Sony Group - Earnings Call - Q2 2026

Transcript

Speaker 1

Since it is time, we would like to start the Sony Group Corporation's FY 2025 Q2 Consolidated Financial Results Presentation. This is Ishii from PR. I will be the emcee. Today we will present the FY 2025 Q2 financial results, as well as the full-year forecast from Lin Tao, the CFO, Corporate Executive Officer. We will have questions and answers after that. The total time will be 70 minutes. Lin Tao's financial results will be presented in English based on the pre-recorded video, which will be streamed.

Speaker 0

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 trillion 430 billion, and net income 8% to JPY 1 trillion 50 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 that impact in the forecast for each segment from this quarter.

We upwardly revised our forecast for operating cash flow 18% to JPY 1.5 trillion. The forecast for each segment is shown here. Now I will turn to an overview of each business. First is the GNNS segment. Fiscal year 2025 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 non-recurring losses resulting from an impairment of intangible and other assets and the correction in the amount of previously capitalized development costs. Excluding these non-recurring items, operating income would have increased 23%. We upwardly revised our sales forecast 3% from the previous forecast to JPY 4.47 trillion. This is primarily due to the impact of foreign exchange rates.

Despite the negative impact of the non-recurring 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 the number of monthly active users across all of the PS in September increasing 3% compared to the last September, 219 million accounts, and total playtime 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 install 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 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 the 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 2025 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 trillion 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. Cocoa 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 Cocoa 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, Ari Sout and Jendo by Kenichiro 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 - Reze 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 2025 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 grow in subscribers.

In television productions, new seasons of popular existing series were released this quarter, such as Doc, Gen V, and Twisted Metal. In motion pictures, production has begun on the major title Spider-Man: Brand New Day and The Next Jumanji, which are scheduled to be released next fiscal year. Fans are eagerly awaiting the two titles, with five years having passed since the previous Spider-Man film Spider-Man: No Way Home, and seven years have passed since the previous Jumanji film Jumanji: The Next Level. Next is the ET&S segment. FY 2025 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 trillion 300 billion, 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 two 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 Stats Perform in October. Stats Perform excels in active tracking technology, which collects and analyzes real-time data on athletes' 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 INSS 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 higher unit prices resulting from larger-sized sensors 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 trillion 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 forecasts 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 sensors 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 customers 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 a 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 non-recurring items, the GNNS, music, and INSS 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, an accumulative operating income margin for the fifth mid-range plan to date of 11.3%. This demonstrates that we are making steady progress toward achieving the targets of our fifth mid-range 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. Thank you. That was a presentation from Lin Tao. From 4:25 P.M., we will accept questions from the media, and from 4:50 P.M., we will accept questions from investors and analysts.

The time allocated for questions and answers is 20 minutes each. Those of you who have registered your questions beforehand, please click the link which says "Participate in Webinar." As for the instructions on how to ask questions, please refer to the information that was sent to you beforehand. We will break for a while. We are about to start the Q&A session for the media. You are kindly requested to wait for a few more minutes. Thank you for waiting. Let's start the Q&A session. 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. Now we would take questions from ladies and gentlemen of the media.

Please be reminded that each one may ask up to two questions. To ask questions, please click the raise hand button on the Webex screen. The first one is from NHK, Mr. Taruno or Ms. Taruno, please. Can you hear me? Yes, we can hear you. Thank you. I have two 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 is my first question. The second is that Demon Slayer or Kokuhou have become such a big hit. There is 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 the 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 the U.S. economy in terms of inflation. The inflation rate is going up, and the job applicant ratio is coming down. Statistics, because of the closure of the government services, we do not 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 Kokuhou.

Thanks to your patronage in Japan and outside Japan, they have become such a big hit and then that they contributed a big positive impact on our business. Going forward, as content IP, we will continue to adapt the titles to the films and motion pictures, and then partnering with the distributors both in Japan, we would like to grow this business. 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. 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 would take the next question.

