Sony rejects investor's proposal to spin off entertainment business

PlayStation maker says owning 100 percent of the company's entertainment business is "fundamental to Sony's success."

Sony will not spin off its entertainment business--which includes the company's PlayStation sector--the Japanese technology giant has announced. Billionaire and major investor Daniel S. Loeb originally proposed the idea in May.

Following a unanimous vote from Sony's board of directors, the company sent a letter this week to Loeb's Third Point LLC outlining why continuing to own 100 percent of the entertainment business is "fundamental to Sony's success."

The company also said that Third Point LLC's plan for an initial public offering of Sony's entertainment business is "not consistent with the company's strategy for achieving sustained growth in profitability and shareholder value."

More specifically, Sony said in its letter to Third Point LLC that demand for entertainment content is increasing in value, due in part to the rise and proliferation of connected mobile devices. Sony said its entertainment business will "increasingly benefit from these trends" and that the company's shareholders will benefit from owning all, as opposed to a portion, of the assets.

In addition, Sony said having full control of its entertainment business "drives internal collaboration, facilitates synergies, and allows the company to be more nimble." If Sony were to spin off its entertainment business, the company runs the risk of "burdensome" intercompany relationships, the letter states.

"We are encouraged by our progress as we continue to execute on our One Sony strategy," Sony CEO and president Kazuo Hirai said in a statement. "We have made many changes during my tenure as CEO, and we are confident that we are on the right path."

"Sony's entertainment businesses are critical to our corporate strategy and will be important drivers of growth, and I am firmly committed to assuring their growth, to improving their profitability, and to aggressively leveraging their collaboration with our electronics and service businesses," he added. "We are determined to pursue sustained growth in profitability and shareholder value, so that we can meet and exceed the expectations of all of our stakeholders."

For more, check out Sony's full letter to Loeb and Third Point LLC.

Loeb--who owns a 6 percent stake in Sony worth about $1.1 billion--proposed in May that the company spin off its entertainment business by selling as much as 20 percent of its assets in an initial public offering. He argued that this move would allow Sony's electronics division to thrive.

Written By

Eddie Makuch is a news editor at GameSpot, and would like to see the Whalers return to Hartford.

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58 comments
blue_shift_91
blue_shift_91

sony better work some magic. the ps4 ain't gonna save them.

in other news, sony shares have plummeted following their rejection of loeb's plan. go figure.

aboki808
aboki808

please don't listen to your investors, but your customers ;3

theKSMM
theKSMM

In addition, Sony said having full control of its entertainment business "drives internal collaboration, facilitates synergies, and allows the company to be more nimble."

I have every expectation that this quotation will appear in a Dilbert, Penny Arcade, or xkcd comic at some point in the near future.

Sir_jac
Sir_jac

It's too bad. I wanted to invest into Sony because I expect that PS4 will do very well. But I don't want the exposure to their electronics since I don't know that sector as well and what I do know gives me the impression that it's not where most of the growth potential is. Unfortunately there isn't many good ways to invest into the video game industry directly since most aspects of it are owned by much larger multinationals or privately owned. Certainly there are a few exceptions, but not enough to make a diverse gaming portfolio.

liandrikonflict
liandrikonflict

Sony please drop the "Walkman" brand...every time I see it for sale I cant help but think this company is fucked up.

brxricano
brxricano

LMAO did someone just try to snatch the blunt away from Sony??

"If Sony were to spin off its entertainment business, the company runs the risk of "burdensome" inter-company relationships..." 

Hm, no puff puff pass for you, Loeb.

adroge1
adroge1

Lol @ Loeb. His greedy plan failed.

ajay1708
ajay1708

Things are looking up for Sony. Their Xperia Z Smart Phone is selling really well and there is a lot of anticipation for PS4 with record breaking pre orders. 

warhawk-geeby
warhawk-geeby

Be interesting to see what happens down the line.. Fingers crossed for the best.

Now that they've got the PS4 on it's way, and the renewed partnership with Panasonic to create the 300GB Blu-Ray discs by 2015..  Things could be looking up.

BLaverock
BLaverock

Sony may be experiencing difficulties, but they're safer than most people realize. In the West, corporations compete and try to muscle each other out of of the race, while Japanese companies ally with one another and work to keep each other afloat. Sony's not going down any time soon, and I'm glad they made the decision they made. Microsoft is a prime example of what happens when big interests and big money get involved in the company.

damodar_thade
damodar_thade

Good news. Sony might be in the business of making money but they also make quality products but if they broke up and sold a chunk of the company then quality slips so greedy share holders can maximize profit.

wdma
wdma

Good Sony is finally coming out of the dark hole no need to start dividing the company 

Huglyone
Huglyone

Sony will regret this in a not so distant Future !!!!!

SavageEvil
SavageEvil

Thank goodness Sony isn't listening to that hedge fund manager, those guys are out for self and only themselves. They are always proposing companies to sell off and split only to snatch up profits. Hedge fund managers do not care whether a company fails or survives all they care about is making money and they can do it off the slitting up of a company, or when it about to crash and burn. Hedge fund managers are nothing but wolves looking to score on some stupid sheep.

