Asian Giant Sony Takes on Blockchain

Can Sony Go Beyond the Boundaries with Blockchain Technology?

Oct 17, 2024

TL;DR

Sony is advancing into Web3 to pursue a new growth phase. Key initiatives include acquiring a CEX, launching the Soneium blockchain mainnet, and developing stablecoins.
Sony's Web3 strategy focuses on three pillars: non-financial (entertainment and gaming,) financial (stablecoins, security tokens), and infrastructure. By connecting these areas, Sony aims to build a comprehensive Web3 ecosystem.
Under its "Beyond the Boundaries" vision, Sony’s approach will accelerate digital transformation, create new revenue streams, and enhance synergies.

1. Introduction

Sony, once a symbol of Japan’s economic growth and a leader in electronics, gaming, and entertainment, saw its dominance wane in the 2000s. The company struggled to adapt to the fast transition from analog to digital, leaving it vulnerable to rising competition from companies like Samsung. This difficulty in responding to market shifts led Sony into a crisis.

In response, Sony took decisive steps to overcome its challenges and initiate a new growth phase. The company significantly reduced its dependence on the electronics business, which had once contributed 70% of its total revenue, and shifted its focus toward the future-focused entertainment sector. This bold restructuring laid the groundwork for future growth and improved profitability. By 2023, Sony had even surpassed Samsung in operating profits for the first time in 24 years—an achievement that, while potentially temporary, highlights the success of Sony’s transformation and innovation.

Sony's drive for innovation goes further. At its recent annual strategy meeting, the company announced its commitment to pursuing innovations that transcend industry boundaries, under the slogan “Beyond the Boundaries.” This aligns with Sony’s recent ventures into the Web3 space. This report will examine Sony’s blockchain initiatives and explore its vision for the Web3 industry. By doing so, we aim to gain insights into the future Sony envisions for the Web3 sector and its strategic direction.

2. Sony Group Enters the Web3 Industry in Earnest

Sony has been actively investing in and developing blockchain technology from an early stage. Various Sony subsidiaries across different industries have explored ways to integrate blockchain into their respective fields. The first notable step came in 2016 with the announcement of Sony Global Education's plan to develop a blockchain-based digital education platform.

The experience gained from developing this digital education platform soon expanded into other sectors. Sony Music Entertainment applied the technology to systems for the authentication, sharing, and rights management of digital content, including music, movies, and e-books. In 2018, Sony Computer Science Laboratories introduced a non-contact IC card-based hardware cryptocurrency wallet. By 2019, Sony built a blockchain-based database platform for the Dutch government’s smart city research project.

Sony's blockchain-related initiatives have significantly accelerated since 2022, gaining further momentum in line with the Kishida administration’s policies to promote the Web3 industry. Sony is moving beyond blockchain research and turning the technology into a viable business model. Recent moves, such as the acquisition of a CEX, the announcement of plans to issue a stablecoin, and the launch of its own blockchain mainnet, reflect this shift. What stands out is Sony’s bold expansion into the core areas of the Web3 ecosystem. The company is pushing beyond its traditional business boundaries to challenge the Web3 industry. The following section will explore Sony’s recently announced Web3-related business.

2.1. Business Expansion Through CEX Acquisition

In August 2023, Sony acquired the CEX ‘WhaleFin’, marking its official entry into the exchange business. WhaleFin, originally launched as DeCurret, a registered CEX service provider in Japan, was acquired by Amber Group in 2022 before ultimately being fully acquired by Quetta Web, a wholly owned subsidiary of Sony Group.

Recently, Sony rebranded WhaleFin as "S.BLOX" and has set its sights on expanding its exchange business. The company aims to enhance the user experience on the exchange and create new value in crypto trading by leveraging Sony Group’s diverse business connections. Despite these ambitions, S.BLOX currently lacks competitiveness compared to other exchanges. The platform offers only nine cryptocurrencies and has a low trading volume. It generates revenue 20 times lower than Japan’s leading exchange, Bitflyer, raising questions about its future potential.

Nevertheless, there is room for synergy through Sony's acquisition. CEXs act as gateways to the Web3 industry, and there can be significant synergies created by businesses that rely on them, especially given the current challenges in on- and off-ramping cryptocurrencies. In addition, the combination of Sony's various Web3 industries is expected to help exchanges become more competitive.

2.2. Soneium, Sony's blockchain infrastructure business

Sony Block Solutions Labs announced its official entry into the mainnet business by unveiling plans to launch the Ethereum Layer 2 blockchain, “Soneium”, roughly a year after establishing a joint venture with Startale Labs.

