We’ve already reported that Sony’s 2013 full year financials likely won’t look that great. A big reason is the massive costs associated with selling off VAIO, the company’s PC division. Beyond the unsold inventories that will sit in warehouses, Sony also has many parts that have long been contracted from other manufacturers that have long been paid for that it must also eat. This means that profit will shrink significantly, down from 240bn Yen in FY12 to just 26bn Yen for FY13. But there is another business that’s dragging Sony down and it’s the unlikeliest of all culprits: optical media.

Sony currently operates nine production sites that produce compact discs outside of Japan, including factories in the U.S., Russia, Australia, and India. As consumer interest has shifted significantly towards digital which span purchases, rentals, and streaming from the likes of Apple with iTunes and Netflix, the need for compact disc has dramatically dropped. This results in about 25 billion yen of impairment charges for Sony’s overseas disc manufacturing operations.

While we’ve all streamed here and there, if not all the time, we just assume that not everybody is doing it. Unfortunately for Sony, the trend seems to have dramatically accelerated. With the arrival of 4K, consumers will likely continue to purchase optical disc like Blu-ray but already, Netflix has announced 4K streaming which will be available on Sony’s 2014 line of 4K televisions.

The key in all of this is how much of Sony’s operations still rely on old technology and that despite making progress in mobile, how much Sony still needs to transform in order to survive in the digital that came, well, 15 years ago. Sure Video Unlimited might be available on all of Sony’s products, including the very successful PS4, but it may be time for the company to give the service a second look and a higher priority.

Discuss:

Are you surprised how much optical disc sales affect Sony’s financials?