WHAT: Sony Corp. laid out austerity measures for its entertainment business—zeroing in on more than $250 million in cost reductions during the next three years, with more being identified by Bain & Co., a consulting firm Sony hired to further streamline its operations. On the face of it, the music business will not be directly affected—almost all budget cuts will hit Sony Pictures Entertainment—but the new emphasis on cost-cutting for the overall business means the music executives are even more conscious of running operations efficiently, as was evidenced by their presentations.?
HOW: Sony Music and Sony/ATV Music Publishing have already slashed their costs during the past decade in response to the digital disruption currently affecting movies and TV. Since 2004, Sony’s recorded-music division has eliminated 4,500 jobs, cut cumulative overhead by $700 million and slashed marketing expenses by $300 million. A revenue forecast presentation by Sony Music Entertainment executive VP/CFO Kevin Kelleher said that overall revenue will be flat to slightly up from the $5.4 billion recorded for the year ended March 31 (based on a constant 1-to-83 dollar-to-yen exchange rate). Recorded music is projected to be flat at about $3.7 billion, music publishing revenue of $633 million will be up in low single digits, and the visual media and platform segment—which includes anime programs, concert venues and providing services to other music and film companies—will be flat to slightly up from $858 million.?
WHY: Activist investor Daniel Loeb, whose Third Point hedge fund owns 7% of Sony shares, has been agitating for the Japanese company to spin off its entertainment business. Entertainment has actually been one of Sony’s more profitable units. And within that sector, the music businesses have in recent years had better operating margins than their studio counterparts. Music executives intend to continue improving those profit margins, according to Kelleher. The music businesses will wring out greater profits by continuing overhead reductions and process improvement so that overall OIBDA (operating income before depreciation and amortization), which stood at $613 million for the year ended March 31, or 11.5% of revenue, will grow in the mid-single-digit percentage range through 2017 to 13% of revenue. Operating income (after amortization and depreciation) is projected to grow by the mid- to high-single-digit range from $448 million. It’s easy to see how—for example, Sony/ATV will have sliced 66% of the overhead of EMI Publishing by June 2014.?
IF: While Sony’s cost reductions don’t directly affect music, they will amount to less money overall circulating in Hollywood for things like film scores, marketing and music licensing. Longtime Sony Pictures Entertainment co-chairman Amy Pascal told investors that Sony will reduce the number of 2014 summer movie releases to four, down from nine this year. However, Sony says it will put greater emphasis on its “higher-margin” TV business.