The culprit this time is a $1bn writedown of Sony’s struggling film business, even as it raked out a profit from all of its electronics products including television, mobile phones and games — a feat that would have been unlikely five years ago.
For the fiscal year through March 2017, the company said it anticipated a net profit of ¥26bn ($231m) compared with an earlier forecast of ¥60bn. That comes in well below analyst forecasts for a profit of ¥85bn.
Trouble at Sony’s movie and television studio is not new. It has had an underwhelming few years at the box office and was rocked by a cyber attack in 2014.
But the entertainment group shocked investors this week with a warning that it would book a ¥112.1bn writedown, blaming a faster decline than expected in the DVD and Blu-ray market.
The Tokyo head office has had a tricky relationship with Hollywood since Sony acquired Columbia Pictures Entertainment in 1989.
Kazuo Hirai, Sony chief executive, has been particularly careful to maintain a healthy distance to ensure that the studio retained its creative independence, while making sure costs were under control.
Analysts say that relationship may change as Mr Hirai temporarily relocates to California to find a replacement for Michael Lynton, the chief executive of Sony Entertainment, home of Sony’s movie and TV studio and music company.
Mr Lynton, who enjoyed close ties with Mr Hirai, is leaving the group after 13 years to become the chairman of Snap, the owner of messaging app Snapchat.
“Mr Hirai will be going to the US to implement a hands-on turnround of the business. Realistically, it’s a high hurdle for a single person to oversee both the electronics and entertainment businesses, so the key is how fast Mr Hirai can find a successor [to Mr Lynton] that he can trust,” said Yoshiharu Izumi, an analyst at Longine, a Tokyo-based investment advisory firm.
At an earnings briefing on Thursday, Kenichiro Yoshida, Sony’s chief financial officer, acknowledged that the problems at its US entertainment arm stemmed from management issues that were deeper than an absence of strong blockbuster franchises.
“Due to the very long slump in our electronics businesses, it’s hard to deny that we pursued short-term profits that led to decisions such as the sale of the merchandising rights for Spider-Man films,” Mr Yoshida said.
“The accumulation of these decisions has led to the current weakness in profitability. The current management needs to take responsibility for that and rebuild our [film] business with a long-term view,” he added.
Anticipated net profit for the full year to March, compared with a forecast of ¥60bn
During the past few years, Sony has implemented a cost-cutting programme and other measures to strengthen its product line-up, partly in response to criticism from Daniel Loeb, the activist investor.
But progress has been slow and the group warned that the movies segment would likely miss its revenue target range of $9.5bn to $10.5bn — already revised downward in June — for the 2017-18 fiscal year.
The often-volatile performance of Sony’s movie studio has prompted investors to call for a sale of a minority stake in the business. But Mr Yoshida reiterated the importance of maintaining 100 per cent ownership, stressing that it remained a core business alongside its games and image sensor divisions.
Damian Thong, an analyst at Macquarie, said it was still possible that Sony could seek partners to invest in the studio’s films, rather than selling a minority stake. A natural partner, according to Mr Thong, would be Dalian Wanda, the Chinese property-to-movies group that clinched a deal with Sony last year to co-invest and market films in China.
“If Mr Hirai’s move to California signals commitment to the business, the next step may be a more aggressive pursuit of deals to help Sony develop and finance content,” Mr Thong said.
Stripping out losses in its film business, Sony delivered robust third-quarter operating profits in all of its electronics divisions, totalling ¥145bn. It also achieved a rebound in the sales of image sensors, used in Apple’s iPhones. Their manufacturing was disrupted by a series of earthquakes in the southern city of Kumamoto last year. Its only other loss stemmed from the recent sale of its struggling battery business, a decision that was welcomed by investors.
“The profits during this quarter were strong enough to give you a good sense that Sony has turned around,” Mr Thong said.
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