Sony Group Corporation (6758) Earnings Call Transcript & Summary

Ladies and gentlemen, it's time for us to start the Business Segment Meeting 2023. My name is Hayakawa of Finance and IR, and I'm happy to take the chair of this session. First, we want to show you the video of the Sony Group purpose. [Presentation]

Now let me introduce the presenter for each segment session. For today, we are going to have President and CEO of Sony Interactive Entertainment, Jim Ryan; Chairman, Sony Music Group and CEO, Sony Music Entertainment, Rob Stringer; President and CEO, Sony Music Entertainment Japan, Shunshuke Muramatsu; Chairman and CEO, Sony Pictures Entertainment, Tony Vinciquerra. For tomorrow, we are going to have President and CEO Sony Corporation, Kimio Maki; President and CEO, Sony Semiconductor Solutions, Terushi Shimizu. Those are the presenters for today and tomorrow. From now, we're going to move on to the session by each segment. For each session, after the presentation, we are going to entertain questions from the investors and analysts, those who have registered for participation. [Operator Instructions] As for the other housekeeping announcement, please refer to the guidance document distributed before. And please be noted that session might be interrupted by consecutive interpretation. If you have yet to register, you can just see the presentations via Internet distribution. Please wait just for a few more minutes before we start the session for Game & Network Services segment. Start Game & Network session. Please wait for a while. Thank you very much for waiting. Now we'd like to start the Game & Network Service session. And first, I would like to introduce from Sony Interactive Entertainment, President and CEO, Jim Ryan, and he will give you the presentation.

Hello. I'm Jim Ryan, President and CEO of Sony Interactive Entertainment. I'm honored to be here today to introduce you to 3 key leaders at SIE, who will discuss PlayStation's focus and business strategy for FY '23: Lin Tao, our Head of Finance and Corporate Strategy; Eric Lempel, who oversees marketing and global sales and business operations; and Hermen Hulst, the Head of PlayStation Studios. Thank you for your valuable time today.

Thank you for the introduction, Jim. I'm Eric Lempel, Senior Vice President, Global Marketing, Sales and Business Operations, and I'm delighted to be here today sharing exciting progress in the Games & Network Services business. Today, we are going to walk you through the foundations we have established for growth across 3 areas: console growth, portfolio expansion and Sony Group collaboration. PS5 is the strongest platform we have ever built. Our first-party software has become even more successful as we deliver on IP expansion opportunities. And we are now seeing collaboration across Sony Group starting to deliver even more meaningful benefits to multiple parts of the business. In FY '22, we achieved record-high revenue and sold 19.1 million PS5s, showing continued strong momentum now that supply constraints have eased. We now have a PS5 installed base of 38.4 million. PS5 is now in free supply and is driving impressive user engagement. We also had strong results and profitability despite the unfavorable exchange rates and increasing investment in both platform and content, including the acquisition of Bungie. We believe this presentation will illustrate the best way to take advantage of our current momentum and set ourselves up for future growth. The first element we will discuss is the strength of the PS5 console. We have never been in a better position with our core device. Demand for PS5 and engagements are both high, and we have great content and brand strength. After a challenging situation, we are now in free supply and finally able to provide consumers with the PS5 they have been waiting for. 12 months ago, Jim promised that FY '23 would be the year PS5 would overtake the PS4 installed base at the equivalent point in the life cycle. We expect PS5 to surpass the PS4 installed base in Q3 globally. We have actually already achieved this in several markets, including Japan. Supply constraints have been challenging, and the teams have worked to ensure more agility through mitigation measures, including sourcing multiple suppliers and logistical negotiations for optimal delivery routes. Eclipsing PS4 sales will mark a significant milestone in what we expect to be our most successful and profitable console generation ever. Having ample supply of PS5 consoles has made all the difference. Here, you can see the comparison between PS5 factory shipments last year and this year. Our teams worked hard to keep up the momentum while we were supply-constrained. And when we were able to meet the demand, we reinvigorated efforts to reach players waiting to find a PS5 in stock. We are thrilled that we are clear of supply constraints and are in full free supply in all geographies. As you can see here, our ability to supply the market has created some unusual sales patterns. This last Q4 was our biggest in PlayStation history in terms of hardware units sold through to consumers. There is pent-up demand for PS5 that we need to satisfy, and we look forward to strong months ahead, particularly in the upcoming Q3. The worldwide gaming category continues to grow as does the console market, which is made up of hardware, software and subscription services. As you will see in the coming slides, we aim to expand our share of the traditional console sector, and then Hermen will talk more about how PlayStation Studios will expand content production into PC and mobile to attract even more players. Our ability to expand in these ways will be heavily reliant on the strength of the PlayStation brand. PlayStation is a brand that is respected by gamers across the world. You can see here how within the console category we maintain a healthy lead against competitive brands. Content is key to the health of our brand. Across both first- and third-party games, PS5 has seen the strongest releases of any generation. But we are still just getting started. As studios across the world get even better at taking advantage of the capabilities of PS5, we are looking forward to delivering some of the best games the world has ever seen. This great content is translating into high levels of consumer engagement. As you can see here, PS5 owners are playing more than PS4 gamers did at the same point in their respective life cycles. They are more likely to be playing games, playing more often and utilizing our store and PlayStation Plus at a higher rate. This engagement is translating into a higher user spend than we have ever seen before. From subscriptions to add-on spend to purchasing additional accessories, PS5 is driving significantly higher spend than any other generation. As we move into free supply, we expect PS5 to surpass PS4 on every user KPI, including monthly active users, spend and gameplay hours, within this current fiscal year. Very soon, the more highly engaged and higher spending PS5 players will constitute the majority of our player base by every measure. Just under a year ago, we relaunched our highly successful PlayStation Plus service to offer players greater value. Our ambition was to improve retention and increase ARPU and profitability. The new tiers offer greater access to catalog gaming content, classic titles and streaming. We are delighted with how consumers have embraced the new offering. As you can see here, the new offering has driven hundreds of millions of hours of gaming and made PlayStation Plus much stickier even as people begin to travel and engage in other forms of in-person entertainment. ARPU continues to rise and new content is being added all the time, ensuring there is something for everyone and always something new to play. Our new PlayStation Plus service has seen great reception among subscribers with 30% of our consumers choosing the new Extra and Premium tiers in just 10 months. In addition to the strong reception, we are seeing that players have a greater preference for our Premium tier with more than half of higher-tier users opting for the best experience PlayStation Plus has to offer. An area of our business that is also booming is accessories. Our PS5 peripheral line is the best we've ever released for any console both in functionality and aesthetics. As you can see from the chart on the right, the growing consumer demand for PS5 accessories is driving record-high revenue in this highly important and profitable category. And that brings me to the topic of VR. This year, we successfully launched our new generation of virtual reality gaming, allowing our players to escape into new worlds with high-fidelity visuals and unique sensations. We launched dozens of games, and there are plenty more experiences to come this year and beyond. I'm delighted to say PlayStation VR2 is having a great reception and early sell-through is performing above the previous VR generation. While VR is still a nascent part of the overall gaming category, we are proud to be pushing innovation in this space. I'd now like to hand over to Hermen to talk about our content strategies.

