Various reports claim that Sony Corp. (NYSE: SNE) has hired consulting firm Bain & Co. to find cost cuts at Sony Pictures Entertainment, which may total $100 million annually. Many analysts believe that the pressure put on Sony by activist investor Daniel Loeb is the cause. Others think Sony, like most studios, cannot effectively keep high profit margins in a world of streaming media, falling DVD sales and competition from firms like Netflix Inc. (NASDAQ: NFLX) and cable companies. The explanation is actually simpler. Sony faces the same wave of new media that has already overwhelmed companies with print properties and has begun to badly hurt those who produce TV and movies as well. And there is no turning back.
Studios have been in a retreat for several years. Walt Disney Co. (NYSE: DIS) has needed to “rationalize” its expenses. In its scramble, the entertainment company has married its gaming and interactive units — as if an alteration in executive responsibilities could stop turmoil in either unit.
Investors fear that Viacom Inc. (NYSE: VIAB), NBCUniversal and Time Warner Inc. (NYSE: TWX) will be no better off than Sony or Disney over time. Sales and operating profits dropped at Time Warner’s Film and TV Entertainment division last quarter. Viacom’s Filmed-Entertainment sales and operating income rose in the most recent quarter, but were down sharply in its fiscal year that ended on September 30. All signs point to a decline across the sector.
The proof of the inexorable decline in traditional video media is not just in the fall off in its numbers. It is also in the surge of sales and employment at companies like Google Inc.’s (NASDAQ: GOOG) YouTube, Hulu, VEVO and Vimeo. According to comScore data for video activity online in October, not a single traditional media company placed in the top 10 by the measure of unique visitors. Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN) and each of the big three Internet portals did. None of these companies has announced a restructuring or layoffs at its video units. For them, the video world holds too much promise. And in their attacks of traditional media companies they will need to steal advertising and the equivalent of ticket sales.
Corporate cost cuts are not a sign of retreat in every case. However, Sony’s cuts are a measure of the extent to which large entertainment companies are working on strategic retreat in a battle they have already lost.
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