Sony Group Corp
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Sony Group Corp
Earnings Call Analysis
Q2-2025 Analysis
Sony Group Corp
In the latest earnings report, Sony Group Corporation showcased remarkable financial growth. Consolidated sales, excluding the Financial Services segment, increased by 9% year-on-year, reaching JPY 2.973 trillion for the quarter. Operating income soared to JPY 389.3 billion, marking a 57% increase and setting a record for the second quarter. Net income also saw substantial growth, jumping by 69% to JPY 338.5 billion, reflecting a robust performance across the company's sectors.
Looking ahead to fiscal year 2024, Sony has slightly raised its forecast for consolidated sales excluding the Financial Services segment to JPY 11.800 trillion. Operating income remains steady at JPY 1.165 trillion, while operating cash flow has seen an upward revision of JPY 40 billion, now estimated at JPY 1.440 trillion. For the overall consolidated sales including the Financial Services, they are anticipated to reach JPY 12.710 trillion, with net income expectations remaining at JPY 980 billion.
The Games and Network Services (G&NS) segment performed exceptionally well, with a 12% sales increase to JPY 1.071 trillion, primarily driven by the growth of third-party software sales despite a decline in hardware sales. Operating income for this segment skyrocketed by 184% to JPY 138.8 billion. Sony has raised its sales forecast for this segment by 4%, now projecting JPY 4.490 trillion with an expected operating income increase of 11% to JPY 355 billion for the year.
Notably, the number of monthly active users across PlayStation platforms reached 116 million, reflecting an 8% increase year-over-year. User engagement metrics are promising as total play time grew by 14%. Moreover, PlayStation Plus saw an 18% increase in sales, indicating a successful strategy shift towards higher-tier service offerings.
In the studio business, although there is an anticipated decline in sales and profits in the second half due to the absence of major titles like Marvel's Spider-Man 2, Sony is actively developing new titles. A recent success, Astrobot, launched in September, sold over 1.5 million copies in nine weeks and successfully attracted newer players to the platform, with 37% of buyers being new users. This indicates not only strong product reception but also a successful user acquisition strategy.
The Music segment reported a 10% year-on-year sales increase, totaling JPY 448.2 billion. Operating income was up by 12%, reaching JPY 90.4 billion, attributed to a rise in performance revenue and streaming. Sony is capitalizing on the growing global streaming market, which aligns with their unchanged forecasts for the fiscal year.
However, the Imaging segment faced challenges, experiencing stagnant sales despite earlier growth. There was a notable 32% increase in sales to JPY 535.6 billion, thanks to higher unit prices and favorable foreign exchange rates. Nonetheless, forecasts are less optimistic, with profit expectations revised down by 9% to JPY 250 billion, particularly due to production plan adjustments from a key customer.
The Pictures segment did encounter a decrease in sales, primarily attributed to fewer television program deliveries, with projections for fiscal year 2024 showing a decline to JPY 1.510 trillion. However, successful releases like 'It Ends With Us' exceeded box office expectations. Additionally, Crunchyroll is expanding globally, aiming to increase market engagement further through partnerships.
The Financial Services sector revealed mixed results, with revenue dipping to JPY 167.2 billion due to market fluctuations but maintaining a stable income of JPY 49 billion from insurance services. The segment forecasts remain unchanged, as Sony prepares for a partial spinoff and a listing of Sony Financial Group planned for next October.
In conclusion, while there are segments facing headwinds, the overall business momentum remains positive, particularly in gaming and music. Sony is committed to achieving a growth rate in operating income of 10% or more, demonstrating sound financial management strategies and a dedication to shareholder returns. They have already repurchased JPY 237.1 billion of their JPY 250 billion authorized for the fiscal year, highlighting their focus on enhancing shareholder value.
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It is time to start Sony Group Corporation consolidated financial results announcement session. And my name is Okada. I'm with the Sony Group Corporate Communications. First, let me introduce the people on the stage. First, we have President, COO and CFO, Mr. Hiroki Totoki. And we have a Senior Vice President in charge of Corporate Planning and Control, Lead of Group Diversity, Equity and Inclusion and Support for Financial Services Business and Entertainment area Ms. Naomi Matsuoka; and the Senior Vice President in charge of Finance and IR, Mr. Sadahiko Hayakawa and also Sony Financial Group Inc., Corporate Executive Officer and CFO, Mr. Kazuhiro Yamada. These 4 will be presenting the second 2024 quarter actual and full year forecast and then have the Q&A session in total of 70 minutes. Mr. Totoki, please.
Thank you. Today Matsuoka and Yamada-san will explain the content shown here, and I will give a general summary at the end. Hayakawa-san, please.
