Key questions and answers from the first quarter earnings call conducted by Sony Corp. on July 26 2007.

Evan Wilson (Pacific Crest): Could you explain the change in the guidance on the game business into the recorded sales model from the previous model. When exactly are you counting that as a recorded sale?

Nobuyuki Oneda: We just changed the shipping information from the production basis to the shipping basis starting from this quarter. The reason for this is that the production or shipment unit is not leading to our sale’s amount, so it’s better to change from the production to the sale’s basis. Another reason is that in the past, when we had been competing with Nintendo, they used to ship to the distributors rather than to the dealers. There are some differences, therefore, we apply the production basis or shipping basis.

Evan Wilson (Pacific Crest): Could you give more detail on inventory of the PS3 at the end of the quarter, and how long you think it will take for that inventory to sell through? What is the possibility to get a cost-down version of the PS3 into the channel by the end of the year?

Nobuyuki Oneda: Our peak season is the November to December timeframe, but those two months are quantitatively so huge, so therefore, we have to pile up inventory, starting from the early stages, like the May-June period, because we have some capacity issues. So it is a monthly supply business. I couldn’t exactly tell the timing when the 65 nanometer version would be in the channel, but it will certainly be within the peak season.

Evan Wilson (Pacific Crest): Is the LCD business in its decline in price? It sounded like potentially it could be greater than what you were previously expecting. Could you talk about the differences between the European and the US business? What do you think will happen with prices as we get closer to the holiday season?

Nobuyuki Oneda: This time the price in Europe was much higher than we expected and in US the price of deterioration is not as bad as we expected. The market is shrinking because of the competitive situation with the PDP, and the competitive pricing of the other LCD products. So this category is losing share. That’s one of the reasons why we couldn’t achieve the expected profit of the projection radios. Frankly speaking, our product’s competitiveness of this category was not so good compared to the other completed. Our competitors introduced the full high definition type model this April and May timeframe, but our plan was to introduce two of the models in August and September timeframe. That’s kind of the mistake of the alignment this year.

Daniel Ernst (Hudson Square Research): My first question is on the Olsiki TV business. You mentioned that roughly half of the loss in the TV segment was attributed to the LCD business. Could you walk me through some of those components? A close to negative 10% margin on the LCD business seems a little bit surprising relative to your peers.

Nobuyuki Oneda: The LCD business in Europe was mostly affected by the strong competitiveness of Samsung models. And particularly the small size, like the 32 inches, was pretty much affected. So yes, the DOWE margin was the loss of about 10%, but this situation may change when we introduce the new models in August and September. This is not the continuous situation for this category.

Daniel Ernst (Hudson Square Research): Could you talk about the opportunity to bring margins up in Pictures? Despite a great many hits and many hits coming to DVD with higher margin sales, the operating margin now is under 2%, and it was 4.5% a year ago.

Robert Wiesenthal: You really can’t look at the pictures business on a quarter by quarter basis, especially in terms of margins. It can be lumpy. We had a very big film, with a lot of revenue this quarter but very little profit due to the marketing costs which we incurred. The profits of Spiderman, which is an exceptionally profitable film, will come in the third and fourth quarter when the DVD comes out. But in terms of overall margins I want to make sure that we don’t characterize our margins as being low. Obviously a lot of our peers have other acts, such as cable networks and O&O station groups that have higher margins than the film business, but I think Sony Pictures is where they should be in a top quartile of operating margin.
.
Jessica Reese Cohen (Merrill Lynch): Why is there no book basis on MGM? What JV was sold and could you talk about expectations for second calendar half of ’07? What kind of changes are you making to A & R marketing? Should we expect further restructuring charges?

Robert Wiesenthal: Let’s start with MGM. This was an LBO and the way the equity returns were divided up to the partners was based on a ticking preferred security. There was a very large non-cash pay security that generated a tremendous amount of book loss, so the performance of MGM cannot be looked out on a net income basis, it can only be looked at on a cash flow basis. As such, on a net income basis, due to pit preferred, there were lots of book losses, and we have enough book losses to cover our investments at this point. We remain confident, though, that MGM is going to be a very attractive investment for us in the long term.

In terms of trends that we see, obviously, digital continues to be very large in terms of the percentage basis of total revenues. Right now, we are looking over about 21% of total revenues on the digital side in the US and about 13% worldwide. In terms of restructuring, we’re expecting about $75 million for the year. We’re right where we should be. I always leave open the possibility of further restructuring, but I think the integration is really largely behind us at Sony BMG, and we’re now enjoying a lot of the benefits of that merger.

Jessica Reese Cohen (Merrill Lynch): Given this summer home video releases it looks like it’s going to be a very crowded 4th calendar quarter home video release schedule. Would you consider moving Spiderman, given the outpouring of titles for the holiday season?

Robert Wiesenthal: Spiderman is a franchise on its own, and we are very comfortable with the ability to compete in the market.

Unidentified Analyst: Are there any economic or consumer spending concerns over arching, and as for the game business, what in particular are you concerned about, or cautious about for the rest of the year? You mentioned that you are planning a sale-leaseback on your headquarters. Can you give us a view on timing, when that might be booked in the P&L?

Nobuyuki Oneda: The pricing of LCD television is of course one of our concerns for the rest of the fiscal year. We will sell close to the 10 million LCD televisions within this fiscal year. And, if our projection of the pricing is deteriorating more than 5%, average basis for the annual basis, then it could affect the $500 million, so that’s one of the reasons why we have to be cautious about the profitability of the TV business. For example, this quarter, in Europe, our price deterioration, was from 5% to10% bigger than we expected. If that situation would continue global basis, that impact is so huge, that’s one of the reasons why we are taking some cautious stance of this fiscal year.

The game business is another concern, due to the bigger services expected from now on and we have so many new plans and sales starting from now. For example, we recently reduced the Play Station 3 from $599 to $499, and we also reduced to $599 with the 80-G products and with bundling of the software. Same type of promotion would be made in Europe. For example, 60G model we will bundle the two softwares and possibly the two controllers with the 599 Euro. Those are the new promotion programs, which started very recently, so we have to very carefully watch for those results. That’s why we have to be a little more, cautious about those situations.

Unidentified Analyst: So, if I can just clarify, in the area of the LCD your cautiousness is on profitability, rather than sales?

Nobuyuki Oneda: The cautiousness is primarily because of the profitability.