Sony Group Corp Q2 FY2021 Earnings Call

Ladies and gentlemen, we will now begin FY '21 Q2 earnings announcement of Sony Group Corporation. I am Okada from Corporate Communications. I'll be serving as master of ceremonies today. This session is for media analysts and institutional investors to whom we have sent out an invitation in advance. This session is webcast live on our Investor Relations website. First, Mr. Hiroki Totoki, Executive Deputy President and Chief Financial Officer, will explain the consolidated results for FY '21 Q2 and consolidated results forecast for FY '21, followed by Q&A. Duration is 70 minutes. Mr. Totoki, the floor is yours.

Today, I will discuss the following topics. The consolidated results for second quarter ended September 30, '21 increased 13% compared to the same quarter of the previous fiscal year to JPY 2.3694 trillion and consolidated operating income increased JPY 3.2 billion year-on-year to JPY 318.5 billion, both record highs for the second quarter. Income before income taxes decreased JPY 20.6 billion year-on-year to JPY 283.1 billion primarily due to a deterioration of valuation gains and losses on securities investment. Net income attributable to Sony Group Corporation's shareholders was JPY 213.1 billion, a decrease of JPY 245.5 billion compared to the same quarter of the previous fiscal year, which included the recording of JPY 214.3 billion reversal of valuation allowances recorded against the deferred tax assets. Please see Pages 3 to 6 of the presentation material for a description of each profit metric. This slide shows the results by segment for FY '21 Q2. Next, I will show the consolidated results forecast for FY '21. Consolidated sales are expected to increase JPY 200 billion compared to our previous forecast to JPY 9.9 trillion, and operating income is expected to increase JPY 60 billion to JPY 1.040 trillion. We have also upwardly revised our forecast for income before income taxes to JPY 990 billion and our forecast for net income attributable to Sony Group Corporation's shareholders to JPY 730 billion. Forecast for consolidated operating cash flow excluding the Financial Services segment is unchanged at JPY 890 billion. This slide shows our forecast by segment for FY '21. I will now explain the situation in each of our business segments. First is the Game & Network Services segment. FY '21 Q2 sales increased a significant 27% year-on-year to JPY 645.4 billion primarily due to an increase in PlayStation 5 hardware sales and an increase in game software sales of third-party titles. Operating income decreased JPY 22.7 billion year-on-year to JPY 82.7 billion primarily due to a deterioration in the profitability of hardware and peripheral devices. FY '21 forecast remains unchanged from the previous forecast. Driven by an increase in add-on content sales, Q2 game software sales exceeded those in the same quarter of the previous fiscal year when stay-at-home demand was strong. Total game play time of PlayStation users decreased 17% year-on-year. But the fact that add-on content sales exceeded those in the same quarter of the previous fiscal year is a positive sign that the quality of user engagement has increased. In the second half of this fiscal year, the first-party software titles, Horizon Forbidden West and Gran Turismo 7, as well as major third-party software titles are scheduled to be released. As more game fans play these exciting titles, we expect user engagement to increase even more. At this time, there is no change to our FY '21 unit sales target for PS5 hardware, but several factors are significantly impacting the supply of the product such as the disruption of the global distribution, supply chain and limitations on the supply of components, especially semiconductors. We are continuing to exert every effort to maintain the momentum of the PlayStation platform by meeting the expectations of the people who are waiting for PS5. To further strengthen our software development capability, we announced the acquisition of Firesprite in September and Bluepoint Games this month. Both companies have excellent technical capabilities and superb track records, and they have, thus far, contributed to the development of many of our gaming software titles. Going forward, we plan to leverage these studios to increase the development capability of the PlayStation Studio and diffuse the expertise necessary to deploy games to PCs and mobile devices. As a result of the acquisitions announced since the beginning of this fiscal year, the number of PlayStation studios will increase by 4 to 16, and the number of developers will increase by almost 20%. We plan to continue to aggressively invest in our development capability going forward. Next is the Music segment. FY '21 Q2 sales increased a significant 18% year-on-year to JPY 271.6 billion primarily due to an increase in streaming revenue. Despite the impact of the increase in sales, operating income decreased to JPY 50.6 billion, JPY 3.7 billion lower than the same quarter of the previous fiscal year, in which a JPY 5.9 billion one-time gain was recorded for the transfer of business outside of Japan. The combination of the operating income of the quarter from Visual Media and Platform, which includes mobile game applications and anime, accounted for approximately 1/4 of the operating income of the segment. FY '21 sales are expected to increase JPY 30 billion compared to our previous forecast to JPY 1.070 trillion, and FY '21 operating income is expected to increase JPY 10 billion to JPY 200 billion. Streaming revenue in Q2 continued to grow at a high rate, 38% year-on-year in Recorded Music and 47% year-on-year in Music Publishing. Sony Music Group, which is responsible for our music business outside of