Thank you. So consolidated sales, excluding the Financial Service segment for the quarter increased 9% compared to the same quarter of the previous fiscal year [ JPY 2.973.4 trillion, ] Operating income increased 57% to JPY 389.3 billion, a record high for the second quarter and the first half of the fiscal year. Consolidated sales, including the Financial Services segment increased 3% year-on-year to [ JPY 2,905.6 trillion. ] Operating income increased 73% to JPY 451.1 billion, a record high for the second quarter. And net income increased 69% to JPY 338.5 billion.
And the results by segment for the quarter are shown on the slide. Next, I will explain our consolidated results forecast for FY '24 full year. Consolidated sales, excluding the Financial Services segment have been increased slightly from the previous forecast to [ JPY 11.800 trillion ] operating income is unchanged at JPY 1.165 trillion and operating cash flow has been increased JPY 40 billion to [ JPY 1.440 trillion] Consoliated sales including the Financial Services segment have been increased slightly from the previous forecast to JPY 12.710 trillion. Operating income and net income are unchanged at JPY 1.310 trillion and JPY 980 billion, respectively. The full year forecast by segment is shown here. Now I will move on to the explanation of the state of each business. The first is the G&NS segment. Sales for the quarter increased 12% year-on-year to JPY 1.071.5 trillion, primarily due to an increase in third-party software sales despite a decrease in hardware sales.
Operating income increased 184% year-on-year to JPY 138.8 billion, a new record high for this segment in the second quarter due to an increase in the profit of hardware, third-party software and network services. We have increased the full year forecast for sales by 4% from the previous forecast to JPY 4.490 trillion. Taking into account the results of the quarter, we expect operating income to increase 11% to JPY 355 billion, a new record high for profit for this segment. Now I will discuss the state of the business, starting from our platform business. The number of monthly active users across all PlayStation platforms in September increased 8% compared to the same month last year to 116 billion account, making the 8th consolidated quarter of course, compared to the same period of the previous year. The total play time also increased 14% on compared to the same month last year and 11% on a cumulative basis since the beginning of the current fiscal year compared to the same period of the previous fiscal year, demonstrating steady growth for the platform.
PS plus is providing a stable base of earnings and sales on a U.S. dollar basis increased 18% year-on-year. This is due to an increase in ARPU, primarily resulting from the shift higher tiers of service and the impact of price revisions. As for Third-party software sales significantly grew due to contributions from solid franchise titles as well as hit new IP, including a new sports title and an action RGP title from China. Next is the studio business. Astrobot released on September 6 has received a of 94 and has garnered high praise from the gamer community. It is a hit, which has sold over 1.5 million copies in the 9 weeks since its release. 37% of the users who purchased Astrobot had not purchased a first-party title from us in the last 2 years. The percentage of younger age groups and families purchasing the title was much higher than other titles, and the title is contributing significantly to a widening of the user base through the acquisition of new users and the expansion of our title portfolio. We launched 2 live services -- new to live service games this year. Hell Diver 2 was a huge hit, while Concord ended up being shut down. We gained a lot of experience and learned a lot from both.
We intend to share the lessons learned from our successes and failures across our studios, including in the areas of title development management as well as the process of continually adding expanded content and scaling the service after its release, so as strengthened our development management system. We intend to build on an optimum title portfolio during the current mid-range plan period that combines single-player games, which are our strengths and which have a high higher predictability of becoming hit due to our proven IP with live service games that pursue upside while taking on a certain amount of risk upon release. As the quarterly results show platform business has strong momentum, and we expect to see stable expansion of user engagement and associated revenue growth in the second half and beyond.
In the studio business, we expect sales and profits to decline in the second half of the fiscal year compared to the same period of last fiscal year when Marvel and Spiderman 2 and Hell Diver 2 were huge hits. However, we are making steady progress in the development of new titles and improving our live service game process starting with cost of U.K., which is a sequel to the smash hit Ghost of Tsushima. We plan to continue releasing major single-player game titles every year from next fiscal year onwards.
Next is the Music segment. Sales for the quarter increased 10% year-on-year to JPY 448.2 billion, and operating income increased 12% to JPY 90.4 billion, primarily due to an increase in performance, merchandising and lines through license and in streaming revenues. Streaming revenue for the quarter increased 9% year-on-year for both recorded music and music publishing, a 5% and 6% increase, respectively, on a U.S. dollar basis. The FY '24 forecast remains unchanged from the previous forecast. We are expanding our business globally in markets where streaming is fast growing, such as emerging markets, including through digital music distribution and artist services provided by the Orchard and Aval.
On the other hand, in countries and territories where streaming is more widespread, the consumption of a catalog music is increasing. For example, the share of consumption catalog music release more than 18 months ago, reached 73% in the recorded music market in the United States. Additionally, in the Spotify global Top 200-- the share of songs released more than 10 years ago has increased significantly from the less than 5% in the calendar year 2020 to more than 20% through the end of July 2024. This is primarily due to a shift in the age demographic of user to more mature age group in those countries and territories as well as younger listeners having more opportunity to consume major hit songs from the past due to discovery on social media platform.