They make great devices but their cost is always more than their competitors, not a bad thing but it is when you don't market it as being a superior product so everyone will flock to the cheaper device because it does everything yours does for less. It's a good thing that Sony is still innovating, Blu Ray was great and the newer 300GB+ discs sound wonderful, there is way too much reliance on cloud this and digital delivery over the internet. Who are we kidding, who in their right minds has the bandwidth to download a 50GB game in decent time frame? It's like putting the cart before the horse. There are very few places where internet throughput is fast and reliable enough to allow "fast" downloads of 20GB of data so I haven't the slightest clue as to why everyone wants to shove this cloud crap up my arse. Until everyone is on GB internet, they can keep all that digital delivery business to a minimum.

jenovaschilld
jenovaschilld

I see a ton of people below posting how positive a thing it is that Sony is keeping the entertainment division but let me add some insight as to why I think it would be good for those in the entertainment division and us gamers if they did sell it off and allow it to stand on its own. 

During the 60-80's sony had a good time making simple to complex electronics and industrial devices. With the huge flood of cash from products like walkman and industrial boards they started Sony pictures, tv which has done well at times and struggled the rest. 

Then entered the Playstation - nintendo's cdrom gaming console contract that the big N no longer wanted. I am 41 and have followed gaming news since I could read NIN power. Let me tell you the ps1 was huge. It was the 800lb gorilla in the room as well as the bigger brother of that gorilla. And it not only made money it made power. It opened doors to an ailing Sony electronics company the old guard could not have imagined. Instead of embracing this new form of income and entertainment the old CEO's were embarrassed to be part of a 'children's electronic game' and used the money to prop up failed divisions (walkmans, phones, boomboxes, home cooking and cleaning). Instead of expanding the sony game and console division they squandered it. The ps2 did so well that it paid off many of the bad decisions and paid the way for even worse ideas to come. 

Sony has always kept its profits close to red because they constantly ventured out into new areas. This is good but can also be bad. While the entertainment division should be sitting pretty on tons of cash this 8th gen console system and able to withstand 75% subsidized consoles, with tons of 1rst and 2nd gaming divisions to not only push the brand but steer the gaming industry into new directions. Instead, the entertainment division over the last decade has paid for failing projects in the parent company like tablets, hospital equipment division, cell phones, pc, home electronics (washing machines, stoves,) and without a doubt the largest financial bust BRAVIA TVs. All because what journalists and I feel as the old ceo guard wanting to shy away from the 'toy' side of sony and be known for the Tokyo industrial giant they once were. But the 'toy' division has been the only great success sony has had in the last 20yrs. 

I feel that if the entertainment division was spun off it would not only be crazy profitable but enjoy finally getting to use it profits to fund the playstation brand, 1rst party development divisions, and movie/music/tv divisions. (before u argue 1rst party developers never make profits - that may be true but they do give a console exclusives that propel a system and afford gaming in directions they normally could not risk). This constant cycle of blood sucking the entertainment division to pay for old peoples idea of what constitute success has bound more chains then sony enter. can break. Sony industries needs the entertainment division not the other way around. And who knows without the entertainment division there to pad its falls, pay its bills the old Sony electronics/industrial division may start making smart decisions that will advanced it forward to success of S. Korean company Samsung. Whooo think about that. 

Sun-Tzu-GE
Sun-Tzu-GE

I've always found it funny how in large companies with a lot of share holders and all that good stuff,the founder/creator can later on be voted out of his own company.  

de-astroturfer
de-astroturfer

"Daniel S. Loeb originally proposed the idea in May" hmmm May you say, what happened in May oh M$'s little press event the moment it became abundantly clear the PS4 would own the next generation, Whats the betting most of Daniel S Loebs stock would end up in the entertainment sector, I think he thought he could cut off the bit of the cake with the most cherries in and eat it all himself. 

Redsyrup
Redsyrup

Thank goodness! Keep the titan whole!

soulless4now
soulless4now

@liandrikonflict I had a Walkman when I was 6. I dropped it so many times, but it never broke and kept working like new. That's a good brand, man. 

gufberg
gufberg

@liandrikonflict What are you raving about!? That brand rocks. 

I've had the same Sony Walkman for 6 years. During this time i've dropped it more times than i can count and left it out in a rainstorm on one occassion. The thing still works as if i had just purchased it. 

Its cheaper and WAY better + sturdier than an Ipod. 

conclusion: Sony Walkman ftw. 

blackace
blackace

@adroge1 Until he sells his $1.1 billion shares from Sony, then Sony fails. lol!! He's invested in Sony, not the other way around.

Jamie-L
Jamie-L

@BLaverock Doesn't Japan's chummy corporate culture run the risk of abuse such as collusion and price setting?

blitzinD
blitzinD

@BLaverock

"Japanese companies ally with one another and work to keep each other afloat."

