The share prices of Japan's leading content corporations, including Nintendo, Sanrio and Sony, have all fallen this year. As market funds shift to tech stocks amid an AI investment boom and concerns grow that AI could change the competitive landscape of the game, animation and character industries, investor sentiment appears to have weakened.
According to Nikkei Asia on the 9th (local time), the share prices of Japanese game and animation corporations that surged on the back of a demand spike after the spread of COVID-19 have been falling one after another this year. As of the day, Nintendo's stock was down about 30% from the start of the year, while Sony and Bandai Namco fell 13% and 11%, respectively. Hello Kitty operator Sanrio fell 9%, and Toei Animation, the producer of "One Piece" and "Dragon Ball," and Square Enix Holdings, the developer of "Final Fantasy," each dropped 13%.
The market cites the AI investment boom as the biggest reason. As demand for Generative AI grows and big tech corporations continue large-scale investment battles, investment funds are moving from content corporations to AI-related tech stocks. Mori Yuki, a fund manager at Asset Management One, said, "Because of the AI rally, investors are pulling money out of entertainment stocks and moving it into tech stocks."
Concerns that AI could transform the content industry itself are also weighing on share prices. Using Generative AI can lower animation and character production expense and increase production speed, but it could weaken the competitiveness of existing content corporations. For example, in Sanrio's case, its in-house character IPs such as Hello Kitty could find themselves competing with AI-generated characters.
In fact, Generative AI is rapidly expanding its influence in content production. According to research firm Precedence Research, the market for Generative AI used in animation production is expected to grow from $1.5 billion (2.2852 trillion won) this year to more than $31 billion (47.2285 trillion won) by 2035.
Rising prices for memory and semiconductors needed to manufacture game consoles are also cited as a burden. Sony Chief Executive Officer (CEO) Totoki Hiroki said last month, "The rise in memory prices means an increase in manufacturing expense," adding, "If the expense is passed on to consumers, it could seriously affect the spread of game consoles." In fact, Nintendo raised the price of the "Nintendo Switch 2" sold in Japan by 10,000 yen.
As funds concentrate in AI-related stocks, valuations of Japan's leading content corporations are also declining. Looking at the forward price-earnings ratio (PER), which reflects future earnings prospects, Sanrio fell to around 17 times recently from more than 40 times a year ago. Nintendo fell from 41 times to 21 times, Sony from 24 times to 16 times, and game company Capcom from 36 times to 19 times.
However, experts do not believe the growth potential of Japan's content industry itself has been damaged. The Japanese government is fostering the content industry as a national strategic industry and has set a goal of expanding overseas sales to 20 trillion yen (190.01 trillion won) by 2033.
Uehara Masahiro, a manager at Sumitomo Mitsui DS Asset Management, said, "It is not that structural deterioration of the industry has appeared," but added, "Uncertainty over the impact AI will have on the content industry remains high." He said, "In the end, what matters is whether corporations can nurture IP in a way that keeps their existing fan base while also securing new fans," adding, "Corporations that maintain and strengthen brand competitiveness will continue to lead the market."