68
factor contributing to the improved operating
results were lower advertising and promotion
expenses. The above factors more than offset
the negative effect of lower worldwide album
sales. The savings realized from previously
implemented restructuring initiatives, lower
restructuring charges and the decrease in ad-
vertising and promotion expenses resulted in a
decrease in selling, general and administrative
expenses for the year and an improvement in
the ratio of selling, general and administrative
expenses to sales.
Regarding the results of Sony Music Enter-
tainment (Japan) Inc. (“SMEJ”), sales were flat
compared with the previous year, despite the
continued contraction of the music industry.
Operating income increased 69 percent com-
pared with the prior year due to a reduction in
selling, general and administrative expenses,
primarily advertising and promotion expenses,
and strong sales of Japanese artists’ recordings.
On a yen basis, 74 percent of the Music
segment’s sales were generated by SMEI while
26 percent were generated by SMEJ.
In December 2003, Sony and Bertelsmann
AG announced that they had signed a binding
agreement to combine their recorded music
businesses in a joint venture. The newly
formed company, which will be known as
Sony BMG, will be 50 percent owned by each
parent company. It will not include SMEI’s mu-
sic publishing, physical distribution and disc
manufacturing business or SMEJ. The merger is
subject to regulatory approvals in the U.S. and
the European Union.
PICTURES
Sales for the fiscal year ended March 31, 2004
decreased by 46.4 billion yen, or 5.8 percent,
to 756.4 billion yen compared with the previous
fiscal year. Operating income decreased by
23.7 billion yen, or 40.3 percent, to 35.2 billion
yen and the operating income margin de-
creased from 7.3 percent to 4.7 percent. The
results in the Pictures segment consist of the
results of Sony Pictures Entertainment (“SPE”),
a U.S. based subsidiary.
On a U.S dollar basis, sales for the fiscal
year in the Pictures segment increased approxi-
mately 2 percent and operating income
decreased approximately 30 percent. The
increase in sales was primarily due to higher
television performance in the fiscal year.
Television revenues increased significantly due
to initial syndication sales of The King of
Queens and third cycle syndication sales of
Seinfeld, as well as the extension of a licensing
agreement for Wheel of Fortune. This increase
in sales was partially offset by lower theatrical
and home entertainment revenues from the
fiscal year release slate, which included such
notable titles as Bad Boys II, S.W.A.T., Anger
Management and Something’s Gotta Give,
when compared to the prior fiscal year release
slate, which included Spider-Man, the highest
grossing film in SPE’s history, Men in Black II,
xXx and Mr. Deeds. Sales for the fiscal year
release slate decreased 359 million U.S. dollars
as compared to the previous fiscal year.
Operating income for the segment decreased
significantly due to the absence of profits con-
tributed by the record breaking performance
of Spider-Man in the previous fiscal year and,
to a lesser extent, the aggregate disappointing
performance of several films from the fiscal
year release slate including Gigli, Hollywood Ho-
micide, The Missing and Charlie’s Angels: Full
Throttle, resulting in a decrease in operating
income of 412 million U.S. dollars from the
prior fiscal year release slate. Additionally,
operating income was also negatively impacted
by a 38 million U.S. dollar increase in restruc-
turing charges recorded in the fiscal year (refer
to “Restructuring” above for details). Partially
offsetting these decreases in operating income
was the contribution from the syndication
sales and extension of a licensing agreement
noted above, DVD sales of television library
product and an additional syndication sale of
Dawson’s Creek, resulting in a 201 million U.S.
dollar increase in operating income. Further
improving operating income was the absence
of the 66 million U.S. dollar provision recorded
in the prior year with respect to previously re-
corded revenue from KirchMedia, a licensee in
Germany of SPE’s feature film and television
product, and related adjustments to ultimate
film income.
As of March 31, 2004, unrecognized
license fee revenue at SPE was approximately
1.2 billion U.S. dollars. SPE expects to record
this amount in the future having entered into
contracts with television broadcasters to
provide those broadcasters with completed
motion picture and television product. The
license fee revenue will be recognized in the
year that the product is available for broadcast.
FINANCIAL SERVICES
Financial Services revenue for the fiscal year
ended March 31, 2004 increased by 56.3
billion yen, or 10.5 percent, to 593.5 billion
yen compared with the previous fiscal year.
Operating income increased by 32.4 billion
yen, or 142.4 percent, to 55.2 billion yen and
the operating income margin increased to 9.3
percent compared with the 4.2 percent of the
previous fiscal year.
At Sony Life, revenue increased by 46.4
billion yen, or 9.9 percent, to 513.0 billion yen
and operating income increased by 33.6 billion
yen, or 113.3 percent, to 63.2 billion yen com-
pared with the previous fiscal year. Revenue
increased due to improvements in valuation
gains and losses from investments in the sepa-
3.7%
–1.3%
3.4%
02 03 04
–100
0
100
200
300
0
200
400
600
800
1,000
1,200
Sales (left)
Operating income (loss) (right)
Operating margin
* Year ended March 31
Sales and operating income (loss) in the Music segment
(Billion ¥) (Billion ¥)
4.9% 7.3%
4.7%
–100
100
0
100
200
300
00
200200
400400
600600
800800
1,0001,000
1,2001,200
02 03 04
Sales (left)
Operating income (right)
Operating margin
* Year ended March 31
Sales and operating income in the Pictures segment
(Billion ¥) (Billion ¥)