Thanks, Eric. I'm Hermen Hulst, Head of PlayStation Studios. This is a very exciting time for first-party content from both PlayStation Studios and Bungie. Together, we are undertaking significant investment in our portfolio to underpin future growth for SIE. This includes how we maximize opportunities with our existing IP, how we build new franchises and how we expand our reach to audiences on different platforms, including through successful live service experiences. Our partnership with Bungie is an outstanding example of SIE's advances in live services. Bungie is one of the leading developers and publishers of live service games in the world today, and we are fully engaged in applying their expertise and experience as we advance our planning for live service delivery not only within PlayStation studios, but across the SIE publishing divisions as well. In the same way, we believe that SIE's capabilities and expertise can help Bungie fulfill their dream of being one of the world's leading entertainment companies. The success of Destiny 2: Lightfall exceeding Bungie's own original targets has been a rewarding test of our collaborative approach. New IP has always been the lifeblood of entertainment, and SIE continues to significantly increase our investment in this area. From less than 1/4 of PlayStation Studio's total spend in fiscal year '19, we will see investment in new IP rise to 50% of a much larger total by fiscal year '25. This is an investment that we anticipate will yield significant returns in the second half of this decade. The strength of our existing IP portfolio, together with our major investment plans, is increasing our appetite and ability to extend properties beyond gaming, making them accessible and loved by even wider audiences. We are bringing PlayStation franchises to movies and TV as well as parallel opportunities with experiential events, such as theme park attractions and extensive merchandise agreements. The final area of portfolio expansion is in live services. As you can see on the left-hand side, considerable gaming category growth is anticipated to be driven by live service titles and content. On the right-hand side, you can see how our investment approach is changing to embrace this with more than half of PlayStation Studio spend focused on live service by fiscal year '25, all while maintaining our commitment to the single-player narrative experiences that our players love. This will result in a significant rebalancing of our title portfolio. In fiscal year '21, we were effectively managing a single live service franchise, MLB The Show. Following the acquisitions of Bungie, Haven and Firewalk, alongside considerable internal investment and strategic hires, we will see multiple live services releasing as we move forward. In parallel, PlayStation Studios are committed to continuously reviewing our portfolio in relation to the needs of our long-term strategy and to ensuring that development costs are controlled and sustainable as we build a diverse and profitable portfolio of games. PC has grown to become a substantial part of SIE's first-party business, extending the reach of our IP beyond the console to a broader audience of players. In fiscal year '22, with the very significant contribution of Bungie's established PC business, we more than tripled our revenue from PC players and entered the top 20 publishers on a leading PC game store. We also launched 2 of our largest PlayStation games on PC with Spider-Man Remastered in August and The Last of Us Part 1 in March. Our strategy for mobile has seen much activity behind the scenes in the last year. And this is now taking shape. There are 3 pillars to this: collaboration on establishing some of our top IP with select industry leaders in the mobile space; establishing our own network of internal development expertise; and finally, building a world-class publishing team with the necessary tool set to deliver successful mobile content. In total, the audience-broadening initiatives that you just heard about will have a fundamental effect on the shape of our game portfolio. By fiscal year '25, almost half of our new release lineup will be available on PC and mobile. This is a dramatic change from anything that SIE has done in the past. In summary, we now have a clear and structured approach to SIE's first-party portfolio built upon the strong foundations of a wide variety of genres and business models across both new and established IP with a cadence of 2 or more major releases a year. We have established the capability to grow our franchises and to maximize key IP across different platforms alongside significant new revenue and media opportunities. Thank you for your time. I will now pass over to Lin.

Thank you, Hermen. I'm Lin Tao, Senior Vice President of Finance, Corporate Strategy and Development. You've heard from Hermen and Eric about how we think about sustaining the momentum of our core business. We're very confident that we can grow our business by expanding our PlayStation 5 installed base, providing a world-class commerce experience and evolving ourselves into IP powerhouse. We remain committed to growing our business by deepening audience engagement and broadening the player base. We can grow our console business by continuing to strengthen our proposition we are offering to our players. At the same time, we see huge opportunities to expand our player base beyond console and into PC and mobile spaces with cross-platform-enabled live service being at the very core. The acquisition and investment we made over the past years are playing key roles in our growth strategy. It is important to stress that while we're remaining committed to achieve growth. we will focus more on cost saving and profit generation during the coming years. Improving the level of return of investment will be our priority. The final section of this presentation deals with the importance of Sony Group collaboration and the work we are proudly doing across the key areas of environmental, social and governance. Sony Group collaboration continues to be a competitive advantage for us. We continue impacting culture with cross-promotional and integration opportunities by leveraging talent and branded content creation. The sales and marketing team continued to cross-promote hardware and other priorities. And one of the most exciting area for collaboration is the further amplification of our powerhouse IP. This was best exemplified by The Last of Us HBO TV series, which had record-breaking viewership and a hugely positive impact on game sales. Lastly, we will continue to leverage the reach of PlayStation to promote Sony Group priorities. Another key area where we are collaborating closely with the Sony Group is in ESG. We couldn't be prouder of the progress that SIE is making across all of the initiatives shown here, particularly in the area of accessibility, sustainability and diversity. Thank you for your attention. I hope that we've shown you our threefold strategy for growth: a healthy and growing player base, an aggressive approach to portfolio growth, and increasing collaboration with the Sony Group to push our IP harder than ever before. Thank you for listening. I look forward to the Q&A that we will now begin.

