1. Columbia Pictures Acquisitions
Updated 2014

2. 1919 Founded as Cohn-Brandt-Cohn Film Sales
Historical Timeline
1919 Founded as Cohn-Brandt-Cohn Film Sales
1924 Columbia Pictures Corporation name is adopted
1968 Merged with own subsidiary Screen Gems animation studio - renamed as Columbia Pictures Industries, Inc.
1971 Joint-Venture with Warner Bros (ended in 1988 when Warner Bros joined Walt Disney Pictures)
1982 Bought by Coca-Cola
1987 Renamed : Columbia Pictures Entertainment, Inc.
1987 Merged with Tri-Star Pictures creating Columbia/Tri-Star.
1989 Acquisition by Sony Corporation
1991 Renamed as Sony Pictures Entertainment. 2

3. Film production and distribution company
Corporate Identity
Film production and distribution company
One of the leading film companies in the world, a member of the so-called Big Six.
Part of the Columbia TriStar Motion Picture Group, owned by Sony Pictures Entertainment, a subsidiary of the Japanese conglomerate Sony.

4. Columbia Pictures Top Grossing Movies
 Movie Title
Ranking
Studio
Year
Director
Worldwide Gross
Spider Man 3
#23
Columbia Pictures
2007
Sam Raimi
$891
Million
Spider-Man
#33
2002
$807
Spider-Man 2
#37
2004
$786
2012
#39
2009
Roland Emmerich
$767

5. Warner Bros. Entertainment Warner Bros. Pictures 17.1%
Big Six Film Studios
Conglomerate
Parent Division
Major Studio Subsidiary
US & Canada Market Share 2013 YTD
Time Warner
Warner Bros. Entertainment
Warner Bros. Pictures
17.1%
General Electric/Vivendi
NBC Universal
Universal
15.7%
The Walt Disney Company
Walt Disney Motion pictures
Walt Disney/ Touchstone pictures
13.9%
21st Century Fox
20th Century Fox Pictures
11.47%
Sony
Sony Columbia
Columbia pictures
10.6%
Viacom
Paramount Group
Paramount pictures
8.7% 5

6. Acquisition by Coca - Cola
In 1982 Columbia Pictures becomes a subsidiary of Coca-Cola
Price over $ 800 million (criticism for over-payment)
The price of Coca-Cola’s stock dropped over 10% in the two days after the proposal was unveiled.
Coca-Cola Co. wanted to diversify into the entertainment business seeking profitable growth
potential for film libraries and video games
Looking for appropriate acquisitions it wanted to avoid fields as:
High technology (due to lack of experience)
Heavy industry (great investment)
Food (low profit margin)
Health (too much technology incorporated) 6

7. Newspaper announcement
The Bulletin, 21/6/1982

8. Acquisition by Coca – Cola: Motives
Coca–Cola’s management argued for potential great synergies
Would increase the Coca-Cola consumption while consumers were entertaining themselves at home (TV, Video)
Would enhance Coca-Cola advertising and consequently company’s reputation and corporate image
Would profit by Columbia Pictures surplus
Columbia Pictures has always been profitable during the 1980s
BUT: the movie business has been extremely volatile and cyclical; past success cannot be taken for granted 8

9. Acquisition by Coca – Cola: Diversification
The common belief of 80s-90s which lead to the “diversification wave” was actually the main reason for the acquisition.
“The diversification wave”:
building conglomerates and holding a diversified portfolio of different companies operating in different industries
risk can be minimized and executives’ bonuses can be maximized. 9

10. Theory of Diversification
Products
Existing
New A
Protect/ rationalize
Consolidation
Market penetration B
Product development
Modifications
New products C
Market development
New segments
New territories
New uses D
Diversification
Related: Within the R&C of the organization
Unrelated: Weak or no similarities in R&C
Existing
Markets
 Higher growth likely, but higher risk as well
New

11. Acquisition by Coca – Cola: Diversification
 Columbia Pictures’ acquisition by Coca Cola: Unrelated Horizontal Diversification (exploit strategic capabilities in a new market, which shows no similarities in own R&C)
Main reasons:
Growth outside a firm’s current industry course of business
Leveraging of competencies to create new business.
When a firm has reached mature stage of growth, competitive pressure within the industry increases.
Expansion into industries that are more profitable than acquirer’s current industry. 11

