Behind Sony's Billion-Dollar Write-Down: A Clean Slate or Megadeal Bait?

Courtesy of Tom Holland/CTMG
Sony is pinning many of its hopes for 2017 on the reboot of its 'Spider-Man' franchise.

A former top exec tells THR the $962 million charge announced Jan. 30 is about a "reset" of the studio after a number of projected profit shortfalls and CEO Michael Lynton's move to Snapchat.

Sony Corp.'s nearly $1 billion write-down on its film division might be more than an accounting maneuver designed to clean up the company's books. Some analysts believe the Jan. 30 move may portend a transformative deal in its future.

The $962 million charge basically allows the Tokyo-based giant to take a financial hit — all at once — that accounts for projected profit shortfalls on everything from its acquisition of Columbia Pictures in 1989 to the decline in the home video market. It follows a warning in June that its film division, hurt by such disappointments as Ghostbusters and Inferno, could suffer more losses in 2017. And the latest disclosure came just weeks after Sony Pictures Entertainment CEO Michael Lynton revealed he'll step down after 13 years to focus on his duties on the Snapchat board.

Getting a clean slate may allow Sony Corp. CEO Kazuo Hirai to better explore options for the struggling studio, which in 2016 ranked fifth out of the six majors in box-office market share. Rumors have been swirling for years that he is looking for an opportunity to unlock value from the entertainment division through a deal that may include an outright sale, a partnership or even spinning off SPE in a public offering. There have been whispers in Hollywood that Hirai thinks the entertainment unit is worth about $20 billion (though a recent research note issued by Wunderlich Securities pegged the value at closer to $13 billion).

To be sure, Hirai was clear that he has no intention of unloading the company despite a drumbeat of deal speculation that CBS CEO Leslie Moonves or a number of well-heeled Chinese bidders might be interested. "Make no mistake; Sony Corp.'s commitment to SPE remains unchanged," he told employees in a Jan. 30 letter. "Sony Corp. sees SPE as a very important part of Sony Group and will continue to invest to achieve long-term growth and increased profits in this space." And Hirai plans to take an office at Sony's Culver City lot to help oversee a leadership transition, with a new CEO to be named within six months.

A former Sony top executive tells THR he thinks the write-down is more about "a reset" of the studio. He points to Hirai spending more time at SPE's offices as a way to help improve the unit's performance and get its finances (and moviemaking) back on track. That's even more important as the studio relaunches perhaps its most important franchise with the July 7 release of Spider-Man: Homecoming.

Either way, the chatter over one of Hollywood's big six studios has piqued interest in both Hollywood and Wall Street. "The timing of the write-down is interesting," notes Welch Capital Partners analyst Daniel Ernst. "I was always in favor of listing a minority stake, but I still doubt they have that on the table, let alone an actual sale — but never say never."

This story first appeared in the Feb. 10 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

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