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Analyst: CBS-Sony Pictures merger a good fit for both

Pivotal Research Group report predicts Sony Corp. will sell studio

Sony Corp. may insist its studio division isn’t for sale, but one Wall Street analyst isn’t buying it.

Sony Pictures Entertainment would be better off as part of CBS Corp. than inside the Japanese hardware giant, Pivotal Research Group’s Brian Wieser contended Tuesday.

“It seems difficult to imagine Sony retaining the division in the long run given absence of fit with the rest of Sony’s businesses,” he wrote, citing the struggles at the parent company.

Wieser made an extensive case for Sony to sell off its studio even though the conglom’s CEO, Kazuo Hirai, has repeatedly asserted in recent months that SPE isn’t for sale.

CBS Corp. CEO Leslie Moonves suggested in an interview late last year that his conglom would be open to kicking the tires should the studio be put on the block. Wieser’s analysis was prompted by the Eye’s recent indication that it’s looking to unload some of its outdoor assets.

Wieser identifies numerous synergies across the TV, film and digital sectors that make a CBS-SPE union logical, and he believes there’s an evident mismatch within Sony between its struggling device-centric business and its content arm.

“We believe the Japanese parent company of SPE has never bridged a significant cultural gap with its U.S.-centered operations at SPE,” Wieser wrote. “Our understanding is that the bureaucracy and hierarchical nature of the parent company is significant, and its attempts to impose product and content synergies have been a source of significant distraction.”

There’s plenty more justification for the acquisition from Wieser: The combination of CBS Television Distribution and Sony Pictures Television’s syndication arm, two of the category’s biggest players, would create a behemoth with major clout in the markets for firstrun and off-network programming. That would allow the combined CBS-SPE to dictate even better terms for sales with stations and cable nets going forward.

Overseas expansion is another big reason why Wieser likes a CBS-SPE deal. Sony’s channel holdings in India and Latin America would mesh well with CBS’ more European-skewing assets. A broader global footprint would provide more buyers for CBS programming, which already does a brisk business abroad.

Sony’s international expertise could also be leveraged to take Showtime’s business to the next level. While the premium cabler has grown by leaps and bounds domestically in recent years, it won’t truly catch up to HBO until it can gain traction in overseas markets.

Another benefit for Showtime: The output deal between Sony and Starz, set to expire next year, could be steered to Showtime.

On the digital side, Wieser believes the combined libraries of CBS and Sony could yield bigger dollars from subscription VOD buyers like Netflix and Amazon. He also sees potential benefit for Sony’s multiplatform network Crackle.

While Wieser indicates the TV side of their businesses provide a bigger impetus for the deal than the film side, he doesn’t discount the value of Sony Pictures either, singling out Sony Entertainment CEO Michael Lynton and studio co-chair Amy Pascal as “significant assets” who have persevered under tough conditions.

“That they have been relatively successful despite their parent company’s challenges is a testament to the favorable outcomes we assume would occur under different ownership,” Wieser wrote.

Last but not least, there’s the M&A darling of cost savings through reducing staffing and real estate. CBS has 21,000 employees, SPE 7,000.

Reps for Sony and CBS declined comment.

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