12. Acquisition by Coca – Cola: An unrelated Diversification
Little basis for creating economic value through synergies
No obvious economic links between the leading producer of soft drinks and the venerable, but struggling film studio.
No economies of scope realized
Resources not shared across the product lines
High management costs
No experience in running a film business
Many unpredictable, unfavorable events took place
Management changes in Columbia Pictures
A series of unsuccessful films (e.g. Ishtar)
An embarrassing check-forgery scandal by the studio’s president

13. Acquisition by Coca – Cola: Issues in making acquisition works
Coca Cola believed that they would be successful since both companies had:
Significant experience in mass consumption markets
Experience in global activities
Impact on young people
However, there were significant obstacles due to unrelated industries:
Inability to integrate the new company into the group
Not able to distribute R&C among the different companies
Inexperienced management in film industry issues

14. Diversification and Performance
High
Negative impact on performance
Performance
Low
One dominant business
Unrelated
businesses
Related, limited diversification

15. 80s Diversification Wave: A fallacy after all?
Turned out to be disastrous. Synergies never came because:
Since the conglomerate’s companies operate in different industries, cost cuttings through e.g. joint purchases of raw materials or sharing of knowledge between executives, was not easy to effect
Absence of expertise in running 15 companies in different industries
Conflicts of interest occurred between company’s managers and shareholders (the former seeking fast growth & salary bonuses, the latter maximization of equity)

16. Acquisition by Coca – Cola: Qualitative Evaluation
SFA
Suitability
The strategy was unsuitable, it did not fit with acquirer’s capabilities. It was the results of “trend” at the time
It did not fit the Coca Cola’s culture
Feasibility
Coca Cola had the economic resources to implement it
but lacked the skills and competences required to sustain it.
Acceptability
As it turned out the strategy did not meet the expectations of stakeholders
the expected outcomes were not acceptable neither in terms of return nor of risk.

17. Acquisition by Coca – Cola:
The first signs
A scandal in 1975 involving allegations of embezzlement and forgery by studio head David Begelman began a 15-year period of management difficulties.
Between 1982, when Coca-Cola bought a 49% interest in Columbia Inc. for $750 million, and 1989, four separate chief executives served at Columbia, with none staying for more than three years.
Despite wealth of assets and a glorious tradition, Columbia Pictures Inc. struggled throughout the l980s.

18. Acquisition by Coca – Cola: The spin – off
After a few years of mediocre financial results from the studio, Coca Cola partially spun off Columbia in September 1987, retaining a 49% interest.
After the stock market crash in 1987 and a particularly weak performance in the next fiscal year, Coca Cola was ready to sell the rest.

19. Sony Pictures Entertainment Inc. Found in 1946 by Ibuka and Morita
Corporate Identity
Sony Pictures Entertainment Inc.
Found in 1946 by Ibuka and Morita
Produces, distributes motion pictures and television programming. Operates studio facilities
Manages television channel investments worldwide
Acquires and distributes home entertainment products and licensed merchandise for consumers (DVD, blu-ray and UMD)
Develops entertainment products and services for broadband distribution 19

20. Columbia was in poor condition in 1989
Acquisition by Sony
Columbia was in poor condition in 1989
Market share steadily dropping for 5 years (from 19% in 1985 to 9,9% in 1988)
Since Coca Cola’s partial spin off, sales and net income had fallen steadily; ROE was low or negative
The Columbia Pictures was sold in 1989 to electronics giant Sony, one of several Japanese firms then buying American properties.
The greater acquisition abroad ever made by a Japanese Company.
Some argued that Sony was fooled and paid too much.
Paid 27$/share, while the Columbia share cost 12$/share
Sony paid 22 times more than the Columbia’s annual cash flows

21. Main reasons: Innovation Betamax failure
Growth outside a firm’s current industry course of business
Leveraging of competencies
Vertical integration: Ownership+Distribution
Strength of Japanese Yen vs Dollar

22. Acquisition by Sony: Motives
Strategic Motives:
Setting industry standards for the future generation of digital video technology
Extending Sony’s strategy of building a total entertainment business around the synergy of Audio and Video hardware and Software
Diversification: penetrating new markets and enlarging the product portfolio
Strengthening of the Sony position in the area of content
Reduction of dependence on content providers (complementary products-cross category)
Combined with own hardware & software - control of both fields
Response to similar competitor’s movements (Microsoft, Philips, Intel)