We have carefully selected and acquired Evergreen music catalogs through investment or the signing of a licensing agreement. These music catalog assets serve as a stable earnings foundation for the long term, not only from the consumption of streaming, but also from the use in the media such as movies and advertisement. Additionally, by also acquiring names and image and likeness rights related to the music artist sport some catalogs are pursuing additional monetization opportunities like merchandising and experiential live events that use these rights.
Next is the Pictures segment. The sales in the quarter decreased 11% year-on-year to JPY 355.8 billion primarily due to a decrease in the number of television programs in part deliveries -- in part due to the impact of the strikes in the previous years. Operating income decreased 37% year-on-year to JPY 18.5 billion, mainly due to the decline in sales. For FY '24, we forecast sales to decrease slightly from the previous forecast to JPY 1,510 trillion and operating income to decrease 8% to JPY 115 billion. We have revised downward forecast for the operating income from the previous forecast, primarily due to a revision in the results forecast of our India business in the Media Networks.
In Motion Pictures, It Ends With Us, a film adaptation of the best-selling novel release on August 9, generated box office revenues significantly exceeding our expectations and contributed to the result of the quarter. We are still recovering from the impact of the strikes, but the number of major films released after the end of the strike has been increasing, such as Bad Boys Ride or Die released in June and Venom, the last Dance released last month. We expect the television and video streaming services licensing revenues to recover from the second half of this fiscal year through the next fiscal year.
The Crunchy Roll is actively expanding its global user base, including partnering with Amazon Prime video channels and then signing a distribution agreement with the YouTube primetime channels where the service is scheduled to launch towards the end of the year. Moreover, we have begun streaming many new anime titles from the second half of this fiscal year and aim to further increase engagement with anime fans around the world. Regarding our business in India, the operating environment is challenged primarily due to softness in the ad market and the decreased viewers of pay television However, under the new local management team that started in August, we are strengthening our operations and rebuilding our strategies to grow the business over the mid- to long term, including continuing to improve viewership through restrengthening of our programming.
Next is the T&S segment. Sales for the quarter were JPY 619.8 billion, essentially flat year-on-year. Operating income increased 15% year-on-year to JPY 70.2 billion, mainly due to the favorable impact of foreign exchange rates and cost reduction effects. The FY '24 forecast remains unchanged from the previous forecast. Major markets such as North America, Europe, China and Japan remain generally stable during the quarter and then solid business operations enable us to achieve operating income exceeding the same quarter of the previous fiscal year. We continue to pay close attention to inventory control. And while -- overall segment sales remain essentially the same as in the same period of the previous fiscal year, we were able to reduce inventory by approximately 10% at the end of the quarter.
On the other hand, the imaging business, which significantly grew year-on-year in the first quarter and then June 30, 2024, mainly in China was essentially flat year-on-year in the current quarter. As a result, we have incorporated into our forecast a proactive change to a more cautious production inventory plan in preparation for the year-end selling season. In the sports business, which is a growth access area, we are working to further our business opportunity by collaborating with the partners and incorporating new technology centered on [indiscernible] , which provides a referee decision support solution based on the video data. On August 1, we announced technology partnership with NFL in the United States. Through this collaboration, we aim to advance the practical application of our cutting-edge port-related technologies such as using [ Hoka ] to assist refi decision, improving the accuracy of measuring key game metrics such as yardsgam through the video data analysis.
Also, on October 15, we completed the acquisition of the Kina trucks, a U.S. company that uses high precision motion capture technology and data analysis to provide support services such as those in improving athlete performance. The company has a strong affinity with okay. In terms of technology for acquiring highly rely on sports data, we expect great synergy in terms of maximization of data accumulation and use. Although the sports business is not large in scale, we expect it to generate stable and high profits and aim to continue to focus on expanding it. Next is the I&SS segment. Sales for the quarter increased 32% year-on-year to JPY 535.6 billion primarily due to increased sales of image sensors of mobile products and the impact of foreign exchange rates.
Operating income approximately doubled year-on-year to JPY 92.4 billion, primarily due to the benefit of the increased sales and the favorable impact of foreign exchange rates. For FY '24, we forecast decreased 4% from the previous forecast to [ JPY 1.77 ] billion, and operating income decreased 9% to JPY 250 billion. The global smartphone market continued its gradual recovery trend was supposed to be on the growth continuing in China and Europe and signs of recovery in the North America market. Mobile sensor sales during the quarter significantly increased due to an increase in unit prices resulting from larger die sizes and steady shipment of image sensors for new products to a major customer. This led to the segment overall recording its highest ever in second quarter sales. On the other hand, with regard to the second half, we have downwardly revised our sales and profit forecast for mobile sensors to reflect a revision in the production plan of our major customer.
