Sony and Columbia Pictures merge PDF

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Market Research and International Business Group: MBA-18.1 Masud Hasanzade Project: Merger and failure of Sony and Columbia Pictures

Sony Established in May 1946, Sony is a leading audio, video, communications and IT equipment manufacturer worldwide. The video recorder, Walkman and mini-disk recorder were invented by the company. Sony Corporation is a Japanese firm that focuses on the electronics, entertainment and financial services industries, most commonly referred to as Sony. The company is one of the largest electronic devices producers in the world. Sony, which in January 1958 became the company's official name, derived from the Latin sonus ("sound") and was conceived as a foreign word rather than a Japanese term. The company history roots to Tokyo Tsushin Kogyo K.K. (Tokyo Telecommunications Engineering Corporation), also known as Totsuko, which was established in Nihonbashi, Tokyo, in 1946. In the same year that it was annotated on the Tokyo Stock Exchange (TSE), the name of the corporation was officially changed to Sony Corporation during 1958. Sony's activities are divided into segments like the Sony Corporation (Sony Electronics in the United States), Sony Computer Entertainment, Sony Pictures Entertainment, Sony Mobile Communications (formerly Sony Ericsson) and Sony Financial.

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Columbia Pictures Columbia Pictures Industries, Inc. (mainly referred as Columbia Pictures or simply Columbia) is an American film studio and production & distribution firm that is a member of the Sony Pictures Motion Picture Group, a division of Sony Entertainment's Sony Pictures. The studio was established in 1924. The Coca-Cola Company bought Columbia in 1982 by cash deal worth approximately $700 million. The same year Columbia facilitated to launch a new motion-picture studio, Tri-Star Pictures, which was merged with Columbia in 1987 to form Columbia Pictures Entertainment, Inc. In 1989 Sony Corporation purchased Columbia from Coca-Cola for $3.4 billion. The company has extraordinary and interesting logo that a woman carries a torch in her hands, the female personification of the United States. Columbia Pictures Entertainment includes the Columbia Pictures and Tri-Star studios, television programming and syndication operations, a large film and TV library and the 820-screen Loews movie theater chain.

Sony and Columbia Pictures merge

Japanese electronics giant Sony acquired the US-based Columbia Pictures Entertainment (Columbia) on September 25, 1989, which also included TriStar Pictures, paying $4.8 billion ($3.4 bn in cash and assuming an additional debt of $1.4 bn) for it. Industry analysts thought that the acquisition cost of $27 per share paid by Sony was very high compared to Columbia's share price of $12 at the beginning of 1989. In addition, at the time of acquisition Sony paid 22 times more than the company's annual cash flows. Sony initially wanted to acquire a controlling equity stake in Columbia. When the talks began, Sony thought that the intention would not be fulfilled by simply acquiring a controlling stake. Norio Ohga, Sony's CEO at the time of acquisition, believed that Sony's core business–video cassette recorders (VCRs) manufacturing and camcorders–had significant synergies with Columbia's film business. With Columbia's acquisition, Sony aimed to set industry standards for future digital video technology generation. Sony's buying policy for Columbia, which was renamed Sony Pictures Entertainment (SPE) in 1991. However, started to seem like a costly mistake in the next few years. Sony faced several issues in her film Baku Higher Oil School

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business during the first five years of the acquisition. Increasing costs and turnover at the top levels of management contributed to Sony's film business problems. As a result, in November 1994, in its quarterly financial report, Sony had to declare a $2.7 billion write-off of its assets in Columbia. It also reported an extra $510 million (mn) in the financial report as operating loss (incurred during that period from Columbia's operations).Sony was willing to pay a lofty $27 a share for a company with meager earnings because of the strategic value of Columbia’s films and TV programs to a concern with a strong hold on emerging TV and audio technologies, analysts said. Columbia’s movies will provide the “software” for Sony videocassette recorders, for instance, and for the 8-millimeter recorder Sony is trying to popularize. The purchase of the studio “extends Sony’s long-term strategy of building a total entertainment business around the synergy of audio and video hardware and software,” said Michael P. Schulhof, vice chairman of Sony Corp. of America, in his statement. Coca-Cola Co. The largest shareholder, with a 49% stake, has offered Sony an option to purchase those shares, Sony said. Coca-Cola’s management has pledged that it will recommend sale of the shares at a board meeting set for October 2. Allen & Co., the New York investment banking firm that holds a 3% stake in Columbia, has given Sony an option to buy its shares as well. Columbia’s two top executives, President and chief executive Victor R. Kaufman and chief operating officer Lewis Korman, will leave the company when the sale is finished, Columbia said. As with Time and Warner's merger, Columbia's purchase by Sony would provide it with what the industry calls'' vertical integration''— ownership of both programming and programming distribution mechanisms. Columbia owns a huge library of over 3,000 movies and about 2,600 TV shows. Sony not only markets recorders and players for videocassettes, but also actively promotes its 8-millimeter video camera and player, a technology in which it is a pioneer. Sony's movie business fiasco was the only latest disaster for the Japanese, whose overheated economic growth in the 1980s propelled a huge wave of investment in American land, factories and securities. Many of those investments, including several high-profile deals involving Hollywood studios, went wrong. According to Nomura Research Co., Japanese investors have lost $320 billion on their investments in the United States since 1986, primarily in the bond market as the

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dollar has lost value against the yen. At the same time, the Japanese have slowed their new long-term investments in the United States; new direct Japanese investment in American corporate assets hit $12 billion in 1990, yet it has declined to less than $500 million so far this year, according to Ulmer Brothers Inc., a New York investment banking firm. In November 1994, Sony recorded an operating loss of $508.9 million in its movie unit. That mainly mirrored the cost of closing some productions and settling indefinite lawsuits. "They were hoping for a cash cow and instead they got some money-losing operations," declared Harold Vogel, an analyst with Merrill Lynch & Co. "It's the understatement of the last five years to say this is not what they expected. But the movie business is inconsistent and difficult." Sony has also learned some unpleasant lessons. After wasting millions of dollars in legal fees, it won from the United States Supreme Court a ruling that home taping is legal, clearing the way for common acceptance of the VCR. For Sony, though, it was a deep victory. As computer makers also discovered, even the world's best hardware does not sell unless the software appeals to customers. However these days, the lead time on a technology like that is far too short. We can't depend on that kind of advance any longer. In the past 1989 Sony was locked in another video battle. To miniaturize into lightweight video cameras and the Video Walkman, which came out last year to huge praise, it developed a new video format, tiny 8-millimeter tape cartridges that run for two hours. But the Sony tapes face tough competition from smaller versions of VHS tapes, and Sony realizes it has relatively little time to establish 8millimeter as a worldwide standard. That may be the first benefit of buying Columbia. So far, it is exceedingly difficult to rent the small 8-millimeter cassettes. Only 800 to 1,000 prerecorded tapes - everything from movies to exercise programs -are for sale in the format. What Sony needs is a huge film library to record on the little Video Walkman tapes. Over the longer term, Columbia Pictures may also solve another problem for Sony: how to create demand for high-definition television. Japan is far ahead of the United States in the technology, but until there are movies and other shows made specifically for high-definition broadcast, consumer interest will be low. Columbia Pictures could become Sony's laboratory for HDTV production, although the company plans to sell its high-definition production equipment to all studios.

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