscal year to JPY 12,796 billion and operating income increased 13% to JPY 1,447.5 billion, both record highs.

Net income decreased 3% to JPY 1,039 billion, primarily due to the absence of a decrease in tax expense from the dissolution of a subsidiary recorded in the previous fiscal year. The financial results by segment are shown here. When you look at the factors causing the change from our February forecast, for operating income. You can see that we recorded approximately JPY 190 billion in items not included in our previous forecast, including impairment losses on assets at Bungie and [ Pixel ] models as well as losses related to the downsizing of the business of Sony Honda Mobility.

Excluding these items, operating income significantly exceeded our forecast overall, primarily due to an increased profit in G&NS and I&SS segment. Our consolidated results forecast for FY '26 is sales of JPY 12.3 billion, operating income of JPY 1.6 billion and net income of JPY 1.160 billion. We expect operating cash flow to be JPY 1.500 billion. The results forecast for each segment is shown here.

Now I will turn to an overview to each business. First is the G&NS segment. In FY '25, sales were essentially flat year-on-year at JPY 4,685. 7 billion as the decline in PS5 hardware sales was offset mainly by foreign exchange rates and higher revenue from network services and third-party software. Operating income increased 12% year-on-year to JPY 463.3 billion and reached a record high for the segment, primarily due to a higher sales and the positive impact of exchange -- foreign exchange rates.

Despite the impairment of assets at Bungie, excluding the JPY 138.4 billion in onetime items, operating income increased 45% year-on-year. For FY '26, we forecast sales of JPY 4,420 billion and operating income of JPY 600 billion. Compared to the result of FY '25, excluding onetime items, this operating income forecast is essentially flat year-on-year. That is because we have incorporated an increase in investments of the next-generation platform in the FY '26 forecast.

Excluding these factors, we expect steady double-digit growth in the profit generated by our current business. The number of monthly active users across the PS platform in March increased 1% compared to last March to 125 million accounts, a record high. And total play time in the fourth quarter ended March 31, 2026, increased 1% compared to the same quarter of the previous fiscal year, with user engagement remaining solid.

Cumulative PS5 unit sales as of the end of March exceeded 93 million. This expanded installed base contributed to stable profits from software and network services. We plan to base our PS5 hardware sales in FY '26 on the volume of memory, we can procure at reasonable prices and we expect hardware profitability to be essentially the same as FY '25. If circumstances change going forward, we plan to manage the impact on profitability by flexibly adjusting among other things, unit sales and promotional plans.

In our studio business, earnings from Bungie's title portfolio did not reach our expectations. So we downwardly revised our business plan and impaired the full amount of the fixed assets related to Bungie except for goodwill. Player receptions to Marathon is strong, with the game receiving a metacritic score of 82 and more than 90% of the player review on Steam being positive. Engagement metrics such as retention also remain at a high level.

Going forward, we aim to improve the performance of the game by working to retain highly engaged core users through the introduction of additional content, further improvements in the game play experience and expansion of the user base. We have many appealing first-party titles scheduled in FY '26, including SAROS released in April and Marvel's Wolverine slated for release in September. We expect the contribution to earnings of first-party titles to exceed FY '25.

Next is the Music segment. In FY '25, sales increased 15% year-on-year to JPY 2,120.1 billion. Operating income increased 25% year-on-year to JPY 447 billion, primarily due to the impact of the higher sales and the revaluation gain recorded in connection with the acquisition of an additional equity interest in Peanuts Holdings, even when excluding these onetime items, Operating income reached a record high. For FY '26, we forecast sales of JPY 2.140 billion and operating income of JPY 400 billion.

Excluding onetime items, we expect the amount of operating income to be at the same level as the previous fiscal year primarily because growth in streaming revenue is expected to be offset primarily by the absence of the prior fiscal year hit title, Demon Slayer: Kimetsu no Yaiba The Movie Infinity Castle.

In FY '25, U.S. dollar basis streaming revenue increased 9% year-on-year in recorded music and 14% in music publishing. We expect the mid- to long-term average growth rate of the music market to be in the mid- to high single digits, and we intend to continue to invest in high-quality music catalogs going forward with the aim of growing stable earnings. Due to the release of Michael, a biopic about Michael Jackson Sales at SMG have increased due to a significant increase in streams of music by Michael Jackson, whose music catalog SMG jointly owns. We expect that streams in other countries will also increase as the film is released theatrically around the world, including in Japan.

Next is the Pictures segment. In FY '25, sales were essentially flat year-on-year at JPY 1.993 billion. because lower revenue from theatrical release films was offset primarily by increased Crunchyroll revenue resulting from higher paid subscribers and the hit Demon Slayer. Operating income increased approximately 13% year-on-year, excluding the impairment losses on the asset of [ Pixel ] model, which operates VFX and virtual production business and related shutdown costs.

However, including these factors, operating income decreased 11% year-on-year to JPY 104.9 billion. For FY '26, we forecast sales of JPY 1,630 billion and operating income of JPY 145 billion. At SPE, we are continuing to work to create and strengthen franchises by adapting appealing fan-supported IP into films. Recently, SP and PlayStation production announced the film adaptation of Bloodborne game IP owned by SIE and preparation of the film adaptation of Helldivers have begun.

In addition, we plan to release Spider-Man: Brand New Day in July 2026 and Jumanji: Open World in December 2026. The trailer for Spider-Man released in March surpassed 1 billion views in the first 4 days after its release, a record high in the film industry, reflecting exceptionally strong anticipation from fan worldwide.

Next is the ET&S segment. In FY '25, sales decreased 6% year-on-year to JPY 2,265 billion, and operating income decreased 17% to JPY 158.6 billion, mainly due to the impact of lower sales. For FY '26, we forecast sales of JPY 2,250 billion and operating income of JPY 150 billion. Market conditions in Q4 trended essentially in line with our February forecast despite geopolitical risk in various regions and concerns about a macroeconomic slowdown.

The financial results for the segment and our inventory level were also essentially in line with our forecast. In this segment, we expect to contain at approximately JPY 30 billion, the impact of the increase in memory prices on our FY '26 forecast through procurement, design and sales actions in various regions.

If memory prices deviate from our current assumptions going forward, we aim to maintain profitability by flexibly adjusting our sales strategy with an eye on foreign exchange rates and the competitive environment. At the end of March, Sony entered into a definitive agreement with TCL regarding a strategic partnership in the home entertainment field. Based on the memorandum of understanding we signed in January, the definitive agreements codify, among other things, an outline of a new JV that will operate the business, the business domain covered by the JV, the enterprise value of the business in question and the consideration to be paid for the transfer.

The JV is scheduled to commence operation in April 2027, and we have incorporated approximately JPY 20 billion of expenses in the FY '26 operating income forecast, including project implementation costs necessary to execute the partnership, system migration costs and personnel-related costs. Excluding the impact of these expenses and the impact of memory market conditions I mentioned earlier, we expect FY '26 operating income to improve across our business. led by the imaging business.

Last is the I&SS segment. FY '25 sales increased 20% year-on-year to JPY 2,051.5 billion, mainly due to higher average selling prices and higher unit sales of mobile sensors. Operating income increased 37% year-on-year to JPY 357.3 billion and reached a record high, primarily due to the impact of the higher sales despite the recording of onetime restructuring costs, including losses on the sales of our equity interest in an overseas subsidiary and asset impairments.

In FY '26, we forecast sales of JPY 2,070 billion and operating income of JPY 400 billion. In Q4, the impact of memory market conditions gradually became more apparent in the smartphone market, especially in the low end but our mobile sensor sales exceeded our forecast, primarily due to strong shipments to our major customer. In FY '26, we're taking a cautious view of the growth of the sensor market due to our view that the trend towards larger-sized sensors for smartphones will moderate. And the uncertainty regarding the impact of memory market conditions will remain.

As a result, we have incorporated into our FY '26 forecast a slight year-on-year decrease in the overall sales of mobile sensors. Given this operating environment, we plan to emphasize efficiency when managing our business in FY '26, including through fixed cost control and yield improvements. In FY '25, Q4, we increased our effort to address low profitability business compared to our initial plan and we have reflected the benefit of those efforts in our FY '26 operating income forecast, which is essentially flat compared to the previous fiscal year if restructuring costs are excluded.

In our next mid-range plan period, we expect sales of this segment to return to growth, driven by a renewed acceleration towards larger-sized sensors. During FY '26, we intend to establish the infrastructure necessary to support this growth, and we plan to make thorough preparations. As explained earlier by Mr. Totoki in the corporate strategy part, Sony and TSMC have today entered into a memorandum of understanding to pursue a strategic partnership for the development and manufacturing of next-generation image sensors.

This partnership aims to significantly enhance the future technological competitiveness of image sensors, including through increased density, by combining the advanced design expertise of Sony, a leader in the image sensor industry and the process and manufacturing technologies of TSMC which boasts the world's largest semiconductor production scale.

From a financial perspective, we believe that this partnership will improve the cash flow of the I&SS business, reduce invested capital and improve profitability by lowering investment in production facilities and mitigating equipment procurement costs. Furthermore, we anticipate that this partnership will increase the flexibility of our capital allocation across the Sony Group.

Now I will explain the impact on our consolidated results of the discontinuation of the launch of Sony Honda Mobility's EV model and the downsizing of the business, which we announced in March. As a result of the discontinuation Sony Honda Mobility expects to record additional losses in FY '25 and FY '26, resulting from items such as asset impairments and compensation payments to business partners.

We account for Sony Honda Mobility under the equity method, and we recorded an additional JPY 44.9 billion loss in all others in Q4 based on our share of the business. We have incorporated JPY 30 billion of additional losses in our FY '26 results forecast. But a portion of that amount is expected to be offset by a decrease in running costs due to the downsizing of Sony Honda Mobilities business.

In FY '25, the G&NS Music and I&SS segments. The profit growth driver of Sony Group achieved record high profits and business momentum remained strong. In FY '26, we expect the profit-generating capability of each of our business to further improve compared to the previous fiscal year despite the uncertain business environment. And we think that we have been able to demonstrate the high level of resilience of our business portfolio.

Finally, I will explain the progress of our fifth mid-range plan. The group-wide financial targets under the current mid-reach plan are an average annual consolidated operating income growth rate of 10% or more and the 3-year cumulative operating income margin of 10% or more. Based on the FY '26 operating income forecast presented today, we expect the average annual operating income growth rate to be 16% and the 3-year cumulative operating income margin to be 11.7%, both exceeding our targets.

Regarding capital allocation for this mid-range plan period, we revised our forecast for 3-year cumulative operating cash flow, our primary source of funds from JPY 4.8 trillion to JPY 5.7 trillion considering the previous fiscal year results. In the mid-range plan, strengthening shareholder return is one of our key initiatives. So we plan to allocate the additional capital primarily to higher shareholder returns. For FY '26, we have established a share repurchase facility of JPY 500 billion. We also intend to accelerate the pace of dividend increase, raising the annual dividend amount JPY 10 from the previous fiscal year to JPY 35. This concludes my remarks.

That was the presentation from Totoki Nishino and Tao. The media Q&A session will begin at 4:55 p.m. and the investors and analysts QA will begin at 5:15. Each Q&A session is scheduled to last approximately 20 minutes. [Operator Instructions].

We would now like to begin the Q&A session. Those on stage are Hiroki Totoki, President and CEO. Lin Tao, CFO, Corporate Executive Officer. Hirotoshi Korenaga, Senior Vice President in charge of Accounting. Naoya Horii, Senior Vice President in charge of Corporate Planning and Control. We will take questions from the media.

[Operator Instructions] [ Yoshida-san ], please ask your question.

Yes, I am Yoshida from Nikkei. I have 2 questions. The first question about the establishment of the joint venture with TSMC, which was just announced in the equity market, the low synergy with the entertainment area. So the possibility of spin out has been pointed out. But Sony, so this MOU agreement is based on Sony being the major or controlling shareholders.

So I would like to hear the background. And I would like to hear from Totoki-san about the stock prices. So with the surge of the semiconductor memory prices and not seen as an AI title, the stock prices have been going down these few days and the stock prices have not really made a rebound. But based on what you have just explained, do you think you now have a good explanation to the market?

Thank you for the questions. About the joint venture establishment with TSMC, our I&SS business, the possibility of spinning that out, we have never talked about that openly, though that was a speculative story. So what we have been saying about I&SS is this burden of CapEx to reduce the burden of CapEx and increase profitability at the same time need ingenuity.

And I have been saying that a number of times. And last fiscal year, I talked about the fab-light strategy, which we want to pursue. And the JV with TSMC is the first step towards this fab-light strategy. Up until now, I we have been an [ IDM ] doing the -- from the development and research of image centers to the fabrication. But in the future, we want to work with partners in the manufacturing of fabrication. So that's why we have signed this MOU with TSMC. And so what we announced today is in alignment with what we have been saying until last year.

The second question, about the share prices. Rather than being unique to Sony, I think this is -- really pertains to the entire sector. First is the shortage of memory. So that's why growth is really -- might be inhibited. And also, there might be a deterioration in the cost structure. So that is the first point.

And with the advancement of AI, generally speaking, the entertainment industry -- content production become easier with AI, leading to an increased number of content in the market. So people will be -- we will be taking -- competing over the user's time -- so maybe the enter time -- so there might be anxiety that the entertainment business cannot grow as before. What we have explained today explained our stance towards the situation and what we are working on and what we have achieved so far.

So we have given the direction. Having said that, AI itself will continue to grow very quickly, and I think new business models will also come up. And we need to be able to respond flexibly to the developments. What -- how the market sees us is not -- the market perspective is not something that we can change by ourselves. But as we have been doing up till now, we will try to give a highly high resolution and high quality information. Thank you.

