Sony Film Unit Falls Into the Red in First Quarter

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Sony Pictures Entertainment

Sony Pictures logs a $96 million loss as it fails to match the year-ago performance, which featured 'The Amazing Spider-Man 2' and '22 Jump Street,' while Sony Corp. promises better profitability in the future for the unit.

Sony Corp. on Thursday reported improved financials for its fiscal first quarter ended June 30 despite losses at its film unit. The conglomerate, led by CEO Kaz Hirai, said operating income rose 39 percent to $794 million (¥96.9 billion), while sales were almost flat at $14.8 billion. 

Net income more than tripled to $676 million (¥82.4 billion) as the weaker yen helped the bottom line at the entertainment-to-electronics conglomerate. 

Film unit operating income fell into the red to the tune of $96 million, compared to a surplus of $78 million in April to June 2014.

Film revenue decreased 12 percent compared with the year-ago period, or 26 percent on a constant currency basis, to $1.4 billion as it failed to match the strong theatrical performances of The Amazing Spider-Man 2 and 22 Jump Street in the same quarter last year.

Television licensing revenues also fell, with the same period last year boosted by sales of Cloudy With a Chance of Meatballs 2 and Captain Phillips.

"The primary reason for the drop in earnings was the timing of movie releases. We are also predicting an operating loss for the second quarter due to marketing activities for films that will be released from the third quarter onwards," said chief financial officer (CFO) and vice president Kenichiro Yoshida.

Yoshida said the film unit was being overhauled following the departure of Amy Pascal after the hacking scandal that hit Sony Pictures Entertainment at the end of last year.

"We recognize there are issues with motion pictures, such as low levels of profitability, and we are reforming the business under new management. But it will take time to see the results of this," added Yoshida.   

In answer to a question from The Hollywood Reporter, CFO Yoshida said that production costs, including deals for talent, will come under pressure in the drive for profitability at Sony Pictures.

"Specifically in terms of movie operations, the new leadership under Tom Rothman is already taking action, including working at less variance in annual profitability. Tom Rothman and his team are working to control production costs and the cost of Hollywood talent," said Yoshida.      

The full-year forecast for the film unit was left unchanged at ¥64 billion ($515 million at current rates) for the period to March 2016. 

Strong sales of the PlayStation 4 console continued to benefit the bottom line of the game division, which posted operating income up 350 percent to $160 million (¥19.5 billion) on sales of $2.37 billion (¥288.6 billion), up 12 percent.

Sony sold 3 million PS4s in the quarter and raised its sales forecast for the full year from 16 million units to 16.5 million. Meanwhile, Sony raised the forecast for operating income in the games division by 50 percent, to ¥60 billion ($495 million at current rates.)

Yoshida said Sony "greatly welcomed the opening up of the Chinese console market," but said it hadn't been factored in to its predictions for the game division, in response to a question from The Hollywood Reporter.  

The music division also benefited from the weak yen, which turned a 3 percent fall in sales in dollar terms into a 8.5 percent rise in Japanese currency terms, to $1.06 billion (¥130.2 billion), as revenue from recorded music continued to decline.

Sony shares were down 2.1 percent at ¥3,585 ($28.90) in Tokyo, where the Nikkei 225 index was up more than 1 percent, before the earnings announcement.

July 30, 03.40 a.m. Updated with details from earnings press conference.