TOKYO -- After months of optimistic statements, Sony Corp. yesterday became the latest Japanese company to acknowledge serious problems with a landmark U.S. investment, announcing that it was taking $3.2 billion in losses on the value of the Hollywood studios that it acquired only five years ago.
In a surprise announcement, Sony said that because of poor box office results, a wave of executive resignations and rising costs, it could never hope to recover its investment in the studios, Columbia Pictures and Tristar Pictures, and was reducing their value on its books by $2.7 billion.
Sony said the studios also suffered $510 million in additional losses in the three months from July 1 through Sept. 30, because of the cancellation of movies under development, the settlement of lawsuits and the payment of huge sums to departing executives. Sony added that it had no choice but to sink even more money into the studios if it ever hoped to make them profitable.
The quarterly loss of $3.2 billion that Sony reported yesterday is one of the largest reported by a Japanese company. But it fell well short of the loss of $8 billion announced by International Business Machines Corp. for the second quarter of 1993 and the record loss of $21 billion posted by General Motors Corp. in the first quarter of 1992.
Still, it was a humbling admission for Sony and a stark symbol of the reversal in fortunes for corporate Japan. Sony, known for its innovative exports like the Walkman and video camcorder, had been at the head of the elite Japanese companies that poured money into the United States.
When Sony paid $3.4 billion for Columbia Pictures in late 1989, Americans feared that these overwhelmingly competitive companies, the engines behind Japan's huge trade surpluses, were taking control of the cream of the American economy. The anxieties grew when Mitsubishi Estate Co. bought control of Rockefeller Center in Manhattan and Matsushita Electric Industrial Co. acquired MCA Inc., which owns Universal Pictures.
The flood of investments eased after 1991, when the Japanese economy entered a deep recession. Now, time has borne out those experts who had argued that many of the Japanese companies overpaid for what were in many instances ill-considered investments.
This week, it was disclosed that Mitsubishi Estate and its partners may be about to default on the mortgage on Rockefeller Center.
Several weeks ago, the American executives of MCA, which is profitable, reportedly threatened to quit if Matsushita did not either sell them the company or grant them autonomy.
Sony, however, had always considered itself a cut above, with its innovative electronic gadgets and flair for garnering favorable publicity. The acquisition of the studios was seen as a bold attempt to marry Sony's expertise in producing electronic hardware with the "software" that ran on the videotape and CD players. Sony also acquired record and television production companies.
That was one reason yesterday's announcement sent a grim message to the financial markets. Several analysts said they felt misled by Sony, because it gave no hint of the dire condition of its movie studios.
"It seems like a realistic step, but I found the way it was handled highly irritating," said Joseph Osha, an analyst here with Baring Securities.