Japan, where the growth of the streaming market is conspicuous, is expected to reach record high operating income this fiscal year for the fifth consecutive year. We continue to generate hits, thanks to our enhanced efforts to discover and nurture artists. In Q2, the Recorded Music business had an average of 38 songs in Spotify's Global Top 100 Songs ranking. Moreover, the new song, Easy On Me, which was released by world-renowned singer-songwriter, Adele, after a 6-year absence on October 14 made history as the most played on Spotify in a single day. And we have high expectations for album 30, which will be released next month. And Sony's competitive advantages in the music business lie in our global ecosystem that can meet the diverse needs of artists and the fact that because our music business is part of the Sony Group, we can offer artists opportunities to express their creativity in areas such as games and pictures. In addition, we are enhancing our many artist-friendly initiatives such as offering them financial and other support. And we believe these initiatives anticipate the strong financial performance of this segment. Next is the Pictures segment. FY '21 Q2 sales increased a significant 40% year-on-year to JPY 260.7 billion primarily due to an increase in sales of Television Productions and Media Networks. Despite the impact of the increase in sales, operating income decreased JPY 1.2 billion year-on-year to JPY 31.6 billion primarily due to an increase in marketing expenses related to the release of films in theaters. FY '21 sales are expected to increase JPY 60 billion compared to our previous forecast to JPY 1.180 trillion, and operating income is expected to increase JPY 18 billion compared to our previous forecast to JPY 108 billion. Primarily in the U.S., we have begun to gradually release major films in theaters, and our film, Venom: Let There Be Carnage, which was released this month, generated box office revenue of approximately JPY 10 billion in the first 3 days of its release in the U.S., which is the best opening performance of any film during the pandemic. We are planning to release our compelling IP from Sony to theaters going forward such as Ghostbusters: Afterlife and Spider-Man: No Way Home. On the other hand, we plan to monetize family-oriented films this fiscal year such as Hotel Transylvania: Transformania by directly licensing them to video streaming services as we do not believe they will draw us sufficient theatrical audiences during the pandemic. Going forward, we plan to continue to respond appropriately to the changes in the environment through a flexible releasing strategy aimed at maximizing the long-term value of our films. Last month, we signed a nonbinding term sheet to merge a subsidiary of Sony Pictures Entertainment, SPE, and Zee Entertainment Enterprises, a media company in India. Under the proposed merger, SPE will hold a majority stake in the resulting merged company. Under the term sheet, the 2 parties are conducting mutual due diligence, and Zee has agreed to negotiate exclusively with SPE for a period of 90 days with the goal of reaching definitive agreements. India has an economic base, which is rapidly growing, primarily among the younger generation and is the largest linear TV market in the world that is still growing. In addition, the opportunity for digital distribution services is beginning to grow rapidly due to improvements in India's communications infrastructure. SPE's Indian business, which includes the video distribution service, SonyLIV, is a leading TV broadcasting business in India. And it accounts for slightly less than 40% of the sales of Media Networks in Q2. As the growth area in the Pictures segment, we plan to continue to proactively seek opportunities to expand this business by using the profitability of the TV broadcasting business and our content assets to strengthen our digital distribution service. Now I will explain our anime business that spans the Music and Pictures segment. On August 9 of this year, we completed the acquisition of Crunchyroll by Funimation, a joint venture between SPE and Aniplex. Crunchyroll is the world's largest anime-dedicated direct-to-consumer service with more than 120 million registered users and more than 5 million paying subscribers in more than 200 countries and territories. The market for Japanese anime outside of Japan has grown significantly at a compound annual growth rate of 30% since 2014. We aim to create the most beloved video distribution platform for anime fans around the world by delivering compelling content through enhanced distribution service brought about by the integration of Funimation and Crunchyroll. And next is the Electronics Products & Solutions segment. Primarily due to the impact of foreign exchange rates and an increase in the sales of smartphones, Q2 sales increased 9% year-on-year to JPY 581.9 billion. Operating income increased a significant JPY 19.3 billion year-on-year to JPY 72.7 billion primarily due to the benefit of the increase in sales and improvement in the product mix. FY '21 sales are expected to decrease JPY 40 billion compared to our previous forecast to JPY 2.280 trillion, while operating income is expected to increase JPY 20 billion compared to the previous forecast to JPY 190 billion to reflect the results of FY '21 Q2. During Q2, we were unable to meet the demand for some products because the resurgence of the COVID-19 pandemic in Southeast Asia led to limitations on our factory operations and on the supply of content. However, we maintained a high level of profitability due to our ability to maintain prices and shift to higher value-added models. In the TV business, although we were able to maintain market prices during Q2, a rapid decrease in panel