Sony posts $5.6-billion loss, 10% drop in sales

Sony Corp. posted a record $5.6-billion annual loss Thursday, ending a fiscal year marred by global economic turmoil and the after-effects of last spring's earthquake and tsunami in Japan and last fall's floods in Thailand.

The consumer electronics and media giant, which is in the midst of a top-to-bottom reorganization, said revenue fell 9.6% to $79.2 billion in its fiscal year ended March 31, down from $87.8 billion last year. Sony lost $5.6 billion, or $5.55 a share, nearly double the prior year's loss of $3.2 billion.

About $3.2 billion of red ink recorded for the fiscal year just ended came from a paper loss it incurred by writing down deferred tax assets. Sony had warned investors in April of the expense hit, as well as the drop in sales.

Much of last year's revenue decline was due to a steep 18.5% drop in the sales of its LCD television sets, digital cameras, personal computers and PlayStation games businesses, which made up close to half of Sony's total revenue.

Its TV and games business suffered from severe competition from lower-cost rivals that forced the company to slash prices. Meanwhile, sales of digital cameras and PCs fell after an October flood in Thailand left factories idle for weeks. The company estimated that it lost sales of $170 million while its facilities were undergoing repairs that cost $160 million.

Sony's movie business blunted the losses in electronics, recording a $416-million operating profit on $8 billion in sales. A 9.6% uptick in revenue for Sony Pictures came from its television business as well as growth in video-on-demand sales and a sale of its share in the royalties from Spider-Man merchandise.

Its music business marked a 6% drop in sales to $5.4 billion from $5.7 billion a year earlier as CD sales continued to erode. Operating profits dipped 5.2% to $450 million, down from $475 million the year before.

Its new chief executive, Kazuo Hirai, has vowed to turn things around, telling investors that "Sony will change." Last month, the company said it would eliminate 10,000 jobs. The announcement followed a corporate realignment that demoted its once-sacred television business. Instead, the company would focus more on games, digital imaging and mobile products.

As a result, Sony forecast that it would grow revenue 14% in the current fiscal year with its factories humming again. It also projected a modest $366-million profit for the year, thanks to aggressive cost-cutting and a greater emphasis on higher-margin products such as medical imaging equipment.

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Photo: Kazuo Hirai, Sony's new chief executive, at the 2012 Consumer Electronics Show in Las Vegas. Credit: Ethan Miller / Getty Images

Sony posts $2-billion loss, 17% drop in sales

Battered by a strong yen and floods in Thailand that hobbled several of its factories, Sony Corp. reported a $2-billion loss and a sharp decline in sales for its end-of-year quarter.

The Tokyo technology and entertainment giant Thursday said sales slid 17.4% to $23.4 billion in its third quarter ended Dec. 31. Its $2-billion net loss compared with a $950 million gain the same period a year earlier. 

The bulk of the losses stemmed from Sony's core consumer electronics business, where it was forced to cut the prices of its LCD television sets below production cost to compete with lower-cost rivals. Compounding the problem was a the high yen, which made its products more expensive outside of Japan.

Sony's PlayStation business also contributed to the decline. The unit racked up higher marketing costs in the quarter, with expenses to promote its PlayStation Network online entertainment services, while revenue suffered from a price reduction of its PlayStation 3 game console. 

Kazuo Hirai, Sony's newly appointed chief executive, last year said fixing its LCD television business would be the company's No. 1 priority this year.

Sony's film business exhibited a bright spot in an otherwise gloomy financial picture. Revenue from Sony Pictures Entertainment posted a 7.7% increase in revenue to $2.1 billion, ending the quarter with a $9-million profit. Sony attributed the gains to a higher number of box office releases in the quarter, which helped offset a decline in DVD and other home entertainment revenue.

Sony's music business saw both revenue and operating income decline, but remained profitable -- bolstered by continuing strong sales of Adele's "21" album as well as music from the "Glee" TV show. The group's sales fell 11.7% to $1.6 billion, while profits of $196 million were down 21.7% from a year earlier.

Sony also revised its forecast for its full fiscal year, saying the deteriorating economies in Europe and elsewhere will result in lower demand for its products. Sales for the year ending March 31 is now expected to be $83.1 billion, down 1.5% from its November forecast and down 10% from a year earlier.

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Photo: Kazuo Hirai, Sony's new chief executive, at the 2012 Consumer Electronics Show in Las Vegas. Credit: Ethan Miller / Getty Images

Google reaches handshake deal with Sony for music store

Google, which is set to launch a digital music store on Wednesday, has reached a handshake agreement with Sony Music Entertainment to license its catalog, which includes songs by Adele, Sade and Foster the People, among others, said an executive close to the negotiations.

