Sony's Strategy Shift Shuts Down Sale Rumors

Kazuo Hirai and Kenichiro Yoshida - One Time Use Only - Getty - H 2018
Kazuhiro Nogi/AFP/Getty Images

A push from hardware to content may leave the company looking for an acquisition.

More than a decade before launching its iconic Walkman in 1979, Sony made its first foray into content with a CBS/Sony Records joint venture in 1968, then a groundbreaking deal with an overseas company under new Japanese laws. A decade later, Sony had acquired both Columbia Records and Columbia Pictures.

On May 22 at Sony's Tokyo headquarters, new CEO Kenichiro Yoshida noted it was the 50-year anniversary of the CBS/Sony Records deal as he laid out a strategy shift toward content in its three-year business plan. While some observers had suggested Sony's entertainment divisions were losing their biggest cheerleader when Kaz Hirai handed the reins over to Yoshida on April 1, the former CFO positioned IP content as a major driver of midterm growth.

That's good news for Sony Pictures, which has been plagued by rumors of being for sale, but it's not altogether a shock. After selling more than 81 million electronic devices in 2011, Sony sold only around half that number in 2017.

With healthy cash reserves and predictions of generating $18 billion more by 2021, Sony will be looking to bolster its entertainment businesses. But finding targets fitting Yoshida's model of stable, recurring revenue generators won't be easy, particularly in the film and TV business.

"In my view, the company should put more priority on investing in music rather than movies," says Masahiro Ono, a Sony analyst at Morgan Stanley in Tokyo. "It already has the global number one position as music publisher and may target being number one as a label."

Northlake Capital Management founder Steven Birenberg, who owns Sony stock, is "a little surprised they sounded so aggressive about building their business at their analyst day."

Both Ono and Birenberg see acquisitions abroad – such as in India, where Sony has built a network of TV channels – as more likely than a major Hollywood deal.

"Last year Sony failed to get the IPL [broadcast rights to the Indian Premier League cricket competition] and tried to offset that with the Ten Sports [Indian sports network] deal," says Ono. "But that's not enough and I think it will look for another media network. That is more likely than it acquiring a studio."

"More content production assets in the US? The usual suspects are out there: Lionsgate, AMC Networks, MGM. Nothing really jumps out, logically," suggests Birenberg.

Lionsgate, with TV shows like The Royals, Nashville and Dear White People, along with film franchises including The Hunger Games, Twilight and Now You See Me, makes some sense, according to Ben Weiss, chief investment officer at 8th and Jackson Capital Management.

"Yoshida has made it a strategic imperative for Sony Entertainment to grow its base of recurring revenue. Lionsgate has strong recurring revenue with Starz' subscription cash flow and its large film library licensing business," says Weiss.

Meanwhile, Sony's attempt to build a global content delivery platform via the PlayStation has foundered, with PS Vue in the US yet to attract a million subscribers.

"Sony has no single OTT platform so it has to have a strong IP story because it will likely be making more sales to Netflix and other providers in the future," says Media Partners Asia executive director Vivek Couto.

Sony may be in the market for content, but isn't always making full use of properties it already has. The limited leveraging of IP from PlayStation games for movies and TV is a missed opportunity, according to Couto, who says Sony comes off poorly in comparison to Disney in that regard. "That integration needs to happen," he adds.

Paul Bond contributed reporting.

This story first appeared in the May 2 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.