prices going forward could impact the market prices of our products. So we have incorporated that possibility in our forecast, and we'll closely monitor market trends in order to control inventory and margin. In addition, limitations on the supply of components, especially semiconductors, have recently become apparent. And we have incorporated the impact of these shortages in our forecast for the fiscal year. Prior to incorporating these risks, the forecasted operating income for the second half of the fiscal year was essentially flat compared to the second half of the previous fiscal year. Next is the Imaging & Sensing Solutions segment. FY '21 Q2 sales decreased 9% year-on-year to JPY 278.3 billion, and operating income decreased JPY 1.0 billion year-on-year to JPY 49.7 billion. Our FY '21 sales forecast remains unchanged from the previous forecast. But operating income is expected to increase JPY 10 billion compared to our previous forecast to JPY 150 billion. Although the mobile sensor business was impacted by the recent weakness in the Chinese smartphone market, a tight supply and demand situation for semiconductors in general and delays in the production of smartphones and components for smartphones in the southeast, there is no major change to our FY '21 forecast for the business primarily due to the positive impact of foreign exchange rates and the reduction in expenses. We are taking steps to minimize the impact on our financial performance this fiscal year of restriction on the quality and increase in the price of logic wafers procured from foundries. The efforts we have made to expand our customer base are also progressing steadily. However, securing the logic wafers necessary to increase the quantity and the enhanced added value of our sensors from the next fiscal year has become a major issue. We are continuing to negotiate with our foundries, but the tight supply and demand situation is expected to continue next fiscal year. Despite these challenges, we upwardly revise our fiscal year forecast for image sensors sold to audio visual and industrial equipment. The market for these sensors is growing faster than anticipated primarily due to recovery in the market for digital cameras and increasing demand for factory automation. This market is more stable than the market for mobile applications and has helped our profitability. So we expect that it will contribute to the stabilization of profit of the entire image sensor business going forward. Now I'd like to discuss the potential construction of a semiconductor factory in Japan by Taiwan Semiconductor Manufacturing Company, which was announced by TSMC the other day. Sony outsources almost all the production of logic wafers as part of the process of our manufacturing image sensors. So securing a stable supply of logic wafers is a critical business issue at the time when the global semiconductor shortage is expected to be prolonged. Because building a factory of this nature could serve as a possible solution to this problem, in close collaboration with TSMC and the Ministry of Economy, Trade and Industry of Japan, we are studying the possibility of adding TSMC's Japan factory to our sources of logic wafers by leveraging our expertise, managing our own semiconductor factories in Japan to assist TSMC in building the new factory. We believe that further strengthening and deepening our partnership with TSMC, which has a world-leading semiconductor production technology, is extremely meaningful for Sony. However, this matter is subject to further study and discussion. Last is the Financial Services segment. FY '21 Q2 Financial Services revenue was JPY 368.4 billion, essentially flat year-on-year. And operating income increased JPY 6 billion to JPY 43.1 billion primarily due to an increase in profit at Sony Life Insurance Company Ltd. New policy amount in force at Sony Life during Q2 exceeded that in the same quarter of the previous fiscal year primarily due to the strength of our business selling to corporations. FY '21 Financial Services revenue is expected to increase JPY 90 billion compared to our previous forecast to JPY 1.490 trillion. Our forecast for operating income remains unchanged from the previous forecast. Lastly, I will discuss the strategic investments we are accelerating in order to grow over the medium to long term. Approximately JPY 1 trillion of approximately JPY 1.4 trillion in strategic investment we made from April 1, 2018, to March 31, 2021, was used to acquire businesses, while the rest was used to obtain minority equity stakes and repurchase Sony's stock. We expect to generate operating cash flow of approximately JPY 180 billion from the acquired businesses over the 3 years from April 1, 2021, to March 31, 2024. As a part of our resources for capital allocation, we intend to use this cash flow from further investment accelerating the cycle, thereby returns generated from previous investments are used to invest in future growth. Our ability to invest early in areas with high growth potential has increased. And opportunities to invest have also steadily increased, especially in the entertainment space. During the period of the current mid-range plan, we plan to make strategic investments of more than JPY 2 trillion, including Sony's stock repurchases. The total amount paid so far for companies and assets that have already been acquired, including Crunchyroll, is approximately JPY 280 billion. The total amount of investment already decided upon is approximately JPY 120 billion. Last week, we announced the sale of GSN Games, a casual mobile game business under PSC. We plan to reallocate the capital generated from the sale of businesses and assets like this to strategic investment in a growth area. This concludes my remarks.

