Sony (SONY.US)'s strategic transformation: plans to split the financial business to accelerate transformation into an entertainment technology giant

The Zhitong Finance App learned that on Thursday, Sony (SONY.US) will announce its financial business development strategy after the spin-off. This initiative, hailed by investors as a “new chapter in corporate transformation,” marks that the Japanese giant is accelerating its transformation into an entertainment technology group.

This Japanese enterprise group, once famous for home appliances, has now contributed more than 60% of its revenue to the entertainment business, and its strategic transformation has been widely recognized by the market. However, this financial business spin-off reflects the twists and turns that Sony has gone through. Just four years ago, Sony fully controlled the business with a deal of 3.7 billion US dollars.

At the Investor Day event on Thursday, Sony executives will explain in detail the spin-off plan and financial unit growth strategy. According to the plan, the company will distribute more than 80% of the shares of its Sony Financial Group (Sony Financial Group), which includes banking and insurance business, to shareholders through in-kind dividends.

This is the first time that a Japanese company has used the 2023 tax reform policy to implement a partial spin-off. It is also the first direct listing case in more than 20 years (scheduled for September 29). Direct listing means that a company is directly listed on the stock market without going through the traditional initial public offering (IPO) process.

In response to media questions, Sony said that the spin-off will separate balance sheets from non-financial businesses that pursue capital efficiency from financial businesses that rely on capital accumulation, and help investors better understand the development goals of different businesses. Sony emphasized that compared to an IPO, this spin-off method can complete large-scale business divestment in a shorter period of time and with less risk.

Hideki Somemiya, chief financial officer of materials manufacturer Resonac (SHWDY.US), said, “Some business spin-offs have finally been exempt from tax. This is in line with Western practices and provides a new option for large Japanese companies to reduce group discounts.” Resonac plans to split its petrochemical business within two years.

After the spin-off, Sony will retain less than 20% of the financial business and continue to license its use of the brand.

Entertainment Empire Ambition

Sony is making every effort to expand the entertainment landscape from games to video and music, while maintaining the world's leading position in smartphone image sensors (a type of semiconductor).

“The chip business requires continuous investment in the manufacturing process,” Sony CEO Hiroki Totoki said of its chip business this month. “Whether it's operating independently, bringing in strategic investors, or adopting a light fab strategy, we have a variety of options.”

In addition to producing its own image sensors, Sony also cooperated with TSM.US to launch this chip foundry's business in Japan.

Bernstein analyst David Dai said, “Outsourcing part of production to TSMC is the most natural choice to reduce cost burdens and improve efficiency.”

Sony said this month that considering the loss of 100 billion yen (701.16 million US dollars) caused by US President Trump's trade war, operating profit for this fiscal year is expected to remain flat.

This corporate group, which set a record for operating cash flow last year, has allocated 1.7 trillion yen for capital investment and 1.8 trillion yen for strategic investment in the three years ending March 2027.

Outsiders generally believe that Sony wants to expand its intellectual property acquisition channels through transactions to strengthen the development of its entertainment business, and the Japanese market is one of its priorities. According to reports, the company was considering buying shares in the Kadokawa Group, and last year it was also evaluating a competition for Para.US (PARA.US).

Furthermore, through its Aniplex Animation Planning Company and the Crunchyroll streaming platform, Sony's influence in the animation field is increasing day by day. Rahul Purini, CEO of Crunchyroll, said: “For us, this market is booming and the opportunities are huge, both because of the impressive size of the existing market and because... the audience continues to expand.”

Despite rapid growth, the animation business is not as large as the game, film, TV, and music sector, and Sony has not separately disclosed its performance.

However, Bernstein's Dai estimates that the animation business will contribute 35%-40% of the film and television department's profits in the next two to three years. “This is not only a profitable business, but also a lucrative growth point.”