At Sony, Investor\'s Challenge Brings Unwanted Suspense

Sony's Unwanted Genre: Suspense

Clockwise from top left, Suzanne Hanover/Columbia Pictures; Sony Pictures Animation/Columbia Pictures; Columbia Pictures; Kimberley French/TriStar Pictures

Sony's newest film include, clockwise from top left, “This Is the End,” a comedy with James Franco, Jonah Hill, Craig Robinson, Seth Rogen, Jay Baruchel and Danny McBride; “The Smurfs 2,” with the voices of Katy Perry and the late Jonathan Winters; “After Earth,” with Will Smith and his son, Jaden; and “Elysium,” starring Matt Damon.

NOWHERE is the opulence of Old Hollywood more palpable than on the Sony Pictures lot in Culver City. Arching just inside the front gate is an eight-story rainbow. This grand $1.6 million sculpture, a condition of a lot expansion, rose last year and became a symbolic link between past glories - “The Wizard of Oz” was filmed here - and current ones. Years of cutbacks have taken the shine off many studios, which now look like glorified factories. But Sony has preserved its lot as a perfect little movieland town: executive suites overflow with orchids, and cafes border a new park where employees sip lattes and stretch on the grass.

The mood extends beyond the walls of the 44 1/2-acre lot. Each year, Sony rents out the entire Ritz-Carlton Cancún Resort for an international press junket. Day after day, the studio flies in stars and hosts parties.

“What I love about Sony,” said Matthew Tolmach, a former executive at the studio and now a producer based on its lot, “is that they still love movies, and they are incredibly aggressive about making all kinds of them.” He added: “It's why I want to live there.”

While competitors like Paramount, Disney and even Warner Brothers have gone through ferocious consolidation - all focusing more narrowly on blockbuster-style fantasies and superhero movies - Sony has been slower to give up the industry's broad prerogatives. Its ambitions still stretch from R-rated romps to “The Amazing Spider-Man” to tiny foreign films to African-American comedies to Oscar-caliber dramas. That requires making a home not just for Mr. Tolmach but also for an extensive family of filmmakers and stars.

Sometimes it pays. Last year, Sony Pictures Entertainment generated about $4.4 billion in global ticket sales, the highest in its history, powered by nine No. 1 hits including “Skyfall,” “Men in Black 3” and “The Vow.” It had an Oscar contender, “Zero Dark Thirty,” started a new franchise, “Hotel Transylvania,” and revived an old one, “21 Jump Street.” It ended the year i n first place in market share.

But in true Hollywood style, the Sony picture is not quite what it seems.

The truth is that Sony finds itself at a troubled crossroads. Its go-to stars - Adam Sandler and Will Smith - are now a generation older than the prime film-going audience. And its steep production and infrastructure costs burden Sony with one of Hollywood's worst profit margins. Sony's entertainment unit had an operating margin of 6.5 percent in its last fiscal year; the figures at Warner Brothers, Disney, Paramount and 20th Century Fox were all higher.

It is extremely hard to compare studios, analysts warn. Some make only movies, while others, like Sony, also make television shows. Financing arrangements and accounting vary. Sony does not divulge how much of its profit comes from movies and how much comes from its fast-growing television business.

In its last fiscal year, the studio reported operating income of $509 million, up 40 percent from a year before. That result looks fantastic until you consider that roughly 65 percent of the total, analysts estimate, came from a relatively small television arm that includes shows like “Wheel of Fortune” and “Breaking Bad” as well as overseas cable channels. Analysts complain that the giant movie side is holding back profitability.

The movie unit has also lost the man long seen as its protector inside Sony, the far-flung Japanese electronics behemoth. That man is Howard Stringer, who was Sony's chief executive for seven years. Last year, he turned over the Sony helm to Kazuo Hirai. Mr. Stringer will retire as chairman next month.

But the truly startling plot twist came on Tuesday. Daniel S. Loeb, the activist hedge fund manager known for successfully engineering a shake-up at Yahoo, told Mr. Hirai in a letter that his Third Point investment fund had become Sony's largest shareholder, with a 6.5 percent stake. With that announcement, Mr. Loeb proposed breathtaking changes at the company, including a spin-off of up to 20 percent of its studio and other entertainment holdings.

Overnight, Michael M. Lynton, the C.E.O. of both Sony Pictures and Sony Entertainment, and Amy Pascal, co-chairwoman of Sony Pictures, found themselves under a kind of weight rarely felt in Hollywood since the 1980s, when corporate raiders and high-yield bond peddlers like Saul Steinberg, the Bass brothers and Michael Milken delved into studios, looking for hidden value.

“The entertainment businesses are important contributors to Sony's growth and are not for sale,” Sony asserted in response to Mr. Loeb. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”

A spokeswoman for Mr. Lynton and Ms. Pascal said they had no comment. Several days before the disclosure of Mr. Loeb's letter - in response to questions about the studio's performance and its movie release lineup - Steve Elzer, a Sony spokesman, wrote in an e-mail, “We have been strong and steady not just for a year, but for longer than a decade.” He added, “We couldn't be more confident in our slate this summer and through the year.”

A version of this article appeared in print on May 19, 2013, on page BU1 of the New York edition with the headline: Sony's Unwanted Genre: Suspense.