This Stock Looks Like a Good Long-Term Investment Today

In early March, I told you how Sony (SONY) has had one ambition for literally decades: to become the world’s most fully integrated entertainment company.

Over the years, Sony has put together an outstanding array of assets: world-class music catalogs (Sony Music), Hollywood film and television studios, plus PlayStation, the leading video game hardware.

But it could never quite make this very impressive orchestra play in harmony.

However, finally, all of Sony’s parts seem to be in sync and producing up to the lofty expectations set by the company:

  • In 2021, Sony’s movie studio had three of the top 10 films in the U.S., led by Spider-Man: No Way Home.
  • Sony Pictures’ deep library of films and TV shows (like Seinfeld) is helping to fill the appetite for streaming content. Far smaller than its rivals in Hollywood, Sony Pictures decided that instead of launching its own service, it would become an “arms dealer,” selling film and TV rights to the highest bidder.
  • The company’s revived Sony Music business—the world’s second largest—is profiting from the growth of services such as Spotify and TikTok.
  • With its PlayStation, Sony has decades of experience in gaming. The company also has cutting-edge hardware, including VR headsets (8K resolution) and related gear that many believe will be the gateway to the metaverse.

As independent analyst Pelham Smithers told the Financial Times, “They have music, TV, films, video games: things that everyone [else] wants, but only Sony actually does at scale and in a joined-up way. Looking ahead to a time when entertainment is consumed in even more immersive settings, there is no company more obviously central to the metaverse,” he added.

And now, more of Sony’s grand plan is coming together, thanks to its growing investment in gaming software maker, Epic Games.

Sony’s Strategy Shift

In early April, Sony revealed it had invested another $1 billion into Epic Games, raising its stake to 4.9%. That was Sony’s third investment in Epic in less than two years, bringing the total Sony has put into the company to $1.5 billion.

One reason for Sony’s investment into Epic Games is pretty straightforward. Sony lags behind its global rivals in the shift to online gaming.

Epic has a strong presence in this market. In addition, its products will complement that of Bungie, the developer of the hit online game franchise Destiny. In January, Sony announced it is acquiring the company for $3.6 billion.

Bungie wasn’t a typical studio acquisition like the ones Sony has made regularly in the past decade. It’s a company with a pretty significant multi-platform self-publishing capacity, a very popular and successful live-service game that’s been up and running for several years, and at least one more major title in the pipeline.

This acquisition represented a significant strategic shift for Sony and a major step forward in the company’s embrace of cross-platform publishing. The ultimate aim seems to be to make live-service games into a major new pillar of the PlayStation business.

Sony and Epic Games

Let’s return to Sony’s investment in Epic Games. There’s a lot more here than just gaming. That’s due to the fact that Epic’s Unreal Engine has capabilities that will nicely complement Sony’s businesses across music, movies, and gaming.

Despite its name, Epic’s very real gaming graphics engine produces some of the most realistic gameplay available today. It is renowned for its ability to adjust the lighting in gaming graphics in real time.

Epic first developed this software for early first-person shooter games. And now today, it’s the most popular graphics engine in the industry with its ability to work on all types of platforms: consoles, mobile and virtual reality.

The real appeal for Sony of the Unreal Engine, though—as explained in an article by the Financial Times’June Yoon—is the many uses for the Unreal Engine outside the gaming industry.

For several years, the music industry has employed this software to make virtual concerts appear very real. Sony has a new subsidiary, Sony Immersive Music Studios, which focuses on realistic music experiences using technology. During the pandemic, Sony Music Entertainment used Unreal Engine to recreate the Sony Hall concert venue in New York for live online performances.

And Hollywood is very familiar with Unreal Engine too. For filmmakers like Sony Pictures, it can create virtual sets able to track a camera’s motion while updating scenes in real time. This produces results more realistic than scenes filmed with the more widely used chroma key technology.

Because visuals are not filmed by a camera but rather created within the graphic software, the same content can be easily transformed for use in Sony’s other products, such as games and interactive VR platforms.

Combine all of this and Sony has a real shot at becoming a major player in what Wall Street believes is the next big thing: the metaverse. With Sony’s stock trading at its lowest price since late 2020, thanks the broad selloff in the technology sector, a purchase of Sony anywhere in the $80s looks like a good long-term investment.

— Tony Daltorio

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Source: Investors Alley