Once a deal is signed, as both parties expect, the only major record company not to jump on board with Google would be Warner Music Group.

EMI and Merlin Network, which represents more than 18,000 independent artists and labels, have agreed to let Google sell downloads from their music catalogs, and Universal Music Group is widely expected to also come to terms Wednesday with the Mountain View, Calif., technology giant.

The record companies and Google have declined to comment on their negotiations.

Google has been laboring for more than a year to obtain licenses from record companies to build a music service for its Android mobile operating system. But until recently, most have balked at granting Google the keys to their catalogs.

Record companies have been concerned over Google's ability to make money off of their content, of which they get a cut. Secondarily, the labels have also tried to extract Google's help in deterring piracy by censoring from its search results websites that traffic in stolen content.

The licenses that Google has secured for its download store, however, are just one piece of the  company's strategy to compete with Apple Inc.'s iTunes and Amazon.com, as well as a growing chorus of digital music services vying for people's time and attention.

In order to offer a streaming music service to rival Spotify or Rdio, for example, Google would have to negotiate a separate license from the music companies. A cloud music service that lets users listen to their music collections from any Web browser without having to manually upload their song files requires another type of license.

Sony's tentative agreement, first reported by Bloomberg, appears to pave the way for the two companies to talk about those other licenses.

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Photo: British soul singer Adele is among the artists represented by Sony Music Entertainment. Credit: Malte Christians / EPA

Universal, Sony win dual bids to buy EMI Group

Universal Music Group and Sony Corp. have reached agreements with Citigroup Inc. to buy EMI Group's music business for a combined $4.1 billion, an 8% premium over Citigroup's initial minimum asking price.

The dual transaction would split London-based EMI in two, with the company's recorded music going to Universal for approximately $1.9 billion and the publishing division sold to Sony for $2.2 billion, the companies announced Friday morning. Citigroup in October had asked for a minimum of $1.9 billion for the recorded music business and $2.5 billion for EMI's smaller but more profitable publishing business.

Among EMI's roster of artists are Coldplay, Norah Jones, Katy Perry and Pink Floyd, to name just a few. In addition, its publishing catalog contains 1.4 million songs, including “New York New York,” “The James Bond Theme,” “Empire State of Mind,” “We Are the Champions,” “Wild Thing,” “Have Yourself a Merry Little Christmas.”

The deals are subject to approvals by antitrust regulators in both the U.S. and Europe. Universal is already the largest recorded music company in the world, with an estimated 27% of the global market, according to the International Federation of the Phonographic Industry. Adding EMI's share of roughly 9% would put Universal at a comfortable distance relative to Sony, whose market share has approached, and at times, surpassed Universal's with regard to recorded music.

The recorded music business is primarily concerned with selling records and breaking new artists, whereas music publishing collects royalties from music that is licensed for use in advertising, games, television shows and other commercial purposes.

For Sony, the agreement to buy EMI Publishing came at the eleventh hour, as financing for its $2.2-billion purchase came together in the last week or so via a network of partners that include Mubadala, an Abu Dhabi investment fund, Blackstone, Guggenheim Partners, UBS Investment Bank and several others. The offer narrowly edged out a $2.1 billion bid from BMG Chrysalis, a music publishing company owned by German media giant Bertelsmann and Kohlberg Kravis Roberts & Co.

Sony is considered an investor and partial owner in the deal, but will manage the business under its Sony ATV publishing business, which owns or administers the publishing rights to 750,000 songs, including the Beatles catalog.

The deal is a coup for Sony Chief Executive Howard Stringer, who has made music a priority for the company at a time when the industry has been ravaged by piracy and plummeting CD sales. In 2008, Stringer spent $1.2 billion to buy out Bertelsmann's 50% share in a joint venture, Sony BMG.

For Universal, the purchase keeps EMI out of the hands of Warner Music Group, which would have gained enough market share to closely rival Universal and Sony.

In the end, the deal hinged upon a solution to EMI's pension plan obligations to its 21,000 employees. Warner offered to assume the pension liability, but would pay about $1 billion in cash. Universal's $1.9 billion cash offer, however, left Citigroup with the pension obligations. Estimates for the amount of money necessary to pay out the pensions over the lifetme of the plan have ranged dramatically from $200 million to $600 million.

