Sony 1999 Annual Report Download - page 38

Sony Corporation Annual Report 1999
36
page
for the music industry, sales in the Music business increased
by 65.6 billion yen, or 9.4% (up approximately 7% on a
constant currency basis), to 760.3 billion yen.
Sales in Japan were virtually flat compared with the pre-
vious fiscal year despite the delayed release of several major
Japanese artists’ albums until the fiscal year ending March
31, 2000. Sales in Brazil were negatively impacted by de-
clining economic conditions and the currency devaluation.
Operating income decreased by 15.9 billion yen, or 29.5%
(down approximately 30% on a constant currency basis), to
38.1 billion yen. Operating margins decreased from 7.8% to
5.0%. The significant decline in operating income was pri-
marily attributable to the Music business in Japan as a result
of increased advertising and promotion costs associated with
establishing new labels and artists in Japan. Current year
results outside Japan benefited from successful releases by
global and local artists as well as increased license fees from
a new direct marketing arrangement. These positive results
outside Japan were partially offset by lower results in Brazil
and increased costs associated with advancing Music’s online
initiatives. Increased production and improved operating
efficiencies in compact disc manufacturing plants, which
supply disks for the Game business and for third parties in
addition to the Music business, also contributed to earnings.
Pictures
In the Pictures business, sales decreased by 103.0 billion
yen, or 16.0% (down approximately 19% on a constant cur-
rency basis), to 540.2 billion yen, while operating income
increased by 1.8 billion yen, or 5.1% (virtually flat com-
pared to the previous year on a constant currency basis), to
37.4 billion yen. Operating margin rose from 5.5% to 6.9%.
The decline in sales is primarily due to the deconsoli-
dation of the Theatrical exhibition group, the inclusion of
thirteen months of activity in the previous fiscal year due
to a change in the Pictures business fiscal year and less
successful theatrical releases by comparison with the previ-
ous year’s strong Motion Picture group results. The reduc-
tion in highly successful theatrical releases also resulted in
a reduction in home video sales as fewer current year pic-
tures were released as sell-through titles compared to the
previous year. These results were partially offset by increased
sales from the Television group.
During the first quarter of this fiscal year, Sony merged
its Theatrical exhibition group, Loews Theatres, with Cineplex
Odeon Corporation in Canada to create one of the world’s
largest theatrical exhibition companies, Loews Cineplex
Entertainment Corporation (“Loews”). Subsequent to the
merger, Loews completed a public offering of its common
stock. After these transactions, Sony’s ownership in Loews
is 39.5%. As a result of these transactions, Sony no longer
consolidates the results of Loews; Loews results are now
reported on the equity basis. The previous year’s results
include sales and operating income of 56.3 billion yen and
2.5 billion yen, respectively, for the Theatrical exhibition
group. After adjusting the previous year for the
deconsolidation of the Theatrical exhibition group, sales
decreased by 46.7 billion yen, or approximately 8%, and
operating income increased by 4.3 billion yen, or approxi-
mately 13%. In connection with the Loews merger and the
subsequent public offering, Sony received proceeds of 53.0
billion yen and recorded a gain of 5.2 billion yen, which is
recorded in other income.
For comparative purposes, if the impact of the Theatri-
cal exhibition group’s revenue and the thirteenth month of
activity are removed from the reported figures, sales for the
Pictures business were essentially flat compared to the pre-
vious year.
Despite the decline in sales, operating income benefited
from steady profit contributions from the Television group,
higher profits on home video acquisitions and a reduction
in losses in the Digital Studio group’s special effects studio
operations, partially offset by lower profits from the Motion
Picture group and losses on strategic investments in the
Television group. The positive results from the Television
group reflected significant profit contributions from off-
network syndication, game shows and soap operas. These
favorable results for the Television group were partially off-
set by losses on strategic investments, including Telemundo,
a U.S. based Spanish language television network and sta-
tions group, and certain international cable channel invest-
ments. During the year, Sony invested 15.1 billion yen in
Telemundo, resulting in a 50% interest in the Telemundo
Network group and a 24.9% interest in the Telemundo Sta-
tions group. Profit for the Motion Picture group decreased
as a result of fewer break-through hits in the release slate.
Profit margins were hurt by the release of certain films,
which generated significant revenues but had a negative
effect on operating income.