Even as the music business sees streaming revenue boom, Sony’s music and mobile video games operations reported slightly down results for the company’s fiscal second quarter ended Sept. 30.
Those segments generated 31.5 billion yen ($282.5 million) on revenue of 203.86 billion yen ($1.83 billion). That’s down 3.1 percent from the 32.51 billion yen ($292.9 million) reported in operating income the second quarter of the prior year, while revenue was down 1.3 percent from the 206.57 billion yen ($1.861 billion).
Company officials attributed the slight declines during the quarter to mandated changes in accounting procedures in how and when it books revenue.
On the plus side, that greater percentage decline in revenue than operating income means improved margins with operating income accounting for 16.5 percent of revenue, versus 15.4 percent in the first half of the prior year.
Within the revenue totals, Sony’s music operations, which consists of Sony Music Entertainment, Sony Music Japan, and Sony/ATV Music Publishing, produced total revenue of 124.9 billion yen ($1.12 billion), versus the prior year first quarter total of 128.7 billion yen ($1.16 billion), a decline of nearly 3 percent.
For the six month period, Sony’s overall music and visual media/platform recorded 63.6 billion yen ($576.8 million) in operating income on revenues of 384.33 billion yen ($3.49 billion). That represents an increase of 10.55 percent from the 57.5 billion yen ($518.3 million) in operating income produced in the company’s first half of fiscal 2017; while revenues were up 2.72 percent from the 374.14 billion yen ($3.38 billion).
Looking at just recorded music and music publishing, the company produced 246.1 billion yen ($2.23 billion), up slightly from the first half of 2017 when those operations had revenue of 245.4 billion yen ($2.21 billion).
Within its music operations music publishing garnered 40.9 billion yen in revenue ($371.05 million), up 12.5 percent from the 36.36 billion yen ($327.6 million) produced in the first half of the prior year.
Meanwhile, the company’s recorded music operations generated 205.2 billion yen ($1.86 billion, down 1.8 percent from the 209 billion yen ($1.88 billion) for the corresponding year earlier period. The company cited strong activity around Travis Scott’s ASTROWORLD, Luke Combs' This One’s For You, George Ezra’s Staying At Tamera’s, Camila Cabello’s Camila, Khalid's American Teen, Future's BEASTMODE 2, A$AP Rocky's TESTING, Kane Brown's self-titled album, and releases from Calvin Harris and Martin Garrix. For Japan, the company cited releases from Little Glee Monster, NGT 48, Nogizaka46, Keyakizaka46, and Kenshi Yonezu.
Within recorded music, streaming was the leading format, producing 109.3 billion yen ($990.24 billion) for the six month period, up 19.5 percent from 91.4 billion yen ($823.71 million); while download sales accounted for 20.47 billion yen ($185.65 million), down 18.9 percent from the 25.24 billion yen ($227.37 million) accumulated in the six-month earlier period. That means that the digital formats combined produced 129.74 billion yen ($1.176 billion) versus 116.67 billion yen ($1.05 billion).
Physical music sales totaled 42.9 billion yen ($389.3 million), a 29.8 percent drop from the 61.14 billion yen ($550.85 million) the format had in the first half of last year; while other recorded music income streams totaled 32.55 billion yen ($294.7 million) up 4.4 percent from the 31.19 billion yen $280.95 million).
As a percentage of revenue, recorded music for the first half of 2018 breaks out to 63.2 percent from digital of which 53.3 percent was from streaming and the other nearly 10 percentages points was from downloads; physical at 20.9 percent and other at 15.9 percent. In the prior year, those percentages were 55.8 percent for digital, which broke out to 34.8 percent streaming and 11.2 percent downloads; physical 29.3 percent and other 14.9 percent.
The company's visual media/platform segment -- which includes the production and distribution of animation titles, including mobile game applications based on the animation titles, and various service offerings for music and visual products -- posted 131.9 billion yen ($1.19 billion) for the six month period, a 7.6 percent increase from the 122.56 billion yen ($1.1 billion).
(For this story, the 3-month revenue conversion totals are based on 111.5 yen to the dollar, while the six month totals are produced by adding together the second quarter dollar totals with the first quarter dollar totals when the conversion rate was 109.1 billion yen to the dollar. Overall that produced a six month average exchange rate of 110.3 yen to the dollar. In the prior year, a conversion rate of 111.1 yen to the dollar was used.)
Looking ahead, Sony revised its music and visual media/platform results guidance forecast saying that it expects to finish the current year with 820 billion yen ($7.35 billion) in revenue, while it foresees operating income at 230 billion yen ($20.06 billion). Those results represent an improvement over the guidance issued in July because the new forecasts take into account the anticipated completion of the acquisition of EMI Music Publishing, which was just approved by the EU Commission regulatory antitrust division.
The company said those new forecasts incorporate approximately 25 billion yen in revenue and an incremental 110 billion yen in operating income as a result of increasing its equity stake from about 40 percent to total ownership of EMI Music Publishing.
The company also reported that as of Sept. 30, it still held Spotify shares with a gross air value of 105,242 million yen (927 million U.S. dollars). It also said it expected to recognize 63.6 billion yen ($589 million) of that, after paying out royalties to artists and distributed labels.