Sat, Nov 23, 2013 - Page 15 News List

Sony to cut US$250 million in costs at entertainment unit to increase profit

Bloomberg

Gamers race on Sony PlayStation Gran Turismo racing simulators on Thursday at the LA Auto Show in Los Angeles, California. The show opened to the public yesterday and runs through Sunday next week.

Photo: AFP

Sony Corp will cut US$250 million in costs at its entertainment units over two years, part of CEO Kazuo Hirai’s plan to boost profit and keep full ownership of the movie, TV and music businesses.

The company is reducing the number of films from Columbia Pictures, shifting investment to television production and media networks, and identifying more savings, Sony told investors and analysts on Thursday at its Culver City, California, film studio.

Hirai is under pressure to prove his One Sony plan tying entertainment to electronics can work, following a disastrous second quarter that included a US$181 million operating loss at Sony Pictures Entertainment. Six months after billionaire Daniel Loeb called for a partial sale of the entertainment assets, Hirai outlined priorities for cutting costs while investing in higher-growth areas, stressing ways entertainment can dovetail with electronics from the Tokyo-based company.

“I know that the whole of Sony is greater than the sum of its parts,” the 52-year-old Hirai said. “Sony Entertainment is a core part of Sony and is crucial to our future growth.”

Invoking Sony cofounder Akio Morita, who acquired the film studio in 1989, Hirai said the company is poised to make good on the benefits of owning software and hardware together.

Content can help sell TV sets, tablets and mobile phones, Hirai said, adding that Sony’s leadership in the development of ultra high-definition video called 4K was made possible by owning a movie studio.

Sony fell 1 percent to close at ¥1,875 in Tokyo yesterday. The stock has almost doubled this year.

Hirai offered other examples where entertainment has helped Sony’s electronics businesses: Blu-ray technology became a standard for home-video and video games; Xperia phone buyers can gain easy access to Sony’s movies, music and TV shows; and the PlayStation 4 game console will have exclusive Sony content.

Sony’s film and television business’ operating profit is expected to reach US$630 million next year on sales of US$8.4 billion, David Hendler, the division’s chief financial officer, said at the conference.

To improve profit margins, the company has identified US$150 million of overhead and operational efficiencies, and US$100 million in procurement savings, Hendler said.

The division is also working with consultants to find additional cuts, Michael Lynton, CEO of the entertainment unit, said from the stage.

“No cost is too sacred to cut,” Lynton said.

Sony Pictures is shifting investments to television, where profit margins are higher, Lynton said, and buying out partners in its media networks outside the US. The company is looking for cable-channel opportunities in the US, he said.

Columbia Pictures will release 18 films annually, down from 23 in past years, said Amy Pascal, co-chairman of the film studio. She announced a third Spider-Man film for 2016 and a fourth for 2018. The studio is also raising profit targets for new movie projects, cutting marketing costs and negotiating talent deals that provide financial rewards only in success, she said.

“If we don’t make money, they don’t make money,” Pascal said at the conference.

Sony hired Bain & Co to identify more than US$100 million in entertainment expense reductions, a person with knowledge of the matter said this week.

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