The introduction of AI functionality and services into smartphones, which is currently underway, may bring short-term volatility to the high-end market, depending on the rollout and initial reasons. However, in the mid to long term, that convenience brought by AI will make smartphone functionality more attractive, revitalizing the market and encouraging a shift to high-end products. On the production side, improvement in yields for mobile sensors are progressing since the beginning of the fiscal year, and we expect to achieve normal run rate in the fourth quarter ending March 31, 2025.
Last is the Financial Services segment. Financial Services revenue for the quarter decreased JPY 167.2 billion year-on-year to negative JPY 63.3 billion, primarily due to the impact of market fluctuations at Sony Life. This was due to the significant appreciation of the yen during the quarter, which led to a significant in the yen-based valuation of the asset under management for the foreign currency-denominated insurance. However, since the valuation of liabilities declined in a similar manner, this did not have a significant impact on profitability. Operating income increased JPY 50.1 billion year-on-year to JPY 65.7 billion primarily due to the impact of interest rate fluctuations at Sony Life.
Insurance service results at Sony Life, which are the baseload of profitability for the business continued their stable trend at JPY 49 billion. FY '24 forecast remains unchanged from the previous forecast. Sony Life New policy amount continues to be strong with the cumulative first half growth of 14% compared to the same period of the previous fiscal year. Preparations for the partial spinoff and the listing of Sony Financial Group Inc. planned for October next year are progressing smoothly. As a part of those preparations and in order to strengthen its governance and accelerate its [indiscernible] making is transitioned to a company with 3 committees, corporate governance structure as of October 1.
Next, I will explain efforts to improve and stabilize our economic value-based solvency ratio, ESR, which is an important issue ahead of the listing. [ ESR ]is an indicator of financial softness of financial services business, it shows the level of capital relative to amount of risk calculated based on conservative assumptions. After and liabilities evaluated on an economic value basis. As shown on this slide, the ESR of SFG on a consolidated basis is within the target range. However, the high sensitivity of ESL to interest rate fluctuations is an issue for the life insurance business, and we are implementing measures to reduce stability in terms of both capital risk amount. With regard to capital, which is the numerator of ESR, the assets on the balance sheet such as our bonds exceeded insurance liabilities, resulting in an overhead situation and a structure in which net assets decrease when interest rate rise.
In order to correct this, we sold the portion of our yen-denominated bonds, so as to mitigate overhedging, and we are currently undertaking transaction designed to curve capital fluctuations. -- amount of risk, which is the denominator also increases as interest rates rise. So we are working to refine our risk measurement methods and further improve our risk management. We have created a 2- to 3-year road map improving and stabilizing ESR, and we will continue to report on our progress and results.
Finally, I would like to give you an overall summary. The key performance indicators for the entire Sun Group in the fifth mid-range plan are the growth rate of the operating income of 10% or more and a 3-year cumulative operating income margin of 10% or more, both on a consolidated basis excluding the Financial Services segment, the consolidated result forecast for this fiscal year announced today, et new record-high operating income year-on-year, the growth rate of operating income of more than 10% and operating income margin of 10%. We believe that we have gotten off a good start in the first year of this midrange plan.
In the second half, there will be no major first-party software title the releases in G&NS and there will be an adjustment in demand from a major customer in INS -- as a result of these and other factors, consolidated operating income, excluding the Financial Services segment, is expected to be slightly lower than the same period of the previous fiscal year. However, business momentum is currently good. particularly in the GNS and Music segment, we aim to produce solid results in order to achieve the targets of our mid-range plan. Moreover, under the mid-range plan, we aim to strengthen shareholders' return. And the cumulative amount of shares repurchased through the end of October out of JPY 250 billion authorized fiscal year was JPY 237.1 billion amid the rapid changing business environment, we will continue to manage our business in a way that will enable us to achieve sent growth across the entire group while addressing the various challenges that each business face. That's all for my explanation.
So that was the presentation by Mr. Totoki, Ms. Matsuoka, Mr. Hirakawa and Mr. Yamada. After this, from 4:25, we'll have Q&A session with media and the Q&A with investors and analysts will start at 4:50, and each session will last for 20 minutes. And those of you who have already registered to ask questions, please connect the designated telephone number and the method to ask questions and the other notes associated with that, that has been informed to you by a separate invitation. So until then.
[Break]
Thank you for waiting. Now I would like to start the Q&A. We'd like to respond to the questions from media people and as was the case with the presentations, we have these 4 people who have made the presentations responding to your questions. Now I would like to start the Q&A. We ask you to limit your questions to just 2 questions.
[Operator Instructions]
And first, we have Umegaki-san, Toyokeizai, please.