Now we'd like to take questions from investors and analysts. The responder will be from Sony Interactive Entertainment, President and CEO, Jim Ryan; SVP, Global Marketing, Sales and Business Operation, Eric Lempel; the Head of the PlayStation Studio, Hermen Hulst; and SVP, Finance, Corporate Development and Strategy, Lin Tao. Those 4 people will answer to the questions. Now we'd like to move on to the Q&A session. [Operator Instructions] Now the first person to ask questions that is going to be English, Ezawa-san from Citigroup.

It's Kota Ezawa from Citigroup. Can you hear me well?

Yes, we can hear you.

All right. I have 2 questions for you. The first question is on given that the PS5 attracting deeper to consumers, making them pay more money than PS4 in the subscriptions or lifetime value, as you mentioned in the presentation deck, can you give us some of your thoughts on potential price hike on the PlayStation Plus service and then the potential path to increased lifetime value above, I guess, you have the [ $6.22 ] at this point. This is my first question.

Do you want me to answer the first one now before you ask the second one? Or do you want to give them both together?

Yes. Yes. Let me ask the second question as well. The question on the nongame category in SIE is the second question and in the future profit, the [ breaking ] boundary increasing beyond just the gaming business at SIE. Assuming SIE is diversifying IP exploitation in the movie and TV and the theme park, et cetera, also into PC and mobile game, do you think those new business categories that can make a higher profit margin than a traditional game title and add-on sales in the game? I'm guessing you have more partners in those new areas and the sharing profit, making profit -- making your profit a bit more diluted. The ultimate question is that the business segment -- SIE's business segment you can make, say, more than the $5 billion profit in the long-term future as the growth trend.

Yes. Thank you for the questions. The first one on PlayStation Plus. We are constantly looking at the pricing of our products and services, whether it's in the context of competition, whether it's in the context of the macroeconomic situation or whether it's in the context of the value that we believe that those products and services provide. You will probably be aware that we took the step last year of increasing the price of the PlayStation 5 console in every market outside of the U.S. It's the first time that any platform holder has taken that step in the history of this industry. So we are prepared to take these steps where we feel that they are justified and necessary. And we constantly are reviewing the prices of our hardware, of our games and of our services, and that will include PlayStation Plus. Nothing specific to announce today, but as you saw in the presentation from Eric, we are very focused on this question of maximizing and optimizing lifetime value, and price as well as engagement is a key component of that. So that's the answer to the first of your 2 questions. In the context -- the second question, we, as you've noted, have a very deliberate and clear strategy of diversifying the exploitation of our IP away from the console space into other forms of gaming, PC and mobile as well as a number of nongame-related initiatives. We believe that over time that these may become significant generators of profit to us. In fact, already, our PC business is a significant profit contributor. The -- I would say, however, right now, the principal reason for this diversification of IP exploitation is really to increase the reach and growth of this IP and just expose it to more people. And we had a really a great case study of that with the HBO series, The Last of Us. And we could see very, very clearly that every time an episode of that show dropped that sales of the game increased very dramatically. There was a spike -- a really quite remarkable spike and an overall upward trend. But each time -- each day of the week that one of these episodes dropped, we sold a lot more games. So I see this whole thing has been symbiotic. I don't see it really has been binary. I think as we expand the reach of the IP that the whole of our ecosystem, whether it's game, PC, mobile or the nongame space, the opportunity for the whole of the SIE pie to grow becomes very considerable. Thank you for your question. I'm not hearing anything. I don't know whether the next question is coming.

Mr. Creutz-san, do you hear me?

Yes, I do. Hello?

Creutz-san, do you hear me?

Yes.

Because of the line, the condition, I would like to move on to the next speak -- question, the question in Japanese, Ayada-san of JPMorgan.

Junya Ayada from JPMorgan. I have 2 questions, please. The first one is on live service gaming. Could you just remind us what you have done -- you have run from the Bungie software regarding especially game development and how you have seen the progress of the game development in Sony Studio? And also, how are you confident to increase first-party sales to increase by double in 2025? That's first question. And the second question is on Slide 27. I think you have shown that almost half of release will be coming from the PlayStation -- non-PlayStation, I mean the PC and mobile in 2025. And is this also meaning that half of the revenue is coming from the PC and the mobile platform? Or is this just around the number of the release title?

Yes. Thank you, Ayada-san. I will quickly answer the question about the -- doubling the first-party revenues by FY '25. The answer to that question is yes. I then -- I would say that we have been working now with Bungie for almost a year. And the learnings in both directions have been very significant. They surpass my expectations. And I think Bungie is equally extremely excited by what they can take from SIE in terms of market reach, marketing collaboration and the ability to amplify their IP. I'll ask Hermen to just -- as the Head of PlayStation Studios, just to give some color at a studio level about the learnings that we have taken from Bungie in our own live service initiative.

