By Leo Park, Jay Jo, and Yoon Lee

Translation: Blockchain in Vernacular

overview:

  • Sony is moving into Web3 to pursue a new phase of growth. Major initiatives include acquiring a centralized exchange (CEX), launching the Soneium blockchain mainnet, and developing a stablecoin.

  • Sony's Web3 strategy focuses on three pillars: non-financial (entertainment and games), financial (stablecoins, security tokens), and infrastructure. By connecting these areas, Sony aims to build a comprehensive Web3 ecosystem.

  • Under the vision of "Beyond Boundaries", Sony's approach will accelerate digital transformation, create new revenue streams, and enhance synergies.

1. Introduction

Once a symbol of Japan's economic growth and a leader in electronics, gaming and entertainment, Sony's dominance began to wane in the 2000s. The company struggled to adapt to the rapid transition from analog to digital, exposing itself to competitive pressure from companies like Samsung. This difficulty in responding to market changes plunged Sony into crisis.

In response, Sony took decisive steps to overcome challenges and embark on a new phase of growth. The company significantly reduced its reliance on the electronics business, which once accounted for 70% of its total revenue, and instead focused on the future-oriented entertainment industry. This bold restructuring laid the foundation for future growth and profitability. By 2023, Sony surpassed Samsung's operating profit for the first time in 24 years - an achievement that, while likely temporary, highlights the success of Sony's transformation and innovation.

Sony's pursuit of innovation has gone one step further. At its recent annual strategy meeting, the company announced its commitment to pursuing innovation beyond industry boundaries, under the slogan "Beyond Boundaries". This is consistent with Sony's recent move into the Web3 space. This report will examine Sony's blockchain initiatives and explore its vision for the Web3 industry. In doing so, we aim to gain insight into Sony's future vision for the Web3 space and its strategic direction.

2. Sony Group officially enters the Web3 industry

Sony's pursuit of innovation has gone one step further. At its recent annual strategy meeting, the company announced its commitment to pursuing innovation beyond industry boundaries, under the slogan "Beyond Boundaries". This is consistent with Sony's recent move into the Web3 space. This report will examine Sony's blockchain initiatives and explore its vision for the Web3 industry. In doing so, we aim to gain insight into Sony's future vision for the Web3 space and its strategic direction.

2017: Sony Global Education develops blockchain-based digital education platform

2018: Sony Corporation, Sony Music and Sony Global Education jointly develop blockchain digital content copyright management system

2018: Sony Computer Science Laboratories (CSL) develops cryptocurrency hardware wallet technology using IC cards

2020: Sony develops blockchain-based database platform for Dutch smart city research project

2021: Sony Pictures offers NFTs to pre-order customers of Spider-Man: No Way Home

2022: Sony Interactive Entertainment files for patents for Web3 technology, including in-game NFTs

2022: Sony Group establishes "SNFT", a subsidiary operating the NFT market

2023: Sony Network Communications and Startale Labs form a joint venture to build a blockchain mainnet

2023: Sony Group subsidiary Quetta Web acquires centralized trading platform "WhaleFin"

2024: Sony Bank begins proof-of-concept experiment for stablecoin issuance

2024: Sony Bank develops mobile NFT platform “Connect”

2024: Sony Blockchain Solutions Lab announces launch of Ethereum L2 mainnet “Soneium”

Sony has actively invested in and developed blockchain technology from its early days. Sony subsidiaries across various industries explore ways to integrate blockchain into their respective fields. The first notable move came in 2016, when Sony Global Education announced plans to develop a blockchain-based digital education platform.

The experience gained from developing this digital education platform soon expanded to other areas. Sony Music Entertainment applied the technology to the authentication, sharing, and copyright management system for digital content, including music, movies, and e-books. In 2018, Sony Computer Science Laboratories launched a hardware cryptocurrency wallet based on a contactless IC card. By 2019, Sony had built a blockchain-based database platform for the Dutch government's smart city research project.

Sony’s blockchain-related initiatives have accelerated significantly since 2022 and are consistent with the Kishida administration’s policy to promote the Web3 industry. Sony is moving from blockchain research to turning the technology into a viable business model. Recent moves, such as acquiring centralized exchanges, announcing plans to issue stablecoins and launching its own blockchain mainnet, reflect this shift. It is worth noting that Sony boldly expanded into the core areas of the Web3 ecosystem and broke through traditional business boundaries to challenge the Web3 industry. The next section explores Sony's recently announced Web3-related business.

1) Business expansion through acquisition of CEX

In August 2023, Sony acquired the centralized trading platform "WhaleFin", marking its official entry into the trading business. WhaleFin was originally launched under the name DeCurret and is a centralized trading platform service provider registered in Japan. It was acquired by Amber Group in 2022 and was eventually fully acquired by Quetta Web, a wholly-owned subsidiary of Sony Group.

Recently, Sony rebranded WhaleFin as "S.BLOX" and set its sights on expanding its trading business. The company aims to enhance the user experience of the trading platform and create new value in crypto trading by leveraging the diverse business connections of the Sony Group. Despite these ambitions, S.BLOX is currently less competitive than other trading platforms. The platform only offers nine cryptocurrencies, has low trading volumes, and generates 20 times more revenue than Bitflyer, Japan's leading trading platform, raising questions about its future potential.

Still, there is room for synergy through Sony's acquisition. Centralized exchanges serve as the gateway to the Web3 industry and can create significant synergies through the businesses that rely on them, especially with the current challenges of entering and exiting cryptocurrencies. Furthermore, Sony's combination in various Web3 industries is expected to help the trading platform become more competitive.

