Losses of $913 Million at Sony’s Pictures Division Cut Group Profits – Variety

Losses of $913 million at Sony’s Pictures division held the electronics giant’s profits to $169 million (JPY19.6 billion) in the three months to December, the third quarter of its 2016-17 financial year.

Overall, the group saw revenues decline by 7% to $20.7 billion and net profits trimmed to $130 million (JPY15.6 billion).

Sony said that the pictures division showed operating losses of $913 million. It specified that the figure included $962 million of write-downs revealed earlier this week. That implies that the division would have achieved operating profits of $49 million in the quarter without the write-down. That would still have been a steep drop compared with an operating profit of $168 million in the same quarter a year earlier.

Sony said the pictures division suffered from “significantly lower theatrical revenues,” but recorded “significantly higher sales of television productions.” These included higher subscription video-on-demand licensing revenues. The division’s sales and operating income a showed  a 5% drop from $2.16 billion to $2.06 billion in dollar terms and a 14% decrease reported in Japanese yen.

The four movies released by the pictures division during the quarter – “Inferno,” “Arrival,” “Billy Lynn’s Long Halftime Walk,” and “Passengers” – grossed only $363 million worldwide. That is barely a third of the $1.04 billion generated during the same period the year before, fueled by James Bond title “Spectre.”

The write-down was unveiled by Sony earlier this week and described as “a non-cash loss. Most of it was due to a reduction in the value of goodwill carried in the accounts since the 1989 acquisition of Columbia Pictures.

The pictures division’s loss will drag down the group’s results for the full year to March. Sony issued a new forecast of its 2016-17 results showing sales and operating revenue growing by 7% to JPY76 trillion but net income dropping to just JPY26 billion. That is a 55% reduction from its November forecast and an even bigger tumble from the JPY148 billion in net income that it reported for 2015-16.

Sony Pictures Entertainment chief Michael Lynton is scheduled to step down Thursday, though he will stay on as co-CEO for the next six months alongside Sony group CEO Kazuo Hirai. Despite Lynton’s departure on a loss-making note and the changed estimates of the pictures division’s profit prospects, Sony was adamant that the movie studio is not for sale and and that it will remain an integral part of the group.

In a subsequent earnings call with investment analysts, Sony executives said that they “take very seriously” the issue of the write down and the pictures division’s “significant underperformance” over several years compared with the group’s mid-range profit forecasts. They said that in the longer term they see production and ownership of premium content as being increasingly valuable in an era of fragmenting distribution. “Creating content is a core business,” they said.

Measures to turn around the fortunes of the pictures division are already underway, they said, and will not await the appointment of Lynton’s successor as CEO, a process that Sony has said could take up to six months. Measures already in hand under film chairman Tom Rothman include greater financial discipline, creation of new intellectual property (Stephen King’s “The Dark Tower” was cited as an example,) and the leveraging film and TV content from Sony’s game properties.

Executives also hinted at expansion of the TV channels business, which also falls under the pictures division. Target areas could include India, and could be achieved through acquisition, they suggested.

The group said that SPE has 14 titles on its 2017 release schedule – including “Resident Evil: The Final Chapter,” “Spider-Man: Homecoming” (July), “Flatliners” (September), and “Jumanji” (December) – plus 11 titles already announced for 2018.

 

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