Sony Pictures Division Profits Leap to $394 Million in First Quarter, as Games Earnings Retreat

Japanese electronics and entertainment group, Sony Group Corp. revealed JPY2.31 trillion of revenue ($17.5 billion) in the three months between April and June, representing the first quarter of its financial year. Group profits JPY218 billion ($1.65 billion) in the quarter were. These were modest increases of 2% and 3% respectively in local currency terms.

The group warned of global macro-economic risks that have grown significantly since its last financial report. It said that it was not anticipating a rapid recovery in China and was diversifying production and sourcing across the group.

The quarterly results were significantly affected by currency movements, notably the strength of the US Dollar, as the U.S. Federal Reserve uses interest rates to attempt to slow inflation, and by the record weakness of the Japanese Yen, where a contrasting macro-economic strategy is being applied.

At the end of June the US Dollar was equivalent to 129.4 Japanese Yen. A year earlier the exchange rate was USD1 = JPY109.5. At the time of writing the rate is USD1=JPY132. Sony said that on a constant currency basis, its revenue figures would have shown a 7% decrease.

The ‘Pictures Division’ which encompasses feature film, TV networks and television production operations, recorded $2.64 billion of revenue and $394 million of operating profits. These numbers compared with the April-June 2021 period when COVID restrictions were still largely hampering the theatrical industry and the Pictures Division enjoyed revenues of $1.87 billion and operating profits of $232 million.

Like ‘Pictures’, Sony’s music division managed revenue and operating profit improvements. Sales increased from JPY255 billion in the equivalent quarter last year to JPY308 billion this time. Net profits increased from JPY55.4 billion to JPY61 billion.

The games division saw sales shade fractionally lower to JPY604 billion (down from JPY616 billion), despite JPY58 billion of currency benefits. Profitability at the unit fell steeply from JPY83 billion in the equivalent quarter last year to JPY52.8 billion.

Earlier in July, Sony completed the acquisition of Bungie Inc., a U.S. video game developer. It confirmed that the purchase cost $3.7 billion, including working capital adjustments, the purchase price and employee incentives.

Sony said that the 41% increase in sales (67% in Japanese currency) of the Pictures Division reflected higher series deliveries, higher licensing and home entertainment revenues and higher sales for anime streaming services following the acquisition of Crunchyroll, with the smaller number of theatrical releases the only negative. It released just two films, “Morbius” (global gross box office $167 million) and “Father Stu” (global box office of $22 million) compared with three movies between April and June 2021.

The group said that it has 17 movies for U.S. theatrical release in the twelve months from end of June. These include Brad Pitt-starring “Bullet Train” next month, “Spider-Man: No Way Home – The More Fun Stuff Version” set for Sept. 2, 2022 and “Spider-Man: Across the Spider-Verse” currently dated as June 2, 2023.

The music segment results were lifted by the impact of currencies, higher sales of recorded music and music publishing from paid subscription streaming services, success with several new release titles and the recovery of live performance and merchandise sales. Top three recorded music projects in the quarter were Harry Styles’ “Harry’s House,” Future’s “I Never Liked You” and Doja Cat’s “Planet Her.”

The decrease in games segment revenues reflected reduced volumes of sales for Sony’s own games and for third party titles, as well as lower levels of game play as COVID retreats and users increase their out of home entertainment. The number of monthly paid subscriptions to PlayStation Plus nudged ahead to 47.3 million, but monthly active user numbers fell from 105 million to 102 million.

Operating income for games followed the reduction in sales and additionally reflected increased development costs. For the full financial year to March 2023, Sony cut its guidance. It reduced its revenue forecast by 1% to JYP3.62 trillion and sliced 16% off its anticipated operating profits. Including Bungie, it expects an operating profit of JPY255 billion in the 12 months to March 2023, compared with a reported profit of JPY346 billion in the year to March 2022.

The results were announced Friday shortly after the end of trading on the Tokyo Stock Exchange and before the daily opening of the New York Stock Exchange. Sony shares closed at JPY11,690 in Tokyo, down roughly 22% since the beginning of 2022. In New York, its ADR shares closed Thursday at $87.56 apiece.