Sony Corp earlier this week warned of a $962M goodwill impairment charge for its Pictures division, and today in Tokyo cut its net profit forecast for the year ending March 31 2017. In announcing third-quarter results, the Japanese electronics giant said it now expects net income for the full fiscal year to be 26B yen ($231M), down from an earlier projection of 60B yen ($533M). In the film unit, the full-year forecast is now a $737M loss, revised from a November projection of $258M on the plus side.
Overall operating profit for Q3 fell to 92.4B yen ($796M) from 202.1B yen in last year’s comparable frame. Net profit was down to $169M. The company says that’s mainly due to the write down at Sony Pictures Entertainment. The games division continues to be a bright spot with PlayStation4 sales and profits ($431M) both showing increases in the quarter.
But in the film unit, the company saw a $920M operating loss, again primarily down to the impairment charge and also coming off a 5% decrease in sales to $1.94B with television helping to offset some of the movie slack. Last year’s Q3 benefited from the global box office performance of such titles as Spectre and Hotel Transylvania 2. The 2016 October-December period included the releases of Da Vinci Code threequel Inferno ($220M global box office) and Passengers ($289M). SPRI’s offshore release of Arrival in 34 markets had generated $50M through last Sunday.
The charge announced on Monday is being recorded as an operating loss for the quarter ending December 31, 2016 as a result of revising the future profitability projection for the studio’s motion pictures business. The division recorded a $32M profit in Q2 with help from the releases of Ghostbusters, Sausage Party and Don’t Breathe. But it’s been TV, not film generating the majority of the profits for Sony. Last quarter, sales in TV productions increased significantly due to higher SVOD revenues for The Crown and The Get Down.
This was the first big impairment charge for the unit since the shocking $2.7B one Sony took in 1994. That tacitly acknowledged that the Japanese conglomerate paid about twice as much as it should have in 1989 when it laid out $3.4B for Columbia Pictures stock, assumed $1.4B in debt, and agreed to pay Warner Bros another $500M to let producers Peter Guber and Jon Peters out of their contract so they could move to Sony.
This week’s developments follow the news that Sony Entertainment CEO Michael Lynton is due to exit later this year. Sony Corp CEO Kazuo Hirai is now spending time on the Culver City lot as he seeks a replacement for Lynton.
The duo said Monday that management takes the recording of a substantial impairment charge “very seriously” and reiterated Sony’s “commitment to SPE remains unchanged.” The pair said, “The value of high-quality content continues to rise… Sony Corp sees SPE as a very important part of Sony group, and will continue to invest to achieve long-term growth and increased profits in this space.”
Sony also said the adverse impact is expected to be largely mitigated by measures that have been identified to improve the profitability of the business. The business cycle for motion pictures, Hirai and Lynton noted on Monday, “is long… our reform initiatives take time to produce results.”