Sony 2015 Annual Report Download - page 16

identify, sign and retain such talent is intense as is the competition to sell their music. In the Pictures segment,
high demand for top talent continues to contribute to increases in the cost of producing motion pictures and
television programming. Competition to acquire motion pictures and television programming is intense and could
result in increased acquisition-related spending. Overall increases in production and acquisition costs of the
Pictures segment’s products, as well as increases in the costs to market these products, may adversely impact the
segment’s operating results.
Changes in consumer behavior resulting from new technologies and distribution platforms may adversely
affect operating results in Sony’s Music and Pictures segments.
Rapid changes in technology and the adoption of new technology by consumers have impacted the timing
and manner in which consumers acquire and view entertainment products. Industry-wide trends such as the
general maturation of physical media formats, including CD, DVD and Blu-ray Disc™ formats, the shift to
digital distribution of audio and video content, and increased competition for retailer shelf space have contributed
to and may continue to contribute to an industry-wide decline in the worldwide sales of physical media formats.
Revenue from digital distribution, such as subscription streaming services and digital downloads, may not be
sufficient to offset the decline in physical media sales that has affected and may continue to affect the operating
results of Sony’s Music and Pictures segments and disc manufacturing business. Furthermore, the music industry
has continued to see a year-over-year decline in digital download sales. If streaming services cannot attract
sufficient subscribers to offset this decline, the operating results of Sony’s Music segment could be negatively
impacted.
Operating results of Sony’s Pictures segment may be adversely affected by changes in advertising markets or
by the failure to renew, or renewal on less favorable terms of, television carriage contracts (broadcasting
agreements).
The strength of the advertising market can fluctuate in response to the economic prospects of specific
advertisers or industries, advertisers’ current spending priorities and the economy in general, and this may
adversely affect the Pictures segment’s television revenues. The Pictures segment’s television operations,
including its worldwide television networks, derive substantial revenues from the sale of advertising on a variety
of platforms. A decline in overall spending within the advertising market may have a direct adverse effect on the
Pictures segment’s Media Networks’ revenues. The Pictures segment also recognizes sales from the licensing of
its motion picture and television content, to U.S. and international television network customers. A decline in the
advertising market may also adversely affect third-party television networks’ ability to generate revenues, which
may result in lower license fees paid by these networks for Sony’s content.
The Pictures segment also depends on third-party cable, satellite and other distribution systems to distribute
its worldwide television networks. The failure to renew or renewal on less favorable terms of television carriage
contracts (broadcasting agreements) with these third-party distributors may adversely affect the Pictures
segment’s ability to generate advertising and subscription sales through its worldwide television networks.
Sony’s Pictures segment is subject to labor interruption.
The Pictures segment and certain of its suppliers are dependent upon highly specialized union members,
including writers, directors, actors and other talent, and trade and technical employees, who are covered by union
contracts and are essential to the development and production of motion pictures and television programming.
A strike by one or more of these unions, or the possibility of a strike, work slowdown or work stoppage caused
by uncertainties about, or the inability to reach agreement on, a new contract could delay or halt production
activities. Such a delay or halt, depending on the length of time involved, could cause a delay or interruption in
the release of new motion pictures and television programming and thereby may adversely affect operating
results and cash flows in the Pictures segment. An inability to reach agreement on one or more of these union
contracts or renewal on less favorable terms may also increase costs within Sony’s Pictures segment and have an
adverse effect on operating results.
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