Thank you very much. It was Totoki, Executive Vice President and CFO. From now, we will have a Q&A session for journalists starting in five minutes, followed by a Q&A for investors and analysts at 4:20. Each session is scheduled for 20 minutes. Media, investors, and analysts who registered in advance should connect to the designated number, and those who didn't register can still view the Q&A session on the webcast. Please wait for the Q&A to begin. We will start with questions from the media shortly, so thank you for your patience. Now we are going to entertain questions from the media. With us are Hiroki Totoki, Executive Deputy President and CFO, and Naomi Matsuoka, Senior Vice President in charge of Corporate Planning, Control, Finance, and Investor Relations.

I'm Inamoto from NHK. Can you hear me? I have two questions. The first question pertains to the impact of COVID-19. With the lifting of the state of emergency, we are seeing a gradual recovery in economic activities. How do you assess the impacts this time? Additionally, will there be changes in stay-home demand, and what potential effects might this have on your business? My second question is about semiconductor production. TSMC from Taiwan is planning to establish a plant in Japan, and you are a potential partner for collaboration with TSMC. Can you share any details on how you plan to work together with them?

Thank you for your questions. I will address both of them. First, regarding the impact of COVID-19, during the second quarter, we faced significant challenges with production and logistics, but our frontline workers managed the situation effectively. Looking ahead, the pandemic may fluctuate, so it's essential for us to build our expertise to handle such events. Last year, the stay-at-home demand positively influenced our gaming business, but this year, that effect has diminished. Now, regarding your second question about TSMC's new factory, securing a stable supply of image sensor logic wafers is crucial for us, and we aim to collaborate closely on that. However, many details are still under discussion, and we will communicate any decisions promptly. Thank you.

Can you hear me? I have two questions. First, regarding imaging and the imaging issue, I understand that TSMC and Sony will be collaborating. Specifically, will you have a stake in the company? Also, you mentioned it will contribute to the overall Japanese industry. However, I believe the automotive sector will also be involved in gaming. The PS5 production is still slow, with only 3.3 million units in the second quarter. I'm wondering if you can achieve the target of 14 million units. Will there be a possibility of reducing that target? Can you elaborate on this?

Thank you for your questions. I will address both of them. First, regarding TSMC and the new factory, we are focused on ensuring a stable supply, which is why we are assisting in its construction and operation. The specifics about our investment are still being discussed, and we will update you as soon as a decision is reached. Now, concerning the PlayStation 5, our target for this fiscal year is to exceed the 14.8 million units sold in the second year of the PS4. We have not altered this target. However, there are global logistics challenges, particularly with semiconductor supply, which are affecting us. The sales for the first quarter were lower, and we expect a similar trend in the second quarter. Nonetheless, I believe that by implementing various strategies, we can maintain momentum for the PS platform. We are committed to supplying as many PS5s as possible to our waiting customers. Thank you.

This is someone from Nikkei. Can you hear me? And the answer to the Asahi Shimbun question, do you have a comprehensive negotiation and consultation? Can we understand that it includes equity investment? TSMC, in their press conference for the joint venture, normally, they didn't engage in that. But this time, case-by-case, they study this possibility. So equity investment or the part of the factory is on and some funding is provided. Do you have that kind of equity investment?

