Sony signals return to spending after restructuring austerity
Company buys controlling stake in EMI Music for $2.3bn as new CEO makes his mark
Sony has signalled a shift to spending mode after a decade of restructuring, as it aims to generate $18bn in cash flow over the next three years to increase acquisitions of entertainment content and technology.
The change of gear coincided with an announcement by the Japanese technology and entertainment group that it would spend $2.3bn to buy a controlling stake in EMI Music Publishing, gaining access to more than 2m songs from Queen, Pharrell Williams and other artists.
The deal is the biggest acquisition under Kenichiro Yoshida, who took over as chief executive in April, after Sony halted losses in its consumer electronics divisions to report its highest ever annual profit.
In outlining the company’s three-year business plan, Mr Yoshida on Tuesday stressed the company would focus on sustaining steady profits through subscription model businesses that offered recurring revenue, instead of just selling a Bravia television or a PlayStation gaming console.
Given that strategy, Mr Yoshida refrained from setting an operating profit target for the group, a move that briefly sent shares down 3.7 per cent. The stock was down 1.4 per cent in afternoon trading in Tokyo, while the broader market was off 0.1 per cent.
Instead Mr Yoshida said Sony would aim to generate cash flow of ¥2tn ($18bn) or more over the next three years, compared with ¥1.48tn in the previous three years.
“Over the next three years, I’d like to focus on enhancing the quality of profits by increasing recurring businesses rather than expanding profits,” Mr Yoshida said at a news conference in Tokyo.
Half of the targeted ¥2tn will be used primarily for capital expenditure on image sensors for smartphones, with the rest going towards acquiring content assets, technologies and increasing shareholder returns.
“They’re pretty much with done with taking action that was needed for existing businesses so it’s time for Sony to go on the offensive,” said Kazunori Ito, analyst at research firm Ibbotson Association Japan. “But it’s not going to be easy from here.”
Mr Ito said the other financial targets Sony outlined were conservative but realistic. Sony said it would aim for an operating profit of ¥130bn-¥170bn for its PlayStation business in the 2020-21 fiscal year, lower than the ¥190bn it forecasts for the current financial year, as gains from the success of its PlayStation 4 console start to slow.
Mr Yoshida, who was previously Sony’s chief financial officer, is credited for executing a turnround plan by his predecessor Kazuo Hirai that included the sale of Sony’s Vaio PC and battery businesses.
Sony now hopes to use its PlayStation and other entertainment networks to connect its users across products, and to keep its users engaged through subscription services.
“I’m currently not considering selling [any more] businesses. We’d rather like to focus on how we can strengthen our existing businesses,” Mr Yoshida said.
The EMI deal would allow Sony not only to cement its position as the world’s largest music publisher but also to take advantage of the recovery in the industry driven by the expansion of music streaming services.
In 2012, a Sony-led consortium including Mubadala, an Abu Dhabi fund, acquired EMI’s publishing business from Citigroup for about $2.2bn. At the time, Sony put about $325m of equity into the venture.
With Sony’s additional investment, which is based on an enterprise value of $4.75bn, the Japanese group will hold an indirect equity stake of about 90 per cent by taking over Mubadala’s 60 per cent holding.