Sony Entertainment CEO Talks Studio Consolidation, Summer Box-Office Crash

"There hasn't been a significant romantic comedy," Michael Lynton tells a Goldman Sachs conference

Sony Entertainment CEO Michael Lynton told an investor conference on Wednesday that the decline in summer box office in the U.S. this year was likely partly due to too many similar movies being offered as he also discussed why studio consolidation may not make as much sense as some have suggested. 

Speaking at the Goldman Sachs 23rd Annual Communacopia Conference in New York, he said about Hollywood folks: "We are a nervous bunch. … We just start getting really agitated."

He said one of this summer's problems seemed to be that there was a lot of similar product, which left some audiences unserved, while also citing gas prices and such issues as improved home entertainment systems. He concluded that the industry would have to wait until next summer to see if it was a one-time issue or if there are bigger underlying challenges. 

"What we need to do is, beyond superhero movies, be creating other forms of entertainment," Lynton said, adding, "That is tricky, because that involves taking more risk." 

He highlighted a dearth of successful romantic comedies of late. "There hasn't been a significant romantic comedy" in at least two or three years, with Hollywood having more or less abandoned the genre, he said.

Are the numerous superhero films causing overload? "Obviously, it's a concern," Lynton said, but added: "The superhero movies of today are basically the Westerns" of the past. And not all are the same, so there should be enough room for various superhero films, Lynton argued.

U.S. box-office revenue took a big hit this summer. From May 2 through Labor Day, revenue came in at around $4.05 billion, an eight-year low — or, when accounting for inflation, a 17-year low. Revenue was also down 15 percent from last summer's record $4.75 billion. 

Would consolidation of film studios make financial sense? "We're probably the only industry that has not meaningfully consolidated in the last 100 years" in the U.S., Lynton said, but added that merger benefits would not be as easy to realize.

In the end, a combined company would just be "administering a larger library." But it would still have the restrictions of having a marketing department that can only handle 18-20 movies a year and the limited time buyers have in retail stores. Plus, real estate is a challenge. "Most of our studio lots have historical designations," so companies can't just do away with those, Lynton explained. Sony itself has been mentioned as a possible party in suggested studio combinations.

"It's not been a growing business over the years except in certain markets," Lynton said when asked if the film business had much growth in it. "We just don't see big growth" because it is a mature business in theatrical and DVD, except for some growth regions, led by China, which is on track for another box-office record this year. He said Sony wants to keep pushing its business in China. He also lauded electronic sell-through as a growing part of the film business.

Asked about other international markets, Lynton said Russia "is still a great market."

"We keep a very close watch on costs," Lynton said when asked about his key priorities. And he said there was "good growth" in Sony's TV business, especially at the TV networks it operates abroad. Sony has a big networks business in India, which is growing "extremely well," he said, citing the general entertainment, comedy and other networks there. "We see that as a big opportunity for growth," he said.

Sony CEO Kaz Hirai recently said that Sony Pictures would cut costs by $300 million by the end of the fiscal year that runs through March 2016. In November, the company had said it was targeting $250 million in savings at the film unit over that time frame. 

Hirai didn't detail where the additional $50 million in cuts would come from. But in November, the company had mentioned a reduced film slate, personnel cuts and other savings measures. Sony was under pressure last year from investor Daniel Loeb's hedge fund Third Point to spin off part or all of its entertainment division. 

Asked about TV production trends, he said dramas sell particularly well abroad these days, often allowing a show to be at break-even from the start. Comedy, meanwhile, doesn't travel well, even to the U.K., he said. But Sony has done well selling formats into foreign markets, Lynton highlighted. 

Discussing the music business, Lynton said Sony would like to see digital subscription businesses thrive. "The future is actually very, very bright for the music industry," he told the conference. "They got their cost structure right now." And despite a decline in downloads, there is growth in streaming, with blended margins across the various streaming businesses similar to downloads. 

Last year, Lynton renewed his contract with Sony, though the length of his contract extension was not revealed. As chairman and CEO of Sony Pictures Entertainment, he has run the studio with co-chairman Amy Pascal. In 2012, he was named CEO of Sony Entertainment, adding oversight of the company's global entertainment business, including music and music publishing. 

Sony Pictures Entertainment has just finalized a distribution deal with Jeff Robinov's Studio 8. Robinov, who stepped down as president of the Warner Bros. Motion Picture Group last year, has assembled the new production company in partnership with Chinese investment group Fosun and Sony Pictures, which is investing in Studio 8 and will distribute up to six films from it annually worldwide except for the Greater China region.

Studio 8 expects to raise $1 billion in financing and will have greenlight authority of its own, but will be based in Culver City on the Sony lot. Sony is banking heavily on Robinov's talent relationships and production expertise. Lynton highlighted the deal Wednesday, saying it helps the studio fill out its slate. 

Asked about the interaction between the entertainment operations and the rest of Sony, Lynton said "they are very much integrated," with daily to weekly interactions taking place with other parts of the conglomerate.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai

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