Yes. Thank you, Jim. The learnings from Bungie have been very substantial in many areas. Of course, when you're developing live service titles, you have capabilities that you don't have when you're working on single-player narrative-driven games. And these capabilities that we've set up inside PlayStation Studios have been helped -- they've been guided by Bungie. We also more deeply understand what means -- what success means in live services. Historically, our games always work towards an end, and this is a large cultural shift. The launch of a game is just the beginning, and that comes with a whole set of different KPIs. We also work with Bungie on a pretty rigorous portfolio review process that we apply to all 12 live service titles that we have in production. And these are just 3 examples of some of the learnings that we have gained from working with Bungie. Thank you for the question.

Thanks, Hermen. I'll take the second leg, Ayada-san. Slide 27 refers to the number of titles, and it does not refer to revenue in this instance. Although, obviously, there is some correlation. But we would foresee that in that time frame that the great majority of the revenue would come from console and PC. So thank you for your question.

Move on to the next question, and that is going to be in English from Morgan Stanley. Ono-san, please?

I have 2 questions. First question, based on the current MAU, so around 110 million, and the cumulative unit sales, we believe [indiscernible] still more than around 70 million of potential demand for PS5 going forward. What is your conviction regarding the further penetration of PS5 from management perspective? And is there any obstacle to converting all 70 million [ units ] to PS5? Or do you expect to exceed the incremental 70 million? And the second question is looking at the cycle of the PlayStation platform in the past, typically, the fourth year after launch was the peak of hardware sales and the fifth year was the peak of software. Since PS5 was launched in November 2020, do you expect the hardware peak year to come around fiscal March '24 to March '25? That is my question.

Yes. Thank you. Just a point of clarification on your first question, are you asking if we anticipate sales of -- or if we feel that sales of additional 70 million PS5s on top of what we've already achieved, if that is possible? Was that your question?

Yes, that's correct. Because penetration unit -- regarding penetration unit is still less than 40 million. But MAU is 110 million. So that's why any additional demand, what is your view? That is what I want to know.

Okay. Yes. So I would anticipate that over the life of the PlayStation 5 that we should be able to exceed a figure of a further 70 million on top of the 38 million that Eric mentioned in his section of the presentation. And the reason I say that is that the -- I think the 70 million that you mentioned is the existing PlayStation 4 user base. And while we would hope to convert a large number of those people, we will definitely target and we will definitely be successful in bringing in large numbers of gamers who did not own a PlayStation 4 and, in many instances, have never owned any PlayStation. So I would -- I am very optimistic that over the life of this platform that we will exceed the number that you mentioned. I think the -- and so turning now to your second question. And yes, the numbers that you quote with regard to history are certainly accurate. I think -- and I think we would anticipate something broadly similar happening on this cycle. I would say that this cycle is a little bit different in that the demand for PlayStation 5 exceeds by such a great margin the demand that we've ever seen on any of our other platforms. And that, together with the well-documented supply chain challenges that we, along with many other consumer goods companies, have experienced over the course of the pandemic, have meant that there's a great deal of pent-up demand for our hardware that has never existed in the past. So you may see the trend has been a little bit different this time, but I think that directionally, you're correct. The other observation I'd offer on the software side of the business is that in this cycle, you will see live services and free-to-play games playing a far greater role than they have in any historic cycle. And again, that may well provide a slightly distorting effect and is likely to result in a persistently high level of software engagement and software sales perhaps than we've ever seen in the past. So thank you for your questions.

I would like to move on to the next question. TD Cowen, Creutz-san, would you please try once again for your question.

Can you hear me this time?

Yes, we can hear you.

First question, there's been a lot of attention for various reasons paid to the cloud gaming market recently. I'm curious in your view about how important mobility of your players' gaming experiences for games that they own is going to be, presumably using the cloud? And what's your plan to enable that over, let's say, the next 5 years? Second question, you talked about what you're learning from Bungie earlier. I'm kind of curious in the other direction. I know before you acquired them, they were putting together some plans to bring their IP to other media and wondered whether you've been able to accelerate that process for them given all your expertise in that area.

Yes. Thank you for the question. I think the -- yes, you're right, there has been a lot of attention around the area of cloud gaming. And we observed the mobility in gaming habits to be an increasingly important trend. And the cloud will be fundamental to allowing us or indeed anybody else to exploit that trend of mobility. And we have an -- unfortunately, today is not the place for me to disclose these plans, but we do have some fairly interesting and quite aggressive plans to accelerate our initiatives in the space of the cloud that will unfold over the course of the coming months. The -- so that's the first question. The second question, I touched on a bit in one of the earlier questions. I think we have -- we've brought quite a lot to Bungie just as they've certainly brought quite a lot to us. They historically have been a heavily U.S.-focused publisher with really -- their IP rather underexploited in the key markets of Europe and Asia. Now SIE is extremely strong and extremely seasoned and extremely experienced in Europe and Asia. And we are just starting the process of really igniting Bungie's presence and Bungie's game awareness in those regions. I'd also say, and Eric and his team are already highly active in this place, we have a marketing machine that, in my view, is world class and setting them to work on activating Bungie's games and Bungie's IP and Bungie's own brand, I think, is going to take their awareness and the size of their business to levels that they've never seen before. And certainly, nonmedia, those discussions are already starting. They're already taking place internally. And that's an area that we consider to be very important. Thank you for your question.

We don't have much time left. So next question is going to be the last question. And that's going to be in English. And from Mizuho Securities, Nakane-san, please?

I'm Nakane from Mizuho. I have 2 questions on -- mainly on financial side. Firstly, on Bungie. I remember that you're targeting to launch 3 titles before March '25. And then I guess that maybe breakeven or kind of starting to have a kind of significant earnings contribution from March of '26. You still right there? And if there's any change, then please let us let me know if any kind of plans on the financial side on PL side in Bungie, the first one. And second one is kind of financial [ discipline ] into next midterm plan. I believe there are so many M&A or investment opportunity for SIE. And then I believe you can get a kind of big harvest after investments. But I wonder as an analyst, how should I model SIE's earnings in next midterm plan. So if you give any kind of clues for kind of ROIC target or kind of sustainable ROIC target level with the cash flow or your way to think about next midterm plan on revenue [ OP ], namely, can we expect kind of a steady growth of EBITDA? Isn't being kind of massive investment for the next 2 years, we should be kind of staying flat or a very kind of gradual growth or revenue forward net profit because of the huge investment? This is my question.

