×
You will be redirected back to your article in seconds

Analysis: Sony Corp. eyes asset sales to focus on hardware

Conglom may shed Gracenote, DADC units but sez studio not for sale

Sony Corp. of America chief Michael Lynton recently repeated what has become the company’s mantra over the past few months: “The studio is absolutely not for sale,” he told CNBC last week.

But some assets at Sony Corp. are quietly going on the block, including U.S.-based disc manufacturer DADC and online music data service Gracenote, according to multiple sources. Insiders say that the Japanese parent company is looking to shed a number of non-core assets as it redoubles efforts to revitalize its long-struggling electronics businesses.

A Sony rep said the company would not comment on speculation.

While SPE does not appear to be for sale at the moment, some insiders expect that the studio and the Sony Music Entertainment division could be on the block in the next year if Sony Corp. chief executive Kazuo Hirai decides that the company needs cash to stave off financial pressure and focus the conglom squarely on reinvigorating its core hardware biz.

Hirai has staunchly denied that Sony Pictures is currently for sale, saying there was “no truth” to the sale talk back in October. But after a decade of weak results in the core consumer electronics businesses, Hirai may eventually face pressure from shareholders and Sony’s board to streamline operations and channel all energies into fixing the problem areas on the hardware side.

Since Hirai took the helm last year, Sony has been less vocal about the strategy of leveraging the Hollywood assets to help drive the electronics business — the game plan articulated by Hirai’s predecessor, Howard Stringer.

But there’s also a dilemma for Sony in considering the sale of Sony Pictures and Sony Music. Those divisions and the financial services unit are among the few that reliably turn a profit for the corporate giant. Industry observers have valued the studio and music wing together at about $13 billion. The two account for about 16%-17% of Sony’s revenue but far more of its earnings.

Sony Corp.’s market cap as of Friday was $14.4 billion — a sign that investors have little confidence in the near-term performance of its hardware businesses, considering that Sony in 2001 had a market cap of $55 billion. Sony reported $22.4 billion in revenue for the quarter ended Dec. 31 but only $534 million in operating income, boosted in part by one-time charges. Sony has pledged to investors that it will return to profit in its TV set manufacturing biz by the time its 2013 fiscal year ends in March 2014.

The urgency to show that progress is being made is spurring the chatter about large-scale asset sales.

“Technology, software, services, the movie studio and music, consumer electronics. Sony has that under one roof. The potential of that is still there, but they haven’t executed on it. They lack a hit product,” said Daniel Ernst of Hudson Square Research, one of the few U.S. analysts to follow Sony Corp.

Ernst praised the recent $1.1 billion real estate sale of Sony’s U.S. headquarters at 555 Madison Avenue, which he said “doubled the cash balance of the parent company.” Sony sold off its former head office in Tokyo in 2006.

Sale rumors have dogged the studio for years because Sony never achieved the synergies it hoped for between hardware and software. Meanwhile, Sony’s electronics business plummeted, overtaken by lower-cost rivals and the lack of a transformational product like the Walkman that put it on the map in the 1970s. The stock plummeted, and the company found itself with dismal earnings and in need of cash.

Sony has been approached numerous times in recent years with offers to buy Sony Pictures Entertainment — which means the company knows it can count on a sale to drum up cash when the time comes. CBS, Viacom and Discovery Communications have been mentioned as prospective suitors, among others.

Sony Pictures has taken steps to rein in its use of capital to help its parent company. Last year, SPE execs confirmed the studio would cut development spending by 10% and make two fewer films per year. Meanwhile, SPE’s television production and distribution unit has grown to account for as much as 65% of the studio’s revenue, and as much of its earnings. Neither Gracenote nor DADC are core to Sony Pictures Entertainment activities. Both are technically part of Sony Corp. of America, which has been talking to potential investors for several months about a sale of DADC, according to sources. Some observers have speculated that Gracenote, which supplies data to a number of music retailers including iTunes, could fetch up to $100 million, while DADC might go for somewhere around $200 million.