Indeed they do, a lot of people don't know or understand this about Japanese corporate culture.

blackace
blackace

@Huglyone If companies and investors start pulling them funds from Sony they will seriously regret it. We'll see though.

blitzinD
blitzinD

@Huglyone 

The distant future is why they made this decision. Loeb just wanted quick ROI on his investment. Sony made the solid long term choice that is best for Sony, not just one investor.

Forcecaster
Forcecaster

@SavageEvil Considering how short the newer games are I can easily finish them a couple of times until I can download the whole game. :P

jambubby74
jambubby74

@jenovaschilld Thanks for a well written and well considered post.  I am about your age, and can make similar claims about how long I have followed gaming news.  Just to be clear, Sony did not "start" Sony pictures in the traditional sense.  They purchased Columbia Pictures (see URL: http://www.nytimes.com/1989/09/26/business/deal-is-expected-for-sony-to-buy-columbia-pictures.html) and used that to launch original programming creation to feed content to their (then successful) electronics division products.  I don't know what the answer is for Sony at this point.  Their Sony Pictures/TV headquarters is on the old MGM lot here in LA.  I do know that their strategy has been to attempt to buck the legislation against vertical integration from content production, distribution, and exhibition that so affects the movie business.  Honestly, I can see arguments for both sides.  I am not just interested in Sony's success as a game maker.  I think it is an historically important electronics manufacturer that has been slow to adjust as you have suggested.  There are companies that can adjust though, and I hope they learn how.  PS4 looks promising and I hope it pays off for them.

Benny_Blakk
Benny_Blakk

@jenovaschilld I don't think identifying facts is a skill only reserved for experts. The numbers are there, and a lot of what you say is true. SONY has had this internal dilemma for a long time.  I don't know for sure if selling will be good, but separating the gaming division from all the rest would be a smart move. It speaks volumes when an established brand like SONY is surpassed by Samsung.

Butt_Chunx
Butt_Chunx

@jenovaschilldSo who the hell are you and why should we listen to you? What is your credentials and expertise and how does it relate to this article? What are your sources, if any and why should we listen to some average moron who knows nothing about business and certainly knows less than Kazuo Hirai. How can anyone take you seriously when you use such deplorable grammar and lastly, "u" is not a word.

damodar_thade
damodar_thade

@gufberg @liandrikonflict Those Walkman are built to last I still have a cassette Walkman and a CD Walkman both still work like new despite being 20 and 14 years old.

xxxxTRISTAMxxxx
xxxxTRISTAMxxxx

@gufberg 

I have sony Walkman MP3 and I drop it about 5 times now and it still keeps going.  Great little unit1

fume0101
fume0101

@Jamie-L @BLaverock That was what I took from it. Not that America's corporate structure is actually any better.

fume0101
fume0101

@blackace @Huglyone All signs point to an upward trend for Sony. If investors bail now, that just opens the doors for fresh blood to get in on the cheap and ride the wave to the big time.

Far too many corporations fail to consider the long term, or straight up ignore it in favor of quick returns. Improving the quality of your products and services can only aid in ensuring long-term profitability.

If only more of our own country's companies would revert to such an approach. Our economy would be bursting at the seams.

CROAT_56
CROAT_56

@lomar07 @ALCHEMISTx24x7 actually the games division at sony is the only thing keeping them afloat they lost billions by not getting into the tablet or MP3 race on time.  They will lose money on every PS4 released for the first few years as will MS on the X1.  Sonys PS Vita was a failure in all buisness respects and if the rumor of a bundled PS Vita PS4 for $500 is true they are melting stock to get rid of them not to make money.

jenovaschilld
jenovaschilld

@Benny_Blakk @jenovaschilld I do not think it would be a lot stock and selling off - which would be bad - but spinning off the entertainment division would still allow the Old industrial division access to the entertainment but without the managers, legacy overhead, and shields the entertainment side from poor investments from the Sony corp. 

You know dilemma is a good term, it is almost like a company with two personalities. 

jenovaschilld
jenovaschilld

@Butt_Chunx @jenovaschilld Fair enough, this is a discussion comment on news articles and did not know credentials are needed. As for faq checking you can look all this up on wiki related to the sony corp. and its history. I am a 42 year old RN, 20 yr console modder (not pirating, but more led, clear glass anime girl case modder), who has followed gaming and its industry since I could hold a controller and read a news article. I am not sure why your so hostile toward my discussion comment, just wanted to added to the debate. And yes my grammer is not the best. lol. So I guess that does automatically drop me from the discussion. 

Juon408
Juon408

@CROAT_56 @lomar07 @ALCHEMISTx24x7 You forgot about Sony Pictures, Blu-ray, Sony Music Japan. Two of which are also under that umbrella and Sony & Panasonic both make money off all Blu tech. Really the tablet and Walkman divisions should go. I agree with that, but to say PS is the only thing keeping them alive is absurd.

jambubby74
jambubby74

@jenovaschilld @Butt_Chunx I agree.  Why the focus on credentials?  I've never even considered that someone should have to post credentials to share an opinion on here.  Wow.