So you'll take the next question. From [ NHK, Tamura-san ], please.

And for myself, I'd like to ask about the business you have in the United States. And you had alluded to about the adaptability from the CEO, Totoki-san. So in the United States, there has been the tariffs. So 10% tariffs, it has been decided that it is illegal so that in the United States, there is uncertainty regarding the direction of the tariffs. So about the Trump administration's tariff business, how do you see it? And especially after this court judgment about the tariffs.

Thank you for the question. And as you have alluded to, so this reciprocal tariffs, yes. So the stance for that and how do we see into the future? It's quite difficult to say, and the uncertainty has increased. But from our side, we can say that our external activities about the intelligence and we do as early as possible to get the accurate as possible information and so that we can have the first insight into the future.

And then we will take quick action, and we repeat such response. And having said that, even if we foresee the assumption is that is only for the short term and it changes quite rapidly. And that is the geopolitical situation that we are in now. And so as much as possible that we would do what we will not be too much decided by what we think is right now, but we'll be quite flexible in getting to this issue.

Next question, please. [indiscernible] business, [indiscernible], please.

Two questions. At the joint venture with TSMC. Well, I think that the logic will be TSMC and others. And Sony, it will be doing the images, and Sony will be finishing up. But the [ Pixel ] part, I think that your capability differentiating capability would be the image capability.

But I think that you have been constantly talking about the difficulty of having very precise images and fabrication precision. But with joint venture, I think is there not such concern that this will be a challenge? And what is your expectation towards the joint venture? Is it financial expectation or others? That's my first question.

And the second question about AI and the increase in content, and it will be a race against others in terms of capturing the users' time. And so LBE and other entertainment experience, I think that this in itself is also important in terms of capturing the users' time it's not just LBE but other new entertainment experience. What is your take on this currently?

Well, about the joint venture with TSMC. Well, up until now, we have been doing the pixels and TSMC was doing the logic. But the pixel part, well, about the pixels, too, I think that this requires development capability and process technology. So these are 2 separate things. Well, like IDM, we have tried to integrate this horizontally, vertically.

But with this TCMC joint venture, what will be strengthened is that we'll have the world's top-class semiconductor process technology. So because of TCMC's capability, I think this will be a major evolution on our part. And another thing is that as a result, there will be a greater scalability towards the future.

Well, image sensors, in order to supply image sensors in the past, we had to rely on the supply capability of our fab. So this was a limiter. But in addition to mobile image sensors, physical AI, the sensors will be playing a major role in physical AI, too.

So considering this future demand, we have to prepare ourselves. And therefore, this joint venture will have great significance on this front. But TSMC also has this expectation towards future demand and capturing future demand through this joint venture. And the financial impact is there, but on the one hand, but with TCMC, we want to secure a solid position as the #1 sensor supplier. And so please understand that this is what we're aiming towards.

And another about the competition of trying to capture the users' time with the increase in entertainment content. LBE is a new entertainment experience, engagement. fun engagement will be deepened as a result of LBE. And the technology needed for this and the business model required is being promoted right now.

And we are doing experiments, POC on this front. And other -- we are entering into partnership with different companies to promote this business model. That is the current status. Thank you.

We would like to move on to the next question. [ Nishita-san ].

I have 2 questions. The first question about Sony and Honda. So this is depreciation based on the equity method. So this business will be changing due to Honda. So do you intend to ask Honda to bear more burden -- and about -- next is about memory shortage. There won't be -- there will be a big impact on gaming consoles.

And for the entire industry, I think there might be a problem with supply because the game consoles prices are going up. So maybe the PS5 will be fine. But looking at the coming 1 to 3 years, the gaming console prices, how would that be impacted? Would you give us a breakdown on that?

Thank you for the question. About the first question about the joint venture of Sony Honda -- of course, the revision of Honda strategy was one big cause for this. However, the electric vehicles, the environment surrounding the EVs have changed, especially in North America, and we fully understand that. So the 3 companies discussed on who will be burdening what. So we made this comprehensive decision. So we don't need -- HSM will not be claiming for any more damages to Honda.

So the numbers that we have told you today are definitive, more or less definitive. And about your second question about the memory shortage, -- of course, the memory prices going up would increase the cost of the BOM. So the cost of manufacturing will go up. And if that leads to passing on price -- cost to prices, there would be a big impact on the gaming console prices.

And as we explained earlier, for calendar year 2026, the necessary volume has been secured. And another point and about the -- and we have, to a certain extent, agreed on the price itself. So the console prices and promotion profitability. So we would like to strike a balance on our promotion with our promotion budget, and that cost is already factored in.

About the upcoming generations, future generations, gaming consoles, we have not yet decided on at what timing we will launch the new console at what prices. So we would like to really observe and follow the situation. The memory prices, looking at the current circumstances, the memory prices is expected to be very high also in FY '27 because there will still be a shortage in supply. So under that assumption, what can we will like to think about -- think carefully what we can do.

The -- how can we reduce the other costs of the hardware other than the semiconductor. And also, we might think of new ways of selling the product. So we would like to think about -- we will do various simulations, including changing business models to come up with the best solution and strategy. But having said that, even under this situation, we have 125 million active -- monthly active users enjoying games on our platform. So that itself is growing. So it's not that the demand has gone down. So I think we can think of ways to get through this.

Yes. So due to a limited amount of type, so the next person would be the last question. From [ Televio Goa from TV Tokyo].

Yes. My name is [ Goto ] from [ TV Tokyo ]. I'd like to ask Totoki-san the CEO, so that the price increase, so the PlayStation 5, you said that it is fine that you're not going to have the price increase. That's the first question. And the second question is about the expected business results. So there is uncertainty in the geopolitical situation, but you would have the record high net profit. So how do you assess the risk in the background? So what kind of assumption do you have in order to make that record high net profit?

Thank you for the question. And about PS5, as we have said, we had just had the price increase so that for the next price increase, we don't have that in plan. And we would keep this current price so that we would manage the business based on this current price.

And about the expected business, the uncertainty about that in geopolitical sense, yes, in a geopolitical sense, we have several factors that are uncertainty, but we have the best estimation so that we would manage risk so that we would keep the forecast that we have -- we intend to make and in various ways so that we evaluate risk and we have policies against risk so that for the next year and this year also that we have the record high profit, keep on having the record high profit.

It's now time to end the Q&A for the media. For the investors and analysts, we would start at 17:15.

[Break]

We'd now like to begin at the investors Q&A session. I am [indiscernible] from IR. I'll be emceeing this session. Those onstage remain unchanged. We will begin the Q&A. [Operator Instructions].

BofA Securities, Hirakawa-san, please.

Hirakawa from BOF Securities. Two questions. So first about AI. econd is about mobility. First, AI as you've explained, we've got to understand that platform will become more important in AI. And I think that this will appeal to people's emotion. But for other areas like the piracy, might be piracy, but people who can enjoy to a certain extent with AI, such a market will exist.

And Disney, well, they dissolve this, but they try to monetize with AI players. And at Sony, especially when it comes to AI, is it a possibility that you try to monetize by tying up with AI? What is your position currently? That's my first question.

The second question about mobility business. In this mobility business, as Totoki-san has said, in the U.S., the environment surrounding EV vehicles has changed significantly. And from smartphone to mobility, I think that this is still effective. And in the future, well, [indiscernible] be discontinued, but I think there might be future opportunities. And this Sony Mobility, this experience, how can you leverage on this going forward?

Well, about your first question. I'm using AI what kind of monetization can we do? Well, we, on our part have been undertaking different initiatives. On this front, we need to think about partners and it might be difficult, and there might be pushbacks for us to reveal everything that we're doing to our partners. And therefore, we have to be careful in addressing this issue.

Therefore, for example, like Disney, tying up with AI players and monetizing. Well, if you ask if we are not thinking of any such things well, we understand that there are different options available but it's not a specific player that we have in mind. But instead, we are thinking of different types of AIs that can provide service. We want to tie up with different types of AIs going forward.

Now if we specify a specific player to work with, it might be appealing to a certain extent. But on the other hand, this might confine our action. We want to have a good balance. That is our current thinking. About mobility. As you say, our biggest challenge is STV, software-defined vehicle. The way of producing cars has changed significantly. And what can we do in this context? What's the motivation to start this joint venture?

Autonomous driving will become possible in the future. Then the indoor of the vehicle will have a value as an entertainment space. So we wanted to do different experiments to this end. The knowledge we acquired here is valid. Well, the way of making cars, well, it's not a distant future, but I think will change significantly. And the users' demand will also change.

Therefore, the people who have acquired this experience with -- between Honda and Sony, they will return to their companies, and we want to leverage this talent and think about how we can use this asset that we have with us. I think that the people who have gone through this experience should be actively leveraged within our group. I want them to play an important role within our group. And in the future, in various ways, we want to engage with mobility. That is all. Thank you.

We would like to now move on to the next question. JPMorgan Securities. Ayada-san, please.

This is Ayada from JPMorgan Securities. I also have 2 questions. The first question is about game and network service. What is the long-term growth upside? What is Totoki-san's view on the growth upside of game and network service? So profit is going up, but maybe the MAU is struggling to grow. And also, the first party is also fluctuating year-by-year.

So if the profitability is to increase in the long term, what are the factors supporting that? Do you think MAU will still grow in emerging countries? And also, as you said in the presentation, if the platform engagement goes up with AI, maybe that would increase the ARPU. Or are there other things you can do in the first-party game area? So please tell me about the upside of gaming.

And next is about catalog investment on music business. Compared to other major players, you have been very active in investing in music catalogs. In the catalog investment market, AI, there's a risk of AI-generated music. So this trading market, the valuation of the catalog in this market, so what would be the impact on that? If you have any take on that, please share with it.

Is the valuation going up or down? Or is there no impact here? And based on this, you also told us that you will be actively investing in catalog going forward. Would there be -- with AI -- spread of AI give an impact on your stance on this investment.

Thank you for the question. About the first point, the long-term future upside of Gaming and Network Services. So that was a long-term question. So I would like to explain from the perspective, long-term perspective.

Myself, I believe we need an evolution in the gaming content. Maybe -- so I think there's a high possibility that AI will bring about this evolution. Why I think so? The gaming industry is becoming very mature. And the large portion of the market share is really relying on large franchises of major publishers.

Before COVID, I thought it was Fortnite, came into the market. This was a large-scale live service game. So that was a very innovative event in the industry. For the entire gaming industry, Fortnite was certainly a tailwind. For the entertainment market, innovativeness, the niceness is novelty is extremely important.

And when we talk about large franchises, they are spending like JPY 50 billion on AI, and they will be developing games, and this will take 5 to 6 years the number of titles will be limited. So it will be very risk -- so it's very difficult to take risk. However, if the bar goes down, there will be more possibility of new games coming up. So that would lead to the industry becoming more active. Of course, there's a flip side. There might be some disruption. So that might be a concern, too. But this new wave and innovation, I think, will lead to the further expansion of the market. This is what I believe.

So how can we grasp this opportunity? And what kind of -- and what kind of business model should we develop to respond to that? So really grasping this opportunity is something that we need to do, the most important thing.

About your second question about the music catalog. The GenAI, the AI-generated titles have come into the hit chart. But the percentage overall percentage of AI-generated music is still very low. When we talk about catalogs, for evergreen catalogs, we don't think the prices of evergreen catalog titles are going down. So they are still very popular as investment targets.

The pieces -- music pieces generated composed by AI, would they compete against evergreen catalogs? I don't think that is really conceivable. The reason being, the evergreen catalogs are based on individual experience. So they are really listened to for a long period of time, and these listeners go to live music performances and that is something which AI cannot offer by itself.

However, AI's advancement is extremely fast. So we need to be able to respond very flexibly to such changes. What kind of business model should we develop so that we can increase our resilience. And maybe you remember that at one time, there was a strong focus on distribution. And music DIY platform for distribution was really debated very actively. Back then, the label service were seen to be to -- seem to disappear. So that's seen as this intermination, but that has not happened.

And back then, we acquired a DIY platform company while holding a label service, we were building such platform at the same time. And through -- and the insight this offers is very important. So what business model -- so not only protecting the existing businesses, we need to really go and grasp the new opportunities. Thank you. That was all.

So next question. From SMBC Nikko Securities, Katsura-san, please.

Yes. This is Katsura from SMC Nico Securities. So I have 2 questions about capital allocation and SMS. So first about the capital allocation. Well, the strategic investment in the 2 years' time, what has been the level of strategic investment? And in the environment, how do you see that in the entertainment business or the multiple is going down across the industry, but there is another view that there is opportunity, but your stock price is going down drastically. So the capital allocation is going up, but CFO also has said that, that is going to be given back to the shareholders. So how do you think about that? That is the first question.

And for the mid-range plan, this is the last year of the mid-range plan. So that from yourself, can you tell about what you think for the next mid-range plan? So the second SMS and TSMC joint venture. And so from the [ METI ] announcement, JPY 80 billion investment subsidy. I think that was the number. And for the semiconductors, the business surrounding the semiconductors is a national security kind of a challenge and against such background.

So how do you think about that? And with the TSMC, you have the joint venture and the -- I think it is a good combination for gaining up the share, but the profitability. So you have not gone past the past peaks. So in the mid- to long-term range, how do you think about it? That's the second question.

Thank you very much for the question. And about the capital allocation, so CFO Lin Tao would answer, and then I would follow up with that. And about the second question, I will be answering that. So okay. So I'll ask CFO, Lin Tao, to answer.

About the strategic investment in the midrange plan, so JPY 1.8 trillion frame has been set. And as of now, so they already decided about JPY 1 trillion, a little bit over JPY 1 trillion level. We had already implemented. So JPY 1.8 trillion, a strategic investment frame, we have not changed that, and we are giving back to the shareholders so that the capital allocation the operating cash flow, the capability is higher now than the past.