Thank you very much for your question about this particular issue. Let me be redundant. Let me repeat myself. Currently, the discussion is underway and consultation is underway. Therefore, I'm not able to make comments further. And once decisions are made, I would like to share that decision immediately with you.

I have two questions. Earlier, the semiconductor plant was halted due to COVID-19, which caused challenges in managing the situation. How are you ensuring stable procurement in light of this? Can you provide more details on that? Additionally, the impact of the semiconductor shortage is evident in games and electronics. What is the monetary impact of this situation? Can you clarify? My second question pertains to capital allocation. You have been engaging in acquisitions, and a cumulative operating cash flow of JPY 180 billion is forecasted. Specifically, where are you planning to allocate these funds? Will you focus on investments or return capital to shareholders?

Thank you for your questions. I would like to respond to both of the questions. First, concerning the semiconductor shortage and other issues in the supply chain. To procure stably, what can we do? In various ways, we have been addressing this question. We are commercializing parts and components and also asking the affiliated companies to produce for us. Where there forecasts of a shortage, we will be increasing the level of inventory higher than usual and also change the design so that other parts and components can be used. So various measures can be taken, combining these methods. So far, at least up until the first half of this fiscal year, we have been able to minimize the negative impact. And as to the monetary amount, how much impact is there, I think it’s difficult to tell how much. But rather, I think we are managing the situation rather well. In the second half, this situation is likely to continue. Currently, there is risk factored into the EP&S segment. With regards to your second question, capital allocation going forward. Basically, from this fiscal year, for 3 years within the mid-range plan, more than JPY 2 trillion is to be allocated for strategic investment. As we have stated, strategic investment for future growth has our top priority, followed by CapEx and returns to shareholders, share buyback, repurchase of our shares, that is the order.

Can you hear me? I have two questions. First, about the imaging sensor. I think there is some instability regarding those for smartphones, but what about the changes in product mix? Can you explain those changes? Are you planning to reduce the smartphone segment, or will you expand more into industrial applications? Can you provide an overview of that? For my second question regarding PlayStation 5, the production is not ramping up. I would like to know what is happening with the momentum. I understand there are issues with unit sales and consumer momentum. Are there any adverse situations you are facing, or will you need to implement measures in the mid- to long-term? Can you discuss your future plans?

Again, I will try to respond to both of those questions. Well, regarding the imaging sensor, those for smartphones and the other is for industrial equipment cameras and for those applications. It's a mix of those semiconductors are imaging sensors. We are planning to add on. But about the size, scale, and the smartphone market is much bigger. And therefore, I think we have to observe the trend in the smartphone market. We have to carefully monitor what is happening in the smartphone market. That's the first part. And about PS5, as early as possible, we'd like to release as many units. This is what we have in mind. But so far, overall, in MAU, it's about 100 million people. PS5's ratio-wise, it's less than 20%. So when it comes to user engagement, PS5 sales does not immediately have an impact on users' engagement. So it's hard to believe that there will be a direct impact now. The add-on content has exceeded last year's second quarter due to increased improvement in user engagement. We want to try to positively take advantage of this momentum in PS5. Furthermore, we have more releases in the fourth quarter, and therefore, we would like to carefully monitor the trend. Thank you.

Can you hear me? I have two questions. First, regarding the yen depreciation, how much does the business take into account the effects of the weaker yen? Second, about the quarterly disclosure, the government will start discussions on that. What is your perspective on this new initiative by the government?

Thank you for your question. The first question concerns the effect of yen depreciation on our business results, and the second relates to the review and revision of quarterly disclosures. For the first question, I will provide an answer, while Matsuoka-san will address the second. In terms of the yen's weakness, compared to our previous forecast, we now estimate the yen to euro exchange rate at JPY 131 instead of JPY 130, which reflects a change in our assumptions. The exchange rate for the dollar remains at JPY 110, and this impact has not varied significantly. This information has already been shared, and a rise of 1 yen means there is a positive impact on our consolidated results for the Game Network Services, EP&S, and I&SS segments. However, for the euro, we are anticipating a negative impact of JPY 5.5 billion, as included in our forecasts. In the case of Music and Pictures combined, a 1 yen increase results in a negative impact of JPY 2 billion on operating profit. This sensitivity is what we consider for our forecasts. I should clarify that our dollar assumption is now JPY 111, indicating a decrease of 1 yen against the dollar.