Along with this announcement, the joint venture was renamed from “Sony Network Communications Labs” to “Sony Block Solutions Labs.” Sony Group holds a 90% stake in the venture, with Startale Labs holding the remaining 10%. Given Sony Group’s majority ownership, it is expected that the joint venture will play a central role in Sony’s Web3 strategy, serving as the infrastructure to apply and integrate Web3 technology across various divisions of the group.

What’s notable about Sony Block Solutions Labs’ strategic approach is that it goes beyond simply launching a new mainnet. By integrating Astar’s zkEVM technology into Soneium, Sony aims to leverage this technical asset to accelerate its business. This approach aligns with Sony’s recent track record of achieving success through bold innovation. This contrasts with the traditionally conservative corporate culture in Japan.

The personnel structure is also noteworthy. Sony Block Solution Labs is led by Jun Watanabe, the former President of Sony Network Communications and board member at Startale Labs. He also heads Sony Group's cryptocurrency exchange, S.BLOX. This leadership arrangement not only highlights the potential for collaboration within Sony Group but also suggests closer business opportunity ties between Startale Labs and, by extension, the Astar Network.

2.3. Sony’s Stablecoin Business

Sony is showing strong intent to enter the stablecoin market. According to a nikkei report from April, Sony Financial Group’s Sony Bank has begun experimenting with issuing stablecoins based on various fiat currencies, including the Japanese yen. This initiative appears to explore the potential of using stablecoins as a digital payment method within the broader Sony Group.

Meanwhile, Soneium’s involvement in stablecoins is also boosting interest in stablecoin-related businesses within the Sony Group. In September, Soneium announced a partnership with Circle, the issuer of the dollar-backed stablecoin USDC, with plans to support USDC within the Soneium ecosystem.

This move has sparked discussions about the potential for Sony to issue its own stablecoin on the public Soneium mainnet. However, this is expected to face significant challenges. Regulatory authorities have indicated that issuing stablecoins on public mainnets, particularly by banks, poses risks and will require regulatory changes that could take time..

Despite these hurdles, the participation of a leading Japanese internet bank like Sony Bank is seen as a positive signal for the industry. If Sony Bank successfully issues stablecoins on Soneium, it could enable various applications, including cross-border payments through integration with USDC. The future developments in this area warrant close attention.

3. Where Is Sony’s Web3 Business Headed?

Sony plans to adopt a comprehensive approach to its Web3 business strategy, encompassing various 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 led by Sony Group, with a particular focus on leveraging Web3 technology in entertainment and gaming. Sony Music has already launched NFTs based on its artist IPs and is actively exploring the commercial use of music IP through Web3 technology. Discussions about utilizing Web3 in the gaming sector are gaining momentum, as shown by recent patents for NFT and SFT technologies.

The financial sector is expected to be led by Sony Financial Group, which is currently preparing to spin 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 was the first Japanese bank to sell loan bonds as security tokens. Based on this, Sony Financial Group is expected to further expand the application of Web3 technology in the financial sector.

Lastly, Sony Block Solutions Labs is expected to manage the infrastructure that will serve as the foundation for all of Sony’s Web3 initiatives. Although it is effectively a part of Sony Group due to Sony holding a majority stake, the lab is anticipated to provide infrastructure services not only to Sony Group but also to Sony Financial Group, acting as a bridge between the two entities. By focusing on efficiently leveraging Sony’s assets, Sony Blockchain Solutions Labs is projected to be the core enabler of synergies across Sony’s Web3 business.

These three sectors are likely to be organically interconnected. For instance, stablecoins issued by Sony Financial Group could be used as a payment method within Sony Group, or Sony’s various IP assets could be tokenized by Sony Financial Group. Such opportunities for collaboration are abundant, allowing Sony to build a comprehensive Web3 ecosystem that spans its diverse business areas.

4. Conclusion

Sony dominated the electronics market in the 1990s with its Walkman but struggled to diversify in the 2000s. The rise of Apple’s iPod weakened the Walkman’s position, and competition in the LCD TV market from Korean companies like Samsung and LG further threatened Sony's standing. The company's failure to keep up with the rapid transition from analog to digital left it in a vulnerable position.

To recover, Sony adopted a “select and focus” strategy. They cut back on 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 extensive 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 sectors while opening new revenue streams. In line with its recent vision, “Beyond the boundaries: Maximize synergies across the Group,” blockchain technology is expected to play a critical role in creating synergies across Sony’s divisions. It will be interesting to see how Sony, a long-time industry leader, leverages blockchain to generate new value and strengthen its position.

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