So that for the -- we are having the strategic investment, but we can also give back to the shareholders. return to the shareholders. I think we have that kind of power now.

And all right. So about the next mid-range plan, how do we think about it? So the next mid-range plan. Well, we are now working on that. So I don't think we can say anything in a concise way, but about the geopolitical we had discussed. But those conditions change very rapidly so that we cannot say anything certain now. But one thing we can say is that until now, we had implemented various investments and how we had varied results and went well, some well.

And from these results, we can have the lessons learned, and we would have the rational price. So for those investments that we like to continue it. And based on that, if we can have free cash flow that generated that is our mission to generate more free cash flow, having invested in the strategic areas and then to return to our shareholders.

And about the joint venture and in the geopolitical situation about the national security and economic security. With TSMC, so in Japan, TSMC is having the attractiveness to expand in this country, Japan. So that's how I see it. And from that kind of a perspective and also in the extension of that perspective, I think this joint venture had come about.

So as you have understood, TSMC is not a company that likes to have joint venture and TSMC would like to control themselves. That has been their style up until now. And in various ways, so the joint venture that we have with us is giving us various opportunities.

And for TSMC as well, it's going to be a big challenge. That's how I see it. And at Sony, we would like to take this opportunity to have a fruitful outcome. And about the ROIC, it's good, but the profitability is not so good. Was that your question, but then -- so the fixed cost or the variable cost, I think that's the difference. And well, I think with the variable cost, then the margin will go down, that is right, as you have said, but the risk would go down as well. So in -- since it's a trade-off, but in this trade-off, to have the optimal answer. And as a total, we want to not squeeze the margin, but to get lessen the burden of investment. So that's the basic way of thinking from us. Thank you.

We are running short of time. The next question now will be the last. [Operator Instructions] Nakane-san from Mizuho Securities.

Nakane from Miso Securities. One question, right. Well, about your activities to improve operation. For example, about R&D, last time, it was JPY 760 billion versus JPY 700 billion this fiscal year. So what is the change? And how are you trying to optimize? Can you explain?

And also, I think that in the different business segments, similar things are happening. For example, pictures ROIC is low and also game where the demand environment is changing. I think operation optimization is being carried out. But it's difficult to see from outside. It would be the [ SGM ]. Any improvements that you see and what you would like to do going forward? And any typical examples that you can share with us, please?

Thank you. About R&D expenditure. Well, that is the question that you've asked. But we have to think about the R&D teams from a cyclical point of view. The environment is changing our business direction is changing. So in line with that, R&D needs to change, to be aligned. I think over the past 2 years, we have focused on this and is scrutinized what is being done.

And as a result, even if we take on a long-term perspective, this R&D, we saw that competitiveness could not be maintained or we did not see an exit from this group. So for such items, we tried to review. And based on that, we have put together next fiscal year's budget. So please take it as is. This is a result of scrutiny. And also, the different initiatives being taken at the low ROIC business.

What we're going to do about that? Well, we do have discussions to that end -- but within different business and industries, it's difficult to just compare based on ROIC. So if you compare yourself to other companies, we could say that our ROIC or margin is inferior. And if we see that, that is the case, we understand we have to take measures.

For example, structural reform. We have not made announcements, but in different business segments, we are constantly carry out structural reform and we overall try to maintain our competitiveness and boost our profitability. As for KPIs, it's difficult to say, but as for ROIC, for each segment, we have the ROIC numbers. So this has been disclosed. I hope that you refer to those numbers. That is all. Thank you.

Thank you very much. As I first said, we would like to thank you for taking part in our presentation today. Once again, thank you very much for your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

[Interpreted] It's now time to begin the Sony Group Corporation Earnings Announcement. I am [ Ishii ] from the Corporate Communications Department, and I will be your moderator today. Today, Lin Tao, Corporate Executive Officer and CFO, will present the FY 2025 third quarter results and full year forecast, followed by a Q&A session.

The entire session is expected to last 65 minutes. To ensure our international audience can hear the presentation in Ms. Tao's own words, the English language earnings presentation will be delivered via a prerecorded video.

Today, I will explain the content shown here.

Sales of continuing operations in FY '25 Q3 increased 1% compared to the same quarter of the previous fiscal year to JPY 3,713.7 billion, and operating income increased 22% to JPY 515 billion. Both were record highs for the third quarter. Net income increased 11% to JPY 377.3 billion.

The financial results by segment are shown here. We upwardly revised our full year sales forecast from the previous forecast 3% to JPY 12,300 billion, operating income 8% to JPY 1,540 billion and net income 8% to JPY 1,130 billion. We increased our forecast for operating cash flow 9% to JPY 1,630 billion. The forecast for each segment is shown here.

Now I will turn to an overview of each business. First is the G&NS segment. FY '25 Q3 sales decreased 4% year-on-year, primarily due to lower hardware unit sales.

Operating income increased 19% year-on-year, primarily due to the positive impact of foreign exchange rates and the impact of increased sales and network services and first-party software, setting a record for the third quarter in this segment. We upwardly revised our FY '25 sales forecast 4% from the previous forecast to JPY 4,630 billion and our operating income forecast 2% to JPY 510 billion.

User engagement trended well during the quarter with the number of monthly active users across all of the PlayStation in December increasing 2% compared to the last December to a record high of 132 million accounts, and total play time for the quarter increased 0.4% year-on-year. Although conditions in the console hardware market during year-end selling season were more challenging than expected, we were able to steadily expand our PS5 installed base in line with our original plan and exceeded 92 million units on a cumulative selling basis.

While PS5 hardware unit sales have decreased moderately in latter half of the console cycle, software revenue from the PlayStation Store reached a record high during the quarter, primarily driven by the contribution of major third-party franchise titles and new hit releases. PlayStation Plus significantly contributed to the results of the quarter as the shift to higher tiers of the service continued.

As for securing a supply of memory, we are already in a position to secure the minimum quantity necessary to manage the year-end selling season of next fiscal year. Going forward, we intend to further negotiate with various suppliers to secure enough supply to meet the demand of our customers.

Given the stage of our console cycle, our hardware sales strategy can be adjusted flexibly, and we intend to minimize the impact of the increased memory cost on this segment going forward by prioritizing monetization of the installed base to date and striving to further expand our software and network service revenue.

In the Studio business, Ghost of Yotei, a tentpole title we released in October, exceeded the sales of the previous title in the same period of time and significantly contributed to the financial results of the quarter.

Our established live service titles like Helldivers 2 and MLB The Show also contributed stable recurring revenue. We expect that Marathon, which is scheduled to be released on March 5, will be enjoyed by many users, thanks to Bungie having strengthened the gaming experience. Next fiscal year, we plan to release new titles such as Saros and Marvel's Wolverine, and we intend to enhance our effort to increase the revenue of our Studio business.

Next is Music segment, primarily due to an increase in live events, sales and streaming revenue in Recorded Music, FY '25 Q3 sales increased 13% year-on-year. Operating income increased 9%, reaching a record high for the third quarter, excluding onetime items.

On a U.S. dollar basis, streaming revenues for the quarter increased 5% year-on-year in Recorded Music and 13% in Music Publishing. We upwardly revised our sales forecast 4% from the previous forecast to JPY 2,050 billion and our operating income forecast 16% to JPY 445 billion. We incorporated a remeasurement gain of approximately JPY 45 billion from the acquisition of an additional equity interest in Peanuts Holdings and the forecast for operating income.

SMG artists delivered hits during the quarter and the sales of SMG continued to increase by double digits year-on-year, like in the previous quarter. Rosalia new album Lux reached #1 globally in its first week on Spotify and Peso Pluma's collaborative album Dinastia as one of the most streamed on Spotify. These global successes and global hit artists are the result of SMG's strategic focus on discovering local artists and supporting their musical endeavors.

Many SMG artists and songwriters received accolades and nominations at the 68th Annual Grammy Awards held in the U.S. earlier this month, with Bad Bunny winning Album of the Year for Debi Tirar Mas Fotos as Beyonce did last year.

In Visual Media and Platform, the theatrical release of Demon Slayer: Kimetsu No Yaiba The Movie: Infinity Castle, which has exceeded JPY 100 billion in global box office revenue, continued to contribute and the mobile game Fate/Grand Order, which celebrated its 10th anniversary in July 2025, contributed more to our results than expected.

Next is the Picture segment. FY '25 Q3 sales decreased 11% year-on-year and operating income decreased 9%, primarily because the same quarter of the previous fiscal year benefited from the contribution of the blockbuster film, Venom: The Last Dance and licensing revenue from other theatrical released films. Our forecast is unchanged from the previous forecast.

In January, SPE signed a new Pay-1 licensing agreement with Netflix. Through this agreement, Netflix will stream on a global basis SPE's future theatrical films and the Pay-1 window, the initial window within long TV licensing period that follows the theatrical and home entertainment periods. This agreement is an industry-first global licensing deal that will enable SPE to secure an even more stable revenue base during the period of the deal. Furthermore, the signing of this agreement is proof of SPE's excellent production capabilities and the power of its appealing IP. As an independent production company, we will continue to pursue other licensing opportunities with a wide range of distribution partners beyond the Pay-1 window.

Now I will explain our additional investment in Peanuts IP, which we announced in December as an initiative that spans our music and picture segments. Through this transaction, Sony will gain ownership of 80% of Peanuts worldwide, which owns the rights and manages the business of Peanuts IP, one of the world's leading evergreen IPs.

While closely collaborating with the family of Mr. Schulz, the creator of Peanuts, which owns the remaining 20%, we aim to further grow the scale of the business and further increase the value of the brand over the long term by leveraging the strength of the Sony Group.

Specifically, we aim to enhance SMEJ's music, video and event business by leveraging Peanuts IP and collaborating with SMEJ's artists and content. Furthermore, by utilizing SPE's production capabilities and distribution network, we aim to make Peanuts IP more accessible to a wider audience and share its charm with people all over the world. The transaction is expected to close during the current fiscal year, subject to certain closing conditions, including regulatory approvals by the relevant authorities.

Next is the ET&S segment. FY '25 Q3 sales decreased 7% year-on-year and operating income decreased 23% year-on-year, primarily due to the impact of lower sales, partially offset by an improvement in operating expenses. Our full year forecast remains unchanged from the previous forecast.

Despite a continued decline in sales in China due to reduced government subsidies and weakness in the overall market during the shopping season for Singles Day, demand in the global interchangeable lens camera market during the quarter remained strong year-on-year, mainly in Asia. The Alpha 7 Mark 5 released in December has been selling well as a new product for the volume zone of the full-frame mirrorless single-lens reflex camera market, and we expect it will continue to contribute to sales in the fourth quarter ending March 31, 2026.

Regarding the impact of the situation in the market for memory, we are almost in a position to secure the quantity we need through the year-end selling season for next fiscal year. We will continue to monitor the situation while working to minimize the impact on profitability.

On January 20, Sony signed an MOU with TCL aimed at forming a strategic partnership in the home entertainment field. In the MOU, both companies agreed that a joint venture between the 2 companies would operate Sony's home entertainment business, and we are negotiating the details with the intention of executing a definitive agreement by the end of March.

By leveraging Sony's high definition and high fidelity technology, brand strength and operational management capability while utilizing TCL's advanced display technology, cost competitiveness and vertical supply chain strength, the joint venture aims to further strengthen the competitiveness of this business and realize sustainable growth.

Last is the I&SS segment. FY '25 Q3 sales increased 21% year-on-year and operating income increased 35%, both of which were record highs for the third quarter for the segment. These are primarily due to an increase in sales volume and unit prices of mobile image sensors. We upwardly revised our sales forecast 5% to JPY 2,080 billion and operating income forecast 13% to JPY 350 billion, primarily driven by the increase in sales volume and sensors for mobile devices and the impact of foreign exchange rates.

Mobile image sensor sales during the quarter increased significantly year-on-year due to a gradual recovery in the smartphone market, strong shipments for new products from our major customer and higher die-sized sensor. Because recent orders are stable, we believe that the supply chain concerns we mentioned at the previous earnings announcement have receded, and we have upwardly revised our annual shipment forecast for mobile image sensors.

Going forward, we think that the impact of the situation in the memory market will become more apparent, mainly in the form of fewer smartphone made primarily for the low-end market. Since Sony's image sensors are primarily for the high-end market, at this time, we think the impact will be relatively small. We will continue to monitor the situation while keeping in close contact with our customers.

In addition, we are continuing to take action to address low-margin business, as we mentioned at the previous earnings announcement. As a part of that, we have incorporated additional expenses for resource and asset optimization of the relevant business in our forecast for FY '25 Q4. We will continue to focus on improving our business portfolio and raise our profitability.

To summarize, the G&NS, Music and I&SS segment achieved record high operating income and are driving the profit growth of the Sony Group overall this quarter. We believe that the structural profitability of the group is further improving.

Given the continued uncertain business environment, we plan to carefully manage our business and consistently produce results as we approach the fiscal year-end. We intend to take actions this fiscal year to get off to a good start next fiscal year.

As for shareholders' returns, today, we increased the maximum of our share repurchase facility established in November 2025 from JPY 100 billion to JPY 150 billion.

This concludes my remarks.

[Interpreted] That was Ms. Tao. Following the presentation, we will have a Q&A session for the media at 4:20 p.m. and for investors and analysts at 4:45 p.m. Each Q&A session is scheduled to last approximately 20 minutes. [Operator Instructions] Please wait. The session will resume shortly.

Thank you for waiting. We'll start the Q&A session. First, we will introduce you today's speakers. Chief Financial Officer, CFO, Corporate Executive Officer, Lin Tao; Senior Vice President in charge of Accounting, Hirotoshi Korenaga; Senior Vice President in charge of Corporate Planning and Control, Naoya Horii.

