The Pictures Division of Japanese entertainment and tech giant Sony achieved operating profits of $230 million in the April to June quarter.
The wider corporation enjoyed a 53% increase in net income, hitting $2.19 billion (JPY233 billion) in the first quarter of its new financial year. Group revenues were up by 2% in local currency terms to JPY1.97 trillion.
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As might be expected, due to lockdowns and stay-at-home orders, games was the group’s star performer in the coronavirus-hit quarter.
Operating income in the Games & Network Services division climbed from $690 million (JPY73.8 billion) in the first quarter of last year to $1.15 billion (JPY124 billion) this time. Revenues were up a third from $4.28 billion (JPY458 billion) to $5.66 billion (JPY606 billion).
“Hardware, software and network services all benefited in the quarter for stay-at-home demand. In the software space ‘The Last of Us Part II’ was a huge hit. Non-first party titles, including free-to-play titles contributed significantly. And ‘Ghosts of Tsushima,’ released (after the financial reporting period) on July 17, sold 2.4 million units in the first three days, making it the fastest-selling, in-house, first party new game software IP for the PS4,” said executive deputy president and CFO Horoki Totoki, on a conference call with financial analysts after the results announcement.
In network services, PS Plus subscribers have reached 45 million, at the end of June. The company explained that the network suffered no technical problems despite high levels of activity.
The first quarter of the financial year, running from April to June, is historically the weakest for the Pictures Division, which spans motion pictures, TV networks and TV content. In the previous two years, the Pictures Division notched a first quarter loss of $69 million, followed by a negligible profit of $3 million.
The Music Division saw lower revenues and profits. Operating income was $325 million (JPY34.8 billion), earned from revenues of $1.65 billion (JPY177 billion). That compared with $357 million (JPY38.2 billion) from revenues of $1.89 billion (JPY202 billion) in the equivalent quarter last year.
At a recent strategy meeting, Sony had let it be understood that it had competently handled the early stages of coronavirus, and had the financial resources to weather a storm. However, it also warned of a group level decrease in operating income of at least 30% in the new 2020-21 financial year.
In May, Sony explained that the coronavirus had reduced the group’s consolidated income by an estimated $585 million (JPY62 billion), in the 2019-20 financial year that ended in March.
In that short period, it had recorded small gains resulting from increased games and pictures usage by consumers, and a small decrease in music, due to lower commercials production. Much larger pain was quickly felt in the electronics, image sensors and financial services divisions.
But the corporation also warned that the impact of the coronavirus disruption on the results of the pictures segment would take longer to become conspicuous, but it might last a long time.
In the short term, the Pictures Division benefited from higher TV licensing revenue and from lower marketing costs, due to the absence of theatrical releases. In its comment on current trading within the division, Sony said that demand for content from video distribution companies is high and that digital sales are trending well. But it said that it is now suffering significant delays for film and TV production, and that the negative impact from delayed theatrical releasing will affect financial results for 2-3 years.
The coronavirus impact on music drove down sales of recorded music, music publishing, and the visual media and platform business in Japan. Those processes are expected to continue through the full year, with revenues forecast to fall by 7% to $7.38 billion (JPY790 billion) and operating income to decline by 9% to $1.21 billion (JPY130 billion).
The best-selling music projects in the quarter were Harry Styles’ “Fine Line,” Future’s “High Off Life,” and Doja Cat’s “Hot Pink.” Upcoming releases in the next six months include efforts by artists including Apache 207, Beyonce, Dominic Fike, Julien Dore, Kang Daniel and Maluma.
Caution is reflected in the group’s forecast for the full 2020-21 financial year. The guidance points to revenue declines across all divisions, with the exception of games and financial services.
And even then it is forecasting profits from games to be flat. That’s because the benefits of the increase in sales and profit at PlayStation Plus are expected to be offset by the cost of introducing PlayStation 5 (set for the holiday season later in 2020).
At group level, Sony is indicating that revenues will be barely changed at $77.6 billion (JPY8.3 trillion), but that operating income will fall by 27%, from $7.89 billion (JPY845 billion) to $5.79 billion (JPY620 billion). At the after tax level the decline is likely to be less steep — just 12% — from $5.43 billion (JPY582 billion) to a forecast $4.77 billion (JPY510 billion).
Nevertheless, Sony wants to position itself as a survivor and consolidator, rather than a victim. In April, it announced a $500 million investment into China’s Bilibili. In July it announced purchase of a $250 million stake in Epic Games.
“At a time when the digitalization of the entertainment industry is accelerating we plan to leverage these investments to expand the customer touchpoints for our diverse array of content, as well as to create new digital content and ways of enjoying that content that go beyond our business segments in partnership with these companies,” said Totoki. “We intend to proactively pursue strategic investment opportunities to explore future growth.”
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