This is Uegaki. I have 2 questions. First, ISS downward revision. The overall market is recovering, but the ISS is revising downward. What is the outlook for the next fiscal year. And smartphone has been getting image sensor becoming larger and larger. But isn't there any risk having a consolidated business with a large maker? And the next question is about the game business. 2 years ago, in '22 Totoki San talk to some mentioned about the issues. And then you have became risk management and then the cutback of the personnel and some studio closure as well. And how much of that reform has progressed as of now?
Thank you for your questions. The first question about the as Second question was about Game and Network Services. I will answer both questions. First the market is set to be recovering, but it's very slow. So I think it is just a provisional -- and for this particular quarter, our customer has revised their production plan, and we followed our outlook revision downward, but there are different reasons for production adjustment. So it is part of the business as usual. And so it is not to impact next fiscal year.
So as -- so we have not changed any forecast for the -- and also your comment about the risk of having a concentrated customer base. And that has that is not a new product, each challenge, and we hope to continue to work on expanding our customer base -- and about the gaming, and we are reform. We are not only changing the business structure, but also game development approach. We are taking a new look and also portfolio concept to be introduced. And regardless of the personnel, we have different cost cut in different areas. And also optimization of investment in sales and marketing. We are doing all these and as a combination, I think we got very good results. Now the question of to the extent what extent this reform has progress. And this is kind of a Kaizen improvement we need to continue to do, which we clearly intend to do.
So let's move on to the next questions. Uato San from Nikkei Business.
This is Ito from Nikkei Business. I hope you can hear me.
Yes, I can hear you fine.
So I have one question with regards to game live service game, the current set us, what do you make of that? And you have the huge hit and also you discontinue certain services -- and basically, how do you -- are you managing the portfolio in terms of development?
Thank you very much for your question. But currently, we are still in the process of learning -- and basically, with regards to new IP, of course, you don't know the results until you actually try it. So for us, for our reflection, probably, we need to have a lot of gates, including user testing or internal evaluation and the timing of such gates. And then we need to bring them forward, and we should have done those gates much earlier than we did. And also, we have a siloed organization. So going beyond the boundaries of those organizations in terms of development and also sales. And I think that have been much more smoother.
And then going forward, in our own titles and the third-party titles, we do have many different windows and we want to be able to select the right and optimal window and so that we can deploy them our own platform without cannibalization so that we can maximize our performance in terms of title launches. That's all I have.
Next, we move on to the next question. From Nikkei please.
From Nikkei. Can you hear me? I have 2 questions. And the first question is that in the U.S., the election, the Trump victory or foreign exchange or the tariff, there will be change. How do you perceive the impact of his election on your business? And this you actually acquired [indiscernible] or Quinn, the rights. And for the Michael Jackson, the IP of his music has been acquired by you. And so for those the music, how -- what is the role for instance, stable the revenue or synergy effect on other businesses, what is your expectation about those new business?
So first, the impact of U.S. presidential election on our business. Second, with regard to music, Matsuoka-san will answer your question. And as regard to the impact of presidential U.S. presidential election. On our part, we respect the choice of U.S. public and so that means that election results how it impacts on the global economy or geopolitical situation? I'm not expert on that. And there are many experts those areas. So we'd like to just depend on their analysis. But when it comes to the impact on our own business, the United States has a very broad impact on the global economy and also has a very large geopolitical impact and so of course, that will directly impact on our business.
Therefore, we would like to observe the facts of the matter and make analysis about them, and we would like to look at the future and do what we are able to do. And when it comes to tariff issue, that has been very often discussed recently, but that is just a general discussion. And so we a very accurate prediction, and we have to think about the optimum level of shipment, which country becomes a producer and what way we conduct shipment and how we are able to optimize our plan and how we're able to look at the pricing for that. And of course, we have been doing that, but we have to once again look at this and study this carefully.
So the second -- the question about music. Matsuoka-san will answer your question.
Thank you for your question. And which catalog, we haven't identified particular catalogs, but those catalogs -- and the -- our plan to acquire them will contribute to the stable source of recurring income. And so that may generate the stable return. And so we have many use opportunities. And so we are able to create opportunities upside. And for IP value of Sony as a whole. For instance, there is a likeness or image rights. So those are peripheral, the new, the rights.
And by acquiring those catalogs and across the Sony Group, we are able to expand the usage of catalogs. Therefore, in that sense, of course, we should have always disciplined approach and to look at the opportunities for acquisition of catalogs.
If I may supplement that in my speech, as I mentioned, recently in the market, particularly in the streaming market, the service users and listeners, the age, the group has become more of a mature age group. In other words, Evergreen music has been more of listened to those groups. So for us, I believe that, that is a very important asset. And the fact that we have evergreen catalogs. That also shows our attitude of commitment to the artist and therefore, through A&L activities, so we would like to use it as assets gave very good spin-off effects.
