Sony Takes $1 Billion Writedown On Its Movie Business

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Sony Corp (6758.T) will write down the value of its movie business by nearly 112.1 billion yen ($976 million) in the third quarter, blaming weaker film profits as online streaming services sap demand for movie DVDs.

In a statement on Monday, the Japanese TV-to-gaming group said it had cut its outlook for earnings from DVD, blu-ray discs and other home entertainment in line with a market decline.

Sony, under Chief Executive Kazuo Hirai, has been slashing costs to end years of losses across its sprawling business, writing down over-optimistic valuations. It said on Monday that the pictures segment overall – including television – expected to see profits improve as a result of the changes.

It gave no specific details, but a spokeswoman said Sony was pressing ahead with a turnaround plan, strengthening markets outside the United States, including India and China, bolstering income from intellectual property and cutting costs.

Sony’s movie studio has recently lagged behind competitors in box office share and big hits, and underperformed its rivals in the global box office.

In 2016, S0ny films accounted for 8 percent of U.S. and Canadian ticket sales, ranking fifth among major Hollywood studios, according to the Box Office Mojo website. This year, Sony will be counting on films such as “Spider-Man: Homecoming”, which it is co-producing with Walt Disney Co’s (DIS.N) Marvel Studios, animated movie “Smurfs: The Lost Village” and action flick “Jumanji”, starring Dwayne Johnson.

But the latest in a string of writedowns for the overall Sony group rattled its shares in Tokyo on Tuesday, sliding almost 4 percent before recovering to trade in line with the market. At 0430 GMT the stock was down around 2 percent.

“In our view, it is not easy to stay bullish when S0ny makes these announcements so frequently,” Jefferies analysts said in a note. “However, we believe these are not new issues but instead are an acknowledgement of its past strategic mistakes.”

Most of the movie writedown relates to goodwill recorded at the time of Sony’s acquisition of Columbia Pictures in 1989.

Monday’s statement, however, also comes just over two weeks after it announced the departure of its long-serving Sony Entertainment chief executive, Michael Lynton, who steps down next month to become chairman of messaging app owner Snap Inc. He will stay on for six months to help find a successor, while Hirai has set up an office in Culver City, California, where the studio is based, to oversee the transition.

Snap, the owner of the popular Snap chat app, is expected to go public early this year.

A replacement has not been named for Sony Entertainment, which includes both pictures and television.

Son y has sold off underperforming businesses and has worked to turn around others, including Sony Entertainment. It said on Monday that the business remained “an important part of Sony”.

To help cushion the impact of the writedown, Sony said it would sell part of its stake in M3 Inc (2413.T), operator of membership-based medical-related online services, trimming its holding to 34 percent from 39.3 percent.

Sony releases its third-quarter results on Feb. 2.

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