A year ago, Sony Pictures Entertainment chairman Tony Vinciquerra sat opposite journalist Soledad O’Brien in a cream-colored armchair in Miami and plainly told NATPE conference attendees that “if we don’t grow, we will be somebody’s purchase.” The then-newish SPE boss was not intent on the latter; he had recently brought on Hulu chief and former Fox comrade Mike Hopkins to help turn around the company’s television operations, a tall order for an unaffiliated studio crowded by ever-consolidating legacy players and an influx of big spenders from Silicon Valley.
Flash-forward to 2019, and SPE division Sony Pictures Television is still not without major challenges. But in the wake of an extensive restructuring, the industry’s largest independent TV studio — unsupported, and arguably unencumbered, by vertical integration — believes it has turned a corner and forged a path to growth.
The company is “largely done with the first phase” of its transformation, Sony Pictures Television chairman Hopkins tells Variety. The media networks, television distribution and home entertainment businesses have been merged, in the hopes of creating a more cohesive and collaborative organization.
In realigning Sony’s TV portfolio, Hopkins has also been taking a hard look at which businesses, both domestic and abroad, are no longer fruitful.
While there wasn’t anything unexpected, “I think the depth at which some things were underperforming was surprising,” says Hopkins, noting a post-Brexit U.K. ad market that’s gone “sideways and down,” for example. “It’s not necessarily anyone’s fault or mismanagement of anything; it’s just sometimes the bets you make don’t pay off and markets can turn.”
Ideas flow more freely across segments now, but streamlining unfortunately involves layoffs. That has included cuts at ad-supported niche streamer Crackle, which is seeking an equity partner.
Vinciquerra tells Variety that when he first boarded as head of SPE, it was “very clear” that the TV side of the business hadn’t been paid much mind, with the purchase of networks abroad that either didn’t fit the company’s goals or weren’t profitable. Hopkins was brought on to do much-needed “triage and cleanup.”
That should be accomplished by the end of the summer. From there, Hopkins is ready to jump-start growth, with big plans for the company’s content library and a new cost-efficient, indie film-style model for making television shows.
The Sony team is in the midst of figuring out how best to exploit its intellectual property across the film and television groups. And not just for its crown jewel, “Spider-Man,” but also in areas where it has a potential competitive advantage, such as its access to IP from PlayStation and Sony Music.
That said, the studio is aware of its association with one of the most popular Marvel characters of all time. So look for more amazing adventures of the web-slinger to populate not just theaters but TV screens.
“We have the next seven or eight years laid out as to what we’re going to do with that asset, and that will not only be on the film side — it’ll be on the TV side,” says Vinciquerra. “Our television group will have its own set of characters from within that universe that we will seek to develop.”
Sony is essentially internally auditioning its more than 900 Spider-Man-adjacent characters, to which it has attached the moniker Sony’s Universe of Marvel Characters.
According to Hopkins, the team is “pretty far down the road in terms of working through which characters we think could be their own star of a series.”
Disney has long been drawing from the Marvel well. With its absorption of 21st Century Fox, the Burbank-based giant will soon have “Fantastic Four” and “X-Men,” leaving Sony as the only studio rival with licensing rights to Marvel characters.
“We’re developing a lot of Marvel-related content, and I think we’ll be out in the market very soon with something really, really big and transformational for us, because we’ve not done any shows with Marvel before, with Marvel IP,” says Hopkins. “So that’s a big piece of development that we’re onto.”
There’s plenty of precedent for serializing small-screen comic-book dramas, even without any superhero headliners. Think “Gotham” without Batman, “The Gifted” sans Wolverine, or all the Avenger-less Marvel series that Disney has developed, such as “Agents of SHIELD” and “Jessica Jones.” Plus, the box office success of “Venom” and the recent Oscar-winning glow of “Spider-Man: Into the Spider-Verse” have bolstered confidence that there’s an appetite for Sony’s slice of Marvel-town.
Hopkins anticipates a large volume of content. “I think we aspire to have several shows in a universe that we create that can pollinate between each other, and to working with a partner to make that happen.”
While he doesn’t see why Disney — and its still-gestating streaming service — couldn’t be one of those partners, he also indicates that it isn’t the only name in the mix. An announcement should land in the next couple of months.
Financially, Sony’s broader pictures segment — encompassing film, TV production and media networks — is a fraction of the Japan-based conglomerate’s overall business, which spans gaming, music, semiconductors, consumer electronics and financial services. In fiscal 2017, pictures accounted for less than 12% of total revenue and not even 6% of operating income.
While Sony Pictures has disappointed in the past, Jefferies equity analyst Atul Goyal calls it a bright spot and says he’s confident that it can reach “somewhere between 12% to 15%” in annual operating profit margins in two to three years’ time, a contrast with last year’s 6% margin. And as growth in Sony’s gaming segment slows, he believes the pictures and music businesses can secure high operating profit growth down the road.
In fact, the pictures segment “could be the next big surprise,” Goyal wrote in January.
Occasionally, analysts float the idea of Sony’s entertainment division being a tasty acquisition target. RBC Capital Markets’ Steven Cahall believes a combination of Sony Pictures, Lionsgate and MGM would form a “venerable” studio.