Okay. Let's move to the next question [indiscernible] Bloomberg, please.
This is Rupa of Bloomberg. I have 2 questions. First about the game business. This quarter, PS5 hardware, is that remain target 3 million units it's unchanged. And Pro is released. So it will be -- some people say it will be difficult to have a wide user base with -- what is the plan for sales of Pro as well? And the second, additional investment to abide -- and have you made the additional investment, if yes? And what is the reason for the additional investment?
Thank you for the question. And the first question about the PS5 sales 18 million units, is that unchanged as the short answer is yes will remain -- first quarter was slightly weaker than planned. In second quarter, pretty much target, and that has been the actuals in the first half. For the second half of this fiscal year, we will have some sales promotion in our plan. And in the first half of the year, as that the -- we did not introduce a price reduction, which we had for PlayStation 4 in the past.
So we have been able to sell through without the discount. Now PS5 Pro per unit numbers are included in this PS5 Pro is rather high-end core hard core users are the target of this hardware. So we don't have a large contribution in corporate. And compared with the PS5, I think it is, in fact, stronger. And in terms of the pricing, many people made different comments on that. But pricing for PS5 Pro has not had a negative impact, I don't think.
And second question about [ Lapides ] additional investment. And we -- I apologize. We do not make comments on individual specific projects like this. But our basic thinking is that the semiconductor industry is needed for the growth of the economy. -- and also for the economic security as such is very important as we are one of the members of that industry if the semiconductor industry is to be enhanced, and we believe that all strengthen the infrastructure and the technology personnel base, and that's good for industry. So we want to make a due contribution to that. That's it.
We are running out of time. So we like -- we have time for 2 more persons for questions.
[Operator Instructions]
Suzuki-san from Weekly Diamond.
My name is Suzuki from the Weekly Diamond. I'd like to ask you a question about game business. In live service business and you fail the Concord and also you gain a success and you have 2 different experiences. And I'm sure that we have given you of learning and that's what you explained. Can you talk a little bit more about that? And what did it work? And then what really work? Can you elaborate on that?
Thank you very much for your question. As I might be repeating myself, but in terms of what didn't work, -- and we need to have more detailed confirmation or validation, and we should have done those more. And then we need to have more detailed gates to make sure that we check the user test. We need to repeat those gates more so that we could have caught -- and I want to determine whether that will be accepted by the users or not. And we need to have more information that will enable us to make more sound decision.
And I think that's the overall reflection. And in terms of work and looking back on work and then we usually don't do that. But -- and if things are really working and then, of course, like -- and all the things that I have said, work really well to really produce a great resource and looking back in the past. So I think we need to go back to the basic and then make it really stronger that so.
So the next question will be the last question. Sato-san from Nikkei, please.
Regarding Concord, I have a question. So actually, Polycore, well, it's not easy to pay attention to that. And for Sony Group anime films and game. Well, you have diverse content. As we have produced a diverse content. And so how you are going to combine them? From Concord the lessons, how you're able to take advantage of the lessons from Concord?
So regarding that matter less than we have learned a lot. But the way to face the issues regarding PC. For instance, The PlayStation counts that we have the offers. And well, actually, by offering them, for instance, sometimes, that tends to invite pushback. But for the live services games -- so in order to maintain order of the gaming so that. Anybody can enjoy the game safely, and we need to create environment conducive to that, of course, enjoying the game freely and having some restrictions may not call it rule, but to ask the users and gamers to follow the manner. And those balance is very important. We have to continue to seek the best way to achieve this.
So the time runs out. So now we would like to bring an end to the question and answer from media. And from 4:52, we'd like to start question-and-answer for the investors and analysts. So please wait for a while.
[Break]
Thank you for your patience. Now we'd like to start the Q&A session for investors and analysts. My name is Kono, I'm with the IR Group of Sony Group Corporation.
[Operator Instructions]
So SMBC Nicole Securities after than, please.
Okay. Thank you very much. Nice Securities Atera. And I would like to talk about analysis and ETS 1 each for ISS in the additional documents, Page 20 wafer production capacity is now at full -- and you will continue -- we will start adjusting that -- and what will be the period you will be adjusting -- making adjustment? And also on Page 8, there is an inventory level. So with the addition of the impact from the -- has there been any change in the outlook? That's the first question. And the second question about ETS is about the digital camera, you have become more cautious about your outlook for digital cameras market. Now that revision is limited to that only or ETS as a whole, you are taking a look. And as a result, we have flat unchanged as a whole, but the plus and minuses we could expand on.
Thank you for your question. And regarding INSS utilization rate, currently, as you know, full production capability is utilized. For the third quarter, we plan to have the same station of full operation. And as of now, we have -- regarding the inventory, I think as of late end of March, we have a little bit more production inventory. I talked about the production control adjustment. So we will cut back the inventory a little bit as such. And so we do not consider is needed to adjust the production much.
