Sony Rejects Call to Sell Off Entertainment Business

[Andy Chalk]

Sony Rejects Call to Sell Off Entertainment Business

Sony says that continued ownership of its entertainment business is "fundamental" to its success.

Back in May, Daniel Loeb, the billionaire CEO of hedge fund heavyweight Third Point LLC, called on Sony to sell off its entertainment business, including Sony Pictures and Sony Music. He stepped up the urgency of his call in July, saying the entertainment division is "bloated" and expressing surprise "that Sony's CEO does not worry that Entertainment continues to generate profitability levels far below those of its competitors."

In a letter sent to Loeb today, however, Sony CEO Kaz Hirai expressed appreciation for Loeb's "perspective" but rejected the idea of spinning off the division. Sony has "thoroughly considered the merits" of his proposal, Hirai wrote, but "after careful review, the Sony Board of Directors has unanimously concluded that continuing to own 100% of our entertainment business is the best path forward and is integral to Sony's strategy."

Hirai emphasized the company's commitment to its "One Sony" strategy, which includes increasing growth and profitability of the Sony Pictures and Sony Music divisions, and a "revitalization" of its electronics business, including smartphones, televisions, cameras and game consoles. "We are also encouraged by the positive feedback from the announcement of the PlayStation 4, which is highly integrated with our leading networks and mobile businesses," Hirai wrote. He also noted that Sony has other access to other sources of capital should the need for it arise, which he said are "more efficient" than a public offering.

Third Point currently holds a 6.5 percent stake in Sony, making it one of the company's largest shareholders.

Source: Sony [http://www.sony.net/SonyInfo/News/Press/201308/13-091E/index.html]


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[Something Amyss]

It's true. They couldn't have secured a Blu-Ray future without martyring the PS3.

 

[Ace O'Hagen]

well well well, another item to add to the list of why hedge fund managers are complete idiots. they never see the whole picture and how it relates to everything, all they see is something that's keeping them from taking all the money

 

[PoolCleaningRobot]

Sony's entertainment division is a big asset and if they could start to unify their stuff it could be big. For example, they should make a new experia play but make it powerful enough to emulate the psvita, which should be easy given the new qualcom 800 chips. They're already adding ps4 features to smart phones like streaming

 

[Dragonbums]

Yeah no shit.

My dad absolutely hated Sony for what it tried to do with it's music and tech. Same could be said for a lot of Sony customers that don't delve into videogames.

 

[KeyMaster45]

I think, no scratch that, I know this guy has an ulterior motive for suggesting something like this. The obvious answer is he stands to make swimming pools worth of money, but the mystery is exactly what chain of events is he trying to set off by publicly calling out Sony.

 

[medv4380]

Investors are concerned there is an issue in the game industry. MS Investors tried to get them to cut off the entertainment division, and now Sony. If they're not shown to be able to make a profit in this next generation they'll be forced to cut off the divisions. Ironically, it will only take one to be cut off for the other to become profitable. It's a game of attrition. Game sales are way down for nearly two years as well. We'll see if their new system launches actually put things back on track, but we'll see.

 

[Infernal Lawyer]

Ah crap, I had a snappy line and then I realized that Third Point wasn't some third party trying to buy the division.

Regardless, I think Sony realized it didn't want to sell the division just before it entered the next console general, and considering that Microsoft started shooting themselves in the foot after they announced their console, I think it's safe to say that they made the right decision.

 

[Amir Kondori]

The hedge fund manager is looking for a pay day which would be in his fund's interest but not in Sony's long term interests. Not going to happen.

 

[Lightknight]

This would be a very bad move for Sony with the mountains of interest in the ps4. They stand to make significant profits going forward. As stated above, this is just an investor who wants to inflate the stocks so he can sell. This would be incredibly poor judgement if done. Short term profit for investors who want to get out at a huge payout with long term detriments to Sony.

