Sans Spidey, Sony sputters

Profit ebbs without webslinger

A correction was made to this article on Jan. 29, 2004.

NEW YORK — Sony Pictures’ fiscal earnings announcement Wednesday proved just how valuable a multibillion-dollar franchise film like “Spider-Man” can be. Without the webslinger’s DVD and video superpowers, sales and operating profits for 2003 at the film and TV group fell off a cliff.

In fact, SPE had the ignominious distinction of reporting the Japanese conglom’s single biggest divisional profit drop, as the group reported operating income down a whopping 82% for the three months to Dec. 31, vs. the same period of the previous year, which had the “Spider-Man” video retail/rental safety web.

SPE finished 2003 with roughly 13% of domestic box office receipts at just under $1.1 billion. But it was the lack of a gangbuster homevid/DVD release, like last year’s Spidey, that really blew a hole in the division’s quarterly earnings statement. It also was characteristic of the fiscal whiplash a film company can face on a quarter-to-quarter comparative basis.

The precipitous falloff proves just how critical home entertainment sales are to film companies these days.

Sans “Spider-Man,” which generated $347.7 million in consumer spending on DVD/video rentals and purchases in its first two months of release in November and December 2002, Sony Pictures sales dropped 29.3% to $1.69 billion. That was despite the fact that theatrical revenues actually increased during the December quarter compared to the year-ago period, driven by strong outings for “Something’s Gotta Give” and overseas box office for “Bad Boys 2” and “S.W.A.T.” Company admitted it also was negatively affected by the disappointing U.S. theatrical perf of “The Missing.”

Fortunately for new SPE chair Michael Lynton, there’s nowhere to go but up in subsequent quarters, as he presides over a calendar year that should salvage the picture division’s fortunes — “Spider-Man 2” hits theaters July 2 — as well as a strong TV lineup that includes hits like CBS’ “Joan of Arcadia.”

For 2004, Sony clearly is hopeful that the second iteration of the “Spider-Man” franchise in July, along with Johnny Depp starrer “Secret Window” (March 12) and Adam Sandler/Drew Barrymore vehicle “50 First Dates” (Feb. 13), will return the film unit to a more stable earnings course.

Sony chief financial officer Rob Weistenthal described “Spider-Man” — “the fifth largest film of all time” — as one of the most important franchises in the business. Calling early viewings of the sequel “spectacular,” Weistenthal also noted the first “Spider-Man 2” trailer was the single most viewed file on the Internet.

Restructuring costs

With an income statement still littered with daunting restructuring charges, Sony Corp. has been struggling to find its footing.

A rebound in consumer electronic sales — particularly flat-screen television sets and DVD players — couldn’t offset the steep profit falloffs in the movie and videogame hardware divisions as Sony Corp. reported overall net profits down 26% in the most recent quarter to $866 million. Total revenues companywide rose a scant 0.7% to $21.7 billion.

Operating income for the group was down just over 20% to $1.48 billion (down only 15% on a local-currency basis) compared to the same period a year ago, due mostly to some 53.6 billion yen ($501 million) in restructuring expenses, like severance pay for its thousands of recently laid-off staffers. Some $433 million of that was recorded in the electronics division, which is struggling to compete with numerous new low-cost manufacturers. As part of a painful worldwide restructuring effort, Sony is in the process of shedding some 12% of its workforce, or 20,000 employees.

Sony CEO Nobuyuki Idei said restructuring efforts were “progressing smoothly” and reiterated his commitment to “spare no effort to expand sales and improve profitability.”

That said, Sony officials see some light at the end of the tunnel and are forecasting 10% profit growth for 2004.

Sony’s electronics division boosted revenues by a scant 0.4% in the last quarter to $14 billion, thanks to strong demand for its cell phones and DVD recorders. But operating income dove 40% to $468 million thanks to the charges. The increasingly tight videogame business also was under pressure, with operating profits in the division down 1.6% to $666 million as PlayStation 2 sales slowed. Total sales of $3.5 billion were down 4.5% from the year-ago period.

On a brighter note, Sony Music Entertainment recorded a tidy 50% jump in operating income to $286 million thanks to major cost-cutting in promotions and overhead. Currency issues continued to crimp a recovering top line, however, as sales dropped 3% in the last quarter to $1.7 billion. (On a U.S. dollar basis, sales at SME actually were up 6%.) Among the bright lights were Michael Jackson’s “Number Ones” and Beyonce’s “Dangerously in Love.”

Sony Music is in the process of trying to merge with Bertelsmann Music Group, but still awaits extensive regulatory review in the U.S. and European Union.

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