Sony's in a 'bag of hurt' because of Blu-ray

Sony is warning shareholders to expect poor financial results for its fiscal year ending March 31, 2014. The electronics giant previously expected to pull in an operating income of 80 billion yen ($782 million) over the financial year, but is today adjusting that figure down to just 26 billion yen ($254 million).

The sharp reduction — the new operating income estimates are 68 percent down from a February forecast — can be attributed to a pair of somewhat unexpected events. Roughly 30 billion yen ($293 million) of the drop is due to "additional expenses" from Sony's exit from the PC business. The company announced it's to sell its PC division to a Japanese investment fund earlier this year.

Blu-ray is dying faster than expected

The second charge is due to what Sony calls "demand for physical media contracting faster than anticipated," especially in Europe. Because of this, Sony says it does not believe the business will generate "sufficient cash flow in the future to recover the carrying amount of long-lived assets." It anticipates an impairment charge on those assets, and a second charge on the overall value of its disc manufacturing business, which will amount to 25 billion yen ($245 million).

Blu-ray was officially introduced in 2006, backed by Sony and other manufacturers, and briefly battled against competing "next-generation" format HD-DVD. Buoyed by widespread adoption thanks to integration with the PlayStation 3, the popularity of Sony's format of choice saw HD-DVDs die without trace.

Winning this battle required heavy investment from Sony, an investment that it expected to recoup with years of strong sales. Instead of the market moving from DVD to Blu-ray, consumers began to embrace downloads from Apple's iTunes service and streaming from sites like Netflix and Hulu. Although Blu-ray is integrated with some Windows laptops, it was never offered by Apple — Steve Jobs famously called the format a "bag of hurt."  With the rise of movie streaming and downloads, Sony is now accepting that its disc business is not worth as much as it hoped.

Sony will give a full rundown of its financial performance over the past year in two weeks. Its revenues from operations are likely to actually be higher than originally expected — the new forecast adds some 70 billion yen ($685 million) to the previous figure — but the company still expects to book a net loss for the year.