Sony Posts Lower Quarterly Film Unit Loss, Cuts Full-Year Forecast

DOWN: Kaz Hirai

The new Sony CEO doubles the company's projected annual loss to $6.4 billion, its worst ever, and will trim 10,000 jobs. (Big layoffs at the film and TV studios are not expected.)

Unit cites higher home entertainment and TV revenue and lower marketing expenses amid fewer releases and the year-ago under-performance of 'White House Down'

Sony Corp. on Friday reported a narrowed loss at its film unit, but a wider overall loss. 

The company also lowered its full fiscal-year forecast for the film division, now targeting $523 million in operating profit, down by $63 million, or about 10 percent, from its previous forecast, on revenue of $7.9 billion, down 2.4 percent. It cited lower first-half fiscal-year TV networks advertising revenue, mainly in India where executives said election coverage affected ratings for cricket matches, and lower-than-expected revenue for films released in the first half. In the previous year, the company had posted an operating profit of $501 million on revenue of $8.1 billion.

During a call for U.S. analysts, Sony executives were asked about talks with China's Alibaba about possible collaboration in the film business and whether any future partnership could also extend to video games. Without providing details, they confirmed Sony and Alibaba have had talks, but didn't comment further beyond saying they weren't focused on the games business. Alibaba executives have been in Hollywood this week for meetings with studio executives, including at Sony. Some have suggested Sony and Alibaba could co-finance movies.

The conglomerate, led by CEO Kaz Hirai, posted an overall quarterly loss of $1.25 billion after it recently forecast a wider full-year loss on revenue that rose 7 percent to $17.4 billion. The latest earnings report included a big write-down for the value of its smartphone unit and came after recent news that activist investor Daniel Loeb had sold his Sony stake.

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Quarterly film revenue increased 2.4 percent over the year-ago period "primarily due to the favorable impact of the depreciation of the yen against the U.S. dollar," but dropped 3 percent on a constant U.S. dollar currency basis, to $1.67 billion. The company's film releases in the quarter included The Equalizer, starring Denzel Washington and Melissa Leo, which was came out in late September; Sex Tape, with Cameron Diaz and Jason Segel; and the Ghostbusters 30th anniversary re-release.

Lower theatrical revenue was offset by higher home entertainment revenue, thanks to The Amazing Spider-Man 2 and Heaven Is for Real, and TV licensing revenue, driven by The Amazing Spider-Man and Men in Black 3.

Film unit operating loss came in at $10.0 million, compared with a year-ago operating loss of $17.8 million, which had been due to a decline in revenue from theatrical releases, TV licensing and home entertainment. Sony in the year-ago period had particularly cited the theatrical under-performance of White House Down, released just before the end of the quarter, as a key contributor to the loss. In the latest quarter, it said that year-ago marketing expenses were higher than due to a higher number of releases back then.

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Sony's music division posted a 21.9 percent increase in operating profit to $108 million amid lower expenses and improvement at its share of EMI Music Publishing's performance. Music revenue rose 1.5 percent, but dropped 2 percent on a constant currency basis to $1.07 billion. The drop was driven by lower music publishing and recorded music revenue. Best-selling titles in the quarter included Barbra Streisand's Partner, Chris Brown's X and Sia's 1000 Forms of Fear.

Video game unit revenue rose 83 percent to $2.84 billion as the division swung to a $200 million operating profit. "This significant improvement was primarily due to the impact of the ... increase in sales related to the introduction of the PlayStation 4," partially offset by a decrease in PS 3 software sales, the company said.

"These are the first consecutive quarters of operating profit in the television [manufacturing] business since 2004, which has been driven in part by our decision not to chase volume in regions like South America," CFO Kenichiro Yoshida said about a positive trend in the conglomerate's electronics business.

"Although it sounds like an excuse, please consider the seasonal nature of the movie business, where there are fewer theatrical releases usually in this quarter," Yoshida said about the latest film result.

An Entertainment Business Supplemental Information document was given to the media at the earnings announcement at Sony's Tokyo headquarters, which detailed all of the main theatrical and home entertainment releases for the quarter, along with major music titles and information on television shows and channels from around the globe. This has been distributed along with earnings announcements this year in response to calls for more transparency in the entertainment division from Loeb and his Third Point hedge fund.

Meanwhile, in an attempt to turn around the mobile phone segment, Sony on Thursday named Hiroki Totoki as its new head. "What I have to do is increase profitability of the mobile operations. The mobile market is moving very rapidly," said Totoki on Friday.

Oct. 31, 1:10 a.m. Updated with commentary and information from the press conference.

Oct. 31, 6:45 a.m. Updated with commentary from analyst call.

Twitter: @georgszalai