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Photo: Among EMI's properties is the Capitol Records building in Hollywood. Credit: Alex Pham / Los Angeles Times.

Jockeying goes on as Citigroup renews EMI talks with Universal

With negotiations for the sale of EMI Group dragging on longer than a Wagnerian opera, owner Citigroup Inc. has invited Universal Music Group back to the negotiating table this week after failing to break a logjam with the previous high bidder, Warner Music Group.

Citigroup's overtures to Universal come two months after the bank initiated a formal auction for EMI, one of the world's oldest and largest music companies, with a roster of well-known artists, including Pink Floyd, Coldplay and the Beatles.

Universal and Warner have been the lead bidders for EMI's recorded music unit. The bank has also fielded separate offers from Sony Corp. and BMG Chrysalis for the company's music publishing business, which itself could fetch as much as $2 billion. But a deal to sell the publishing division hinges on Citigroup being able to first sell the recorded music. 

But those efforts have has been fraught with difficulty, largely over how to deal with EMI's pension fund, which is said to cost as much as $600 million over the lifetime of the plan, according to executives who have knowledge of the discussions.

Officials from Citigroup and the music companies declined to comment.

Citigroup had been trying to work out the details of Warner's bid, said to be valued at more than $1.5 billion, said those executives who did not wish to be named because of the confidentiality of the talks.

Warner, owned by Russian-born industrialist Len Blavatnik, had outbid Universal's $1.2-billion offer, the sources said. But Warner walked away and withdrew its bid after failing to come to terms with Citigroup on the transaction, including how to handle a pension liability for EMI's 21,000 employees.

Warner's offer included an estimate for the pension costs, said people knowledgeable with the terms. As a result, the actual cash amount Warner offered could have been less than $1 billion.

A third bidder, billionaire Ron Perlman, has lobbed a bid valued somewhere between Warner's $1.5 billion and Universal's $1.2 billion offers, said people who have been briefed on the discussions. It's unclear where Perlman's proposal stands as Citigroup attempts to reignite talks with Universal this week.

If Citigroup is able to pull off its auction in the next few weeks, EMI would be the second major music company to be sold this year. In May, Blavatnik's Access Industries bought Warner Music for $3.3 billion in cash and debt.

A sale of EMI's recorded music business to either Warner or Universal would reduce the number of major music companies from four to three -- Universal, Warner and Sony Music Entertainment -- a scenario that could raise regulatory concerns in the U.S. and in the European Union.

But with no clear agreement in the wings, those interested in knowing EMI's fate may have to wait through a few more acts unfolding as Citigroup tries to coax more out of its bidders.

In February, Citigroup seized control of the British record company from former owner Terra Firma Capital Partners, in a debt-for-equity swap. In the same transaction, the bank wrote off two-thirds of EMI's loans, leaving the company with roughly $1.9 billion in debt.

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Photo: Chris Martin, lead singer of Coldplay, represented by EMI. Credit: Myung Chung / Los Angeles Times.

Fading TV sales pushes Sony into the red

Sony Corp. swung to a $350 million loss its second quarter as sales of LCD televisions and other products in its flagship consumer electronics business deteriorated worldwide.

Hampered by an appreciating yen that made its products more expensive outside of Sony's home country of Japan, revenue dropped 9% to $20.5 billion in the quarter ended Sept. 30 compared to the prior year. Its losses reversed a year-ago profit of $398.5 million, Sony announced Wednesday.

The red ink is expected to bleed into Sony's full fiscal year ending in March, resulting in a $1.2 billion loss. It previously had projected a $769 million gain.

Kazuo Hirai, a senior Sony executive who is widely expected to succeed Howard Stringer as the company's next chief executive, vowed to stanch the losses, particularly in the consumer electronics division, and bring Sony's finances back to health.

"I promise to lead the turnaround plan to get us out of the red," said Hirai, who was also tapped earlier this year to be the company's corporate face during another crisis when its computers were hacked, compromising millions of customer profiles.

Much of the losses stemmed from Sony's consumer electronics business, which posted a $449 million loss on $10.1 billion in sales, down 12.3% from a year ago. Sales of LCD TVs was particularly hard hit as competition from rivals such as Samsung, Vizio, Panasonic, Sharp and others drove down prices and as shoppers curbed their purchases in the face of a global economic slump.

Sony released a "TV Business Profitability Improvement Plan" that would slash the number of LCD TV sets the company produces a year to 20 million, down from the 40 million it had earlier projected.

