Sony-Columbia Pictures: Lessons from a Cross Border Acquisition
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Case Details:
Case Code : BSTR119
Case Length : 17 Pages
Period : 1989-2004
Organization : Sony Pictures Entertainment
Pub Date : 2004
Teaching Note :Not Available Countries : US/Japan
Industry : Media and Entertainment
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS Contd...
The Revival Efforts
In November 1994, Canton was made the new chairman of SPE. In the same month, Sony wrote off $2.7 bn of investment in SPE and disclosed an additional $510 mn operating loss. The company attributed these to a combination of unusual items such as abandoning a large number of under-development projects and settling numerous law suits and contract claims.
The write-off had a severe affect on Sony's financials with the company reporting a net loss of $3.1 bn for the six-month period ending September 1994, as compared to a $578 mn net profit for the same period in 1993. The write-off also led to a sharp decline in Sony's share price at the Tokyo, New York and London Stock Exchanges. At this point, Sony decided to take an active part in the management of its movie business and initiated a cost-cutting exercise at SPE, through Alan Levine (Levine), president of SPE. In 1995, the marketing and distribution arms of Columbia and TriStar were consolidated in order to reduce costs and other overheads. Attempts were also initiated to bring back some stability in SPE's management, which was in a chaotic condition...
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Reviving SPE
According to Calley, by the time he took over, the movies
division was a 'Hollywood-centric' private club with no accountability for
its heavy expenditures, and with the Sony headquarters completely in the
dark as to where the money was going.
He said,
"When I got here, there were three movies being made that nobody even
knew anything about. No one knew who had approved them. They just grew
here through some spontaneous generation." Calley cancelled SPE's open-ended, multi-million deals with five independent producers and tried to confine the production costs to the amount laid out by Sony headquarters. Under Calley's leadership, apart from eliminating extravagance from its production and marketing, SPE also reduced the number of vendors it dealt with from 14,000 to 800, which helped it reduce its production costs. Calley also speeded up the decision-making process by thinning the ranks of SPE, and combined the Columbia and TriStar operations, eliminating duplication of infrastructure and development team costs...
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Synergies of the Acquisition Real?
According to analysts, though Sony's venture into Hollywood was no longer a nightmare, even by the late 1990s, there were no signs of the synergies between the hardware and software that Sony claimed to have envisioned at the time of acquisition. Analysts said that though Sony had tried to push technologies by stamping its music into digital audiotapes (DAT) and its films into its Video Walkmans (8-mm cassette players), with the aim of selling more disks and cassette players in the US, such tactics had failed to contribute to Sony's hardware sales in the US.
Exhibits
Exhibit I: Japanese Management Versus American Management
Exhibit II: Sony's Box Office Ranking (1995-1997)
Exhibit III: SPE's International Television Ventures
Exhibit IV: Sony's Revenues (By Segment)
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