In early August 2013, hedge fund billionaire Daniel Loeb decided to weigh in on Sony’s summer movie decisions.
Loeb heads up Third Point Capital, a hedge fund that has holds a 7 percent ownership interest in Sony. Loeb had suggested a few months back that Sony spin off its entertainment assets in order to provide cash for the company’s electronics units.
Two recent box-office bombs, “After Earth” and “White House Down,” have prompted Loeb to let loose with some pointed barbs about the film studio’s performance.
The billionaire investor strongly criticized Sony in his quarterly letter for the “poorly managed” film division, citing “high salaries for underperforming senior executives.”
“After Earth” brought in around $60 million, but its production budget amounted to $130 million, while “White House Down” has taken in $71 million so far, but its production cost reached the $150 million mark. The two films have recouped less than half of their production costs, and the losses are even greater when marketing expenses are factored in.
“Given [Sony] Entertainment’s perpetual underperformance, perhaps Sony’s reluctance to discuss it candidly stems from (understandable) embarrassment,” Loeb wrote. “We are also surprised that Sony’s CEO does not worry that Entertainment continues to generate profitability levels far below those of its competitors.”
Loeb remarked that the film division “is characterized by a complete lack of accountability and poor financial controls.”
Not mincing words, the hedge fund executive compared Sony’s summer failures to two legendary film business nightmares.
“We find it perplexing that Mr. Hirai [Kazuo Hirai, president and chief executive officer of Sony] does not worry about a division that has just released 2013’s versions of "Waterworld" and "Ishtar" back-to-back,” the Third Point quarterly letter said. “These latest blunders are prima facie evidence of our thesis that Entertainment’s U.S.-based business is being ineffectively overseen.”
“Unlike [Sony] Electronics, Entertainment remains poorly managed, with a famously bloated corporate structure,” the letter further indicated.
Sony reacted days later by forming a joint venture with former Twentieth Century Fox executive Tom Rothman, who is known as a budget hawk.
Meanwhile, actor-filmmaker George Clooney jumped into the fray by blasting Loeb.
“[Loeb] calls himself an activist investor, and I would call him a carpet bagger, and one who is trying to spread a climate of fear that pushes studios to want to make only tent poles,” Clooney told Deadline. “A guy from a hedge fund entity is the single least qualified person to be making these kinds of judgments, and he is dangerous to our industry.”
According to Clooney, whose production company is working with Sony on the actor’s upcoming Oscar-seeking film, “The Monuments Men,” Loeb is attempting to frighten studio execs into sticking with low risk, non-innovative film fare.
“Fortunately, this business is run by people who understand that the movie business ebbs and flows and the good news is they are ignoring his calls to spin off the entertainment assets,” Clooney said.
To bolster his argument, Clooney then brought up a trademark remedy that past and current White Houses have used for companies deemed to be deserving of special treatment.
“How any hedge fund guy can call for responsibility is beyond me because, if you look at these guys, there is no conscience at work. It is a business that is only about creating wealth where, when they fail, they get bailed out and where nobody gets fired.”
Clooney is erroneous in his assessment and commentary. Hedge funds provide the capital and liquidity that are used to finance the current entertainment industry. Moreover, Loeb holds a significant number of shares in Sony and has the right to question the performance of management. Clooney apparently fails to understand that the Sony management works for the company’s shareholders.
Now Loeb and other Sony investors have additional things to tack onto the gripe list. The studio’s latest release, “Elysium,” brought in only $30 million in box-office revenue from its debut weekend, at least $5 million dollars short of expectations.
The sci-fi film, starring Matt Damon and Jodie Foster and written-directed by Neill Blomkamp, reportedly cost in the $115 million to $150 million range to produce. “Elysium” obtained a “B” CinemaScore from audiences and could be headed for an overall loss.
Despite Clooney’s protestations, Loeb will have even more ammunition to use in influencing Sony’s future should “Elysium” end up in the red.
James Hirsen, J.D., M.A., in media psychology, is a New York Times best-selling author, media analyst, and law professor. Visit Newsmax.TV Hollywood. Read more reports from James Hirsen — Click Here Now.
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