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Sony: angels and demons | Financial Times


The tale of a teenage boy fighting human-eating demons is breaking box office records in Japan, drawing in crowds in need of new distraction amid a pandemic. Sony’s chief executive Kenichiro Yoshida will be among those left in good spirits.

The Japanese electronics group’s music business, codistributor of the blockbuster animated film sequel Demon Slayer, had been targeted by activists. Seven years ago Daniel Loeb’s Third Point pushed for a spin-off of its entertainment unit. Sony insisted the division was a fundamental part of its strategy.

This year, that claim has come true. The music unit, helped by streaming revenues, came second only to the core games business in boosting third-quarter earnings. Profit forecasts for the fiscal year ending next March has been revised 13 per cent higher to ¥700bn ($6.7bn) in a span of just two months.

Yet shares in Sony languish at an enterprise value of 1.4 times forward sales, even after gaining 40 per cent since a March low. That values Sony at less than a third of local gaming peers such as Nintendo, reflecting the hurdles it has yet to overcome.

Huawei’s fate is one of them. The Chinese smartphone maker is expected to account for about a fifth of Sony’s image sensor sales. It suffers from an uncertain outlook amid US sanctions. Another concerns Sony’s motion picture unit, which lost more than a quarter of sales in the third quarter, as the pandemic continues to disrupt production schedules.

Even the highly anticipated next generation PlayStation 5 console debut next month — for which it already has significant pre-orders — may not be an immediate remedy. The steep costs that historically follow a new console launch, from marketing to production, should weigh down on earnings in the coming quarters.

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The good news for Mr Yoshida is that sales of high-margin services like game software downloads and online subscriptions are surging. An English version of Demon Slayer opening in the US early next year plus licensing fees from streaming platforms will help too. Investors should stick around. Mr Yoshida is likely to be able to keep growth ticking up until consoles become profitable.

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