We'll take questions from the media. [Operator Instructions] The first question is from Toyo Keizai, Umegaki.

[Interpreted] Yes. I'm Umegaki from Toyo Keizai. Can you hear me?

[Interpreted] Yes.

[Interpreted] All right. So I'd like to ask 2 questions. The first question is about Marathon, and it's going to be released on March 5, I understand. And it has been delayed. And what kind of considerations did you have until you decided to have this? And well, in the past, there were cases that has been stop short, but what kind of a learning do you have? And for the live service game and what is the strategic significance of having that? And this kind of a platform, I think, but to have quite a number of platforms, what is the significance for the group to have such platforms?

[Interpreted] Yes. Thank you for your question. And as for the Marathon, well, it has the user tests and then from the users has feedback for Marathon, and in the game, so what was a good point and not good point and such kind of a feedback we had taken into consideration and we had modified. And this time around, so after the modification, we are very confident to release it on March 5.

And live service, the games significance you asked, but here, what is most important for us is that the live service is a recurring revenue. And recurring revenue means that the hit driven. And if it comes a hit, then for a year, it can bring revenue. If not become a hit, then no revenue. So it's such not the volatility high studio, but it's going to give us a constant amount of revenue every year. So that's the merit of having a hit live service. But -- well, it's not that we want to have -- so to many of them, it's not what we want to have. So the idea is that so-called AAA and live service game would become integrated into a portfolio management style. That's it for me.

[Interpreted] And the second question is about your stock price. And you had announced your earnings results, and it was a JPY 3 plus, but it's almost flat. So that the market valuation is quite severe, I think. And the stock performance is not good because the memory had risen. But it's rather Sony Group, it seems that there has been a harsher view on the Sony Group. So what do you see as a CEO? And you have announced the share buyback, but the market capitalization, in order to raise the market capitalization, if you have any continuous way to keep that going up?

[Interpreted] All right. Thank you for your question. And about the stock price, so we had several information revisions, but it's not performing well. So I think you have various thoughts about that. But one thing is that memory, there are concerns for the memory supply. And as an industry, yes, that is one concern. And the other is the entertainment stock, generally speaking, is because the capital AI-related would go to the AI related. So I think that's why.

And then for us, what we can do is that as a business, we will look at the fundamentals to make it even stronger. And the profitability, we would improve so that the portfolio can be optimized. And for us, Sony, long-term strategy, we believe in that so that we would implement that, so that the business performance can be improved and such measures would be communicated, messaged to the stock market so that the stock market would value our approach, and we are going to put our efforts into it. That's all for me.

[Interpreted] The AI...

[Interpreted] Excuse me, but that's the end of your 2 questions.

Next question [indiscernible] from Nikkei, please.

[Interpreted] I also have 2 questions. First, about ET&S structural reform. Today, you have mentioned that the TV business, you're going to move to a joint venture with TCL. And you talked about synergies. So separating the TV business, what's the intent of that?

And Home Entertainment, what's the scope? I'm sure that the details are being still discussed. So to the extent possible, can you describe the range that this covers?

And also, smartphone also positioned as a structural reform business. And you have hit to explain that they will be continued. Has there not been any change to that status? Is an option to collaborate with external source?

[Interpreted] Thank you. For the smartphone, we don't have such plans. So with TCL, we have a strategic partnership for Home Entertainment. So this is about the review of portfolio, and we are constantly doing that to deal with the changing business environment. So optimizing that is the management mission. So Sony has assets that we have accumulated over many years, and we're combining that with the strength of TCL. And so Home Entertainment business, including TV, can grow more through this partnership. That is the background to this partnership.

And what the scope of what business to be covered, Horii will explain.

[Interpreted] Thank you for the question. So this strategic partnership, the scope of that, as you point out, it's TV. and home audio, those are the areas that we assume will be included. As you point out, the details are still being discussed. So at the appropriate timing, we would like to communicate to you. At this point of time, TV and home audio will be included in the scope.

[Interpreted] Thank you. Second question about the game business. So this was mentioned in the previous question. So with the surging memory price, so you have secured the supply until the next year-end campaign. So you maybe have secured supply, but will there be impact of the rising prices? For example, PS5, any price increases or the successor, the timing that it will be introduced? And what will be the impact to the next fiscal year? Can you give us your assumptions, please?

[Interpreted] So PS5 next fiscal year and onwards, what would be the impact there. So for the business results for next fiscal year, we would like to inform you at the appropriate time. But our thinking is what we'd like to share with you. That is PS5 since launch, it's in the sixth year. So 92 million unit installed base on a sell-in basis, we already have established. So we have been able to develop a very robust ecosystem. And this fiscal year as well, the majority of the sales is software content and network service. And these areas, next fiscal year onwards, are going to continue to make significant contributions, and that will be the part that will not be impacted by the memory price.

Now as for the new PlayStation hardware sales due to cost increases, there will be some impact. However, it's in the latter part of the life cycle. So that means that in terms of hardware sales, it's been expected all along that it will gradually decline or slow down. So there are several or a wide range of choices or options that we can take. So that's our basic thinking there.

[Interpreted] Moving on to the next question. So I'm very sorry. Please ask both of your questions at the beginning. [ Yomiuri Newspaper, Nakayama-san ], please.

[Interpreted] So this is Nakayama from Yomiuri. Do you hear me? So I have two questions. Number one, about music. The streaming revenue growth rate, this -- so do you think the music streaming service will continue to do well? We would like to hear your prospects. And about I&SS, the image sensor for mobile, do you have any background on the increase in the unit price of image sensors for mobile?

[Interpreted] About -- I will answer the question on the music business first. The music market, we see will continue to grow in the mid- to long term. Of course, the extent of growth will differ due to the timing, but we believe there will be a constant growth of -- to about 5 to middle to latter single digit. And there are 2 drivers to this. First is DSP that is a platform that we offer service on. The ARPU or ARPU is going up, and also the number of users going up. So the average revenue per user and the number of users going up is driving the growth.

The second point about I&SS semiconductor, Horii will answer.

[Interpreted] The sensor -- so this is the background of increase in the selling price of mobile sensors. As you know, in smartphone products, there is -- the camera feature is a main reason for increase in price. So the smartphone manufacturers are working to increase the camera resolutions as well as the camera features. The image sensors that we provide to the manufacturers, we want to increase the size as well as increase the resolution and add new features. So large-scale image sensors as well as increased performance is leading to higher price, and that is really contributing to our results this year. That's all. Thank you.

[Interpreted] All right. So we take another question. [indiscernible] [ Yamamoto-san ], please.

[Interpreted] Yes. My name is Yamamoto. So let me ask questions. So about the structural reform and TCL, so we have the strategic alliance, but the display to have the higher resolution. And Home Entertainment, I think though you have the high resolution, I think it is contributing to the technology and also the common kind of R&D. Do you separate the 2, the technology and the common R&D base in order to have the next phase of development? So about the strategic alliance, would you tell us your direction or your strategy?

[Interpreted] Yes. Thank you for the question. So first, so we have the basic agreement. And for the technology and for what kind of assets can we have through the joint venture to have the definitive contract, so we are in discussion in order to aim for the final agreement. So if it is confirmed, then we would tell you when it is confirmed.

[Interpreted] Running short on time. So the next one will be the last question. Shino-san of Asahi Shimbun, please. Shino-san, do you hear?

Well, then, we'll move on to the next person from [ Mainichi Shimbun, Shino-san ], please.

[Interpreted] This is Shino from Mainichi Shimbun. Earlier, you talked about the PlayStation 5 life cycle that you're entering the latter half of the life cycle. But last November, you talked about the Japanese dedicated model for PlayStation, a relatively cheap, lower price model for the Japanese market. So what's the reason for introducing this kind of model in the latter part of the life cycle? And what will be the impact to the financial results? Has there been impact from introducing this new model?

[Interpreted] So the Japan model introduction, well, that was to enhance the presence of PlayStation in the Japanese market. It's one part of that effort. Compared with the global model, it was more reasonably priced. And so publishers and users appreciated that more affordable price. And after launch, in terms of sell-through, it has created an uplift.

Now this was not a special model just for that seasonal effort. But for the mid- to long term for the Japanese market, we think that this had a strategic significance. So we want many users to buy this so that publishers will make great games. So we think in that regard, this will have a mid- to long-term impact.

[Interpreted] Now it's time to conclude the Q&A session for the media. So the Q&A session for investors and analysts will start from 4:45.

Thank you for waiting. We will now begin the Q&A session for investors and analysts. I am [ Kondo ] from the IR Department, and I will be your moderator. The speakers will be the same 3 individuals as in the media session.

We will now start the Q&A session. [Operator Instructions] JPMorgan, Ayada-san, please.

[Interpreted] I'm Ayada from JPMorgan. I have 2 questions. The first question is about gaming. The play time and so what do you think about the status of play time and spending in the holiday season? Active users have gone up 2%, but play time is flat and software network revenue is going up. But thinking about the price up, I think in terms of value or volume, it's more or less flat. So it seems like it's dwindling a little bit. Is it because of the economic cycle, business cycle or console cycle? Or is this impact from the title lineup? Or are people using time for things other than game. So we would like your take on that.

Your second question, so this might be an abstract question. The impact of AI to the entertainment industry, how should we see that? For music production and game development, already 90% of creators use AI, so -- based on the data. So by the creators using AI, if there's more content, that would be a very positive effect on platforms such as PlayStation and Crunchyroll or if users use more of their casual -- more time in casual content using AI, would that be negative? So I think the repercussions will be different, whether it's music, anime games or video production. So please share your view.

[Interpreted] Thank you for the question. About the engagement of games in the holiday season, I think this is transitioning quite well. Of course, the play time, I think there are many factors influencing the play time. But I think the biggest factor, I think, is whether there are hit games. Up until now, the games, maybe the large-scale games, which everyone has been playing up until now, the engagement has gone down. And instead, the players are playing new games. As a platform, we see a momentum. But depending on the game title, how that is played and the play time will be different.

Towards the next fiscal year, the large-scale titles will be launched. So I'm very optimistic about this. And about how we see AI, as you say, music, game and animation, how AI is used or the positioning of AI is different. There is high affinity between AI and game and animation. In the long term, I think it's a very positive thing that there will be more content. But there would be impact in many areas, especially how you develop and produce. So this process from idea to game, I think, would be changing. But it's still early in the day to say what the impact would be and what would be the impact on the cost. So at this point of time, it's difficult to really say. But what we can say right now is to use a lot of AI. So we promote using AI, especially in game production. And if that disrupts the existing process, we should be the one disrupting rather than the one being disrupted. That's all. Thank you.

[Interpreted] Thank you. All right. So next question from BofA Securities, Mr. Hirakawa.

[Interpreted] Yes. BofA Securities. My name is Hirakawa. So first question is -- well, it's a rather abstract question, but this is the second year of the midterm business plan, but the operating profit growth is like 10% average as you go. And then this year, it has progressed very smoothly. And the concern from the market is that the next year, the profit level because of the memory or the untransparent price movements, then it might not be so smooth.

Then what I want to ask you here is now in the midterm business plan, so what kind of certainty do you have? And what kind of risk factors do you have in achieving or what kind of upside do you have? So if you can allude to that is the first question.

And the second question is about what you have said. So image sensor, I&SS, so what I have heard is the high end is so ASP rise and the volume expansion, you can have both. So that, I think, was the main thing that you wanted to message to us.

[Interpreted] Okay. Thank you for the question. And about the midterm plan, so the second year and the year are going on quite smoothly. Yes, that is the feeling we have. About the memory price surge, and we can understand the concern from the market about this. And this earnings results for the next year, I think we can go into this more deeper. But basically speaking, we would have the momentum very strong here and the memory cost rise. So we have to manage that, and that's the kind of a direction we have and the profitability, of course, we have in mind.

And for the attainment of the midterm plan, how certain we are or how confident we are? So it depends on each business segment, but this is a game and Sony Pictures. So next year's software lineup is quite good. So for those segments, I think we have quite a positive kind of outlook. And for the detail, I don't think I can go into here. So when the earnings results for the 2025 fiscal year, I can maybe tell you more about it.

And the ESP and the semiconductor and the volume, okay. For this question, I would like to ask Horii-san to answer.

[Interpreted] All right. Thank you for the question. So in the speech, we have said that this year, what we have seen this year, okay, and what we are seeing SP and the volume also, we have momentum. So for next year, it's like a launch pad, let's say, that it's in a good position. So I think we can say that we are in a positive position.

And having said that, in the semiconductor business, there's other businesses like game or [indiscernible] and -- so memory market condition effect. And let's say, the selection or the options range is different is what I feel. So the final product manufacturers, well, so what kind of measures would they be taking because of this memory market condition? And we would like to have a close contact communication with the customers so that we can have a good understanding of each of the customers we have, and that's procedure we take. But I think we are rather in a passive mode concerning this because of this kind of a characteristic business. And for next year, I think we have a good launch pad in place. And that's exactly what you have pointed out.

[Interpreted] Next, from Mizuho Securities, Nakane-san. please.

[Interpreted] Two questions. First, so expanding the share buyback. So before you used it up, the facility is being expanded. I think this is the first time you're doing that. You have higher cash flow. Stock price is low. I think those are the backgrounds. So talk about what discussions you had in the Board meeting, and what's the message of expanding this facility in addition to what's in the release? That's the first question.

Second, about the Home Entertainment separation. So from development, design, manufacture, that part, I think it's easy to separate cleanly. But for sales, you have the common platform and domestic and overseas, I think it's still quite a huge size. I understand that the details are still to be worked out. But for the next fiscal year in terms of sales, how is it going to be handled? And on the ET&S side, inclusive of structural reform, is there a possibility of some adjustments to be made? Give us some clues, please.

