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Sony will shrink movie division in order to keep it alive

Sony will shrink movie division in order to keep it alive


A $250-million belt tightening

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kaz hirai (verge stock)
kaz hirai (verge stock)

Under Kaz Hirai's leadership, Sony has seen its mobile business turn into a profit driver and its mirrorless cameras competing with professional-class DSLRs. While Sony's hardware manufacturing credentials have been restored, however, other parts of the company remain in a troubled state. Chief among them is the entertainment division, which Sony is announcing plans to restructure and downsize in the wake of some outspoken criticism and mounting losses.

Sony Entertainment has been subject to an impassioned plea from one of Sony's big shareholders, who wanted to see it detached from the monolithic Japanese company and offered up on the stock market as a standalone business. CEO Hirai declined the idea, underlining the value of Sony's horizontal integration and the synergy that can be derived from it. The recently launched Xperia Z1, for example, came with bundled content and a free download of Elysium upon its digital release. Previously, the Xperia T was featured as James Bond's smartphone of choice in Skyfall, and product placement of VAIO laptops is commonplace in films distributed by Sony or its subsidiary Columbia Pictures.

The budget shrinks by a quarter of a billion, but ambitions remain high

Still, Sony recognizes that something about its entertainment division has to change. It was deep in the red when the company last reported its quarterly earnings, which was the result of a poor run at the box office. White House Down was supposed to be the big summer blockbuster but disappointed, while The Smurfs 2 was so traumatizingly bad that even its hugely popular subject matter couldn't draw in the expected audience.

The solution from Sony is to cut $250 million out of its entertainment budget, while trimming down the number of releases from the typical 23 per year to a leaner 18. According to the LA Times, a further $100 million in cuts are expected to be identified by a consulting firm Sony has engaged to assess its studio operations. Additionally, to allay shareholders' concerns, Sony plans to increase transparency and accountability around its entertainment group. The final major adjustment is said to be a shift toward "higher margin" production for TV.

Taken as a whole, Sony's latest disclosure shows a company that's determined to stay the course of its long-term One Sony strategy, though with necessary concessions to concerned stakeholders. Whether this renewed focus on efficiency will be sufficient, however, remains to be seen. In any case, Sony's business acumen won't matter much if the company keeps turning out poor movies — higher quality on the big screen is typically the best guarantee for higher turnover at the box office.