SONY POSTS Q1 LOSS,
SO DOES MUSIC

While virtually all of Sony's businesses suffered declines, among the hard hit was Sony Pictures and Sony Music Entertainment. SME's sales decreased 23.2% to 130.7 billion yen ($1.24 billion), compared to an operating profit in the first quarter of 1999. Best-sellers during Q1 2000 included Pearl Jam, Destiny's Child and Cypress Hill. Last week, SME laid off approximately 500 of its 13,500 employees worldwide, representing 4% of the work force.

In a speech given to investors at Tokyo's Imperial Hotel on Wednesday (7/26), Sony Corp. of America Chairman/CEO Howard Stringer downplayed the fiscal setback and put the music decline into focus.

"Obviously music has been the flash point for content protection and copyright issues," said Stringer, who also serves as chairman of both SME and Sony Pictures. "Napster software has already been downloaded to 20 million users, enabling them to then download music illegally. This is revenue that should go directly to artists, producers and music companies. We are all working on new models for the dissemination of music and video that will not only protect our assets, but create incremental revenue streams. Sony Music is in the forefront of this effort."

"Convergence offers SME tremendous opportunities to expand its business," Stringer added. "Broader distribution platforms mean greater reach, expanded product offerings including subscriber services, download potential and new ways to exploit our content."

While Sony blamed much of the fiscal decline on the yen's weakness overseas, most of the loss came as a result of heavy one-off charges in its movie business from a change in U.S. accounting rules. New accounting standards require companies promptly to write off their film promotional expenses when they arise. Under the previous standards, companies could write off the expenses over up to 10 years.

Though Sony Pictures' sales rose about 21%, primarily as a result of home video and DVD sales, the rule change and several disappointing releases fueled the loss.

Sales remained flat in the game business, as the company geared up for its third quarter North American and European launch of the highly touted PlayStation2. Most analysts predicted the implementation of the PlayStation2 video game console would boost Sony's game business.

On the positive side, Sony's electronics business—including digital camcorders and VAIO personal computers—registered a rise in profits, perhaps propelled by Sony's recent emphasis on the semiconductor chip.

Sony's insurance business also saw a rise in profits.