Aside from the game segment of the entertainment business, they need to do some serious work. The Sony brand is currently percieved as overpriced and of similar quality as the other brands. As a business you can generally only distinguish yourself in one of two ways. High Quality or Low cost. Depending on the industry competition you may be able to do some combination. But Sony's quality image isn't enough for them to charge higher rates as successfully when other brands in the market work just as well. I don't think Sony will ever be a low cost differentiator so they need to just compete on prices with other brands and let their pedigree do its work (I would rather buy a Sony if all else was the same).

 

[shial]

We are about to enter a new console generation. The first iteration of the consoles lose bucket loads on money (Think MS/Sony didn't start to turn a profit until year 3 or 4) because they hardware is so heavily subsidized and they are spending tons on the marketing. A few big name titles will move over but unless they are first party titles they've been developing them on the last generation of hardware (Plus the install base is much much larger).

Hedge Funds like this guy's are not gonna make any money at all on their Sony entertainment stocks for several years. If they can push for a sell off they walk away with a fortune and don't have to ride it out, riding it out pushes down the hedges performance for a few years so he gets much lower fees.

 

[Lightknight]

We are about to enter a new console generation. The first iteration of the consoles lose bucket loads on money (Think MS/Sony didn't start to turn a profit until year 3 or 4) because they hardware is so heavily subsidized and they are spending tons on the marketing. A few big name titles will move over but unless they are first party titles they've been developing them on the last generation of hardware (Plus the install base is much much larger).

Hedge Funds like this guy's are not gonna make any money at all on their Sony entertainment stocks for several years. If they can push for a sell off they walk away with a fortune and don't have to ride it out, riding it out pushes down the hedges performance for a few years so he gets much lower fees.

Actually, this gen they are supposed to make profit on the consoles right out of the gate unlike last time.

 

[Artlover]

Why has every reply been about consoles? The article wasn't console related, and consoles represent only a tiny segment of the entertainment division.

This is mostly about the music and movies aspect, both of which are huge money pits. Particularly movies, where unless it's some major block buster, you're lucky to break even. Music has become much less profitable as of late too. The costs of consoles in relation to Sony Entertainment on a whole is insignificantly laughable and not the real issue.

The real issue is Sony having their hands in everything (from electronic components, computers, software, hardware, movies, music, video games, consoles, telcom, phones, satellite, automotive, etc...), which spreads things kind of thin. It's a logical viewpoint. Why does an electronics company need to be involved in entertainment. Why does a movie company need to be involved in smart phones. Why does an automotive parts supplier need to be involved in computers. Yet, that is what Sony is. A ridiculous monopoly that would never exist if it was an American company.

That said, in the long term, it makes sense for Sony to keep their hands in everything because it ultimately lowers their bottom line else where. IE: Electronic components. Since they manufacture many of their own, when building their own hardware, these components are at cost, not vender markup. Since they own the rights to a huge library of music, film, character likenesses and so on, they can freely use them in anything else they do, be it a tv show or video game. And so on and so fourth.

Unlike other companies like MS. MS don't make capacitors or hard drives or memory for instance. They have to buy that stuff from 3rd party suppliers. Every piece of music or character likeness they use in any MS game, they had to pay licensing for them.

 

[Lightknight]

Why has every reply been about consoles? The article wasn't console related, and consoles represent only a tiny segment of the entertainment division.

The Escapist = Largely a gaming website. This would be like asking why sentient bunnys only complain about a lack of carrots when there's also a liquor shortage going on.

This is mostly about the music and movies aspect, both of which are huge money pits. Particularly movies, where unless it's some major block buster, you're lucky to break even. Music has become much less profitable as of late too. The costs of consoles in relation to Sony Entertainment on a whole is insignificantly laughable and not the real issue

"... lucky to break even"? It's not luck, it's appropriate budgeting.


As for the "money pits", do you have more data on this?
In 2011 for example, Sony Pictures Entertainment brought in over $8 Billion in revenue and an opertating income of over $400 million. In 2012, Sony Music Entertainment brought in almost $470 million in operating income.

These aren't multi-billion dollar departments but hundreds of millions each year isn't something to shake a stick at and they sure as hell aren't money pits.

But that data is slightly dated. Do you have some additional information that I'm not aware of?