Movie follow-ups are rarely better than the original. But there are exceptions. Shares in Sony rallied 9 per cent on reports that Dan Loeb's Third Point was building a stake for the second time. His previous attempt to get the Japanese group to spin off its movie business failed. If, as expected, he tries again, investors should hope for a different ending.
The New York-based hedge fund sold its 7 per cent stake in Sony five years ago, having booked a return of a fifth on its $1.1bn stake in just 17 months. While most of its demands to cut costs and sell its entertainment businesses were rejected, other changes followed. Sony sold off its PC and battery businesses. The shares nearly tripled in the following years.
But over the past six months, Sony shares have dropped by a fifth. There are few positives in its near-term outlook. Profit growth has slowed. Semiconductor sales are down. Its failing smartphone business has eaten into gaming profits, prompting Sony to halve the unit’s staff. PlayStation 4 console and game sales have peaked. Increased competition from cloud-gaming services such as Google’s Stadia loom.
For Sony, film and television production is 11 per cent of its consolidated total revenue and just 3 per cent of operating profit. There would be benefits from distributing Sony’s content through platforms with a wider reach. The audience of its on-demand video platform SonyLIV is limited.
More than half of Sony’s films are international features. Given the war for global content between digital platforms such as Netflix and Amazon, the business might fetch a large premium. Based on a sector average multiple, a Sony movie spin-off might be worth about half the $71bn paid by Walt Disney last year for 21st Century Fox’s entertainment assets.
Mr Loeb has a record of successful activist campaigns in Japan against the likes of Suzuki Motors and robot maker Fanuc. His reported stakebuilding will add urgency to Sony’s restructuring plans. Investors should look forward to this sequel.
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