Sony Board to Discuss Spin-off of Stake in Entertainment Business

Kazuo Hirai - 2010 International Consumer Electronics Show (CES) - 2010
Daniel Acker/Bloomberg/Getty Images

The electronics and entertainment giant said it would mull a proposal from an activist investor and cut its profit forecast for its gaming division.

TOKYO – Sony's board will examine the proposal from a U.S. hedge fund to sell off a stake in its entertainment division, but refused to give a timetable for when it would reply, CEO Kaz Hirai said at a strategy meeting at Sony's global headquarters on Wednesday afternoon.

STORY: Sony Investor Seeks Spinoff of Stake in Entertainment Business

The proposal was not mentioned specifically in a 40-minute presentation on Sony's medium-term strategy across its wide-ranging portfolio of businesses, but Hirai faced repeated questions about the company's response afterward.

STORY: Sony Posts First Annual Profit in Five Years

Firstly, I would like to clarify that the Third Point proposal is to sell off 15-20 percent of the entertainment division, not to spin it off as a separate entity,” said Hirai. “ We take this as an important proposal from one of our shareholders, and we will consider it thoroughly. We will discuss this fully at the board level and present our answer.”

A disposal of part of Sony's entertainment interests was first suggested by Daniel Loeb, the billionaire head of the Third Point hedge fund, who met with Hirai in Tokyo last week to discuss his proposals, which included having appointments to Sony's board from his company.


STORY: President of Sony Pictures Worldwide Acquisition Steven N. Bersch (Q&A)

Hirai pointed out during the presentation that both the movie and music businesses have been performing well in recent years and contributed revenue to the group's bottom line.

With the acquisition of EMI last year, Sony Music is now the biggest publisher in the sector, with over two million songs on its books, said Hirai.

Hirai placed himself at the center of Sony's mission to turn itself around after four straight years of losses that were halted in the last fiscal period – to March 31 – thanks largely to the disposal of assets and a weaker Japanese currency.

I spent a quarter of my time last year visiting 45 Sony facilities in 16 countries to discuss with the people on the ground the challenges we face” said Hirai. “I also met with our retail partners and, most important of all, our end users, to listen to what they want from us.”

In the gaming division, the PlayStation 3 is still selling steadily, said Hirai, who acknowledged that the portable PS Vita console was struggling and that Sony would aim to release better titles to boost its sales performance.

Hirai added that with the launch of the new PlayStation 4 console this year, Sony was forecasting sales for the game division of $10 billion (1 trillion yen) for the fiscal period to March 2014. However, profit margins for the division were predicted to be 2 percent, down from an earlier forecast of 8 percent, due to an environment where dedicated consoles faced increasing competition from casual gaming on smartphones and tablets.

The unveiling yesterday of Xbox One, the new gaming console from rival Microsoft, failed to generate excitement in either investors or the gaming community, due to a perceived lack of ground-breaking features or games.

The importance of the growing smartphone sector to Sony was emphasized by Hirai, who touted the global success of its current flagship handset the Xperia Z. The speed of change in the smartphone market has accelerated, and Sony is responding to this by bringing handsets to market more quickly, according to Hirai.

Sony is also leading the push toward the adoption of the high-definition 4K format as the industry standard for TV and films, said Hirai, who noted that Korea was already carrying out trial broadcasts of the new system.

Sony plans to appoint a new chairman of the board Osamu Nagayama, former CEO of Chugai Pharmaceutical, on June 20, to replace Howard Stringer, according to a report in the Nikkei, the leading Japanese business media.

Sony shares have jumped more than 10 percent since the Loeb's proposal was announced last week, and have more more than doubled since the beginning of the year.