[Interpreted] Thank you for the questions. First, about increasing the facility to repurchase shares. So as you say, the business results and the cash flow is better than anticipated. So we want to increase our returns based on that. But in terms of the window, that is up until middle of May. So JPY 50 billion increase is what we've decided on this time. So the company's momentum of earnings and the fundamentals, we are confident about that. That is the message that we would like you to take from this increase in the facility.

About the ET&S, for next fiscal year, basically, ET&S will continue to operate. It will have its budget in the same way, and we will communicate in that way. For the joint venture, it's to start from April of fiscal '27. So in terms of the additional structural reform for the portfolio, it's always dynamic. So looking at the business situation, it's our job to optimize that. It's one of our main missions. As of now, nothing has been decided yet. That's all.

[Interpreted] SMBC Nikko Securities, Katsura-san, please.

[Interpreted] So I'm Katsura from SMBC Nikko Securities. I have 2 questions on game and semiconductor. About the gaming question, this quarter, how we see the profit. The third quarter, so the -- compared to the real profitability of second and third quarter -- first and second quarters, I think the third quarter profit has gone down. This is about the domestic version of hardware and you did also promotion activity.

And also the procurement side, there has been -- maybe you purchased memory in order to secure the inventory. So the landing of the third quarter and also the full year, so the postponement of first-party title might be a negative factor. So these numbers seemed a little bit low. So maybe you have included some of the countermeasures towards the next term. And the second point is I&SS. You said you will be taking measures in the fourth quarter. So if you can say, we would like you to share us the scale of this measure. So my question is about your plan towards the next year.

[Interpreted] Thank you for the question. About the third quarter profitability for gaming going down compared to the first and second quarter. So there was -- the main reason was the end of the year sale promotion of the hardware. In addition to the Japan domestic model, we did global promotion. and that led to many users purchasing the console. And that -- due to that, the profit went down in the third quarter, but this will contribute to the mid- to long-term lifetime value. And towards the end of the fiscal year, as of now, the inventory, we do not have any plans to do anything extraordinary on the inventory. I&SS, we have factored in a part of that into the fourth quarter. Horii will respond.

[Interpreted] So as we have explained, the business balance within I&SS segment and some of the assets depreciation amortization done in acceleration. So this type of treatment is currently being processed. And about the scale, about JPY 20 billion, so this onetime cost of JPY 20 billion will be factored into the fourth quarter.

[Interpreted] All right. So we have not much remaining time. So the next question is going to be the last. [Operator Instructions] [ Munakata from Goldman Sachs ].

[Interpreted] Yes. My name is Munakata from Goldman Sachs. I think you have been saying about the generative AI. I'd like to ask a question about that. And so last week, so Project Genie was announced. And basically speaking, so generative AI, I think there's opportunity and also a threat. So in the stock market, so the generative AI, so the creation might be done by that so that a very interesting game can be made in an instance. So that I think a threat is more strong here. But in the game creation, so there has been some comments that to have it in a positive manner. But with the generative AI becoming -- developing, so what is the strength of your game studios and game development? What is your strength in that? So I appreciate you to ask -- to answer this question.

[Interpreted] Well, but the generative AI, so in very various ways, there are trials going on and now is in a test stage, I think. And there are very interesting things that's happening. But before -- I think it's before the commercialization. And as for game, it's not just game, but -- so AI, I think it can be in a toolbox that there's a very strong tool in the toolbox. That's kind of a feeling we have against AI. So tool itself, it's not going to be a business. So I think we need the sensitivity of artists and the tool to integrate in order to have another business chance or to have entertainment. So that's the kind of understanding we have.

In that sense, AI, I don't think it's a threat. But -- so that the creators can use AI fast way. And then we are going to help them make it the commercial product. So I think that's a Sony's mission. Thank you.

[Interpreted] With that, we would like to conclude the earnings announcement of Sony Group.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Hello, everyone. Today, I will explain the content shown here. Sales of continuing operations for the quarter increased 5% compared to the same quarter of the previous fiscal year to JPY 3,107.9 billion and operating income increased 10% to JPY 429 billion. Both were record highs for the second quarter. Net income increased 7% to JPY 311.4 billion. The financial results by segment are shown here.

As for our full year result forecast, we upwardly revised sales from our previous forecast 3% to JPY 12 trillion, operating income 8% to JPY 1,430 billion, and net income 8% to JPY 150 billion. We expect that the impact of additional U.S. tariffs on the operating income of our continuing operations, to decrease JPY 20 billion from our previous forecast to JPY 50 billion, and we have reflected impact in the forecast for each segment from this quarter. We upwardly revised our forecast for operating cash flow 18% to JPY 1.5 billion. The forecast for each segment are shown here.

Now I will turn to an overview of each business. First is the G&NS segment. FY '25 Q2 sales increased 4% year-on-year primarily due to the growth of network service revenue and the software sales. Despite the impact of the increase in sales, operating income decreased 13% year-on-year. This was primarily due to the recording of approximately JPY 49.8 billion in nonrecurring losses resulting from an impairment of intangible and other assets and the correction in the amount of previously capitalized development costs. Excluding these nonrecurring items, operating income would have increased 23%.

We upwardly revised our sales forecast 3% from the previous forecast to JPY 4,470 billion. This is primarily due to the impact of foreign exchange rates. Despite the negative impact of the nonrecurring items and the inclusion of a JPY 30 billion tariff impact that we are recording from this quarter, our JPY 500 billion operating income forecast is unchanged from the previous forecast. This is primarily due to the positive impact of foreign exchange rates.

Our PlayStation platform continues to demonstrate its strength as the best place to play and best place to publish. User engagement trended well with a number of monthly active users across all of the peers in September, increasing 3% and compared to the last September to 119 million accounts, and total play time for the quarter also increased 1% year-on-year. Game software and network service sales are steadily growing. We expect this trend to continue in the second half due to a continued shift to higher tiers in our network service business and the contribution of first-party titles.

As for PS5 hardware, we plan to expand the installed base during the year-end sales season while continuing to balance that expansion with the profitability of the entire segment. Although performance varies by title, our live service game overall accounted for more than 40% of our first-party software revenue, similar to the previous quarter and are a recurring source of revenue.

Regarding Destiny 2, partially due to the changes in the competitive environment. The level of sales and user engagement have not reached to the expectation we had at the time of the acquisition of Bungie. While we will continue to make improvements we downwardly revised the business projection for the time being and recorded an impairment loss against a portion of the assets at Bungie.

On the other hand, Helldivers 2, which was also released for Xbox in August of this year, is doing extremely well, not only attracting new users on Xbox but also seeing increased engagement from existing users on PS5 and PC. This resulted in a significant increase in sales of the title year-on-year.

MLB The Show 25, released in March also continued to perform well during the quarter. In a single-player AAA title space, following the release of Death Stranding 2: On The Beach in June, we released Ghost of Yotei in October. Ghost of Yotei surpassed 3.3 million units sold globally as of November 2, becoming a major hit like its predecessor. Building on this recent progress, we aim to strengthen our studio business and expand our IP franchises through continuous learning and improvement.

Next is the Music segment. FY '25 Q2 sales increased 21% year-on-year, and operating income increased 28%, reaching record highs for the second quarter. This was primarily due to a higher Visual Media and Platform revenue, driven primarily by the success of the theatrical release of Demon Slayer: Kimetsu no Yaiba Infinity Castle. It was also due to an increase in streaming revenue.

On a U.S. dollar basis, streaming revenue for the quarter increased 12% year-on-year in recorded music and 25% in Music Publishing. We have upwardly revised our full year forecast for sales 6% to JPY 1,980 billion compared to the previous forecast and operating income 7% to JPY 385 billion.

During the quarter, SMEJ made great strides, recording its highest ever quarterly sales and operating income and contributing significantly to the growth of this segment. Demon Slayer produced by Aniplex became a global hit due to our collaboration with Toho for distribution in Japan as well as the strengthening and expanding of distribution overseas by Crunchyroll and Sony Pictures. As of October 13, 77.53 million people worldwide, including in Japan, have seen the movie and the total box office revenue has exceeded JPY 94.8 billion.

Kokuho has enjoyed a long run in theaters in Japan and has captivated a large audience. being selected as Japan's entry to the 98th Academy Awards in the Best International Feature Film category. The successes of Demon Slayer and Kokuho are examples of how we can increase the value of IP by discovering appealing IP and combining them with the production capability of talented creators. We look forward to attracting not only fans but also many creators and actors.

In recorded music, IRIS OUT and JANE DOE by Kenshi Yonezu, an artist affiliated with SMEJ, have been breaking records on music charts, both in Japan and overseas. Thanks to synergy with the theatrical release of the anime Chainsaw Man, the movie Resi Arc.

Outside of Japan, SMG is also achieving very strong results. The global success of artists and songwriters such as Tyler, the Creator and Bad Bunny, has led to a double-digit increase year-on-year of sales and operating income for the quarter. In addition, SMG is further enhancing its relationship with DSPs. It entered into licensing agreements with Spotify during the quarter and in collaboration with several other record labels agreed to support Spotify's efforts to ensure that AI is used in a manner that will benefit artists and songwriters.

Next is the Picture segment. FY '25, Q2 sales decreased 3% year-on-year and operating income decreased 25%. This was primarily due to the impact of a decrease in sales from theatrical release, which benefited from hits like it ends with us in the same quarter of the previous fiscal year. Partially offsetting the decrease in operating income was the impact of higher sales at Crunchyroll.

There is no change to our full year forecast for sales and operating income. Crunchyroll continues to work to enhance the 360-degree IP experience of anime fans through the theatrical distribution of Demon Slayer, the launch of Crunchyroll Manga service and other efforts. Crunchyroll Manga, which currently digitally distributes hundreds of popular Japanese manga titles, has been positively received by fans and publishers since its launch in October. We expect it will contribute to an increase in fan engagement and growth in subscribers.

In Television Productions, new season of popular existing series were released this quarter such as Doc, Gen V and Twisted Metal. In Motion Pictures, productions has begun on the major titles, Spider-Man: Brand New Day and the next Jumanji, which are scheduled to be released next fiscal year. Fans are easily awaiting the 2 titles with 5 years having passed since the previous Spider-Man film, Spider-Man: No Way Home and 7 years have passed since the previous Jumanji film Jumanji: The Next Level.

Next is the ET&S segment. FY '25 Q2 sales decreased 7% year-on-year, primarily due to a decrease in unit sales of TVs. Operating income decreased 13% year-on-year, primarily due to the impact of the decrease in sales, partially offset by reductions in operating expenses. We have slightly increased our full year forecast for sales from the previous forecast to JPY 2,300 tillion, and we have decreased our operating income forecast 11% to JPY 160 billion, reflecting a JPY 20 billion impact from tariffs from this quarter.

In the Imaging markets, demand has slowed in 2 regions. China, where government subsidies that last through the first quarter ended June 30, significantly declined and the U.S. primarily due to the impact of additional tariffs. However, this decrease in demand is essentially in line with our previous forecast, and global demand remains solid, primarily because of Asia.

The severe operating environment for TVs and smartphones continues, but we are adapting by proactively reducing operating expenses and have been able to minimize the impact on profitability. At the segment level, there are no major changes to the demand outlook for the year-end sales season and second half of the fiscal year. We plan to continue to control costs and inventory and operate our business cautiously.

In our Sports business, which is a growth area, we completed the acquisition of STATSports in October. STATSports excels in active tracking technology, which collects and analyzes real-time data on athlete's physical condition and performance during games. By combining this data with the optical tracking technology of Hawk-Eye and KinaTrax, we aim to provide industry-leading sports data solutions to teams and athletes around the world. We also hope to accelerate the growth of our sports business overall.

Last is the I&SS segment. Sales for the quarter increased 15% year-on-year and operating income increased 50%, both reaching record quarterly highs for the segment. This was primarily due to a higher unit prices resulting from larger-sized sensor for mobile devices and increased sales volume of sensors for consumer cameras. We upwardly revised our full year forecast for sales 2% to JPY 1,990 billion and operating income 11% to JPY 310 billion, primarily due to the impact of foreign exchange rates. Based on the trends in the final product market and the demand forecast from our customers to date, we have decided not to include any impact from tariffs in this forecast for this segment.

The smartphone market continued to show signs of gradual recovery on the global basis. Sales of mobile sensor during the quarter increased significantly year-on-year due to higher unit prices resulting from larger sensors being used in new products by our major customer and a higher shipment volume than our previous forecast. In addition, growth of the market for cameras that use new video shooting styles such as handhelds contributed to the growth in sales.

Our customers might have brought forward the purchase of components during the first half of the fiscal year due to the additional tariffs and other factors. Therefore, we have kept our fiscal year sales forecast unchanged from the previous forecast when the impact of foreign exchange rate is excluded. We expect sales for the fiscal year to increase an already significant 11% from the previous fiscal year.

During the third quarter ending December 31, 2025, we plan to carefully assess the possibility of another upward revision. The higher sales of image sensors and our fixed cost management through an accelerated review of low-profit business and the shift of resources and costs to priority areas are contributing significantly to profit growth this fiscal year.

During this mid-range plan period we intend to continue to focus on improving the efficiency of business operations and product development. In the next mid-range plan period, we aim to build on those efforts by continuing to work to improve the profitability of the business by considering measures that balance business expansion with improved efficiency of capital expenditure.

To summarize, excluding nonrecurring items, the G&NS music and I&SS segment all achieved record high operating income during the quarter and we believe that our business momentum is strong. Looking ahead to the second half of the fiscal year, given the uncertain business environment, we intend to continue to operate our business cautiously while striving to steadily achieve results.

