3 Min Read
(Reuters) - Sony's Pictures Entertainment will produce fewer films going forward as it makes a "significant" shift from motion pictures to higher-margin television production and to operating TV channels, Sony Corp executives told investors gathered at the company's Culver City, California, studio lot.
The declaration came as Sony battles to win investor support after a letter from hedge fund investor Daniel Loeb in May called on Sony to spin off to investors a portion of its entertainment business and take steps to improve the studio's profitability.
The studio has identified $250 million in overhead and procurement cost cuts that it expects to make in the next two or three years, said Sony Entertainment CEO Michael Lynton.
The studio is also working with a "third party" - identified in prior media reports as Bain & Co - to identify further cuts, he said.
Lynton forecast that the company's pictures business, which includes its film and television operations, will have revenues of $8.4 billion in fiscal year 2015, and an operating margin of 7.4 percent. In its music business, the company expects revenue of $4.8 billion and 9.5 percent in operating income margins.
Traders reacted cautiously to the presentation, boosting its stock by 0.6 percent to $18.64 a share in afternoon trading on the New York Stock Exchange. It traded up to $18.79 earlier in the day.
"My takeaway so far is that Sony Entertainment has tremendous unrecognized depth from TV production of hits like "Breaking Bad" and leadership in the growth of networks in India," Daniel Ernst, principal at Hudson Square Research, said in an email.
"But that depth only reinforces my view that those businesses would get better recognition and unlock more value if they listed a stake of the business separately," said Ernst, who rates Sony a hold.
The company, which promised greater transparency to Loeb, reported more detailed numbers for its entertainment businesses than it had done in the past.
Loeb's Third Point owns about 7 percent of Sony Corp.
Reporting By Ronald Grover and Liana B. Baker; Editing by Tim Dobbyn and Bob Burgdorfer