Yes. Thank you, Nakane-san. I will offer some comments, and then I'll invite Lin Tao as the Head of Finance to add her thoughts. The Bungie release schedule, I think, is basically on track. The titles move around a little bit in any development of publishing organization. The -- but we're confident in the plans that Bungie has to release new games. Lin, could you comment on the particular point about the earnings, please?

Sure, Jim. Nakane-san, thank you for the question. We think it's important to look at our ROIC level over the entire life cycle. The ROIC tends to be lower at the beginning of the life cycle and then improve over the time towards the end of life cycle. We believe that we're hitting the lowest point in this fiscal year. And you will see an uplifting from next fiscal year. The key drivers from revenue side is the increasing of highly engaged PS5 users base and new revenue stream from the launch of the live service games that are currently in our pipeline. On the invested capital side, towards the later stage of the console life cycle, you will see the decrease in PS5 inventory, which will contribute to the positive ROIC. In terms of the earnings expectation, again, we see -- we had a pretty challenging fiscal year '22, but we are looking at an uplift on the earning generation level in the coming several years. And it's also contributed by the highly engaged PS5 user base and live service games that are currently under development. Back to you, Jim.

Yes. Thanks, Lin. Yes, I -- just to build on that, FY -- our absolute level of profitability was decent in FY '22, but we did struggle with a highly adverse exchange rate environment. We struggled with the supply chain difficulties, and we struggled with a post-COVID kind of rebound with everybody going out and traveling and perhaps not spending as much time gaming as they used to. All of those 3 things are now reversing either partially or fully. And I -- typically, we -- historically, we would characterize the next 2 to 3 years as the harvest period in terms of profit and cash flow for our business. And we see that together with the fact that the pipeline of the games made by the companies that we've acquired so aggressively over the course of the past couple of years. We feel very bullish about the profit structure, just as Lin has outlined, over the course of the next 2 to 3 years for Sony Interactive Entertainment. So thank you for the question.

And it's time to close. So Game & Network Service session is going to be closed. Thank you very much for your attendance. And the next will be Sony Music Group session starting from 9:00.

We will begin the Sony Music Group session in a few minutes. As for those of you who are going to be here taking part in the Q&A, there are some things that I'd like to ask you. [Operator Instructions]. Thank you very much for waiting. We will now start the session from Sony Music Group. First, we have from Sony Music Group Chairman and Sony Music Entertainment CEO, Rob Stringer, and there will be a presentation from Rob Stringer.