The upwardly revised operating income forecast for this fiscal year presented today, projects an average annual growth rate of operating income of 18% compared to the final year of our fourth mid-range plan and a cumulative operating income margin for the fifth mid-range plan to date of 11.3%. This demonstrates that we are making steady progress towards achieving the targets of our fifth midrange plan.

As for shareholder return, we established today a share repurchase facility of a maximum of JPY 100 billion to be executed by May 2026. And we successfully completed the partial spinoff of the financial service business on October 1. We would like to reiterate our sincere gratitude to our shareholders and investors.

This concludes my remarks.

[Operator Instructions] To answer your questions we have on the podium Lin Tao, CFO, Corporate Executive Officer; Hirotoshi Korenaga, Senior Vice President in Charge of Accounting; Naoya Horii, Senior Vice President in charge of Corporate Planning and Control, Disc Manufacturing Business and Storage Media Business. [Operator Instructions]

The first one is from NHK, Mr. Taruno -- or Ms. Taruno, please.

I have 2 questions. You have just explained the results this time in and out of Japan, what about the market conditions as you see it, including the consumer behaviors and activities. That's my first question.

And the second is that Demon Slayer or Kokuho have become such a big hit. There's a music and pictures related content business. How are you going to grow these content-related businesses? And what kind of initiatives are you going to continue?

Thank you for your questions. First, about the market conditions and the business sentiment in and out of Japan. For Japan and the U.S., it seems that there's some stability quite recently. However, we are doing business globally and U.S. economy is something that we focus on. In the latter half -- towards the latter half of the year, it seems that there's signs of slowing down in U.S. economy.

In terms of inflation, inflation rate is going up and the job applicant ratio is coming down and statistics because of the closure of the government services, we don't have much data, but it seems to me there's a lack of transparency or certainty. Towards the latter half of this year, we are being cautious and trying to be conservative in our business operation.

About your second question, Demon Slayer and Kokuho, thanks to your patronage, in Japan and outside Japan, they have become such a big hit. And then they contributed a big positive impact on our business. Going forward, content -- as content IP, we will continue to adopt the titles to the films and the motion pictures. And then partnering with the distributors, both in Japan, we would like to grow this business.

Well, not only Demon Slayers, but especially in Hollywood the box office revenue -- very high box office revenue was achieved. And I think culturally, this gives us a big power. So Japanese content make it successful in Hollywood going forward is good not only for Sony, but for content publishers of Japan as a whole. Going forward, in addition to the deployment of IPs, 360 degrees utilizations and LPs, merchandising, we will make an effort to expand this. Thank you very much.

We will take the next question, Yoshida-san from Nikkei.

This is Yoshida from Nikkei. I do have 2 questions. The first one is as follows: the live service in game business and the development status of Marathon and whether you wish to launch it this year, have you made any changes to the plan? That's the first question.

And then also looking at the actual performance of add-on service from July and in September and you recorded the underperformance for the first time in 13 quarters. And then this might have been attributable to the delay in the live service or new title releases? That's the first question.

And second question, so you said that the Demon Slayer has really culturally significant impact. And what is the reason in your view that these titles are exceeding your expectation in terms of performance?

Thank you very much for your question. The first question with regards to the developments set of Marathon is we are still working on it. And from October 22 and in 28 for a week, there was a technical test that involves 80,000 people. And as a result, the gameplay and then retention, those are the key KPIs that we tested on. And then we are in the process of analyzing the performance against those KPIs. And as needed, we will make corrections. And then we are fully dedicated to launching the title as scheduled. And then yes, we assume that we will launch this within this year. And that is included in the forecast.

And with regards to add-on compared to last fiscal year, there has been a reduction, as you mentioned. But with regard to add-on and whether it's add-on or full game -- and it really depends on the most popular titles, most played by the gamers and users. So we don't believe that this represents a reduction of slowdown. And as we gear up for the year-end sales season, and we have launched new titles, and I hope that the performance will be even strengthened.

And then second question. So Demon Slayer upside and the reason for it. First, as a content business or thinking about the nature of the content business, it's really difficult to accurately predict the performance. And then the previous title was really successful during the pandemic. And at the time of the launch, we had a lot of confidence. However, in this final exceeded the expectation, and this could be attributable to the great performance in overseas market. In Hollywood, and we generated top growth in revenue, and that was unprecedented. So from that perspective, we were able to deliver performance that was unexpected.

Let's go to the next question from Toyo Keizai, Umegak-san.

I have 2 questions. The first question is about Music segment. 25 million, I think, was the upward revision that you made in operating income. I wonder how much of the contribution was from the Demon Slayer. I understood that it was already reflected in the forecast. But in the visual media platform, it was like a JPY 200 billion revenue. So what kind of contribution did this upside impact to make.

Now the next is on Pictures. The JPY 250 billion was the operating income. I believe that in the first half, you had a little bit of a difficulty. The TV production, I understand is kind of going down. You mentioned about the sequels, but I'm wondering what the sequels -- how the sequels will be contributing. Those are the 2 questions.

Thank you very much for the questions. On Music, in the Music segment, the upward revision was the JPY 25 billion upward revision that we meant. The contributions were from Demon Slayer and Kokuho and the streaming music. Kokuho and Demon Slayer, together they contributed about 50% of the upside impact.

And as for the Pictures, the full year forecast for the first half -- the Picture segment -- the nature of the Picture segment tends to have this launch in the latter half rather than in the first half. So please understand that this is a seasonal impact. So TV production and movie production, structurally, we are seeing the depressed business of the industry. So how can we control the cost and produce projects or items that will be very successful?

As for the Pictures segment, Crunchyroll is one of the driving force for growth. The subscribers as well as the sales have both increased since the previous -- from the previous year. So in the Pictures segment, Crunchyroll will be focusing on that in order to grow the business.

Let us proceed to the next question from Yomiuri Newspaper, Nakayama-san please.

My name is Nakayama of Yomiuri Newspaper. I have 2 questions, if I may. One A very detailed question. As you have just said, in the Music, the operating income, half of the upside comes from Demon Slayer and Kokuho. If you could give me a breakdown between Demon Slayer and Kokuho, I would appreciate it.

Second, about the impact of tariffs, JPY 50 billion, and last time you talked about the utilization of the strategic inventory. What would be the background of this JPY 20 billion worth of decline.

Now about the breakdown for each individual title, may I refrain from making comments on the breakdown of each title. And about the tariff impact, Horii will answer.

Thank you for your question. As you rightly pointed out, the impact of the tariff used to be JPY 70 billion, now it's JPY 50 billion. So it's a JPY 20 billion worth of decline. In the I&SS segment, the impact of the tariff in the previous time we incorporated that to a certain extent in the I&SS segment. But if you look at the final product market and the orders received from the customers, we look at these factors. And then this time, in this particular segment, we don't see any further need of incorporating the impact of the tariff in this. So we excluded that. The JPY 20 billion decline comes mainly from I&SS segment.

[Operator Instructions] Narisawa-san from Mainichi Newspaper.

This is a Narisawa from Mainichi. And I have a question about Games segment. PlayStation 5, celebrating sixth anniversary since 2020. And then also this year, the performance is quite good and you're looking to expand the installed base. And as for -- can you talk a little bit about the future strategy?

Thank you very much. This year, we are in year 6 since the launch, and then PS5 has been growing in its installed base. And our view is that -- and compared to conventional console life cycles and looking at the PS4 life cycle, it seems to be getting longer and longer. And especially, the PS4, which was launched in 2013, and it's been over a decade since then, but there are many active users enjoying the console -- and they are enjoying the consoles. And from that perspective, we believe that the PS5 is only in the middle of the journey, and we are really planning to expand it even further.

And as for the year-end sales season, and thinking about the customer lifetime value and then also thinking about the profitability, we want to promote so that we will expand the installed base. And as for the future launches and successors, and then -- we are not in a position to make any comments about that. And that's all we have.

So this concludes the Q&A session for the media app. And the Q&A session for the investors and analysts will commence at 4:40 p.m.

Thanks for waiting. We will now take questions from investors and analysts. I am Kondo from the IR group, and I would serve your moderator. Thank you. The same 3 speakers from the media session will be responding to your questions. And we will now begin the Q&A session. [Operator Instructions]

And SMBC Nikko, Katsura-san, please go ahead.

And this is Katsura from SMBC Nikko. And I would like to ask about G&NS and then I&SS. And the first question is about G&NS. The -- apart from JPY 14.9 billion impairment and the operating income for the second quarter is 15.3%. And in Q1 it's 15.8%. And you are able to achieve this high level of profit with our major titles. And this could be a threshold. And can you talk a little bit about how do you see it? And are there any factors contributing to this great performance? That's the first question.

And then also -- and the NAND flash price is increasing, and then that might have the negative impact on the PS5, the hardware profitability. So what's your plan for the next -- the remainder of the year and the next fiscal year.

And then with regards to I&SS, you said that you are going to strike a good balance between business expansion and the profitability improvement. And in North America, smartphone seems to be doing really well. But 3 months ago, there were a lot of news in with regards to changes in geopolitical situation, what sort of plans that you are planning to take for the midterm? And then do you have any updates? So those are the 2 questions.

Thank you. The first I would like to take the questions on Game. And the profitability in Q2 and the major contributing factor is the ForEx and network service and in SG&A and there was a reduction in M&A expenses. And so from that perspective, we were able to realize a high -- relatively high rate of profitability. Whether this is sustainable or not. That is the question. And basically, the network service, which commands a higher profit and then software and especially a first-party software, if they perform really well, and we should be able to maintain a high level of profitability.

And with regards to memory prices and then with the potential impact on the hardware profitability and then for this fiscal year, and we have already secured all the parts that we need. But because the market is continue to fluctuate, so we keep a close eye on the situation, on the market. And of course, the supplies and then parts and then their prices when they go up, and of course, that will have an impact on the profit of the hardware.

For the FY -- so next fiscal year and onward, and we have already achieved the 80 million installed base for PS5. And assuming this will grow next year instead of additional hardware profitability, and we want to really continue to monetize the installed base that we has already secured, and I think that would be the priority.

And the second question will be addressed by Horii-san.

Thank you very much for your question. First, the first half of the question, so the business expansion for the next year and then also enhancement of the investment efficiency, and we have been able to manage these quite well this year. And then especially on expenses side, we have been able to restrain expenses so that we can generate the sales growth versus previous year. And yes, we want to maintain this and then further improve into the next year.

And as for the -- our response to the geopolitical risks, continuously with regards to production in the U.S., we want to ensure the quality so that we can produce in a stable way and trying to do that in-house, that would be really difficult to achieve. However, and working closely with the different partners or making a joint investment and what else we can do to really address this issue of the U.S. production, there is no clear answer, but we will continue to explore all the options. Thank you.

Next, from Nomura Securities, Okazaki-san.

So this time, the impairment loss, Bungie's intangible assets was reflected in that. In the balance sheet, how much assets do you still have? And what is the risk of the impairment loss?

The second question has to do with the PlayStation 5. In Q1 and Q2, I think you sold more than in the previous year. But towards the end of the year, you said you're going to expand? Well, are you aiming to have an upward revision? Or is the sales going to be more than previous year.

First, on the impairment loss Bungie, this is an impairment loss of Bungie. The intangible assets as well as the tangible assets that they are the target for the impairment loss and goodwill that is reflected -- that is supported by the whole Game segment. So there will not be any impairment loss for the goodwill.

So for this time, Destiny 2, which is a game, performance did not reach the expectation that we had -- when we acquired Bungie. So the balance of the assets well, more specific, it's very difficult to give you specifics. But yes, we still have some intangible assets. And the question of whether there's still any risk remaining or not, Marathon, which is going to be launched and Destiny 2.

The performance -- if the performance is not going to reach what we expect. Of course, there is a risk of impairment loss, but we don't believe that this will impact the whole Game segment, at least at this point in time.

Your second question was about the installed base. In Q1 and Q2, it was more than in the previous year. So on 150 million units is the goal we have for the year. And the number of units, we believe we have forecasted for this year, we believe we can reach that. Thank you.

JPMorgan -- from JPMorgan, Ayada-san, please.

My name is at Ayada from JPMorgan. I have a question about Games and I&SS. One question each. For Games, as has been discussed earlier, network service sales in dollar terms increased by 35% in the second quarter and what will be the breakdown if possible, I would like to know. 2 years ago, there was a price increase, maybe there's an effect from that. And then the shift towards higher-priced products or the number of paying subscribers increase. Well, I think these are possible items, what would be the breakdown in terms of priority?

And I&SS, in the first half, it seems that there is a customers -- some customers brought forward the purchase of the components. But in the third quarter, the input of wafers from 155 to 160, there seems to be a shift. So I guess this backdrop towards the U.S. and the Chinese market, what would be your take on the market conditions. I am sure there is an upside, so please explain the risks and upside both.

The network service and the factors contributing to the increase in sales, as you rightly said, price comes at the top of the list, the price increase. Impact still lingers and then the number of subscribers or users increased compared to the previous year and the product mix. Tier 2 and Tier 3, higher-tier users what we have more and more people go into the higher tiers. I think those are the contributing factors for the increased sales. But, there is some factor contributed to the increase in the operating income. That is to say acquisition of the contents efficient way of acquisition, looking at the data, that contributed to the operating income improvements. And I&SS, please.

Thank you for your question. As you rightly pointed out, in the first half, the shipment -- the sensors shipment exceeded what we expected. And for the full year forecast, we place it unchanged. The supply chain of the set because of the U.S. tariffs or the shift in the production base because of this, there seems to be a certain level of opaqueness or lack of clarity. So what we shipped -- but that -- some of them go directly to the final markets and some of them are still linger in the supply chain. So we have to look at this.