Yoshida-san from Nikkei. This is Yoshida from Nikkei. I hope you can hear me. Yes, we can hear you. I do have two 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. Also, looking at the actual performance of add-on service from July and in September, you recorded the underperformance for the first time in 13 quarters, and this might have been attributable to the delay in the live service or new title releases. That's the first question. Second question, you said that Demon Slayer has a really culturally significant impact. 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 development of Marathon, is we are still working on it. From October 22 and then 28 for a week, there was a technical test that involved 80,000 people. As a result, the gameplay and then retention, those are the key KPIs that we tested on. We are in the process of analyzing the performance against those KPIs. As needed, we will make corrections. We are fully dedicated to launching the title as scheduled. Yes, we assume that we will launch this within this year, and that is included in the forecast. With regards to add-on, compared to last fiscal year, there has been a reduction, as you mentioned.

With regard to add-on, and then whether it is add-on or full game, it really depends on the most popular titles, most played by the gamers and users. We do not believe that this represents a reduction or slowdown. As we gear up for the year-end sales season, and we have launched new titles, I hope that the performance will be even strengthened. The second question, Demon Slayer app side and the reason for it. First, as a content business, or thinking about the nature of the content business, it is really difficult to accurately predict the performance. The previous title was really successful during the pandemic. At the time of the launch, we had a lot of confidence. However, this title exceeded the expectation, and this could be attributable to the great performance in the overseas market in Hollywood.

We generated top grossing revenue, and that was unprecedented. From that perspective, we were able to deliver performance that was unexpected. Thank you. Let's go to the next question. From Toyo Keizai, Umegaki-san. Umegaki from Toyo Keizai, thank you. I have two questions. The first question is about the music segment. JPY 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 JPY 200 billion revenue. What kind of contribution did this upside impact make? 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 two questions. Thank you very much for the questions. In 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 Kokuhou and the streaming music. Kokuhou and Demon Slayer together, they contributed about 50% of the upside impact. 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. Please understand that this is a seasonal impact. TV production and movie production, structurally, we are seeing the depressed business of the industry.

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 forces for growth. The subscribers, as well as the sales, have both increased since the previous year. In the pictures segment, Crunchyroll will be focusing on that in order to grow the business. Thank you. Let us proceed to the next question. From Yomiuri Newspaper, Nakayama-san, please. Thank you. My name is Nakayama of Yomiuri Newspaper. Thank you for the opportunity. I have two questions, if I may. One, a very detailed question. As you have just said, in the music, the operating incomes, half of the upside comes from Demon Slayer and Kokuhou. If you could give me a breakdown between Demon Slayer and Kokuhou, I would appreciate it. Second, about the impact of tariff, JPY 50 billion.

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? About the tariffs 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 is JPY 50 billion. That is 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. If you look at the final products market and the orders received from the customers, we look at these factors.

And then this time, in this particular segment, we do not see any further need of incorporating the impact of the tariff in this. We excluded that. The 20 billion decline comes mainly from I&SS segment. Thank you. We are running short on time. The next person will be the last questioner. Narisawa-san from Asahi Shimbun. Narisawa-san, can you hear us? Can you hear me? Yes, we can hear you. Sorry about that. This is Narisawa from Asahi. I have a question about game segment. PlayStation 5, celebrating a sixth anniversary since 2020. This year, the performance is quite good. You are looking to expand the install base. Can you talk a little bit about the future strategy? Thank you very much. This year, we are in year six since the launch.

PS5 has been growing in its install base. Our view is that, compared to conventional console life cycles, and looking at the PS4 life cycle, it seems to be getting longer and longer. Especially the PS4, which was launched in 2013, and it's been over a decade since then. There are many active users enjoying the console, and they are enjoying the other consoles. From that perspective, we believe that the PS5 is only in the middle of the journey. We are really planning to expand it even further. As for the year-end sales season, and thinking about the customer lifetime value, and also thinking about the profitability, we want to promote so that we will expand the install base.

