Case Study: Screen Savers

Just before Labor Day, Sony Corp. movie executives abruptly announced the departure of Sony Pictures Entertainment CIO Justin Yaros, and replaced him a couple of weeks later with John Stubbs, a former PricewaterhouseCoopers entertainment consultant who had been working with some of the big studios to develop antipiracy systems and digital rights management software—hot tickets in a business keen to avoid becoming Napsterized like the music industry.

Nonetheless, Yaros’ ouster surprised some IT veterans in Hollywood: Yaros had been an innovator in the rough-and-tumble and largely tech-hostile movie industry, one of the first purebred IT executives in the business. He was lured in late 2000 to SPE, currently the No. 2 studio behind Disney’s Buena Vista Motion Picture Group, specifically to re-create and further develop for Sony the state-of-the-art, Internet-powered marketing and distribution systems he’d created for Twentieth Century Fox in the late 1990s—including two digital box office and movie distribution information systems called “Spirit” and “Esprit” that continue to save millions for the company at home and abroad.

Industry insiders speculated about the reasons behind Yaros’ departure: Yaros didn’t move fast enough; he wasn’t doing enough, he ruffled the feathers of the new CFO, David Hendler, who joined Sony in April and wanted his own man to run operations.

Whatever the reason, and neither Yaros nor Sony executives were saying at press time, the upheaval is only the latest chapter in SPE’s struggle to digitize one of the world’s most cutthroat businesses in an industry still seen as being big on schmooze and inimical to the rigors and promise of information technology. “We make movies,” SPE spokeswoman Susan Tick told CIO Insight on Yaros’ last day with the company. “We don’t make IT.”

Indeed, in an industry where who you know is coin of the realm, technology and computer savvy have long struggled for respect. Despite its gee-whiz special effects, snazzy computer graphics and futuristic science-fiction plotlines, behind the scenes, Hollywood remains stubbornly old-fashioned. When Yaros arrived at SPE from Fox in December 2000, IT was still being viewed as “a necessary evil,” admits Robert Gage, SPE’s divisional CIO for motion pictures and production. Sure, studio execs said, we need computers in the back office for e-mail, payroll and other mundane administrative tasks, but what have they got to do with the real business of movies and TV shows?

Plenty, said Yaros, and over the past two-and-a-half years—until he and the studio parted ways in late August—Yaros aggressively moved information technology out of the back office and onto center stage, spending $80 million on new database and analysis systems in 2003 alone as he pulled previously disparate operations into a more cooperative, communicative and, ultimately, profitable whole.

But it wasn’t easy—and Yaros’ struggle provides a peek at an industry in which cultural issues and management missteps can dog even the most basic IT projects—in this case, ones that aimed simply to tackle the back office, boost marketing efficiency and cut the costs of distribution.

These days, SPE needs all the cost-cutting help it can get. Jack Plunkett, CEO of Plunkett Research Ltd. in Houston, says the flagging economy has hurt every studio, but has hit Sony especially hard. According to Sony’s corporate annual report, SPE brought in $6.7 billion last fiscal year—its best year ever, in part because of Spider-Man’s record-breaking $800 million worldwide take—but ended up spending $6.2 billion to get 30 movies in front of viewers. The quarter ended June 30 was far worse. Parent Sony Corp. announced that overall profits were down 98 percent quarter-on-quarter, with SPE revenue dropping 13 percent and the division recording a $20 million loss for the quarter. “The whole entertainment industry is under a lot of competitive pressure, and profits have been weak across the board,” Plunkett notes. “Films have much shorter runs now and that’s turned the industry upside down. The time to have your motion picture available in the eye of the consumer has been really compressed,” he says—partly a function of stiff competition for consumer pocketbooks. Anything that can reduce costs or squeeze out more revenue in less time should be a central focus, he says.

Indeed, with razor-thin profit margins, every penny counts. Since Sony bought Columbia Pictures and other entertainment assets for $3.4 billion cash in 1989, SPE has seen only two profitable years, both of them recently. “At one point, Columbia was considered the worst and was losing a fortune,” says Jeffrey Pittsburg, president of Pittsburg Research Inc.

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