And the third quarter we will continue full capacity wafer import. Opportunistically, if things go well, we can see the increase in sales. And then from next fiscal year onwards, well, of course, we can think of accumulating the strategic inventory as well. So about the amount of volume of the input, we look at these factors.

About our customers, well, I cannot mention each and individual customer situation. But generally, as has been reported in the media, depending on the customers, there are ups and downs and the smartphone market is still on the recovery track, gradual recovery track. That's our understanding. At this point in time, in terms of market and customers, North America, seems to offer a bigger chance and opportunities.

So we will take the next question. Ezawa-san from Citigroup Securities.

This is Ezawa from Citigroup Securities. And in -- we have one question, big question for Game. In -- so there was a mention of the treating R&D capital as an expenses. Can you talk a little bit more about that? And is this related to some sort of impairment or -- and also the titles related to this, if there are any specific titles related to this? And if you could talk about them, that would be great. And then furthermore -- and also the -- and development asset capitalization. And as we run your business, will you foresee, this will happen more often, and that is the one big question.

The next question is also -- and this has to do with the development asset. And if you look at the supplementary presentation and when you look at the depreciation by segment, it appears that there's no apparent increase. However, the depreciation of the development is not really included, I believe, and the capitalization of development for the Game is, what will be the scale of the asset for the gaming development.

Thank you for your questions. So the capitalization and in correction -- and this is not attributable to the nature of the business. This is -- and Korenaga-san will talk more about the details of the revision.

Thank you for the question. So this value is not an impairment of asset. And in the past, and there was the network development, which was treated as the intangible asset and then part of it should not have been capitalized and we found out. So that's why for the past years and then for this fiscal year, we made the correction in one go. And specifically, the network-related asset and R&D are capitalized, but console and hardware R&D are treated as expenses. So this treatment was mistakenly done in the past which we made a correction retroactively. That's all.

And through operational improvements, we will prevent the recurrence. So we believe that this will not happen again. And the next one is the Game capitalization and then the depreciation or monetization. So the depreciation that we gave itself, and we do this in accordance with the rules. So it's not that in all the games are capitalized. And we will work closely with the auditing firm. So at the stage of the development. And basically, we will be able to finalize the value of the asset mailer in the process.

So in terms of value, it's not really that high on an annual basis, and we believe the tens of billets in tens of billions of yen, that level. And then as for the depreciation expenses, so when we launched the content, we started to depreciate and that is the nature of the business. Thank you.

So we have very little time left. So the next person will be the last person to ask questions. [Operator Instructions] From Goldman Sachs Securities, Munakata-san.

This is Munakata from Goldman Sachs Securities. One question on G&NS. So the full year operating profit, I think it was JPY 500 billion, but it was not the tariff impact. It was not included in the forecast. And when you consider these items, I believe that the profitability has improved. And the current platform, I think it's looking at hardware and other services, which the prices are going up. So by looking at the competitors' trends, next year -- after next year, in order to improve your profitability, what will be the upside? It will be probably the game contents and these items, are you planning to revise the prices of the game contents, for example?

Thank you very much for the question. The Game business for next year, well, first, we have to focus on the year-end season and try to expand the installed based units so that we can have 90 million units by the time we start next year. The upside and downside. The upside for next year, the first-party contents, the Insomniac studio is developing that. The Wolverine will be launched -- so tentpole content that's there. And Marathon, it's a live service. So if we can be launched this year, next year, I think we will enjoy revenue, profitability.

On the other hand, the market situation, somebody else asked this question. The components and the supply chain are not very transparent. So we have to be careful about that, looking at the profitability, how to balance that. So going forward, when we plan next year's strategy, we need to take that into account. As for prices, I don't have anything that I can comment.

Since it's time, we'd like to conclude Sony Group Corporation's consolidated financial results presentation. Thank you very much.

[Interpreted] It's now time to begin the Sony Group Corporation's consolidated earnings announcement meeting. I'll be serving as the MC. I'm Ishii from Corporate Communications.

Today, the financial results for the fiscal '25 first quarter and the full year forecast will be presented by Lin Tao, 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 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 Ms. Tao wishes to deliver her remarks directly in English to the global audience. So a prerecorded video will be streamed on the English channel.

Hello, everyone. 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 JPY 2,621.6 billion, and operating income increased 36% to JPY 340 billion, both of which were record highs for the first quarter. Net income increased 23% to JPY 259 billion. The financial results by segment are shown here.

Next, I will explain to our full year results forecast. Our sales forecast is unchanged from our previous forecast of JPY 11,700 billion, and we have upwardly revised our operating income forecast from our previous forecast by 4% to JPY 1,330 billion and our net income forecast by 4% to JPY 970 billion. We raised our forecast for operating cash flow by 2% to JPY 1,270 billion. The forecast for each segment are 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. We plan to carefully assess the impact and our response throughout this fiscal year based on multiple scenarios. Furthermore, we 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 FY '25 to be approximately JPY 70 billion, which is a decrease of JPY 30 billion from the previous forecast based on the tariff rates announced as of August 1. 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 are 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 G&NS segment. FY '25 Q1 sales increased 8% year-on-year to JPY 936.5 billion, primarily due to an increase in third-party software sales, 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 the PlayStation in June, increasing 6% compared to the same months of the previous year to 123 million accounts, and total play time for the quarter also increased 6% year-on-year.

Operating income increased approximately 2.3x year-on-year to JPY 148 billion, a new quarterly record high for the segment, primarily due to the impact of the increased sales of third-party software and increase in network service revenue. As a consequence of the recent strong user engagement trend, we have upwardly revised our FY '25 forecast for sales slightly from last time to JPY 4,320 billion and our FY '25 forecast for operating income by 4% to JPY 500 billion. The improvement in operating income for FY '25 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 2, and Helldivers 2, 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 Yotei 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 game play. Based on community feedback, we think we can further enhance the overall gaming experience by deepening game play and elevating narrative immersion. So we are working hard to do that. MAU in June, 4 years and 7 months after the launch of PS5 increased 32% from the 93 million MAU accounts in June 2018, the same period after the launch of 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 MAU growth. This indicates that in addition to the increase in the number of users, an increase in spending per user is 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. FY '25 Q1 sales increased 5% year-on-year to JPY 465.3 billion, primarily due to higher revenue from streaming service and increase in revenue from a mobile game, partially offset by the impact of foreign exchange rates. Operating income increased 8% to JPY 92.8 billion. On a U.S. 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 FY '25 forecast for sales and operating income slightly to JPY 1,870 billion and JPY 360 billion, respectively.

In Recorded Music, albums from Sony Music Entertainment owned and distributed labels claimed 42% of weekly top 10 global albums on Spotify during the quarter with Bad Bunny's new release taking the #1 spot for 6 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 since 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 - The Movie: Infinity Castle, which was released on July 18 in Japan, has been a massive hit attracting 12.55 million people to theaters and generating JPY 17.6 billion in box office revenue as of August 3. 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, and we look forward to it being a major global success.

Next is the Pictures segment. FY '25 Q1 sales decreased 3% year-on-year to JPY 327.1 billion, and operating income increased 65% to JPY 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 is no change to our forecast 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 Demon Hunters produced by Sony Picture 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 will explain our strategic partnership with Bandai Namco, which we announced on July 24. Through this partnership, we plan to accelerate our collaboration with Bandai Namco even more than before, working to do such things as 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 new Kando experience by bringing together the strengths of both companies, such as Bandai Namco's knowledge and venue and Sony's technology.

Next is the ET&S segment. FY '25 Q1 sales decreased 11% year-on-year to JPY 534.3 billion, primarily due to a decrease in unit sales of TVs and the impact of foreign exchange rate. Operating income decreased 33% to JPY 43.1 billion, primarily due to the impact of decrease in sales and the impact of foreign exchange rates. There is no change to our forecast from the previous forecast. Except for televisions, where competitors engaged in more aggressive pricing than we had anticipated, market conditions during the quarter progressed generally in line with our expectation 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, Cine Gear Expo 2025, we exhibited a system that links XYN'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 I&SS segment. Despite the impact of foreign exchange rate, sales for the quarter increased 15% year-on-year to JPY 408.2 billion, primarily due to increased shipment of sensors for mobile phones and digital cameras. Operating income increased 48% to JPY 54.3 billion as the impact of the increase in sales significantly exceeded the negative impact of foreign exchange rate. There is no change to our forecast from the previous forecast.

The market for smartphone continued to recover gradually on a global basis. Excluding the impact of foreign exchange rate, mobile sensor sales for the quarter grew steadily due to an increase in sensor shipment 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 FY '25 Q2 onwards, we expect sales to steadily increase due to rising unit price resulting from further progress towards larger-sized sensors and higher added value despite an expected deterioration in foreign exchange rate compared to the previous fiscal year.

In the consumer camera space, in addition to robust demand for single-lens camera, the growing demand for video is driving demand for sensor used in new video camera, 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 profit continued to increase, primarily in the G&NS, Music and I&SS segment. 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 FY '25 Q2 onwards, and we will focus on conducting business operations that anticipate change while preparing for risks.

This concludes my remarks.

[Interpreted] Now Mr. Endo will provide an overview of the Financial Services segment performance. Mr. Endo, please.

Now I will explain the financial results of the Sony Financial Group. On an IFRS basis, adjusted net income for the quarter increased JPY 0.3 billion compared to the same quarter of the previous fiscal year to JPY 23 billion, primarily due to the improvement in the loss ratio at Sony Assurance. Adjusted net income of Sony Life decreased JPY 1.0 billion year-on-year to JPY 15.6 billion, 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 repo transaction.

Insurance and accounting under IFRS requires an amount prepared for the future uncertainty be recorded as a risk adjustment liability. As interest rates rose during the quarter, the risk of mass cancellations increased from an accounting valuation perspective, which reduced adjusted net income through the recognition of a loss and a decrease in the contractual service margin amortization.

The new business acquisition at Sony Life continued to trend at the high level of the previous fiscal year with the annualized premiums from the policies enforced during the quarter increasing JPY 16.1 billion to JPY 1,313.6 billion, demonstrating strong growth, especially in the corporate insurance sales channel. The recruitment of life planners and an agency supporter is progressing well, and our sales channels are continuing to expand.

Next, I will explain the progress of our measures to strengthen our financial foundations. As I explained at the Investor Day in May, the interest rate sensitivity of our assets exceeds that of our liability, resulting in an overhedged 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 full fiscal year. As a result, the ESR level at the end of the quarter improved 3 percentage points, mitigating a significant negative impact of rising interest rates. Our consolidated ESR was 184% and Sony Life's stand-alone ESR was 163%. Loss on sales of securities is deducted as an adjustment item from the adjusted net 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 our efforts to reduce risks.

There is no change to our full year forecast of JPY 60 billion in income before income taxes. Our forecast for adjusted net income has been reduced by 9% to JPY 98 billion. 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 29 are progressing smoothly, and we plan to submit the final application for the listing to the Tokyo Stock Exchange tomorrow, August 8. Additionally, at the Board meeting of Sony Financial Group, Inc., which will be held on the same day, we plan to officially approve the establishment of a share repurchase facility with a limit of JPY 100 billion effective from September 29 of this year through August 8 of the following year. There is no change to the JPY 25 billion we plan to pay at the fiscal year-end dividend.

Heretofore, we have announced our financial results at the Sony Group's earnings announcement, 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. Tao 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.

[Break]

Thank you for waiting. We will now start the Q&A session. First, the officers on stage, Corporate Executive Officer and CFO, Lin Tao; 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, Naoya Horii; President and CEO, Sony Financial Group Inc., Toshihide Endo.

[Interpreted] We will now take the questions from the members of the media. [Operator Instructions].

So the first question will come from [ Toda-san ] of Yomiuri Newspaper.

[Interpreted] About tariffs, 2 questions. So initially, tariff outlook was JPY 100 billion. Now that's been reduced by JPY 30 billion to JPY 70 billion. Can you explain in a little more detail why the decline? That's one. The other thing, the Trump administration in the U.S. talking about 100% tariff rate for semiconductors. I don't know how it will be applied for Japan, but what will be the risk if that becomes 100%?

[Interpreted] Thank you for the question. Let me respond. The JPY 100 billion tariff impact that we explained previously and the difference this time. For Q1, for semiconductors, there's no impact. And for G&NS, Games and Sony Electronics, total of JPY 100 billion plus impact. That's according to assumptions. So there was some postponement and there was a strategic inventory. And this was smaller than in Q2 onwards. And based on the assumptions and the measures, Q2 onwards, the decline is lower compared to expectation in May. So G&NS, ET&S, I&SS, JPY 20 billion to JPY 30 billion each. So that's a total of JPY 70 billion impact from tariffs. That's now factored into our forecast.

So you asked about the Trump administration's semiconductor tariffs. Today, we announced our forecast. That's based on the tariff rate that was officially announced 1st 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, we will evaluate the direct and indirect impact that we will continue to do going forward.

One additional thing. In our business, semiconductor components itself, 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 Nikkei, Yoshida-san.

[Interpreted] This is Nikkei, Yoshida speaking. Sorry about that. I do have 2 questions. The first one is about animation. So current evaluation of the titles in pictures and Demon Slayer got off to a really great start. And then also National Treasure has been hugely successful. How are you evaluating the box office performance of these 2 titles compared to your initial estimate? And with regards to Demon Slayer, it is expected that the box office revenue will continue to increase. And do you think that this will be good enough so that it would cause you to revise upward your forecast, including merchandising?

And then also your investment in Bandai Holdings. So you have been aggressively investing in IP content creation. So how are you evaluating the result of the investment so far? And is there any specific investment that caused you to upward revise your forecast?

So the first question, I will take that. And then second question will be answered by Hayakawa-san.