Sony was said to have eyed Canadian disc manufacturer Cinram before its eventual sale to private equity firm Najafi Companies last year. That purchase would have allowed Sony to achieve greater scale in the physical disc manufacturing world amid continued declines in disc sales. Without that market share, some speculate that overhead costs may have contributed to Sony’s interest in selling the company.

Insiders caution that no deal for either Gracenote or DADC is imminent, and Sony Corp. doesn’t appear to have hired an investment bank to shop the assets.

The rising yen has boosted Sony shares in recent weeks, and some insiders see hopeful signs in the television set and mobile phone businesses. Sony is predicting a profit for the fiscal year that ends in March. But even a nascent recovery may be too early to call.

More Film

  • Avengers: Endgame

    'Avengers: Endgame' First Reactions: 'Most Emotional, Most Epic MCU Film'

    The end is finally here. “Avengers: Endgame” had its world premiere Monday night at the Los Angeles Convention Center and reactions on social media from fans, journalists and critics are already pouring in. The reaction has so far been almost universally positive, with several commentors warning fans of the movie’s emotional elements. Brandon Davis wrote [...]

  • Josh Brolin, Kathryn Boyd. Josh Brolin,

    'Avengers: Endgame's' Josh Brolin: Thanos' Butt Is a 'Beautiful, Purple Peach'

    On the eve of “Avengers: Endgame’s” world premiere, everyone’s thoughts have turned to the one crucial detail that could be the difference between life or death for the Avengers: Does Thanos have a butt? “I don’t know what that whole thing is about! I really don’t!” Josh Brolin, who plays Thanos, told Variety‘s Marc Malkin [...]

  • Tessa Thompson'Avengers: Endgame' Film Premiere, Arrivals,

    'Avengers: Endgame's' Tessa Thompson Says Valkyrie Would Spoon Captain Marvel, Thor

    Tessa Thompson, who plays Valkyrie in the Marvel Cinematic Universe and upcoming “Avengers: Endgame,” had no problem addressing speculation about the character’s sexuality at the “Endgame” red carpet premiere Monday. The “Sorry to Bother You” actress explained that she played her Marvel character as bisexual. “In the canon, [Valkyrie] is bisexual. You see her with [...]

  • WGA Agency Packaging Fight Placeholder Writer

    Writers Guild Says Over 7,000 Members Have Fired Agents

    Over 7,000 members of the Writers Guild of America have fired their talent agents, the Hollywood union said on Monday. As promised, the guild delivered a first round of termination letters to agents in a show of support for the WGA’s full-on war with the Association of Talent Agents. “Today the Guild delivered a first [...]

  • BRAZILIAN FLAGFRENCH OPEN TENNIS, PARIS, FRANCE

    Brazil’s Ancine Freezes Incentives, Threatening Film-TV Industry Paralysis

    Brazil’s Ancine agency, its foremost public-sector source of film funding, has frozen all of its incentive programs, potentially near paralyzing new production in Latin America’s biggest film-TV industry. The dramatic decision, which has left Brazil’s industry is a state of shock and intense fear for its future, comes as it has taken further hits. In [...]

  • Jennifer Lopez

    Jennifer Lopez Reteams With STXfilms on Romantic-Comedy Co-Starring Owen Wilson

    Jennifer Lopez is reteaming with STXfilms on the upcoming romantic-comedy “Marry Me.” Kat Coiro is directing the film and Owen Wilson is in final negotiations to join the pic, which will likely shoot this fall. The script was written by John Rogers and Tami Sagher, with a rewrite by Harper Dill. Lopez and Wilson both [...]

  • Steve Golin The Revenant Spotlight Producer

    Steve Golin, Prolific Producer and Founder of Anonymous Content, Dies at 64

    Steve Golin, an Oscar-winning producer who was founder and CEO of Anonymous Content, died Sunday in Los Angeles of cancer. He was 64. Golin was a pioneer in blending the business of talent management with production. Anonymous Content, which Golin founded in 1999, worked with a stable of big name artists such as Steven Soderbergh, [...]

More From Our Brands

Access exclusive content