And as for ETS, as a whole, there is some change. ETS as a whole, that is the China, the market -- TV market is softening. And worldwide, not much change, though. So that's how we view the TV market. And for the increased cost for logistics that was -- that is now included in the -- as a risk in the October assumption. And imaging because of a competitive condition. There is an increase in the sales promotion cost. And also Chinese market risk is incorporated. But initial plan, we had overall risk as a whole as well. So we did not change the forecast for operating income this time. Thank you, Kasia.
Moving on to JPMorgan Ayadaasan. Over to you.
This is Ayada from JPMorgan. And I have 2 questions with regards to game. The first one is in the second quarter, -- and there was a huge shock. So I'd like you to take a pause and then there was an increase in profit by JPY 85 billion because of the foreign exchange. then also the hardware and third-party network, what was the profit contribution of each? And in terms of hardware, and I think you turned you may profit in the second quarter. And do you think -- and then also you mentioned this profit improvement of the hardware in the second quarter was, what was the driver behind that? That was the first question.
And the second question is looking at the game, especially hardware in the second half -- and the third-party software lineup in the second half not compatible to PS4, but some titles are only compatible with the PS5 and there has been an increase in the number of that. And what's the thinking behind that? And [indiscernible] you sort of -- are you expecting the accelerated transition from PS4 to PS5 or -- and because we are talking our third parties and those users with the PC and they might be able to purchase a self PC and there might be such -- and how do you view the such risks and opportunities? And I know that you are in the second quarter. So maybe you -- maybe you might have decided to increase the market promotional costs in the second half.
So with regards to game, in the second quarter, and in terms of operating income growth, and you have given us your analysis. And then our view is very close to what you have said. And also the sequence that you mentioned, you are correct. So in terms of profit growth, and we don't -- we haven't disclosed that, but speaking about the reason for the improved profitability of hardware, then last year second quarter, when compared to the current second quarter to the last year, and we made a switch to the new models, so which means that the cost structure improved and that also generated a positive contribution to the profit. And then also and we launched new models in the third quarter of last year.
So basically, the cost structure remains unchanged compared to the second half of last year. But the average selling price has improved and which we expected to generate the profit improvement year-on-year. And with regards to the third quarter, as you know, which is the volume driving quarter and of the year. So Yes, we have included the marketing promotional expense increase and not at drastic increase so if you look at -- focus on only that, you might see that there will be a slight deterioration of the profitability, but that's all I have.
Sorry, I forgot to address one more question with regards to upgrade. So the third-party lineup for -- only for PS5 and you said that there might be an increase in the number of the titles. But because of the timing and because of the late stage of the console cycle, and naturally, we have more titles for PS5. But if the transition from PS5 and PS5 will continue, we believe that transition is happening and as we expect. So if you upgrade to PS5, basically -- and of course, there will be upside in the software purchases, and then we see that as a positive opportunity. And then as for the risk for third-party software for PC, and we don't see that as a risk. And we haven't seen that as trend emerging. That's all I have.
The next question is Citigroup is Ezawa-san.
Ezawa from Citigroup. I have 2 questions.
And regarding hardware and the results of the gain, the relation between this. And also another question is pertains to music. As for game, operating income forecast, the JPY 34 billion upward the revision. And the first half and the second quarter better than your plan. So is that just a mere addition of that increase on the second quarter?
Just in terms of number, because hardware profitability improvement seems to be the major factor to increase the results of second quarter and the cost structure has improved and the profit has increased. So that may increase the profit of the second quarter. That is not reflected. So I just wonder whether that is reflected in the second quarter results or forecast.
And the second question pertains to music. -- evergreen the music has been more often listened to by users. And until a few years ago, the hit chart of new songs. Sony Music artist, the portion share was the largest. And you put a lot of emphasis on that. And that in America and in this, you have made a lot of the emphasis in order to increase the heat songs of the new artist or new songs. The fact that the change happens reflects the change of your position of the music business or generally in the music industry, this is a general trend of music industry that people listen to the older music more often than just the new songs.
Thank you. Regarding the game answering your question during the Q2, the reason that was the solid, that is also reflected in the second half. In hardware, the profitability magnitude is larger during the first half. And because the new model was introduced during the first half. The timing was important. And during the second half, sales and marketing, we have to spend more money. And so that is the reason for this difference.
And as for Q4, the fourth quarter, there will be a slightly more upside -- and I expect that great deal, but I should not have any predetermined the forecast for that. So we actually formulate forecast as is presented now. And regarding your question on music, I ask Matsuoka-san to speak and then I will supplement her comment.
