Sony Corp. said it will take a ¥112 billion ($1 billion) writedown in its movie business after reviewing the future profitability of its operations.
The company said it would book the charge in the fiscal third quarter and is examining how that will affect its forecasts. To offset part of the loss, the company also said it would sell shares in the medical web service M3 Inc. to Goldman Sachs Group Inc.’s Japan unit, in a deal worth about ¥37 billion.
The announcement comes two weeks after Sony said the chief executive officer of Sony Entertainment, Michael Lynton, is stepping down after a 13-year run. The studio has struggled recently, including with last year’s Ghostbusters sequel and a movie based on the Angry Birds video game. Sony warned in June the division was at a risk of posting more losses.
“There has been a suspicion in the market that Sony doesn’t have a firm grip on the movie business, but still the amount is a surprise,” said Kazunori Ito, an analyst at Morningstar Investment Services. “That said, with Lynton’s departure and this writedown, all the bad news is out and the attention can turn on their plan for the coming fiscal year.”
“The decline in the DVD and Blue-ray market was faster than we anticipated,” Takashi Iida, a Sony spokesman, said by phone.
The Tokyo-based company is increasingly relying on its video games business, which generated twice as much income in the last fiscal year as film. Sony’s PlayStation 4 console is outselling Xbox One, its closest rival from Microsoft Corp., by about 2-to-1, according to industry website VGChartz.
Lynton’s departure capped a tumultuous two years for the division since a cyberattack blamed on North Korea paralyzed the studio. The hacking led to private messages leaking onto the internet and the departure of film-division head chief Amy Pascal. Sony CEO Kazuo Hirai has temporarily relocated to California for six-months to oversee a review of the division and look for a replacement for Lynton, the company said this month.
In an email to employees, Hirai and Lynton said the transition gets under way this week and turnaround efforts will focus on expanding globally, making more use of the studio’s intellectual property and “realizing a culture of financial responsibility.” The email also partly blamed the writedown on “dramatic” industrywide shifts in home entertainment.
In June, Sony lowered its projection for film revenue in fiscal year 2018 by $500 million to a range of $9.5 to $10.5 billion. It also lowered its operating profit margin to a range of 6 to 7 percent, from 7 to 8 percent. Sony’s Iida said the division’s television broadcasting unit, which generates the majority of revenue, is unaffected and continues to do well.
Sony is increasingly leaning on China to offset the downturn. In September, Dalian Wanda Group Co., the world’s largest movie screen operator, agreed to invest in Sony Pictures productions in an open-ended partnership. But a slowdown in movie revenue on the Chinese mainland has raised doubts about how much the deal will bolster Sony’s performance.