2) Soneium, Sony’s blockchain infrastructure business

Sony Blockchain Solutions Lab has announced that it has officially entered the mainnet business and plans to launch the Ethereum second-layer blockchain "Soneium". The news came about a year after establishing a joint venture with Startale Labs.

With this announcement, the name of the joint venture was changed from "Sony Network Communications Laboratories" to "Sony Blockchain Solutions Laboratories." Sony Group holds a 90% stake in the joint venture, while Startale Labs holds the remaining 10%. Given Sony Group's controlling stake, the joint venture is expected to play a core role in Sony's Web3 strategy, providing infrastructure for the application and integration of Web3 technologies across various departments.

What’s notable about Sony Blockchain Solutions Lab’s strategic approach is that it goes beyond just launching a new mainnet. By integrating Astar’s zkEVM technology into Soneium, Sony aims to leverage this technological asset to accelerate business development. This approach is consistent with Sony’s recent track record of achieving success through bold innovation, in contrast to Japan’s traditionally conservative corporate culture.

The personnel structure is also eye-catching. Sony Blockchain Solutions Lab is led by Jun Watanabe, former president of Sony Network Communications and member of the Startale Labs board of directors. He is also responsible for Sony Group's cryptocurrency trading platform S.BLOX. This leadership arrangement not only highlights the potential for cooperation within the Sony Group, but also hints at closer business opportunities between Startale Labs and Astar Network.

3) Sony’s stablecoin business

Sony has shown a strong intention to enter the stablecoin market. According to a report by Nikkei in April, Sony Bank of Sony Financial Group has begun experimenting with issuing stablecoins based on a variety of fiat currencies, including the Japanese yen. The move appears to be aimed at exploring the potential of using stablecoins as a digital payment method within the wider Sony Group.

At the same time, Soneium’s involvement in stablecoins has also boosted the interest of Sony Group in stablecoin-related businesses. In September, Soneium announced a partnership with Circle, which issues the USDC stablecoin backed by the US dollar, to support USDC in the Soneium ecosystem.

The move has sparked discussions about whether Sony will issue its own stablecoin on the public Soneium mainnet. However, this plan is expected to face significant challenges. Regulators have indicated that issuing stablecoins on a public mainnet, especially bank-issued stablecoins, is risky and requires potentially time-consuming regulatory changes.

Despite these difficulties, the participation of a leading Japanese internet bank like Sony Bank is seen as a positive sign for the industry. If Sony Bank can successfully issue a stablecoin on Soneium, this will be able to support a variety of applications, including cross-border payments through integration with USDC. Future developments in this area are worth keeping a close eye on.

3. Where will Sony’s Web3 business go?

Sony plans to adopt a comprehensive Web3 business strategy covering multiple subsidiaries. This strategy is likely to be built around three key pillars: 1) non-financial sectors, 2) financial sectors, and 3) infrastructure.

The non-financial sector is expected to be dominated by the Sony Group, especially focusing on the use of Web3 technology in entertainment and games. Sony Music has launched NFTs based on its artist intellectual property and is actively exploring the commercialization of music IP through Web3 technology. Discussions on the use of Web3 in the gaming industry are heating up, and recent patents on NFT and SFT technologies show this trend.

The financial sector is expected to be dominated by Sony Financial Group, which is currently preparing to be spun off from Sony Group. They will focus on the combination of Web3 technology and the financial industry, including stablecoins and security tokens. Sony Bank is already conducting research and development on stablecoins and is the first Japanese bank to sell loan bonds as security tokens. On this basis, Sony Financial Group is expected to further expand the application of Web3 technology in the financial sector.

Finally, Sony Blockchain Solutions Lab is expected to manage the infrastructure that serves as the foundation for all Sony Web3 initiatives. Although the lab is effectively part of the Sony Group due to Sony's controlling stake, it is expected to provide infrastructure services to the Sony Group and Sony Financial Group, acting as a bridge between the two. By efficiently utilizing Sony's assets, Sony Blockchain Solutions Lab is expected to be a core force in driving synergy in Sony's Web3 business.

These three areas may be organically connected to each other. For example, a stablecoin issued by Sony Financial Group could be used as a payment method within the Sony Group, or Sony's various intellectual property assets could be tokenized by Sony Financial Group. This rich opportunity for collaboration will allow Sony to build a comprehensive Web3 ecosystem covering its diverse business areas.

4. Conclusion

Sony dominated the electronics market in the 1990s with the Walkman, but struggled to diversify in the 2000s. The rise of Apple's iPod undermined the Walkman's position, while competition from Korean companies such as Samsung and LG in the LCD TV market threatened Sony's position. The company failed to keep up with the rapid transition from analog to digital, leaving it in a vulnerable position.

In order to recover, Sony has adopted a "select and focus" strategy. They cut underperforming businesses and invested heavily in core areas with high growth potential. As part of this transformation, Sony has identified blockchain technology as a new growth driver and is actively exploring related business opportunities. Combining blockchain with Sony's rich entertainment content, including games, music, and movies, is expected to create innovative user experiences and business models.

Sony's approach is likely to accelerate the digital transformation of its existing business areas while opening up new revenue streams. In line with its recent vision "Beyond Boundaries: Maximizing Synergies within the Group," blockchain technology is expected to play a key role in creating synergies between Sony's divisions. We will wait and see how this long-time industry leader uses blockchain to create new value and strengthen its market position.