December 6, 2024

At Sony, Investor’s Challenge Brings Unwanted Suspense

The mood extends beyond the walls of the 44 1/2-acre lot. Each year, Sony rents out the entire Ritz-Carlton Cancún Resort for an international press junket. Day after day, the studio flies in stars and hosts parties.

“What I love about Sony,” said Matthew Tolmach, a former executive at the studio and now a producer based on its lot, “is that they still love movies, and they are incredibly aggressive about making all kinds of them.” He added: “It’s why I want to live there.”

While competitors like Paramount, Disney and even Warner Brothers have gone through ferocious consolidation — all focusing more narrowly on blockbuster-style fantasies and superhero movies — Sony has been slower to give up the industry’s broad prerogatives. Its ambitions still stretch from R-rated romps to “The Amazing Spider-Man” to tiny foreign films to African-American comedies to Oscar-caliber dramas. That requires making a home not just for Mr. Tolmach but also for an extensive family of filmmakers and stars.

Sometimes it pays. Last year, Sony Pictures Entertainment generated about $4.4 billion in global ticket sales, the highest in its history, powered by nine No. 1 hits including “Skyfall,” “Men in Black 3” and “The Vow.” It had an Oscar contender, “Zero Dark Thirty,” started a new franchise, “Hotel Transylvania,” and revived an old one, “21 Jump Street.” It ended the year in first place in market share.

But in true Hollywood style, the Sony picture is not quite what it seems.

The truth is that Sony finds itself at a troubled crossroads. Its go-to stars — Adam Sandler and Will Smith — are now a generation older than the prime film-going audience. And its steep production and infrastructure costs burden Sony with one of Hollywood’s worst profit margins. Sony’s entertainment unit had an operating margin of 6.5 percent in its last fiscal year; the figures at Warner Brothers, Disney, Paramount and 20th Century Fox were all higher.

It is extremely hard to compare studios, analysts warn. Some make only movies, while others, like Sony, also make television shows. Financing arrangements and accounting vary. Sony does not divulge how much of its profit comes from movies and how much comes from its fast-growing television business.

In its last fiscal year, the studio reported operating income of $509 million, up 40 percent from a year before. That result looks fantastic until you consider that roughly 65 percent of the total, analysts estimate, came from a relatively small television arm that includes shows like “Wheel of Fortune” and “Breaking Bad” as well as overseas cable channels. Analysts complain that the giant movie side is holding back profitability.

The movie unit has also lost the man long seen as its protector inside Sony, the far-flung Japanese electronics behemoth. That man is Howard Stringer, who was Sony’s chief executive for seven years. Last year, he turned over the Sony helm to Kazuo Hirai. Mr. Stringer will retire as chairman next month.

But the truly startling plot twist came on Tuesday. Daniel S. Loeb, the activist hedge fund manager known for successfully engineering a shake-up at Yahoo, told Mr. Hirai in a letter that his Third Point investment fund had become Sony’s largest shareholder, with a 6.5 percent stake. With that announcement, Mr. Loeb proposed breathtaking changes at the company, including a spin-off of up to 20 percent of its studio and other entertainment holdings.

Overnight, Michael M. Lynton, the C.E.O. of both Sony Pictures and Sony Entertainment, and Amy Pascal, co-chairwoman of Sony Pictures, found themselves under a kind of weight rarely felt in Hollywood since the 1980s, when corporate raiders and high-yield bond peddlers like Saul Steinberg, the Bass brothers and Michael Milken delved into studios, looking for hidden value.

“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” Sony asserted in response to Mr. Loeb. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”

A spokeswoman for Mr. Lynton and Ms. Pascal said they had no comment. Several days before the disclosure of Mr. Loeb’s letter — in response to questions about the studio’s performance and its movie release lineup — Steve Elzer, a Sony spokesman, wrote in an e-mail, “We have been strong and steady not just for a year, but for longer than a decade.” He added, “We couldn’t be more confident in our slate this summer and through the year.”

Article source: http://www.nytimes.com/2013/05/19/business/at-sony-investors-challenge-brings-unwanted-suspense.html?partner=rss&emc=rss

Hermès Profit Rises, and Not Just in Asia

PARIS — Hermès International, the French maker of leather handbags and scarves, on Thursday reported a sharp increase in annual sales and profits, the latest luxury house to report strong growth.

The company, founded in 1837, reported revenue of €3.5 billion, or $4.5 billion, for last year, up 23 percent from 2011. Net profit rose 25 percent, to €740 million, better than the €709 million that analysts surveyed by Reuters had been expecting.

Hermès said its operating margin, a measure of profitability, came in at 32.1 percent, the highest level since the company’s shares were listed on the stock market in 1993.

Despite the crisis in the euro zone, weak growth in the United States and a mixed economic performance in China, wealthy consumers continue to spend, lifting sales of top-line cars, watches, wine and clothing. LVMH Moët Hennessy Louis Vuitton, the biggest luxury company, said in January that its 2012 sales rose 19 percent from a year earlier, to €28.1 billion, as net profit rose 12 percent, to €3.4 billion.

The Hermès lineup includes ready-to-wear clothes, jewelry, watches and perfumes, which it sells to an exclusive clientele: A single Birkin handbag can cost more than $10,000.

The company said sales in Asia excluding Japan rose 25 percent from a year earlier, while Japanese sales grew 7 percent. European sales, which include products sold to Asian visitors to the Continent, rose 15 percent, and sales in the Americas grew 14 percent.

“It’s not just an Asian story,” said Catherine Rolland, a luxury analyst at Kepler Capital Markets. “They had strong growth in all regions.”

Ms. Rolland said she expected the company to post “double-digit sales growth” this year, growing faster than its rivals in the luxury sector. The main concern for the industry, she said, was the outlook for China, and in particular a clampdown on gift-giving in the country.

The Hermès family is fighting to keep the company independent of Bernard Arnault, the chief executive of LVMH, who has built a stake of more than 22 percent in his smaller rival. Prosecutors in Paris said last week that they were investigating whether Mr. Arnault violated insider trading rules to build his stake without notifying the exchange.

The French market regulator, the Autorité des Marchés Financiers, has been investigating Mr. Arnault’s actions since late 2010, and is expected to render an opinion on the matter by the end of the summer.

Article source: http://www.nytimes.com/2013/03/22/business/global/hermes-profit-rises-and-not-just-in-asia.html?partner=rss&emc=rss