Sony Pictures was the sole division to report a gain, but one that was primarily driven by a one-time sale of its Spider-Man merchandising rights for $278 million. The studio recorded a $268 million operating profit on $2.2 billion in revenue, up 17% from a year ago. Without the sale of Spider-Man, the division's financial results were essentially flat.

Strong showing of "The Smurfs" in theaters as well as higher sales of DVDs and made-for-cable TV shows helped to offset an overall decline in box office revenue, the company said.

Sony's music business got a lift from Adele's "21" album, but not enough to counter lower album sales outside the U.S. and the negative impact of an appreciating yen. As a result, sales fell 6.6% at Sony Music to $1.3 billion. The division posted $82 million in operating profit, down 22% from last year.

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VEVO rolls out Facebook app for bands

VEVO, an online music video startup, is pressing play on its latest product -- a Facebook app that lets bands and musicians showcase their music, sell albums and merchandise, live stream concerts and collect email addresses from their fans, among other things.

The New York company, jointly owned by Universal Music Group and Sony Music Entertainment, is the latest player to dive into the crowded do-it-yourself marketing apps and services for musicians.

Digital startups such as ReverbNation, RootMusic, Bandcamp, Topspin and Songkick, as well as established giants such as Live Nation Entertainment, are rushing to be the online broker between bands and fans on Facebook and other digital platforms. This relationship is increasingly important as digital tools give bands the ability to distribute their own music, directly communicate with their audience and build their own marketing campaigns.

On Facebook, RootMusic and ReverbNation currently are the two top music applications, according to AppData.com, a site that tracks applications.

VEVO plans to set itself apart from rivals by giving musicians the ability to present all their music videos on Facebook within a single window -- leading to more clicks and, hopefully, deeper engagement with fans, said VEVO's general manager, Fred Santarpia.

"The key differentiator between VEVO and others is that VEVO carries the official music videos," Santarpia said. "None of the others can offer that as part of their product suite. When those artists are premiering a new music video, they can do that with VEVO."

VEVO was the second largest purveyor of online videos as of July after YouTube, serving up 3.2 billion video views a month worldwide, according to the most recent report from comScore. It also hosted 67.7 million unique visitors in the U.S. in July, up from 48 million a year ago, making it the top music site in the U.S. that month.

VEVO, which makes money from the ads that play before and during the videos as well as the ads displayed around the video window, is giving away its Facebook app to musicians.

The company also splits its advertising revenue with labels, artists and other rights holders. Santarpia estimates that his company, which launched in December 2009, will have distributed more than $100 million to licensors by the end of this year.

The app's debut comes a day before Facebook is expected to announce a major overhaul of the way its 750 million users experience music, news and videos on the social network, with the aim of making things easier for both media and entertainment companies such as VEVO to customize their apps, as well as users to consume and share media.

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Screenshot of Lady Gaga's Facebook page, which uses VEVO's app to play the songstress' music videos and sell albums. Courtesy of VEVO.

 

 

 

Baidu strikes licensing deal with music labels

Baidu, China's largest search engine, has struck a deal to license songs from three major record labels, giving music companies a rare victory against piracy in the world's most populous country.

Terms of the multi-year deal, announced Tuesday, call for Baidu to pay Warner Music Group, Universal Music Group and Sony Music Entertainment for every song download or stream served up by Baidu's new ad-supported social network, dubbed Ting.

Baidu also agreed to pay the labels for songs delivered through its MP3 Search service. Terms of the license were not disclosed.

The labels sued Baidu in 2008, claiming that the Chinese company violated copyright laws by serving up links to pirated music. The music companies lost the case in 2010, but pursued an appeal in a higher Chinese court. Baidu's agreement to now pay for licenses effectively settled that lawsuit.

The Obama administration, through the Office of the U.S. Trade Representative, has been pressuring China and other "notorious markets" to rein in piracy, counterfeiting and other copyright infringements. The U.S.T.R., in a report last year, cited Baidu for providing "deep links" to sites that let users directly download pirated content.

The Chinese market, with 477 million Internet users, has been particularly nettlesome to content providers as they seek ways to build businesses there. Downloading music is the second most popular Internet activity in China, according to the China Internet Network Information Center. But the amount of revenue from digital music in China, estimated to be $175 million last year, is a fraction of the $7.2 billion worldwide, according to PriceWaterhouseCoopers.

Agreements with major players in China such as Baidu, which reported $534.1 million in profit on $1.2 billion in revenue in 2010, is seen as key to establishing a beachhead in that market for legitimate music providers.

-- Alex Pham

Twitter/ @AlexPham