Tuesday, November 18, 2014

Sony Re-Evaluates Support for Free Music Streaming

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A top Sony Corp. executive said Tuesday that the company is re-evaluating its support for free, advertiser-supported online music after U.S. pop star Taylor Swift pulled her music from Spotify, the popular digital streaming service.

“Actually, a lot of conversation has taken place over the last week in the light of that,” said Kevin Kelleher, chief financial officer of Sony Music. “What it all really comes down to is how much value are the music company and the artist getting from the different consumption methods.”

Ms. Swift’s decision this month to leave Spotify, which shares with artists a portion of the proceeds from ad sales and from fees for its paid, ad-free premium version, sent shock waves through the music business. With sales of CDs in a long-term slump and digital downloads beginning to decline, the industry has been looking to streaming as its brightest hope.

Despite Ms. Swift’s thumbs-down to Spotify, Mr. Kelleher said Sony remained “very encouraged” by the growth of subscription-based streaming services, which let users skip ads in exchange for monthly fees.

The company said Tuesday, at a briefing for analysts and investors, that it expects music-division revenue to increase to a range of $4.8 billion to $5.2 billion for the fiscal year ending in March 2018, from $4.8 billion in the current year.

“The key question is, are the free, ad-supported services taking away from how quickly and to what extent we can grow those paid services?” Mr. Kelleher said. “That’s something we’re paying attention to as content owners who license our content to the different platforms. It’s an area that’s gotten everyone’s attention.”

That sentiment has been growing in the industry. One record-label executive told The Wall Street Journal recently that he regretted ever having agreed to allow licensees to offer any on-demand listening features free. “In hindsight we made a mistake,” he said.

Mr. Kelleher’s comments came at the first of two briefings that Sony has scheduled to provide updates on the progress of its restructuring. Tuesday’s session focused on the entertainment arm, including music and the Hollywood studio division, while a meeting next week is devoted to the electronics business.

Sony Chief Financial Officer Kenichiro Yoshida, smartphone chief Hiroki Totoki and PlayStation videogame head Andrew House are all expected to take the stage on the second day.

While its electronics operation remains challenged, with smartphone sales falling short of expectations, Sony has moved to cut losses in businesses such as making television sets. Fixing the Xperia phone business is an urgent task for Sony, Chief Executive Kazuo Hirai said. Mr. Totoki is expected to provide details about how he will rebuild the Xperia arm—efforts that are likely to extend into the next fiscal year.

Sony’s entertainment arm, meanwhile, continues to deliver steady earnings.

“Some say the entertainment unit is just a side business to Sony, but it is an important pillar for us as it brings a steady flow of profits,” Mr. Hirai said.

Sony said it expects its Hollywood studio business, Sony Pictures Entertainment, to generate revenue of $10 billion to $11 billion in fiscal year 2018, up from $8.1 billion in the current year. Sony executives said the company plans to invest in markets such as India, where the company has a growing slate of TV channels, as it contends with slowing growth elsewhere.

Sony executives said that the activist investor Daniel Loeb recently dropped a campaign to get Sony to partially spin off its entertainment arm, hoping to unlock what he described as hidden value in that side of the company. Mr. Loeb said in October that his hedge fund, Third Point LLC, had sold its Sony stake, acquired in May 2013, making a 20% gain.

After Mr. Loeb became involved, Sony moved to increase transparency around the entertainment arm’s operations in an effort to position it as central to the company’s turnaround efforts.

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