As for the future launches and successors, we are not in a position to make any comments about that. That is all we have. This concludes the Q&A session for the media. The Q&A session for the investors and analysts will commence at 4:40 P.M. We will soon begin the Q&A session for investors and analysts. Please remain on standby. Thank you for waiting. We will now take questions from investors and analysts. I am Kondo from the IR Group, and I will serve as your moderator. Thank you. The same three speakers from the media session will be responding to your questions. We will now begin the Q&A session. If you have questions, please limit yourself to two questions per person. If you have a question, please click on the raise a hand button on your web screen.

SNBC Nikko Katsura-san, please go ahead. Thank you very much. This is Katsura from SMBC Nikko. I would like to ask about GNNS and then INSS. The first question is about GNNS. Apart from the JPY 14.9 billion impairment, the operating income for the second quarter is 15.3%, and Q1 is 15.8%, and you are able to achieve this high level of profit without major titles, and this could be a threshold. Can you talk a little bit about how you see it? Are there any factors contributing to this great performance? That is the first question. Also, the NAND flash price is increasing, and that might have a negative impact on the PS5 hardware profitability. What is your plan for the remainder of the years and the next fiscal year?

Then with regards to INSS, you said that you are going to strike a good balance between business expansion and the profitability improvement. In North America, smartphone seems to be doing really well. Three months ago, there were a lot of news. With regards to changes in geopolitical situation, what sort of plans that you are planning to take for the midterm? Do you have any updates? Those are the two questions. Thank you. First, I would like to take the questions on game. The profitability in Q2, and the major contributing factor is the Forex and Network Service, and then SNNA. There was a reduction in M&A expenses. From that perspective, we were able to realize a relatively high rate of profitability. Whether this is sustainable or not, that is the question.

Basically, the network service, which commands higher profit, and then software, and especially first-party software, if they perform really well, we should be able to maintain a high level of profitability. With regards to memory prices, and then with the potential impact on the hardware profitability, for this fiscal year, we have already secured all the parts that we need. Because the market is continuing to fluctuate, we keep a close eye on the situation on the market. Of course, the supplies and then parts, and then their prices, when they go up, that will have an impact on the profit of the hardware.

For the NFI, next fiscal year and onward, we have already achieved the 18 million install base for PS5, and assuming this will grow next year, instead of additional hardware profitability, we want to really continue to monetize the install base that we have already secured. I think that would be the priority. The second question will be addressed by Horii-san. Thank you very much for your question. First, the first half of the question. The business expansion for next year, and then also enhancement of the investment efficiency. We have been able to manage these quite well this year. Especially on the expenses side, we have been able to restrain the expenses so that we can generate the sales growth versus previous year. We want to maintain this and then further improve into next year.

As for our response to the geopolitical risks, continuously, and with regards to production in the U.S., we want to ensure the quality so that we can produce in a stable way. Trying to do that in-house, that would be really difficult to achieve. However, 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. 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. Toward the end of the year, you said you're going to expand. 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. They are the target for the impairment loss. Goodwill, that is supported by the whole game segment. There will not be any impairment loss for the goodwill. For this time, Destiny 2, which is a game performance, did not reach the expectation that we had when we acquired Bungie. The balance, the assets, more specific, it's very difficult to give you specifics. Yes, we still have some intangible assets.

The question of whether there is 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. We do not believe that this will impact the whole game segment, at least at this point in time. Your second question was about the install base in Q1 and Q2. It was more than in the previous year. 150 million units is the goal we have for the year. The number of units we believe we have forecasted for this year, we believe we can reach that. Thank you. Thank you. JP Morgan from JP Morgan, Ayata-san, please. Thank you very much. My name is Ayata from JP Morgan. I have a question about games and INSS. One question each.