Hello, everyone. I'm happy to be with you once again to discuss Sony Music Group's overall performance in the past fiscal year and to share with you our strategy for evolving in a dynamic marketplace. We are achieving great success through our strong creative vision and laser-focused on our business, having delivered record financial results on our key metrics for a sixth consecutive year. We outpaced the industry in many of these benchmarks, and this has led us to increasing our revenue from $4.1 billion in fiscal year 2018 to $7.6 billion in fiscal year 2022. Our operating income CAGR is 23.6% over this time. Likewise, our OIBDA CAGR is 20.7% in the same time period. These gains reflect more than an uplift in streaming. We're investing in creative talent, managing costs efficiently and, of course, delivering more hits. This strategy has resulted in our chart share dramatically increasing in nearly all measurements. We averaged over 43% of the tracks in Spotify's Weekly Global Top 100, up from 36% a year ago. In the U.S., the world's biggest music market, our current market share has risen from 21% to 27% in the last 4 years. For more than half of last year, we had either #1 single and/or album on the weekly billboard charts. Similar performance was achieved all over the world. These results have relevance beyond our current success. They also provide future strength to our catalog. In Music Publishing, we remain the global leader, a position we've maintained over the last decade. Our songwriters, like our recording artists, have contributed to a massive number of hits in 2022. In the U.S., our writers held a 25% share of the songs on Billboard's Hot 100 chart quarterly. The same pattern of success again can be traced globally. SMP was deservedly named Publisher of the Year in multiple territories by the leading collecting societies. We are, of course, home to many of the top artists and songwriters. Harry Styles had the world's #1 streaming song with As It Was and his album, Harry's House, was named Grammy Album of the Year. Our Orchard distribution partner, Rimas artist Bad Bunny, was crowned the #1 streaming artist of the year by Spotify for the third consecutive time. Beyonce's lauded album Renaissance helped us set the all-time record for most total Grammy wins by an artist. SZA already has one of the year's biggest albums with SOS, and Miley Cyrus has the biggest selling global song of the year so far. In publishing, our writers, including Tainy and Ashley Gorley, have contributed to some of the year's biggest hits, whilst SMG's Sync Licensing aided our iconic writer, Kate Bush, in finding a huge new audience from Running Up That Hill being featured in Stranger Things. Our approach to creative neatly fits into this operating framework of SMG and fuels our expansion strategy. We continue our aggressive investment in creators and our people to support them. In the last 5 years, our global roster and catalog has grown by over 34%. And we have doubled our creative teams to service this scale. Through full integration of recent transactions, including Alamo, Som Livre and AWAL, we're enhancing this process and now have greater emerging talent than ever before. We aim to carry on expertly investing to build these assets. On a wider industry level, we are all aware that there is more music in consumption terms than ever before. Over 100,000 tracks are uploaded daily to leading DSPs, and 5 trillion songs were streamed globally on demand between audio and video last year. At Sony Music, our focus is on identifying quality and not purely quantity as we face competition from many investors and new companies wishing to capitalize on this sheer volume. We are convinced that consumers want the same quality and remain concerned that DSPs are watered down by low quality and meaningless volume, which negatively impacts music fans and real artists. In addition, as publicly reported, fraud on key DSPs is a problem that must be eliminated through aggressive enforcement by these DSPs and distributors, or by changing payment methods to better reduce the incentive for fraud. At Sony Music, we are carefully building our ecosystem to increase quality and scale at the same time. Our independent distribution network, The Orchard, continues to be at the heart of our wide-ranging system to which we recently added the Artist Services of AWAL. Whilst building these offerings, we firmly believe in being the most creator-friendly company in the industry. Through our artists' and songwriters' forward programs, we are providing seamless real-time data reporting, commercial insights and best-in-class payment solutions. For our long-standing royalty participants, we now offer a legacy unrecouped program to allow more earnings to flow through to them. Our priority is to be transparent and holistic in our support of our creators in this complex chapter of our business. I'll now discuss the general state of the music industry. Overall, the business continues to expand at an impressive rate in a highly energized environment. The recorded music sector experienced its eighth consecutive year of revenue gains in 2022, rising 9% to $26 billion. Publishing achieved its tenth year of consecutive expansion last year with revenues up 17.7% globally. Paid streaming is the engine of that growth. Supplementing this, we're seeing an accelerating shift in ad spend to digital platforms, progressing revenue from new channels, improving ARPU across key segments and greater amounts to sync revenue from film and television. In our midrange planning, we expect industry CAGR to increase in both recorded music and publishing at mid- to high-single digits, consistent with analyst predictions. Our industry's success in streaming remains underpinned by the hugely compelling value of easy-to-use competitively priced subscription services. Last year, the number of paid users of premium services improved by nearly 16%, reflecting the broadening global appeal of these offerings. Recently, we have seen price increases from a number of our digital partners that have been long overdue, and we look forward to more DSPs recognizing that the value of music continues to rise. Revenue from ad-supported audio and video services grew 14.7% amidst strong conditions at the beginning of the year. While short-term softening in this segment is expected in line with the economy, we anticipate that advertising back music will grow over the next few years. This indicates a robust demand throughout the world for music-based content as total streaming is predicted to keep climbing. In addition to paid streaming, social media, short-form video and video games are all playing an expanded role in consumption today, particularly among Gen Z and Gen Alpha, youth-led ships to new music technology platforms are constant in our business, and we do the latest trends as indicators of another generational inflection point. Young consumers are gaming first in their entertainment orientation and highly engaged in creating and viewing massive amounts of content. This translates into heavy use of short-form video, which is amassing total views well into the trillions. And overwhelmingly, they want music to be part of all these experiences. With this transformation, proper conversation of artists and songwriters is required. With our world-class talent as our core base, we have dramatically enhanced our general commercial strategies outside of pure streaming growth. With any potential offshoot of our audio and visual content, we can be a partner, and we support innovation throughout the digital landscape. We are aggressively leaning into numerous opportunities for our artists and songwriters with the largest being in short-form video. In gaming, we are an established leader in activations for our talent, including Travis Scott, Lil Nas X and the Kid LaRoi. And as a member of the largest Saudi family, where gaming has such core importance, we believe we're strongly positioned to develop and maximize a range of new offerings in the space. Additionally, we're supporting growth in promising areas like direct-to-fan solutions, create a friendly licensing and over the long term, Web 3 and the Metaverse. Across all of these next-generation platforms and experiences, we are diligently building revenue and ensuring our creators are properly compensated for the massive engagement and tremendous value their work provides to these categories. We are at the gateway of a new technological era with AI and unsurprisingly, music will be a core component of this process. AI promises to provide us tools so that artists and writers can create and innovate. It also heralds greater levels of insight through machine learning as well as potential new licensing channels and avenues for commercial exploitation. There is a lot of opportunity in this area to be excited about throughout our company. We are greatly aware of the challenges ahead, too. We will protect our creators on every level possible, whether it be creative, financial or legal in basis. Infringement and unauthorized usage of their rights should be the basis for a unique new set of artists and songwriter protections industry wide. Tech does not simply overrule art. No strategy is more important than us enlarging our creative footprint globally. The well-worn adage "hits can come from anywhere" has never been more appropriate with now our operations in 70 countries to meet this challenge. We remain the market leader in Latin America, which generates over $1 billion of industry revenue and has become one of the leading global providers of creative talent. Buying the Som Livre label in Brazil, which is now a top 10 global market, is part of our growth driver in this region. Earlier this spring, I visited the Middle East, India and Southeast Asia as part of our ongoing development of these key regions for our future expansion. In India, we are #1 in market share amongst the global music companies but there is so much more potential for more revenue with local partners' expertise helping guide us. China is now firmly a top 5 market, and we are sensibly building our creative base there. Africa is already a major player in global talent terms, and the region is important for us to understand and develop within. Around the world, we use the direct experience of our record label divisions and services offered by The Orchard to find as many quality-based partners as possible. To enhance the level of service we provide our creators, we invest in complementary best-in-class services and solutions that can help them advance their development. Our partnership with merchandising and branding company, Ceremony of Roses, represents many of today's biggest artists. We have dramatically increased our portfolio of owned partnerships with companies specializing in live concerts and experiential events. And we have significant investment in artist and song writers and management companies around the world. In podcasting, we are producing more and more shows with name brand talent whilst promoting subscription models in this sector's growth pattern. And to make the audio and visual recording process totally in synergy with our creators, we have invested in over 40 studios worldwide. All these activities are supported by top level staff and our investment in data and analytics. As I'm sure you would all expect, being part of the Sony family gives us the ability to forge unique opportunities with television, pictures, PlayStation and electronics. We have proven this is clearly a differentiator in our value proposition compared to our competitors, and our creators now expect this synergy. Our commitment to this process is our mantra. With all the change in our business, we will only step up this focus in the years to come. Whilst being more competitive than ever before, as our recent results clearly indicate, we are embracing the values of equality, diversity and inclusion and emphasizing the well-being of our creators and people. We are recognizing the importance of being a force for positive change in the social environment that our art so often reflects. Through this lens, we deliver a culturally and passion vision to the entertainment space, with a deep understanding of technological change. At Sony Music, we could not be more excited about our future.

