EarningsCenter

Sony's sorry quarter: Loss suggests owning a movie studio makes little sense

Sony (SNE) posted its fourth consecutive quarterly loss on Friday, as the Japanese consumer electronics giant, known for its upmarket televisions, laptops and game consoles, was dragged down by the recession and competition from other Asian manufacturers. The crummy quarter again raises the question: why does the company continue to hold onto its Sony Pictures movie studio, which lost money in the quarter?

Overall, the company showed a $292 million net deficit on revenue of $18.5 billion, a nearly 20 percent drop. Sony's TV and camera division reported a 37 percent slide in revenue to $8.9 billion, barely breaking even. Long-term, the unit may continue to have trouble even if the economy recovers. Chinese and South Korean firms will continue to challenge margins, experts say.

Video game and PC sales continued to be a huge area of disappointment for Sony. Revenue in the division of the company that sells VAiO PCs and PlayStation gaming products was down 24 percent and the units had an operating loss of $654 million.

The future of this division does not look bright. Sony has cut prices on the PS3, which could improve sales but will probably undermine margins. It still faces fierce competition from Microsoft (MSFT) and Nintendo, both of which have cut prices on their game consoles as the holidays approach.

Meantime, the VAIO is an "also ran" in the PC business. It is hard to say why Sony bothers being in the industry when its market share is so tiny.

Industry analysts continue to wonder why Sony owns a movie studio. It has nothing to do with the firm's core electronics business. With the latest results, Sony will be under pressure to answer that question again. Revenue in its film business, which is behind movies such as District 9 and Julie & Julia, fell 20 percent to $1.5 billion. The unit lost $71 million.

Sony said that the lack of blockbuster films in the period hurt its movie operations. There's growing consensus among analysts that Sony should sell the operation to a large media company and use the cash to bolster its balance sheet.

Sony said it would lose a little less money in its fiscal year, which ends March 30, than it had forecast in its last quarterly report. That forecast may not be accurate if the holiday season in unkind to its TV and video game sales.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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