Less than a month ago, Sony CEO Kazuo Hirai said he wanted to ensure his company was “in the driver’s seat,” one of the entertainment players able to buy, not be bought. He had once famously declared that there was no “For Sale” sign hanging on the water tower at the Sony Pictures Entertainment lot.
On Friday, Hirai caught markets and Sony watchers by surprise with his decision to step down as CEO and into an advisory role as chairman beginning April 1. He will be replaced by Kenichiro Yoshida, currently Sony’s CFO and internal head of strategy.
Hirai’s resignation means that Sony’s entertainment assets are losing possibly their loudest and most powerful advocate within the company, and raises questions about their future in an era where consolidation, often on a colossal scale, is the trend of the day. Under Hirai, Sony had made an overture for some of Fox’s assets before Disney produced a bigger bid; without him at the helm, the fate of Sony’s own content businesses is uncertain.
Yoshida, whom Hirai said he had personally recommended to succeed him, said his strategy as CEO would be broadly in line with that of his predecessor. The “vector of my approach” will be the same, but the expression of it will be different, Yoshida said Friday after Sony published its robust third-quarter earnings.
But he offered no specifics. Tellingly, perhaps, he also made almost no reference to Sony’s entertainment businesses, including its Picture Division, which groups together film, TV, music and games, and which recorded an operating profit last quarter after a period of heavy losses. His only nod to entertainment was to tout the creation of a new music label focusing on local talent, a deal signed earlier this week with China’s Tencent.
Instead, Yoshida emphasized the importance of the technology sector. “Market cap is not everything, but the top global companies now are all technology companies….Since Sony is a technology company, we feel a sense of crisis about that situation,” he said, adding that he intends to manage the company “with the market cap in mind.”
Hirai has himself directed much of his attention to Sony’s tech side, and leaves a legacy of tidying up its electronics business, exiting computers, and beefing up its semi-conductor business. With reinvested dividends and share price gains, investors have enjoyed a 226% return during Hirai’s six-year tenure.
But he was also a champion of Sony’s entertainment side. After an internal review a couple of years ago, he came out swinging in favor of retaining Sony Pictures Entertainment, at a time when many in the film industry thought Sony no longer had the stomach for Hollywood. Hirai even took over as interim boss of SPE last year following the departure of Michael Lynton. Hirai said Friday that, as chairman, he would continue to advise Sony on matters, including entertainment.
For Yoshida, who as CFO has taken hard-headed financial decisions and implemented painful cuts, it may come down to a matter of scale. Sony Corp. currently weighs in with a valuation of $62 billion – small compared to the likes of a combined Disney-Fox, Time-Warner, Comcast and Viacom. Sony is even punier beside the new-media companies that will shape the next decade: Apple ($861 billion), Google ($816 billion), Amazon ($669 billion), Facebook ($561 billion), Tencent ($553 billion), and Alibaba ($492 billion).
The fact that Sony’s Picture Division has returned to modest profitability could be used as an argument both for keeping and for unloading it. The success of “Jumanji: Return to the Jungle” means that Sony Pictures Entertainment has a healthy new franchise on its hands on top of some other recent hits. Equally, however, getting back in the black makes SPE easier to sell – to someone like Rupert Murdoch, for example.
More so than their Western competitors, many Asian companies continue to espouse the virtues of a conglomerate structure, and to believe in having hardware and software under a single roof. Hirai appeared to believe in that path for Sony, and favored maintaining its entertainment assets as well as its tech ones.
Now it is Yoshida who will likely make the decision whether to sell or to bulk up Sony’s film, TV and music operations. Analysts say he might have other things to worry about first, such as the possible sales of Sony’s phone handset business, its home entertainment and audio consumer goods businesses, and its stakes in Sony Financial and Olympus cameras.
If those happen, Sony would have the cash for more acquisitions, including in the entertainment sphere. Whether it has the appetite is another question.