The second question. So I will answer the question. I believe that there are many different opinions on this. But on our part, for the policy, the discussion is still underway. And at this moment, I would like to refrain from making any comments. That's the comment from myself.

Thank you very much for your patience, everyone. We will now take questions from investors and analysts. I am Hayakawa from Finance and IR, and the respondents today are Hiroki Totoki, Executive Deputy President and Chief Financial Officer; Naomi Matsuoka, Senior Vice President responsible for Corporate Planning and Control, Finance and IR; and Hirotoshi Korenaga, Senior Vice President overseeing Accounting.

Ayada from JPMorgan. I have one question about games and another about semiconductors. First, regarding user engagement in games, I noticed in the supplementary materials on Page 9 that monthly active users have been declining over recent quarters but that decline seems to have halted. Meanwhile, the number of PlayStation Plus members is increasing quarter-on-quarter. As we approach the third quarter and the Christmas season, are you anticipating that the decline in monthly active users and PlayStation Plus subscriptions will stop? Currently, we do not expect an increase in those numbers. The PS Plus collection has contributed to the growth in membership. If you have any insights, please share them. My second question is about the image sensor. Can you provide information on capacity, wafer input records, and actual results? Additionally, earlier Totoki-san mentioned future logic procurement, which may raise concerns. Setting that aside for now, regarding mobile customers, particularly in this sector, do you expect an increase in the size of the mix for next year? What changes might there be? What are the main topics of discussion with your customers? Can you share your thoughts on this?

Thank you for your questions. I will address both of your inquiries. Firstly, regarding monthly active users and the trend of PS Plus membership, there was a decrease in members at the end of June, but we believe this was a temporary situation. It's hard to determine the exact cause of this decline, but we have already reached the lowest point. In the second quarter, especially with promotional activities, we have seen an increase as we implemented measures to boost membership. The effectiveness of these promotions is evident. The recent trends are fluctuating, and analyzing the stay-home demand is challenging. However, as we approach the year-end holiday season, we view the current situation positively and aim to build strong momentum. In terms of I&SS capacity, the numbers for the second quarter of FY '21 were 140,000 per month, with an expectation of 137,000 at the end of the third quarter, due to changes in model mix. The average number of wafers input during the second quarter was around 139,000, which aligns closely with our first-quarter forecast of 138,000. For the third quarter, we are expecting an average of 138,000 wafers, with full utilization anticipated. The trend towards larger sizes is progressing smoothly. We are engaging in discussions with customers not only for the next year but also for the longer term. As we anticipated, the larger size trend is expected to continue, particularly driven by a specific customer in China. The impact of their absence hasn't completely filled the gap, so the pace might slow down slightly compared to last year’s explanation.

The supply chain challenges, including the impact of the pandemic, are evident in your cash allocation slide. I have two questions. First, regarding the effect of COVID-19. In your presentation, you mentioned a potential risk of JPY 38 billion to JPY 40 billion in the second half of the year compared to last year. What is your perspective on this risk, and how do you assess the pandemic's impact on different categories such as the game and I&SS segments? Additionally, could you provide more insight into the overall impact across various segments? The second question pertains to capital allocation discussed on Page 22. Over the past three years, you've reported JPY 5.3 trillion and a CapEx of over JPY 2 trillion. When TSMC talks about upcoming plans, what will be included once this information is public? This is a hypothetical question, but I'm curious about the scale of investment and if there might be any additional effects. I'm trying to grasp the strategic thinking here. Furthermore, you mentioned a strategic investment of JPY 120 billion that has already been decided. Does this include India's Zee? If not, please clarify. Given that JPY 2 trillion implementation size seems relatively limited, could you provide more details?

Thank you for your questions. First, your question about the supply chain risk. As you have said, for EP&S, it is included, and the amount is close to what you were saying. This is factored in, estimated. But if there are other segments, well, I cannot say anything for sure, but I think those game network segments, which is also producing hardware, will be impacted. But unlike EP&S, I believe that the supply delay and impact on profit and loss will be totally different. In case of PS5, just because shipment is late, it will not aggravate this fiscal year's performance. So I think for this fiscal year, the risk is maybe factored into the EP&S and that is our current thinking behind what we have put together here for this fiscal year in the forecast. And now about capital allocation, the TSMC. If I talk about TSMC, I will have to go into the detailed specifics. It's difficult for me to explain while trying to avoid that. In general terms, if we are going to hold a stake, it will be a strategic investment. If it's CapEx, it will be included under CapEx. Please understand that to be the case. But this is still under discussion, and there is nothing decided. Please understand that is the current situation. About the content, regarding Zee, Matsuoka-san can explain that part.

