Sony Corp.'s music operations continued to grow in the company's fiscal third quarter but due to an extraordinary gain reported in the year-earlier period, those operations showed a decline in operating profit.
For the three-month period ended Dec. 31, Sony’s music operations, which include Sony Music Entertainment, Sony/ATV Music Publishing and Sony Music Japan, showed a 4.2% increase in revenue (8.1% increase on a constant currency bases) thanks to generating ¥213.86 billion yen ($1.966 billion) versus the ¥205.3 billion yen ($1.818 billion) turned in during the corresponding three month period last year. That revenue increase includes a slight boost from counting EMI Music Publishing for the full three-month period this year, versus counting its full revenue for about six weeks last year, after Sony completed the acquisition of the 60% of the publishing company it didn’t previously own.
While operating profit may have declined to ¥36.35 billion yen ($333.2 million) from the ¥147.1 billion yen ($1.3 billion) in the third quarter of fiscal 2018, last year's numbers included a one-time gain of 116.7 billion yen ($1.04 billion) to recognize the EMI acquisition. That deal's valuation also triggered a ¥5.2 billion yen ($46 million) re-measurement of the 40% Sony already owned so when the gain is subtracted out and re-measurement is added back in that leaves an adjusted 2018 fiscal third quarter operating profit of ¥35.6 billion yen ($315.3 million), which means operating profits were basically flat during the two periods.
When amortization and depreciation of 7.58 billion yen ($70 million) are added back in, Billboard estimates 43.81 billion yen ($402.9 million) in EBITDA. That means, as a percentage of revenue, operating margin is nearly 17% while EBITDA is 20.5%.
Breaking out revenue by segment, recorded music generated ¥125.94 billion yen ($1.16 billion), a 7.3% increase (11.4% increase on a constant currency basis) from the ¥117.35 billion yen ($1.04 billion) thanks to strong growth in streaming, which grew 16.18 percent to ¥72.812 billion yen ($670 million) from ¥62.67 billion yen ($570 million).
Meanwhile, music publishing revenue increased to ¥39.7 billion yen ($365 million), up from ¥30.4 billion yen ($269 million), which represents a 30.8% increase (35.7% on a constant currency basis). That big increase in publishing is due to all of EMI's revenue being counted this year, versus the year-earlier period when Sony only counted the fees it received as the administrator of EMI up until Nov. 14, 2018, and then when the acquisition was completed, counting all the revenue from EMI from Nov. 15 through Dec. 31, 2018.
Finally, for the three-month period, the visual media/platform, which mainly includes mobile video game revenue and revenue from some tertiary music income streams, saw a 16.3% decline in revenue to ¥48.2 billion yen ($443.1 million) from ¥57.6 billion yen ($510 million).
While revenue for the three segments adds up to ¥216.94 billion yen ($1.99 billion), another ¥3.08 billion yen ($28.3 million) in inter-segment revenue needs to be subtracted to arrive at ¥213.86 billion yen.
Backpedaling to recorded music, streaming totaled ¥72.8 billion yen ($670 million), growing 16.2% from ¥62.67 billion yen ($555 millin) or 57.8% of that segment’s revenue in the third quarter, while downloads fell 13.5% to ¥81.3 billion yen ($78 million) from ¥9.82 billion yen ($87 million). Physical’s decline meanwhile was slower, down 5.4% to ¥25.7 billion yen ($236 million) from ¥27 billion yen $240 million). As a percentage of recorded music, physical was 20.4% and downloads accounted for 6.7%.
Key music releases for the period includesd albums by Travis Scott, Harry Styles, Camila Cabello, Lil Nas X, Luke Combs, Celine Dion and Khalid among others. Over in Japan, top titles during the quarter included music from UVERworld, IKIMONOGAKARI, =LOVE, and Nogizaka46.
Moving to the nine-month period ended Dec. 31, Sony's music operations turned in ¥630.64 billion yen ($5.8 billion), an 8.1% increase from ¥583.3 billion yen ($5.24 billion) in the corresponding period in 2018, which in addition to strong streaming growth also benefitted from counting a full year of revenue from EMI.
So while last year's Nov. 14 acquisition of EMI boosts this year's revenue number, last year's accounting for that acquisition inflated the music segments operating income, which as a result swamps that financial barometer in the current year.
Nine-month operating income at ¥112.1 billion yen ($1.03 billion) showed a big decline for the reasons related to the EMI Music Publishing acquisition outlined above for the three-month period, down 47% from the ¥210.7 billion yen ($1.89 billion).
Within that, recorded music produced ¥350.1 million yen ($3.218 billion), a healthy 8.5% increase (11% on a constant currency basis) from the ¥322.55 billion yen ($2.9 billion) garnered in the earlier 9-month period. Once again, that revenue increase was boosted by counting all EMI publishing revenue for the full year so far.
Consequently, music publishing, which includes Sony/ATV and Sony Japan Publishing, reported ¥117.4 billion yen ($1.08 billion) in revenue for the nine-month period, versus ¥71.7 billion yen ($644.65 million. That represents a 63.7% increase (67.4% on a constant currency basis).
Finally, the visual media/platform segment showed revenue of ¥163.13 billion yen ($1.5 billion), a 13.9% decrease from ¥189.5 billion yen ($1.7 billion).
This story uses an exchange rate of ¥108.8 yen per dollar for 2019 and ¥112.9 for 2018.
The company’s forecast for the full year 2019 remains unchanged, with the company estimating music revenue of 850 billion yen and 140 billion yen in operating profit. Looking forward, Sony said it has high hopes for several releases slated for the first half of 2020, including from Alicia Keys, H.E.R, J-AX, Khalid, Meghan Trainor, Russ and a just-dropped LP by Kesha.