Now in my presentation, as I mentioned earlier, for PSP, for the maturity of the market. In other words, in the developed countries, the age group become older. And also in S&S, the some of the old -- the songs have been listened to more often than before. So what is called Evergreen, the music or songs, the share and also frequency of that music being listened to has been increasing. That is the general trend of the music industry. But in emerging the market where the gross -- the potential is expected like Latin America or India. There are many pieces of music, which have been listened to.
And we also pay attention to that to acquire the new label, et cetera. So in terms -- rather than the preference of users, the composition of the market itself has changed. I think that is a way you should interpret the music market right now. So to supplement -- on our part, the Evergreen catalogs, the results of our investment they have been listened to the more than we expected at least to upside our profitability. So that we welcome very much. And in addition to that, say, new songs in Latin America, that does not mean that they compromise the new songs from Latin America. So we would like to put emphasis on the [indiscernible] so that we can enjoy the upside of the profitability from the boss.
Okay. Let us move to the next question. And we have Yasui-san of UBS Securities.
Thank you. Once again, this is Yasui. I'd like to ask 2 questions. And in terms of music streaming business since summer that the streaming growth is slowing down. That's what the competitors are saying and that's getting some attention. And it used to be double-digit growth, but now single-digit -- and also, your performance in dollar base was 5% growth only. So is this temporarily slow down? Or is that kind of a structural, if you could comment on that? And second, about semiconductor second quarter profitability and about 17% to 18% profitability. In the past second quarter, it was like 20% and above. So 70% to 18% is rather slow with better yield, full production. I would imagine the better portability and wafers input is increasing in dollar based as well and the wafer costs with the change of ForEx rate. And if you could comment on that situation.
Thank you for the question. First question about the music Matsuoka-san will respond on ISS. Second question, I will respond. Matsuoka-san, please.
Regarding streaming and which has 2 aspects, publishing and production. And streaming growth trend is pretty much in line and still stable growth. But compared with the past, like first quarter of 2023 and before there are multiple DSP, which raised their price. And that kind of look -- made it look like they are growing rapidly. But in terms of music production, the of the streaming, the audio portion has grown quarter 1 to quarter 2.
As for video, streaming service growth is slowing down. That's true. And as a whole, that is kind of bringing down the growth rate. So that's where creation is. But the overall structure has not changed. So the DSP price timing and some may change the streaming growth rate. And DSP paid subscribers are still increasing. And I think there is a room for price raise in the future. And so those are some of the factors that work in the background.
Okay. Let me talk about I&SS which was the second question. And OP margin was and this year, 7.3% operating profit margins last year and this year. And last year was slow because of the yield issue we had. And also did not have a full shipment as we expected. So last year's second quarter was not a good quarter. But this year, as far as the shipping is concerned, that has recovered and brought us to the 70.3% of the profitability. Now can we expect higher -- that's for high-end sensor development is Well, we are making an investment in that and also increasing its capacity. So the capital investment, depreciation will have to be accounted. And we are not 100% successful in terms of investing and still getting enough profitability, but we intend to continue to improve that profitability.
So we are running out of time. So the next person will be the last person to ask the question. And -- and please limit your questions to only one. Nakane-san from Mizuho Securities.
Thank you my name is Nakane from Mizuho Securities. And operating cash flow, and that's I'd like to ask you about. In the financial service and operating cash flow, JPY 40 billion and has been revised to JPY 1.44 trillion. And what's the upside and downside from this. And we can forecast a profit. But what are the other aspects, especially inventory? And then also at this point in time, and I know the network business is doing really well.
So what about the operating capital and there might be some impact. And then towards the end of the year, apart from the profit, what are there any factors that will affect the operating cash flow. And can you at least talk about the factors that will impact the operating cash flow very much for your question. So operating cash flow, excluding the financial has been upward revised by JPY 40 billion.
Thank you very much for your question. As you pointed out, in Apparevision by JPY 40 billion. Now it's driven by the improved profitability of the game business. And as you said, compared to last year, and operating cash flow has increased significantly. Now it's driven by the improvement in the working capital in a game business.
With regards to the inventory situation compared to last year, and each business has a better control of the inventory and we are tightly controlling the inventory. And as we gear up for the year-end selling season, the gaming and E&S businesses, of course, we need to watch closely the market development so that we can accurately forecast the operating cash flow. Thank you very much.
So on -- with regards to the question as to other key factors that you pay attention to. So I don't think there are any notable upside downside apart from the working capital. And for us, as we get closer to the year-end selling season, what sort of the inventory level that we need to have. And of course, we need to have a processing in place to normalize that and then we need to do that in a timely manner, and that will have an impact on the cash flow. So how diligent and then how detailed granular, we will be able to do that. And I think that will had an impact on working cash flow, operating capital.
With that, we would like to conclude the Sony Group, the consolidated financial results announcement session. Thank you very much.
[Statements in English on this transcript were
Spoken by an interpreter present on the live call.]