Sony boosted by a quick fix

Operating profits quadruple boosted by syndie TV

This article was updated at 7:15 p.m.

NEW YORK — What a difference three months make.

Sony Pictures Entertainment was the turnaround poster child for the jumbo Japanese electronics conglom Tuesday, quintupling its operating profits for the quarter to register the biggest earnings gain of any Sony division for the three months ended March 31.

Reporting results for the full-year and fourth quarter ending March 31, Sony’s U.S.-based film and TV group recorded a hefty 36.6 billion yen ($352 million) in operating profit for its fourth quarter on sales up nearly 30% to $2.26 billion.

That dramatic 400% year-over-year turnaround — driven largely by several huge TV syndication deals — comes just three months after the film and TV group turned in Sony’s single biggest earnings dive for the December quarter.

Such topsy-turvy quarterly shifts may be one reason Sony is looking to add the cash-generating MGM/UA library to its business mix. Sony executives would not comment Tuesday on the state of their negotiations, in association with two private equity backers, to acquire MGM and its 4,000-title catalog.

But sources say the deal could be fairly low-risk for Sony, which would put up only a small amount of the initial capital to buy the company. Early reports of a $5 billion pricetag (around $21 per share) imply that backers Providence Capital and Texas Pacific value the business at roughly 12 times its library cash flow. Any deal would likely be financed by a significant chunk of debt, with Sony managing library sales for a fee and a minority stake.

Big in TV

Television was SPE’s hero this quarter, with initial syndication sales of “The King of Queens,” third-cycle syndie sales of “Seinfeld” and an extension of “Wheel of Fortune” licensing deals driving sales for the whole group up 26% (up 40% on a dollar basis).

Company also credited strong showings from recent hit pics “50 First Dates,” “You Got Served” and “Secret Window” for its record-setting U.S. dollar sales. Profit margins for the division jumped to 15.5% last quarter from a mere 4.3% in the same period a year go.

In fact, in a quarter that saw several competitors’ box office bombs headed for quarterly writeoffs, SPE is on a winning streak. Its last four films all are running safely in the black and this past weekend’s “13 Going on 30” grossed a strong $22.5 million at the box office.

For the full 2003 fiscal year, however, the lack of boffo “Spider-Man” bucks pushed operating income down 40% to $339 million on total sales down 6% to $7.27 billion. However, due to the stronger dollar this year, on a dollar basis revenues actually rose 2% while operating income declined 30%. Company nevertheless noted profitable outings on “Bad Boys 2,” “Something’s Gotta Give,” “S.W.A.T.” and “Anger Management.”

Looking forward, Sony execs warned SPE sales may fall in 2004, due to the absence of the big TV gains registered in the fourth quarter. Operating income, however, is expected to remain flat, thanks to its bulked-up film slate that features this summer’s much-anticipated “Spider-Man 2.”

In the meantime, Sony’s got a lot riding on the webslinger’s ability to repeat its boffo 2002 box office, DVD and merchandising sales. Speaking to analysts Tuesday morning via conference call, Sony Corp. of America chief financial officer and exec VP Rob Wiesenthal would only say the company was “very enthusiastic” about the sequel’s potential. “Obviously it’s one of our most important franchises and an important part of our lineup this year,” Wiesenthal said.

Pic bows Wednesday, June 30.

Absorbing changes

Sony overall is still feeling the pain of its extensive global restructuring efforts, which have involved massive layoff rounds and rebuilding of its core consumer electronics business.

For the full fiscal year ended March 31, company reported sales up a marginal 0.3%, while operating income dropped nearly 47% to $951 million. Net profit dropped 23% to $815 million for the full year, due to layoff costs and sluggish sales in the electronics, videogame and entertainment divisions.

For the March quarter, Sony cut its net loss to $352 million, down from $1.07 billion in the same period last year; sales grew 7% to $16.3 billion.

Much of the earnings decline was due to exchange-rate fluctuations and some $1.02 billion in restructuring charges last year. Company said it would spend another $1.25 billion this year as part of the corporate cleanup process.

Sony Music continued to feel the sectorwide slowdown in album sales, with revenues off 6.3% to $5.38 billion for fiscal 2003. But the division — which boasts the label with the top U.S. market share, Columbia — did manage to reverse last year’s loss to report operating income of $182 million due to restructuring efforts. Company is still working toward its 50-50 merger with Bertelsmann Music Group.

Looking forward, company predicted music sales would continue to decrease, along with the contraction of the music market overall and reduction in the unit prices of DVDs in the manufacturing division.

Vidgame sales also felt the pinch last year. As company’s PlayStation 2 enters a later stage in its production cycle, hardware shipments declined more than 10%, leading to an 18.3% decrease in company’s gaming revenue. Sony’s games division reported $7.5 billion in revenue in the past year and $650 million in operating income, a 40% decline for the unit, which still dominates its space over competitors Microsoft and Nintendo.

Software revenue, meanwhile, stayed roughly even, as continued growth in PlayStation 2 games balanced out with a fall in games for the original version of the console. Company also blamed the sharp fall in gaming profits on increased research and development expenses as it gears up for the launch of the third incarnation of PlayStation in 2006 and its PSP mobile gaming device later this year.

(Ben Fritz in Hollywood contributed to this report.)

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