But there’s no indication of such sentiment from the higher-ups in Japan, says Hopkins, adding that he’s not particularly preoccupied with the thought.
And after much debate internally, Hopkins and the Sony management team have concluded that it’s not worth plunging capital into the low-margin business of direct-to-consumer streaming, opting instead to “super-serve” niche markets with products like anime streamer Funimation.
Creating a holistic direct-to-consumer streaming platform to rival the likes of Netflix or Disney Plus would be “exactly the wrong direction for us,” says Vinciquerra. “Because if we did own Epix, for instance, or Starz or Showtime, we would be committed to producing product for them, and our libraries would have to be committed to those services. I don’t think that’s the highest and best values for our libraries.”
But media consultant Brad Agate says flying without a streamer can make negotiations more challenging. “If you’re an independent and going alone, when you’re trying to make deals, you don’t really have the clout that competitors have in getting the pricing that you want,” he says.
Still, Wall Street is coming around to the idea that a studio without a significant streaming platform might be just fine — great, even — as a supplier of content.
“This is not a bad place to be. … The big guys are tough to compete with directly but also looking for more content to populate their platforms,” wrote Cahall in December. That opens a “considerable role for the mercenary content creators,” including Sony.
Echoing the sentiment is BTIG’s Rich Greenfield. There’s “tremendous upside,” he says, for an unaffiliated studio, as Disney and others rein in content production in-house. “That’s going to create real opportunities for companies like Sony and Paramount and others to be an arms dealer of content to anyone in the world.”
Sony Pictures Television is counting on that. Its productions “The Crown” and “The Good Doctor” have found solid fandom on Netflix and ABC, respectively. The “Mad About You” revival just got picked up by Spectrum Originals.
Now, the newest initiative is a leaner, meaner production unit that can create TV programming for less money, using fewer resources. Marie Jacobson, who most recently served as executive VP of programming and production for SPT’s networks group, will helm the yet-to-be-named unit as head of creative, reporting to Sony Pictures Television Studios president Jeff Frost.
Hopkins says SPT aims to create a model with which it can “go to cable networks, broadcast networks [and] streamers, and say, ‘Look, here’s this IP. This IP could have been sold to you as a traditional $3 million- to $6 million-an-episode show. What if we could make this for you with the same level of talent for less?’”
Think smaller writers’ rooms, shorter orders, less expensive locales and more back-end-heavy deals with above-the-line talent.
“We’re developing a lot of Marvel-related content, and I think we’ll be out in the market very soon with something really, really big and transformational for us.”
“With this model, I think we can safely say that these shows will be break-even or profitable almost every time, and therefore I can almost guarantee profit to a profit participant,” says Hopkins. “And if I can do that, perhaps they’ll be willing to take less of an episodic fee, which makes the show more profitable, which feeds the back end.”
Frost says the boutique production label will allow creators to pursue passion projects, not to mention incentivize networks to pick up a show and keep it on air.
That’s not to say that the studio will begin to tighten its wallets for A-list talent. Price tags are “not a concern,” he says.
“We intend to fully invest and compete with everyone else, whether it be Comcast, Disney or Netflix,” says Frost. “We are absolutely going to be in those conversations. And we currently are. The major deals you hear about, we are absolutely involved in those, including the biggest ones that are out there right now.”
Indeed, industry sources say that as an indie player without the sweeteners that come with vertical integration, Sony has a reputation for shelling out the cash necessary for big talent deals. Over the past year, Sony has re-upped its overall deals with “Breaking Bad” and “Better Call Saul” showrunner Vince Gilligan and “House” and “The Good Doctor” creator David Shore; it also has first-look deals with Norman Lear and Tyler, the Creator.
SPT is nonetheless catering to a set of buyers that can readily create their own shows in-house. Disney-Fox, Comcast, Netflix and others all have robust production operations.
What American media watchers may forget, however, is Sony’s sizable presence overseas. Nearly 60% of its 127 shows are international properties, and of its 24 wholly owned and joint venture production companies worldwide, only three are domestic.
The company has made a number of bad bets abroad. And the conditions that led to rapid growth in India, a key market, are not easy to replicate. Nevertheless, Hopkins sees a “big opportunity” for the newly streamlined company to create shows in local languages across India, Latin America, central Europe and Asia, leaning into authentic storytelling styles.
Sony Pictures TV international production head Wayne Garvie wants to avoid making “Euro pudding,” i.e., a show “set in Paris, and there’s an American there, and there’s a Brit over there. That doesn’t work for anyone. You have to start by telling a story that works in the market that you are based in. That’s one thing I really, really believe in.” He points to “A Very English Scandal” as a good example of localized storytelling with broader appeal.
As digital platforms — and traditional studios — set their sights beyond the U.S. market, that may be the ticket for Sony.
“My sense is that Disney Plus will be global, Hulu will end up being global, the WarnerMedia company will become global, HBO will become more of a global brand, Sky and Comcast is going to be a global brand,” says Hopkins. “So it’s not just Amazon and Netflix. I think you’re going to have all of those guys looking for [content]. That’s a big part of what we’re focused on.”