You talked about whether Zee is included in the strategic investment that has already been decided. No, it is not included. We have to follow up on what happens from here and after. Generally, the ones that are included are the ones where we have already made an official approval and made a decision. But in order to get to that stage, Zee, as I explained, we are still doing due diligence and nothing is finalized and decided yet.

Can you hear me? I have two questions that are not related to the consolidated results this time. The first question is regarding Mr. Yoshida's mention of MLP connected to 1 billion people. For games, there are other figures disclosed, but Crunchyroll and Zee may be included, along with many other new connections emerging. To the extent possible, I would like to know about Crunchyroll's 120 million, which you mentioned. At the end of September, if there is anything you can disclose, please share that with us. Additionally, at the end of the fiscal year, what are your prospects and how will you disclose those figures? My second question pertains to the project in India. Under the current mid-range plan on a group basis, how clear is the strategy regarding India within the group? Currently, each business segment has its own strategy emphasizing synergy, but it seems each one is acting independently. For example, the collaboration between different segments in America raises questions about a group-wide strategy; please let us know if you have one.

In response to your questions, I will address two inquiries, and Matsuoka-san will add to my remarks. Connecting with 1 billion people is our long-term vision and aspiration. We are not presenting this as a quarterly subscription but rather as a goal we aim to achieve. To reach this target, we need to make strategic investments, which have been implemented, and we are fully maximizing group synergy. Throughout the year, we participate in various activities and provide updates on them. By following this cycle, we can share information with you. As for our disclosure policy, we do not have a finalized approach yet. We will keep you informed about our ability to connect with 1 million people, and I hope you monitor our progress and provide feedback. Regarding your second question about the group-wide strategy in India, SonyLIV is a crucial business unit driving growth, which is why we entered into this deal in India. The insights gained from this project also present opportunities for other business areas. Our top executives frequently discuss these matters, and through these dialogues, we aim to realize group synergy.

India, as you know, is a big area with the potential for great growth. SonyLIV has been increasing its subscriber base to 470 million at the end of September. Therefore, going forward in India, as Totoki-san mentioned now, video and music, the pictures and music, we would like to use the synergy between the two. Going forward, the gain potential does exist in India. So that potential will be also taken into consideration, and a lot of discussions and dialogue has been going on.

I'm Ono from Morgan Stanley. I have a question regarding CMOS sensors for mobile. Sony is reducing prices, and some say the inventory for mobile sensors is becoming unhealthy. Can you share any insights on the changes in the mobile market? Last quarter, mobile wafer unit prices dropped by 10% year-on-year. Currently, for mobile and AV, mainly camera, the ratio is about 70% to 30%, based on my understanding. Considering this and your thoughts on future mix, will custom orders support next year and improve profits in mobile? Please explain this further. I apologize for the vague question.

Thank you very much for your questions. The market of mobile sensors, how do I look at this market? If I am to explain, the mobile market will continue to expand. Of course, for the industrial machine and for AV, it is stable and margin is high. But in terms of the size of the market, the mobile market is much larger. You said 70% to 30%, but the ratio of mobile is even higher than that. The inventory level of the sensor market, to the extent of my knowledge, by the kind of inventory which will have difficulty for negotiation with the customers, we don't hear such voices. Prices are in the course of negotiation and discussion with the customers. But when it comes to specific prices, I would like to refrain from referring to specific prices. Our policy remains unchanged. For high-end, larger size, this market will grow and expand. So this is where we can leverage the strength of our technology. Higher quality and larger number of pixels are more minute, and there is movement to pursue both. Depending upon the needs of the customers, we have to grasp those needs. We will compete in the field where our strengths can be maximized. Overall, the big trend remains unchanged. Production capacity will be increased as demand increases and strengthen R&D. This policy remains unchanged. That's all from me. Thank you very much.

It's time now for us to end today's Q2 earnings announcement meeting. Thank you for your participation.