Sony CEO Raises Film-Unit Cost-Cut Target to $300 Million

5:09 AM PST 05/22/2014 by Gavin J. Blair
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Sony CEO Kaz Hirai

Kaz Hirai again reiterated that entertainment is a core business and emphasized the company's increasing focus on the growing TV production sector, but didn't mention movie production during a presentation.

TOKYO – Sony Corp.'s entertainment operations are as important as the electronics manufacturing division on which the company was built, CEO Kaz Hirai said at a strategy meeting at the company's Tokyo headquarters on Thursday.

And while he made no further mention of movie production during his presentation, he 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 cuts would come from. But in November, the company had mentioned a reduced film slate, personnel cuts and other savings as 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. Representatives of the fund, including Loeb, are reported to have met with Hirai last week after Sony forecast another year of losses.

Hirai on Thursday also once again emphasized the company's increasing focus on the growing TV production business. He hailed Breaking Bad and its Emmy victories along with The Blacklist, the No. 1 new U.S. primetime series of last year, as signs of Sony's strength in television production. He went on to note that seven new series have been commissioned this year, along with new seasons for existing programs.

"We plan to continue producing high-quality programming as the demand for content continues to grow," said Hirai.

Sony Pictures not being aligned with a TV network in the U.S. will become an advantage in this context, argued Hirai. "The strength of the four big networks, with their links to major studios, have been considerable, and some suggested that we suffered because of that," he said. "But the rise of the Internet has changed that. Not being linked to one of the networks will work to our advantage with the growing demand for online content."

He also reiterated that entertainment was a core business for Sony.

"When people talk about Sony, they often say 'in contrast to the losses in its core electronics business, its entertainment and financial services divisions remain profitable,' " Hirai said. "But I believe that entertainment, electronics and financials should all be considered central to Sony."

The successful launch of the PlayStation 4 (PS4), with more than 7 million units sold in 72 countries, will also be used as a way to promote Sony content, said Hirai.

"Half of PS4 users have already signed up to our online PlayStation Now service," he explained. "Sony plans to expand the entertainment content available through PlayStation Now and also make the PS4 and 4K television sets compatible."

PS4 hardware is already profitable for Sony, noted Hirai, a departure from previous consoles, which lost money on each unit when they hit the market.

Hirai apologized for continuing losses at Sony overall and laid out his vision for returning the company to profitability during his 30-minute presentation.

"I am extremely disappointed we have failed to make our core electronics operations profitable or reach our targets. I apologize sincerely for this," he said. "I have positioned this year as the year we complete our restructuring."

As part of its plans for returning its television manufacturing operations, which has been losing money for a decade, to profitability, Sony Visual Products will be established as a new business entity. The new division will be responsible for the entire value chain of television manufacturing, along with a shift to high-end models, such as 4K TVs.

Sony will incur $3 billion in restructuring costs in the current fiscal year, which the company estimates will deliver savings of $1 billion annually.

Twitter: @GavinJBlair

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