Sony Takes Another Wrong Turn : High Hopes for Its Compact VCR Dashed as Sales Falter

Sony Corp.’s Betamax has lost the full-size videocassette recorder market to its VHS rivals, and now appears to have stumbled in its bid to dominate the compact VCR market, industry analysts say.

Sony’s 8-millimeter camera and recorder “was the big hope for the company, and it looks a bit shattered,” said Baring Securities senior analyst Virginia Kouyoumdjian. “Once again, the company has taken the wrong turn in consumer electronics.”

Sony’s 8-millimeter “camcorder” looked promising when it hit the market last year. But sales have run into formidable obstacles since Matsushita Electric, maker of the National and Panasonic brands, threw its weight behind the half-inch VHS model, the analysts said.

Matsushita demolished Sony’s full-size Betamax VCR by aggressively marketing the VHS format overseas under U.S. brand names and by getting a family of Japanese companies to support it, they said.

VHS models now account for more than 90% of the full-size VCR market, said Darrel Whitten, director of Bache Securities. “Beta was a strategic mistake. It’s still haunting Sony,” he said.

A big barrier to 8-millimeter sales was the existing base of full-size VHS players. “When 100 million people have VHS decks they need a strong reason to chuck them out and buy something new,” Kouyoumdjian remarked.

The 8-millimeter is compatible with the VHS system if a special attachment is used.

Sony first tried to gather its own group of companies to support the 8-millimeter model. The verdict hung briefly in the balance as Matsushita and other electronics heavyweights such as Hitachi developed both half-inch and 8-millimeter camcorders and waited to see which way the market would swing.

Own Brand Offered

Early this year, Matsushita launched its own brand of VHS camcorder, supporting its subsidiary Victor Co. of Japan (JVC), which first developed the compact half-inch VHS.

“Sony ended up getting camera-makers to go for the 8-millimeter, but camera makers don’t have the marketing punch Matsushita has,” said Whitten.

Sony admits it has failed to attain a sales target of 1.5 million units in the year to Oct. 31. Analysts estimated Sony still had about 60% of the camcorder market, but said that JVC is coming on strong--quickly eating into that share.

“The market is growing fast and Sony’s share is not keeping up with it,” Merrill Lynch Securities Co. analyst Caryn Callahan said.

The slow growth of 8-millimeter sales has only added to Sony’s problems of cutthroat competition in consumer electronics and a decline in exports due to the sharp rise in the Japanese yen.

The Sony group said recently that the yen’s climb was largely to blame for a 42.6% fall in net income in the year ended Oct. 31. Exports, which accounted for 70.5% of sales, fell 11.4%.

Sony’s ability to stage a turnaround hinges on its finding an appealing new product ahead of other consumer electronics companies also avidly looking for a lucrative successor to VCRs, analysts said. But they differed over the company’s ability to do so.

“Sony has technology and resources, but compared to an integrated giant like Matsushita, they don’t have enough resources and marketing power,” said Bache’s Whitten.

Merrill Lynch’s Callahan was more optimistic. “They’re in the middle of a battle right now. I don’t see anything on the horizon in the next six months, but I don’t think anyone should pull the plug on Sony.”