Strong yen, weaker TV sales scupper steady showing
NEW YORK — Sony will have to wait another quarter before “Spider-Man 2” swings to its rescue.
Despite a string of recent box office successes — including “13 Going on 30” and “Hellboy” — revenues at Sony Pictures Entertainment slipped 1.9% to $1.3 billion for the three-month period ended June 30, the day of Spidey 2’s U.S. debut.
Company said a strong yen and weaker TV sales numbers thwarted an otherwise steady showing. (On a dollar basis, company said film and sales were up 6% over the year-earlier quarter.)
Parent Sony Corp. on Wednesday reported total sales up barely 0.5% for the fiscal first quarter to $14.9 billion as sales of flat-screen TV sets, digital cameras and cell phones produced a net profit of 23.3 billion yen ($210 million) compared with only $10 million in the same period last year.
Currency woes again damped earnings as a weak dollar and the strong yen led to a 41% falloff in operating income to $91 million. On a local currency basis, however, operating income at the Japanese consumer electronics and entertainment conglom was up 27%.
Fortunately for SPE, strong, high-margin homevideo sales of titles like “50 First Dates” and “Big Fish” and mid-budget theatrical winners helped the division flip last year’s $22 million loss into a sprightly $38 million quarterly operating gain.
In even better news for Sony’s U.S. entertainment wing, the bulk of “Spider-Man 2” marketing costs were already paid for in the last quarter, so the sequel will be contributing big theatrical bucks to the bottom line in the second quarter. Sony’s third quarter will have even more potential padding from the homevideo release in the fall.
Speaking to journalists at a Tokyo press conference Thursday morning, Sony VP Katsumi Ihara and managing director Takao Yuhara said the company continues its negotiations to buy MGM, with talks now focused on key conditions of the deal rather than valuation. News of the dragged-out negotiations did little to convince pundits that Sony was anywhere closer to making a deal, however, especially while Time Warner seems to be gaining an advantage with a more clear-cut cash and stock offer for the Lion.
Sony Corp. USA exec VP and chief financial officer Robert Wiesenthal said homevid has become increasingly important to SPE topline growth, with some 50% of total filmed entertainment revenues now coming from DVD and VHS sales.
Company is pleased as punch with Spidey 2, of course, which has so far grossed $600 million worldwide. But Wiesenthal said the film was simply an indication of the overall direction of the pic division, which has put out “10 profitable films in a row and is No. 1 in domestic box office to date.”
Company also noted that TV revenues were up thanks to higher ad sales on “The King of Queens” and higher international syndication and DVD revenues from its TV library. Numbers were offset somewhat by lower “Seinfeld” syndie sales. Company last year raked in a high six-digit per-episode deal when it extended TBS’ rights to the sitcom.
Elsewhere, sales and operating income decreased in its typically lucrative videogame biz, recording an operating loss of $26 million in contrast to a profit of $16 million a year ago.
Sony Music Entertainment posted 1.5% sales increase to $1.1 billion (up 7% on a local currency basis) thanks to top albums such as Prince’s “Musicology” and country artist Gretchen Wilson’s debut release “Here for the Party.”
On the eve of its merger with Bertelsmann Music Group, Sony Music managed to drastically trim its operating losses to $10 million from a loss of some $60 million a year ago. The improvement came mainly from its continued worldwide restructuring efforts over the past two years, which have included rationalizing record label shared services, manufacturing, distribution and support functions.
Wiesenthal said he expects the merged companies will save at least $300 million annually, mostly from back-office cost-cutting efficiencies. He also said group expects to mine significant revenue opportunities that have “not yet been identified.” He emphasized that the goal is still to invest to build artists and repertoire at all the labels.
Deal has been approved by European regulators, and the U.S. Federal Trade Commission OK’d it Wednesday (see related story).
Sony chief exec Nobuyuki Idei is counting on new products like the PlayStation Portable handheld vidgame console, next-generation computer chips and liquid-crystal displays and the cost-saving BMG merger to pave the way for long-term growth.
“Sony will be a company that works together as a group for the realization of ever more enhanced profitability,” he said in a statement.
Company also benefited from a $115 million gain from a licensing agreement with Microsoft.
Operating income nevertheless fell almost 50% in Sony’s core electronics business to $62 million on account of a high yen and restructuring charges.
Company was cautious about the balance of the year and maintained its forecast for total earnings of just over $900 million for the full fiscal year ending March 31, 2005, a 13% improvement over last year.