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Sony CEO: ‘I’m Not Entertaining Even the Notion of Selling Our Entertainment Assets’

Kazuo Hirai tells Variety that the Japanese electronics giant is in the entertainment business for the long run

Kazuo Hirai has circumnavigated the globe 12 times since becoming CEO of Sony Corp. in 2012, but he’s about to embark on what could be his most entertaining voyage yet: to the Academy Awards.

The 53-year-old executive, known to all as Kaz, is quick to acknowledge the significance of his upcoming maiden sojourn. Sony Pictures Entertainment, the Hollywood studio owned by the Japanese electronics giant he heads, is basking in the glory of having earned multiple Oscar nominations for its movies “American Hustle” and “Captain Phillips,” each of which has grossed more than $215 million worldwide to date.

“It is very important to me and to the management team in Tokyo,” says Hirai of being part of the industry’s most prestigious awards race. “We understand how important recognition is for our creative work and how that corresponds to increased revenue.”

This is a rare celebratory moment for Sony Pictures, which for nearly a year has been under harsh scrutiny for its poor financial performance, bloated overhead and some questionable movie choices. The studio’s leaders are in the throes of recalibrating their struggling movie business in hopes of boosting the bottom line and adapting to shifting models in an increasingly tough economic climate. In the process of rethinking its strategy, SPE has shaken up its top executive ranks with high profile firings in its publicity, marketing, home entertainment, technology and visual effects divisions.

The unrest at Sony -— widely viewed at present as a studio in crisis — has escalated tension between the motion picture group and executives at other divisions of the company who fear for their jobs.

To stay on top of the tumult, Hirai has taken a more active role in overseeing Sony’s entertainment operations, and has become a more prominent presence at the studio’s Culver City headquarters. He visits the lot roughly once every two months. He exchanges emails daily with Michael Lynton, CEO of Sony Corp. of America and chairman and CEO of Sony Pictures Entertainment, and the two typically converse for a half-hour twice a week.

“He’s extremely decisive,” Lynton says of Hirai. “For the most part, I’ll walk him through the pros and cons … and he will make a decision on the phone. It’s a tough business we’re in, but when a tough decision has to be made, he will make it.”

When Hirai comes to Los Angeles, Lynton supplies him with a list of some 30 people to meet and speak with at Sony in an effort to keep him up to speed. The CEO says he also makes a point of perambulating around the lot on his own, both to familiarize himself with the geography and to give employees a chance to introduce themselves and have a quick chat.

His growing focus on SPE was precipitated by the harsh spotlight shone on the company last May by Daniel Loeb, one of Sony Corp.’s largest shareholders. The activist New York fund manager, also an investor in Penske Business Media, a subsidiary of Variety’s parent company Penske Media Corporation, had sent a series of letters to Hirai berating Sony’s management for its low profit margins and overspending habits.

Loeb slammed Lynton and his top lieutenant, co-chairman Amy Pascal, for lacking “discipline and accountability.” Sony has been seen throughout the industry as one of the more lavish studios, notoriously top-heavy with executives and rich producer deals.

In a rare sit-down interview to candidly address the problems facing SPE, Hirai tells Variety he takes Loeb’s condemnation very seriously. “I think it highlighted and provided an additional spotlight for those issues and brought it a public face,” he acknowledges.

However, despite the criticism, Hirai vehemently rejects Loeb’s proposed solution to boost shareholder value by spinning off 15%-20% of the entertainment company’s U.S. assets. It has long been speculated in Hollywood that Sony would one day sell off the studio much as its Japanese electronics rival Matsushita Electric did when it unloaded MCA/Universal in 1995.

Hirai says Sony Corp., where he oversees nearly 150,000 employees worldwide, currently has no intention of selling off its Hollywood studio, which the Tokyo-based conglomerate bought in 1989 when the entertainment company was simply known as Columbia Pictures.

“We’re looking at selling businesses on the electronics side that we don’t deem to be core,” Hirai says. “We sold off our chemicals business and all
this other stuff. … I’m not entertaining even the notion of selling our entertainment assets.”

A few weeks back, Sony Imageworks shuttered its branch in India (having previously closed down its New Mexico operation) and is in the process of shifting jobs from Los Angeles to Vancouver. Scores of employees are being laid off in the process.

For the foreseeable future, Hirai will focus on increasing revenue, both within the pictures division and throughout Sony’s electronics arm, which is also struggling. Hirai acknowledges the need to enforce a particular kind of “financial discipline necessary to boost revenues, lower costs, increase profits and maximize margins across the businesses.”

At an investor meeting at Sony in November led by Lynton and Pascal, the studio announced it was in the process of cutting $250 million in costs — including head count and theatrical media buys. Pascal said at the time that the studio was slicing its annual release slate from 23 to 18 films. The executive now tells Variety that she has learned from some of her past mistakes: “I’m not going to have eight movies in the summer again — that’s what I’m never going to do, ever.”

The studio toppers also told investors in November that they would seek a more equitable balance between risk and reward.

Days before that meeting, Sony retained Bain & Co. to help devise a plan to slash an additional $50 million to $100 million by 2016.

Media analyst Harold Vogel maintains that Sony has the chance to achieve a better financial model. “There’s real room for smarter budgeting,” he says.

Hirai agrees, and points to areas of economy: “It could be how many times do we have the cleaning people come in — every cost that doesn’t have a material, direct impact on producing is an area we need to take a hard look at,” he says, echoing Lynton’s sentiments. “Whereas with executives, producers and the talent, we need to double down in certain instances.”