23. Acquisition by Sony: Motives
Synergies
Swap of know-how: more sophisticated visual & sound effects for the products
Cross-marketing for Sony products
Mutual production, promotion & advertising of technological products (hardware) and movies (software)
Exploitation of Sony’s managerial skills in the show-biz

24. Loss of 2.7Billion$ over 5 years
Sony : ”Everything they do , is too much, too loud”
Post-Acquisition Blues
In the end Sony spent $100 million to refurbish the rechristened Sony Pictures Studios.
Loss of 2.7Billion$ over 5 years
The vast difference between the Japanese and American management cultures was also responsible for the failure of Sony to manage Columbia efficiently

25. 1989’s Newspaper Announcements
Emphasized on the fact that Columbia would keep operating in America, run by Americans to sustain its physical and cultural proximity to the Film Industry

26. Acquisition by Sony: Diversification
Columbia Pictures’ acquisition by Sony: Vertical integration of Sony in the supply of content, with rather weak similarities in R&C)
Sony Music and animated pictures in Columbia Pictures’ films
Development of video games using different R&C of both companies
Promotion and use of Sony products in Columbia Pictures’ films
Management risk : Sony was traditionally managed by engineers
Political Risk: Hostile reaction from US public
Strategic Risk : High Price for going to the content business 26

27. ? Acquisition by Sony: Do Sony and Columbia fit? Sony
Technology & Hardware
Entertainment systems
TVs, Video – Cameras, Video – CD –DVD, Hi–Fi
Showbiz background (Sony Music) & animated pictures
Strong brand awareness/mass consumer market
Columbia
Content Creation For Media
Movies TV
Theatre ?
Innovation, Quality,
Management conducted by engineers
Talent,
Art,
Blockbusters – High risk
Producers

28. Acquisition by Sony: Unrelated Diversification
Insufficient understanding of basic issues of the acquired company
Hidden liabilities: the acquisition price had risen to $ 5bil.
Over - optimistic appraisal of the synergies
Large investing to revitalize Columbia
The language obstacle affected the exploitation of synergies
Cultural Gap
Engineering culture vs. arts culture
Communication difficulties among companies despite the efforts for collaboration)
American and Japanese management style

29. Acquisition by Sony: Qualitative evaluation
SFA
Suitability
The strategy fitted the specific situation of the organisation (strategic logic) but the two companies had completely different cultures.
Feasibility
Sony had the resources to implement it, but it lacked the skills and the competences required.
Acceptability
Long after the acquisition started to meet the expectations of stakeholders and to provide outcomes fairly acceptable in terms of return and risk.

30. Acquisition by Sony: Qualitative evaluation

31. Acquisition by Sony: Qualitative evaluation comments
Publicly humiliated, Sony
suffered an enormous loss on
its investment in Columbia,
taking a $2.7 billion write-off
in 1994.
After a change in top management and a subsequent company restructuring, the studios started to rebound, setting a record pace at the box office.
In 1998, Columbia and TriStar merged to form the Columbia TriStar Motion Picture Group, though both studios still produced under their own names.

32. Acquisition by Sony: Qualitative evaluation
2011 Earthquake in Japan –Tsunami
Natural Disaster

33. Market Share Evolution

34. Market Share of Sony/Columbia 2000-2012

35. Sony Corporation financial results 2009
Regarding the conglomerate, it seems that diversification might contribute to reducing the losses in periods of recession since some industries are less affected than others, but up to now, the success of the acquisition is under question.

36. Acquisition by Sony: Conclusion
It is doubtful whether the acquisition has added value
The integration of the companies was hard
The synergies are still expected in the long-term
Vertical integration of the Sony in the supply of content (film making) is the long term objective (the degree to which a firm owns its upstream suppliers and its downstream buyers impacts on firm’s costs and position in the market)
Strategic Motives: Will they be compensated in the future?
How much should anyone wait in order to see a really strong and dynamic outcome?

37. Why did Coca-Cola buy Columbia Pictures?
Conclusion
Finally….
Why did Coca-Cola buy Columbia Pictures?
"It was sometimes joked that Coca-Cola bought Columbia to take possession of Columbia's prime office location at 55th and 5th Ave in New York.  Coca-Cola kept this property when they sold Columbia to Sony in 1989.“
By Anonymous, Source: May 8, 2012

38. Happy 90th Birthday, Columbia Pictures

39. Thank you