With regards to anime titles, and as you said, the Demon Slayer and National Treasure have been quite successful and we are getting a really positive feedback. And these titles, whether they are in line with our expectation? Demon Slayer, because they are our previous release, which was loved by many users, and that was a really successful IP, so we had a really high expectation for this IP. So that has been factored in our forecast.

But as for the National Treasure, under the umbrella of Aniplex and Median Studio was producing this title, and this was the first title which has met with a really positive response. And this significantly outperformed our expectation. But in terms of the overall impact on our revenue and profit, the impact is not that sizable. And so that has been already included in the forecast for our outlook.

[Interpreted] Thank you very much for the question. So the investment in Bandai, and of course, we have been shifting to creation. So for example, the entertainment 3 businesses basically account for 60% of our consolidated revenue. So basically, our business portfolio is shifting more to the creation.

And then as for the Electronics business and TV, compared to output devices, we are now shifting to creation devices that include digital camera. So as a result, we are seeing more stability in profitability and in revenue, and also the productivity of our performance is increasing. And against such backdrop, and for example, in the Music business, Music Streaming and EMI Music Publishing has been acquired, and then we increased the music catalog.

And as I mentioned in the speech, in gaming business and moving away from a hardware-centric business to more to the community-based engagement business, and then that has been increasing. So now as we make more transition to entertainment creation, the stability and the productivity, our performance is increasing. So this upward revision might not have been a direct result of these. However, the Music Publishing and also acquisition of a music catalog and also the acquisition of Crunchyroll, 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. Nishida-san, freelance reporter.

This is Nishida. I have 2 questions about the Semiconductors business and Electronics business. First, about the Semiconductors business. Today, it was reported in the news that Apple investing in the U.S. as partner. So it is possible that they will have production facility in the U.S. So this type of risk might not appear this year. But towards the end of this year to next year, how would you mitigate this risk, like risk hedge? Number two, within the Electronics, I have a question on smartphones. In the first half, Xperia VII, there has been a risk of recall. And what would be the impact on the sales and impact on the smartphone business itself?

[Interpreted] Thank you for the question. I have received two questions and I would like to respond to the smartphone questions on ET&S, and I&SS question, Horii-san will respond later on. About the defect of 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, so we have exchanged the parts which have been impacted.

And about the quality. So this is a big management agenda for Sony. So 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 other areas other than smartphone. So we will continue to grow this business.

The first question about the Semiconductors, Horii-san, please.

[Interpreted] Thank you for the question. So I cannot respond to questions pertaining to a particular customer; however, about the risks and countermeasures. On overall risk, I would like to respond. As you have indicated in the U.S., we do not have any semiconductor production facilities in the U.S. In the short term, it is not really feasible to produce in the U.S. in the short term. However, where the source is and offering very high-quality devices to the customers and how to make the final product deliver to the customers as attractive as possible, this is what we have been working on from before. And we will make sure that we will provide devices that even exceed that of competitors. And this type of risks always exist. 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.

[Interpreted] We'd like to move on to the next question. Taruno-san from NHK, please.

[Interpreted] About the U.S. tariffs, I want to ask about the impact. In the last announcement, the President said that there is no major change occurring in the short term, but there's time lag about the economic sentiment and so you look carefully. So about your views about the economy? What's the current situation with the U.S. consumers? And also for this fiscal year, when you talked about the earnings, and you said that there are uncertainties, and you'll be watching carefully. But in terms of the performance forecast, if you can also talk about that, please?

[Interpreted] Thank you. I'd like to respond to that question. About the U.S. economy, it's slightly decelerating, slowing down a bit, but a rapid deterioration, we expect, can be avoided. However, we need to carefully monitor the situation is what we think. Q2, so April to June, U.S. GDP was 3% growth, higher than expectations. Personal consumption starting to show recovery. But compared to last year, the strength is less. And concerning our business, as a portfolio, we have hardware, and we have to carefully watch the situation for hardware.

On the other hand, for 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 those impacts have been already factored into our forecast that we announced today. Thank you.

[Interpreted] We are running out of time. So the next question will be the last one. [ Hirata-san ] from Nikkei Business.

[Interpreted] This is [ Hirata ] from Nikkei Business. And I do have one question. During the presentation, you talked about the partnership with the Bandai Namco. And then also last year, you forged a partnership with Kadokawa. So what will be the timeline of seeing the result in terms of the performance? And I know that Kadokawa and then Bandai Namco you already have the partnership before your decision to investment. So what are the changes that we can expect after the investment?

[Interpreted] Thank you for the questions. You are right, in Bandai Namco and Sony Group are already collaborating through partnership on the ground, and in especially game, music and in anime areas. And before our investment, we treat them as a really important partner for collaboration. So with this recently announced investment, we can go deeper and wider in terms of collaboration. We are seeing a possibility of that. More specifically, the game and anime IP using us as access so that we can really expand the community. And then also, the Bandai Namco is really great at creating venues. And we believe that Sony's technology can really shine in the venues by Bandai Namco, so that we can really collaborate together to deliver Kando 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 there are longer term collaborations or there are immediate collaborations, including IP community building, and there are some low-hanging fruits that can be achieved within 1 year. And looking at the overall collaboration at the group level, we want to produce the appropriate output and then to see if we are producing returns, and we will regularly consider and assess the situation going forward. That's all.

[Interpreted] 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.

[Break]

[Interpreted] Okay. Thank you for waiting. We will now begin the Q&A session with investors and analysts. I'm [ Kondo ] from IR Group, and I will be moderating this session. As with the media session, the 4 individuals here will be responding to the questions. Now let's begin the Q&A. Each person may ask up to two questions. [Operator Instructions]

Mizuho Securities, Nakane-san.

[Interpreted] So this is Nakane from Mizuho. I have two questions. The first question is about finance, and the second question is on games. So you are trying to improve the asset overhedge in finance. So the progress from the first quarter and the business environment is changing. So please tell me 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. So how have you incorporated that, the sales and profit as well as the timing of launching Marathon. So please give us hints.

And about Bungie, so it seems like an autonomous region. So we would like to hear about the governance of Bungie. And also, you can say if this is not probable, but the worst-case scenario, if you are not going to launch it, if there are any risks such as impairments? So I have such two questions here.

[Interpreted] Okay. Thank you for the questions. Endo-san will respond to the first question. And the second question, I will respond.

[Interpreted] Okay. I will respond to the first question. About asset sales, improvement of finances. In the Investor Day, in FY '25 and FY '26, we have explained and announced the measures for FY '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 selling bonds. And through these activities, Sony Life's ESR improvement, it has improved by 3 percentage points. This fiscal year, the interest has risen significantly. So there has been lots of downside pressure on ESR. But overcoming that, we have been able to prevent ESR from slumping.

Group consolidated was 189%, but that was end of FY '24. But now, this quarter, we have kept the ESR to 184%. So that is within the ESR target range. So this is thanks to advancing our initiatives to improve our finances. So these advanced initiatives were carried out.

And about selling U.S. bonds, as I said in the Investor Day, the losses -- the liabilities, so we are trying to sell the bonds as reinsurance. So these are still remaining, and we will be working on that going forward. Beyond that, in FY '25, '26 and beyond, we don't have any plans as of now.

[Interpreted] Second question, I would like to respond to the question on Marathon. First, about Marathon, how we factored in the forecast? We expect the launch to happen within this fiscal year. But having said that, this is not a commitment. We cannot -- no official announcement has been given yet. So we are expecting this to be launched within this fiscal year. However, the sales is very small compared to the overall sales and the timing of launch. So we are now doing modification development. And based on the progress, in the autumn time frame, we believe we can communicate when we will be launching that. We can launch that, either from Bungie or PlayStation.

And about governance of Bungie, as you have said, when we -- the governance, 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 have announced last year. So from this type of independence, this independence is getting lighter. So Bungie is shifting into a role, which is becoming more part of 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 fixing the problems. So we believe this launch will happen. And if this launch is canceled, so we need to do the revision of the valuation. However, as of now, this is not expected.

[Interpreted] From Goldman Sachs, Munakata-san.

[Interpreted] Munakata from Goldman Sachs. I also have two questions about the games. First, improvement of margins. Y-o-Y, it seems that the margin has improved quite substantially. But what will be the mix between hardware and software? And what is the gross margin of hardware and what is inside software? I think there's also contribution from network services. So can you talk about this in more detail?

Also, second quarter onwards, tariff impact will be larger than Q1 is what's expected. So this high margin, is that something that you'll be able to sustain? That's the first question.

Second question, about Marathon, I also want to ask. So it's a title that's attracting a lot of attention, strengthening 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 in terms of strengthening live service games? Where do you see the issues, please?

[Interpreted] 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 service and also decline in acquisition costs and decline in SG&A cost. So the margin as a whole, going forward, the factors that will drive the margins, there are 2 major parts. One is network service and the other is first-party studio contents. Structurally, those should lead to improvement of margin. For network service, the number of subscribers increasing and ARPU rising and shift to higher tier and 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 content. And as you point out, not everything is going well. But this fiscal year, well, compared to fiscal '24, first party is seeing higher revenue and profit, and that will contribute to higher margins. Our first-party portfolio, if that should stabilize, then we think that margin increase will be sustainable.

Second question about Marathon and also live service game, the overall status. Last year, Concord, and this year, Marathon was postponed. So somewhat the negative news has been coming out. But if you look at the past 5 years, 5 years ago, live service games was almost nonexistent for the PlayStation Studios. We have held Driver 2 MOD, NGT7, and Bungie's Destiny 2. So we have these 4 live services contributing to sales and profit in a stable manner. For Q1, live service ratio was about 40%. For the full year, it's a little less, 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 5 years, you see that there has definitely been a change. Of course, we recognize that there are still issues, many issues. So we should learn the lessons from mistakes and make sure that we introduce live service content where there's little less waste and it's more smooth. So that's all for myself.

[Interpreted] SMBC Nikko Securities, Katsura-san.

[Interpreted] This is Katsura from SMBC Nikko Securities. I do have two questions, tariff related and also your revision to the forecast for this fiscal year. With regards to the first question about the tariff, this is just a confirmation, in 1Q, I mean, the quarter 1, basically JPY 110 billion. And then so this has been already factored in by each segment. 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 full year forecast. And the gaming is improving JPY 20 million, and then also tariff impact has been reduced by JPY 30 billion. And I think those are the main changes that you have made. But for game area, and there is an upward performance in Q1. But compared to that, I think the revision is smaller than the outperformance, but maybe that is not limited to Q1 or the full year.

And also for Music area, FGO and then also Demon Slayer are positive profit drivers, but it seems that you seem to be more conservative and cautious in terms of the full year forecast. So can you talk to me about your thinking about the revision from the macro perspective?

[Interpreted] So the first question, Horii-san will take that on. And then second question will be answered by me.

[Interpreted] Thank you very much for your question. So with regards to tariff, and then your understanding is correct. In Q1, basically the impact was already included in the actual performance and the P&L of each business for the full year, and JPY 70 billion is basically its view at the company level. And as we continue to see a progress in the actual performance, I think it would be more difficult to really -- for the head office to really observe that impact. But for the Q1 announcement, and yes, you are right about that and in terms of thinking, and that's all I wanted to say.

The second question for the full year forecast and then thinking behind that. And for game in Q1, we see a really outperformance in profit. And for the full year, basically, we made upward revision by JPY 20 billion. And thinking about the positive drivers, network service and then also the positive impact of the ForEx. And also, as was mentioned, the first-party game, because of the delay of the launch of Marathon, which had a negative impact on the profit. And then that is also partially offset. So that's why we made an upward revision by JPY 20 billion in profit.

And then for Music, there are a number of hits, fortunately. But again, the impact on the overall business has been rather limited. And the blockbuster like Demon Slayer, we basically expected that will be a huge hit from the beginning of the year. So that's why that is not a factor for the revision this time.

And also, in Sony Group overall, from Q2 onward, the U.S. tariff impact will be felt more pronouncedly. And then also there will be more uncertainties. So in Q1, we had a really good performance. But from Q2 onward, we are more conservative and we need to take a more cautious approach.

[Interpreted] So we have a little time remaining. So we would like to accept one question each from 2 people. Okazaki-san from Nomura Securities.

[Interpreted] So this is Okazaki from Nomura. I have a question on game. To the revision of production basis to respond to U.S. tariffs, you said you have completed this within this quarter. So where are the games sold in U.S. 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.

[Interpreted] Okay. I would like to respond. So about gaming consoles, so we are diversifying our supply chain. As for consoles, we have already transformed the production. And if we include peripherals, so the transfer to outside China, we will be completing that by the end of the first half. Hardware sold in the U.S. are now sourced outside China.

About the pricing strategy of hardware, so that really pertains to our future competitive strategy. So it's very difficult to comment on this. But the overall thinking is our annual profit and lifetime value and also the sell-in volume and the expected content sales going forward, so all these factors will be considered as well as the receptiveness of the consumers to prices. So we would like to flexibly decide on the prices.

[Interpreted] Final question from JPMorgan Securities. Ayada-san, please.

[Interpreted] Ayada from JPMorgan. You say one question. So maybe it's a difficult question for you to respond to. And it overlaps with the previous question, but I want to come back to this. For I&SS, for North America, this is 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 procure 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 more into the future. Maybe you have some preparation period of several years. And during that time, you will be able to come up with countermeasures. So I think this will relate to capital expenditure plan. So please respond to the extent possible.

[Interpreted] Thank you for the question. So Horii will respond.

[Interpreted] Thank you for the question. Yes. this situation. Had we foreseen this and taken measures? Well, partly, we had considered this and assumed this, but it's not that we have answers 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 we'll be debating internally based on that. This is an issue of that kind of nature. So as of now, I'd like to limit my comment to that extent.

[Interpreted] So with that, we'd like to conclude Sony Group earnings announcement meeting. Thank you so much for joining us today.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]