In fact, Sony has been doing just that in recent months, bolstering its executive and producer ranks with high-priced hires — moves that have raised eyebrows in Hollywood from those who view such spending as hypocritical for a studio purportedly bent on cutting costs. In December, one of Sony’s most prolific producers, Michael De Luca (“Moneyball,” “The Social Network”), was named president of production for the studio’s Columbia Pictures unit, sharing the job of overseeing development and production with Hannah Minghella, and reporting to Columbia Pictures president Doug Belgrad.

Four months earlier, Sony gave former 20th Century Fox co-chairman Tom Rothman a rich production deal to restart its TriStar Prods. label. Sony also is aggressively pursuing former Warner Bros. movie chief Jeff Robinov to bring his new production company into the fold after he raises the necessary hundreds of millions of dollars in film financing. If Robinov winds up at Sony (he’s in serious talks with Fox, too), the studio is expected to invest $50 million in his nascent company. Sony, like a number of other studios, is looking to offset the high cost of producing and releasing movies: It’s hoping its other would-be financing partner, Blue Anchor Entertainment, will soon finalize a deal to fund the $350 million-$400 million in equity and $300 million in bank debt that the two companies recently announced.

Hirai was born in Tokyo in 1960, the son of a banker. The slim, well-manicured executive, with short-cropped salt-and-pepper hair, has worked his way up the corporate ladder at Sony over the past 30 years from a junior music marketing executive to being named president and CEO in April 2012, and a director two months later.

Married with two college-age children, Hirai and his wife met when they both joined Sony Music Entertainment on the same day in 1984, and had desks next to one another. They knew of each other at the International Christian U. in Tokyo, where Hirai graduated with a liberal arts degree in 1984.

To clear his mind, Hirai likes driving his sports car with the top down. When he’s not on the road, he still prefers the driver’s seat, playing videogames like “Driveclub” and “Grand Turismo” on Sony’s PlayStation. “As you can tell,” he says, “I love cars.”

He’s a fan of Lady Gaga, Pink and Norah Jones, too, and counts “2001: A Space Odyssey,” “The Return of the Pink Panther” and “The Godfather” trilogy among his favorite movies.

Because of his long tenure and experience at Sony, Hirai, perhaps more than anyone, understands and can appreciate the varying facets of the megaconglom, whose current market cap is $18 billion — roughly half of Viacom’s $38 billion, and approximately two thirds of Netflix’s $26 billion.

Hirai is clearly tuned in to pop culture, and is the first to admit that Sony must improve its synergies between the electronics and pictures arms to fully utilize its arsenal of assets and increase its market cap and profitability.

“Whether it’s electronics or music or motion pictures — or even financial services as far as I’m concerned — it’s about our customers saying, ‘Wow, this is pretty cool,’ or ‘Wow, this is a great movie,’ ” says the CEO. “That’s the common thread that unites everyone within Sony. A lot of electronics companies in Japan, for example, get into power plants or shipbuilding. One of the reasons I firmly believe our founders didn’t get into that sort of business is because it kind of removes the business from that wowing-people kind of DNA that we have.”

Hirai’s vision for Sony Corp. and Sony Pictures falls under the concept of what he’s termed “one Sony.” That, he says, includes everything from creating image-sensor technologies in mobile-phone cameras to soon adding the Sony corporate logo to the beginning of all films that are released under the various studio labels.

In order to accelerate the collaboration between entertainment and other Sony businesses, particularly mobile and games, Hirai coordinated cross-platform marketing sessions held at the Culver City lot in November. Dozens of executives flew in from Tokyo to discuss plans for “The Amazing Spider-Man 2,” from product unveilings on the electronics side to the studio’s digital marketing strategy for the film’s theatrical release.

“We need to inspire and move people emotionally,” says Hirai, who has delivered that message personally to employees in manufacturing facilities around the world.

Hirai says he sees plenty of opportunity to continue to grow Sony, particularly its television business. Between 2007 and 2013, Sony invested $415 million in media networks and $960 million in cable and broadcast TV production. Those sectors accounted for 39%, or $3.4 billion of Sony Pictures’ $8.8 billion revenue in 2013.

At the Sony investor conference late last year, Lynton and Pascal startled the movie community by announcing the studio was going to pour more resources into its television biz as it was cutting back on its movie production. Even more surprising, Pascal said she would be assuming oversight of the TV production division.

She tells Variety that she was very hands-on in developing Showtime’s “Masters of Sex” and NBC’s “The Blacklist.” Her rather sudden involvement on the television side has created some tension within the TV executive ranks at Sony, according to people familiar with the matter who declined to be identified.

Pascal denies that such tension exists.

“Television is a growing business, where the movie business isn’t,” Pascal says. “I just oversee (television). I look at their stuff and help them when they need help.”

Lynton emphasizes that the company would be interested in buying additional TV networks in India (Sony currently owns 10 channels) or deploying capital in additional production companies outside of the U.S., but not in growing its film library through major acquisitions.

Although Lynton has held extensive educational sessions on the film business with the top executives in Tokyo during each of his five yearly trips to Japan, he must be mindful of Hirai’s motto: “The higher up in an organization you are, the more important it is that you listen and analyze rather than immediately speak.” In fact, Hirai adds, the most important part of being a CEO is to “listen twice as much as you speak.”

The company been doing that in considering its new business plans, and it will do that on March 2, as well.

That will be the night Sony execs hope to hear their films called by Oscar.

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