We will now like to invite the investors and analysts to ask their questions. For those of you asking -- the response will come from Chairman, Sony Music Group and CEO, Sony Music Entertainment, Rob Stringer. I'd like to call upon the questions. [Operator Instructions] Yes, we have the first question, which will be in English from Goldman Sachs. Ms. Lisa Yang, please.

Hello. Thank you very much for the presentation, Rob. It's, to me, interesting as usual. I have 2 questions, please. You mentioned how, obviously, quality is more important than quantity. But I think the current payment method obviously doesn't fully reflect that based on just the share of leasing stream. So I'm just curious to hear your thoughts in terms of how you think that model is going to evolve? How long do you think it could take? What is best for artists and consumers? That's my first question. And secondly, you mentioned the generative AI, there's been a lot of talks about it in the industry and more broadly. I'm just curious, how do you in this age, protecting your IP, there's clearly some concerns around this. How do you think that's going to impact the value of IP in general? And also, if you can elaborate on the opportunities you see in terms of licensing IP -- creating your own songs using generative AI, that would be helpful.

Okay. I think you've covered every questions in one go there, Lisa. The first one, well, obviously, we are going to be about quality. We do believe that we have to look after the premium quality artists at the top level of our business. We think that's what attracts consumers to DSPs. We would like to see regulation of the sheer volume of content if that content isn't of a decent enough standard that it isn't a poor quality content, that there isn't stream manipulation through weak content. We would like those things cleaned up. And I think then we'd have a clearer picture of perhaps some of the issues you think we face. But obviously, from our point of view, in terms of the scale, we are in the independent distribution business. The Orchard has 30,000 labels. So we have cast our nets deeper and deeper to find more content. Also with an ability through data analysis to sift through that content for music that can step up in terms of quality. So I think we have that well covered. I don't think there's anything we can do necessarily to downplay the sheer volume of content going up onto the platforms. But we think we have a responsibility to maintain the quality. We think the DSP platform is at the same thing, that we need to absolutely make sure that the consumer is getting the best experience possible with the highest quality content. The second question, really, we're in the early stages of AI in terms of development as to how it can be a business model for music. We are particularly interested in the technology that protects our content. And that content needs to be traced. We need to be able to understand how to find our content so that when musical content goes to the AI generative process, that we basically know it's our content or not. And we are spending an enormous amount of time, as you can imagine, on the AI experience. But we are particularly interested in how we tag our content so that we know when our content is being used in all the processes involved. So I think there's going to be other questions about AI-specific questions. We're excited about this chapter, but also we are incredibly protective of our rights. So hopefully, that answers, I think those 2 questions, hopefully.

I would like to move on to the next question. SMBC Nikko, Katsura-san. Please go ahead with your question.

So 2 questions. Past 3 years, obviously, the streaming and the M&A you have been doing like [indiscernible] are one of the drivers to grow at the latter single digit or double digit and stronger than the industry. What would be the key driver for coming 3 years of the growth for the SME? Is it going to be the similar area? Or maybe by region? Or if you could give some hint on the growth opportunity going forward? That is the question.

Yes. Okay. That's fine. Would you like me to answer that now or you got a second question?

Well, maybe the -- could you answer the first question?

Yes, sure. Well, I mean, it is a combination of everything. I mean it is a juggling act constantly as you surmised from the examples you've given. Yes, we have to keep investing. I'm grateful that Tokyo allows us to invest the way we have. We needed to invest to keep up with the market. We've done that. I think the results speak for themselves in that investment, working in lots of the metrics you'd hope they were working in. But also, we're constantly mining to find out where the business is going. It would be pretty apparent that the business is global now. We are reaching near saturation in some of the very mature markets. We are looking at brand-new markets. We are looking at markets all around the world. Music now travels from around the world. So we have to take music from every territory in the world pretty seriously, which we do. And we have very, very good growth patterns in key territories, like we mentioned with Brazil, where that's now a top 10 market. We have spent significant A&R investment and infrastructure investment in probably 30 growing markets, and we will continue to do that. So again, it's a juggling act. We don't settle on one principle and then hope that principle sticks for 3 years. We are, I think, probably the presentation explained it. We are looking at growth areas in 25 different sectors of our business, and we need to be in them all. And if we're in them all, then we'll be very competitive. So hopefully, I do think our results show that, but it's a never-ending quest this really.

Second question was, I think already you have discussed, but the impact of the generative AI. You've talked about pros and cons on that. Could you also add some example of something already impacting to you or to artist? And what do you think would happen in the future?

Well, let's just say that impacting artists, it's reasonably early. The sort of more high-profile examples of where there has been an AI version of an artist singing another artist's song is the very early stages of what may happen on a different scale in the next 2 to 3 years. So even though those are very, very high-profile examples, they're not high streaming numbers. I think the AI will become an extremely positive tool in the development process. I think it will help create the best creators make excellent, excellent content. But right now, we're worried about the lowest common denominator, which is flooding platforms with endless content of a substandard nature. And we obviously want to fight that process. We want to make sure that we are knowledgeable about absolutely tracking that content. And so it's always going to be a little bit of a race between the top quality and the low-end quality. And that's what we're doing at the moment. And as you would expect with such a powerful new tool and possibly a new form of industrial revolution, there is quite a dramatic rush to be the first. To be the first people to have AI-generated content up on platforms. To be the first form companies that build AI-generated tools. But being first isn't always how you win. So we are really spending time with every possible new strategy and new company so that we understand this marketplace extremely well, and we will do that. And in the meantime, we will also, as I just said to Lisa, in the meantime, we will also protect our artists' rights. We have millions and millions of tracks that need copyright protection, and we will protect those copyrights.

We would now like to go on to the next person. Also in English, we have Okazaki-san of Nomura Securities.