For games, as has been discussed earlier, network service sales in dollar terms increased by 35% in the second quarter. What would be the breakdown, if possible? I would like to know. Two years ago, there was a price increase. Maybe there is an effect from that. Then the shift toward the higher-priced products or the number of paying subscribers increase. I think these are the possible items. What would be the breakdown in terms of priority? INSS. In the first half, it seems that there is a customer, some customers brought forward the purchase of the components. In the third quarter, the input of wafers from 155 to 160, there seems to be a shift. Against the spectrum toward the U.S. and the Chinese market, what would be your take on the market conditions? I am sure there is an upside.

Please explain the risks and upside both. Thank you. 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. Then the number of subscribers or users increased compared to the previous year. The product mix, tier two and tier three, higher tier users, we have more and more people going to the higher tiers. I think those are the contributing factors for the increased sales. There is a 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 improvement. INSS, please. Thank you for your question. As you rightly pointed out, in the first half, the shipment, the sensors' shipment exceeded what we expected.

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 these, there seems to be a certain level of opaqueness or lack of clarity. What we shipped, some of them go directly to the final markets, and some of them still linger in the supply chain. We have to look at this. In the third quarter, we will continue full capacity wafer import opportunistically. If things go well, we can see the increase in sales. From next fiscal year onwards, of course, we can think of accumulating the strategic inventory as well. About the amount of volume of the input, we look at these factors. About customers, I cannot mention each and individual customer's situation.

Generally, as has been reported in the media, depending on the customers, there are ups and downs. The smartphone market is still on the recovery track, gradual recovery track. That is our understanding. At this point in time, in terms of market and customers, North America seems to offer a bigger chance and opportunities. Thank you. We will take the next question. Ezawa-san from Citigroup Securities. This is Ezawa from Citigroup Securities. We have one question, big question for game. There was a mention of the three things, R&D, capital, and as an expenses. Can you talk a little bit more about that? Is this related to some sort of impairment? 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.

Furthermore, also the development asset capitalization. As you run your business, will you foresee this will happen more often? That is the one big question. The next question is also, this has to do with the development asset. If you look at the supplementary presentation, when you look at the depreciation by segment, it appears that there is no apparent increase. However, the depreciation of the development is not really included, I believe. The capitalization of a development for the game biz, what would be the scale of the asset for the gaming development? Thank you for your questions. The capitalization and correction, this is not attributable to the nature of the business. Korinaga-san will talk more about the details of the revision. Thank you for the question.

This value is not an impairment of asset. In the past, there was the network development, which was treated as the intangible asset, and then part of it should not have been capitalized. We found out. That is why for the past years, and then for this fiscal year, we made the correction in one go. Specifically, the network-related asset and R&D are capitalized, but console and hardware R&D are treated as expenses. This treatment was mistakenly done in the past, which we made a correction retroactively. That is all. Through operational improvements, we will prevent the recurrence. We believe that this will not happen again. The next one is the game capitalization, and then the depreciation or monetization. The depreciation of the game itself, we do this in accordance with the rules.

It is not that all the games are capitalized. We will work closely with the auditing firm. At the stage of the development, we will be able to finalize the value of the asset later in the process. In terms of value, it is not really that high. On an annual basis, we believe the tens of billions of JPY, that level. As for the depreciation expenses, when we launch the contents, we start to depreciate, and that is the nature of the business. Thank you. We have very little time left. The next person will be the last person to ask questions. Please only ask one question. From Goldman Sachs, Munakata-san. This is Munakata from Goldman Sachs. Thank you for this opportunity. One question on GNNS.

The full year operating profit, I think it was JPY 500 billion, but the tariff impact was not included in the forecast. When you consider these items, I believe that the profitability has improved. The current platform, I think, is looking at hardware and other services, which the prices are going up. 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, 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. Tentpole contents, that's there. Marathon, it's a live service. 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. We have to be careful about that, looking at the profitability, how to balance that. Going forward, when we plan next year's strategy, we need to take that into account. As for prices, I do not have anything that I can comment. Thank you very much. Since it is time, we would like to conclude Sony Group Corporation's consolidated financial results presentation. Thank you very much.