This is Okazaki from Nomura. I also like to ask a question about the impact of generative AI. So what is your view on the industry landscape change in the future, major levels versus Indies? In my understanding, generative AI can be positive to the total music industry. But it seems it will be more positive on Indies label for individual assets and not for major labels. So what is your viewpoint on this industrial structure changes in the future?

Well, that's an interesting perspective. People have been saying that about major labels versus Indies. You have to be very careful about the definition of Indies because independent that's the current definition in streaming isn't really a bunch of independent labels necessarily. It also can be just pure content, and it's not independent. It's just sheer volume of content. I've heard this conversation again and again over various chapters of technology, and yet we are still here. And the reason we are still here is because we have millions and millions of tracks of the most high-level quality. And they will form an incredibly important part of the AI process. Of course, they will because that high-level content is what travels the world the most easily. So I think that it's going to be always a dialogue with the sheer volume of AI-generated content. But we will have an incredibly important part to play because we have the most high quality and most important content in our systems. So we know what power that has. We know what power that has because, for example, as I just mentioned, the most high profile AI content at the moment is using fake voices from our biggest artists. So when we work out with our biggest stars is how they use AI effectively, then the fact is they will have a big voice.

May I move on to the next question? And Thong-san, Macquarie Securities.

This is Damian Thong with Macquarie. I have 2 questions. So first one, I'm very interested in your comments on the growth opportunity in emerging markets like Brazil, India. India, of course, has come into the spotlight a lot and Sony is making a big push there also with the acquisition. I'm just curious, how big do you think these markets could be? And of course, because you're investing in those markets, is the profitability lower right now? And how do you think that evolves over time? That's my first question. So my second question will be shorter than this one. The second question is to do with your negotiations with like short-form video providers like TikTok and so on, also ad supported. I mean, I still think that they undervalue your product, and I think there's still a lot to go for it to increase monetization there. And I'd love to hear any comments you might have on how that's improving, how the negotiations are shaping up?

Okay. Good questions, contrasting. India and those markets are incredibly important. But I think, I mean, I just went to India on a fact-finding mission because it is such an important market for Sony Music, but it's also an important market for Sony Corporation. I think that first of all, it was very presumptuous to presume that I understand the Indian market better than people in India. That would be the wrong idea. What I see with a degree of understanding from the point of view that we are the largest market share company of the majors in India and the fact that as I said, Sony's investment in India has been significant is that there is tremendous growth opportunity, which I'm sure you know. What I found interesting about India musically is it's been pretty much dominated by Bollywood. But I think with the sheer scale of putting phone technology in India to hundreds of millions of people, I think that streaming is bringing music to India in a different way. And I think that there's a potential for pop music in India. I think what that hybrid of music is will be determined by the great Indian artistry. But the fact is that there is massive growth potential in India. And I think there's potential for genre growth as well. And pretty much that goes for several territories of the world. In the Middle East, there's hybrid music being made. And there's obviously the power of scale coming from Saudi Arabia. In Asia, each market now -- in Southeast Asia, each market has a very identifiable sonics to their artist development. So we'd be amiss if we didn't look at every single market and see some potential. I saw on my trip to 3 regions, 37 different artists across 8 or 9 days. And in several of those artists, I saw true global potential, which is really exciting because the adage, which is a bit of a clean shape has never been more true is that "hits can come from anywhere". As K-pop has proved breaking out of Korea, as music has proved breaking out of every market in Latin America around the world. And literally, I think there's huge potential in several key markets that probably could be under the bracket of emerging markets, but I think that term will go very quickly. Second question, yes, we think our music is undervalued by short-form content providers. I would make an exception and say that I think that the improvements in relationship with YouTube have been extremely positive over the last few years, and we've built up a relationship where YouTube agreed to build a subscription model to match the huge volume of ad-supported content. We would like to see other short-form content providers build a proper subscription model, which valued our content appropriately and that we got paid in the same proportion as some of the bigger streaming platforms. Some of the short-form video providers are relatively new. But we are clearly monitoring their progress. And it doesn't take a scientist to realize that we are being underpaid by some of those content providers. And as negotiations go on, that will be our position until we are satisfied that we have been paid properly.

I would now like to go on to the next person. We have questions coming in English. From UBS Securities, Yasui-san please.

This is Kenji Yasui from UBS. My question is very simple. It's just one. Well, it looks like business in -- the business itself is really in good shape. But I wanted to explain any downside potential in next 2 or 3 years' time plan because I don't see it possibly, streaming is expanding, the ASP is going up, and you have multiple to prompt. If you see any downside potential realistically, I want to explain the factor 1 through 3 or kind of thing.

Okay. Well, I'm glad you're optimistic. That's good news for us. I mean, yes, I'm extremely optimistic. I mean, I've obviously just had a lot of questions about AI, and we're all figuring that out right now. In fact, the whole of industry is figuring out AI. And at the moment, I want to be positive about AI because I think it's going to have some tools that absolutely all aspects of our industry, improve our profitability and improve our creative vision. But most part, I feel that without wanting to tempt fate with any macroeconomic headwinds because that's always possible, I think we were in some ways fortunate that during the pandemic, the consumption of music was so incredibly powerful that we were able to build our company up in the pandemic, which probably wouldn't have seemed very likely at the start of the pandemic, and we did build the company, and we were very aggressive with investment during the pandemic. So we will come out the other side of that era with a stronger company. But again, like I asked the previous question -- answered the previous question, I think we have to have a portfolio of 20 rights models. And some of those rights models will be dormant for a certain time period and then they will grow and certain rights models will be absolutely at that moment. And I feel, honestly, like we're in very, very good shape. I feel compared to a lot of companies, our portfolio is really strong. I don't think the areas that we may have been weakened when I presented to many of you, I think, probably 5 years ago that we are weak in those areas anymore. And I like to think we're a well-rounded company, but we're very adaptive to change, and that's our outlook.