THE COURTSHIP OF MCA : MCA, Matsushita May Look Like a Natural Fit, but Is It?

Matsushita Electric Industrial Co. made a fortune selling its new and improved version of Sony's Betamax VCR technology. But if the world's most profitable consumer electronics company thinks it will make another fortune by copying Sony's acquisition of an American entertainment "software" company, then it's going to learn some very expensive lessons about innovation.

On the surface, a proposed Matsushita merger with MCA offers all the "synergies" (always check your wallet when you see that word) that make strategic visionaries drool. Matsushita is a superbly managed electronics hardware company that wants to be more innovative and is pushing to position itself for a next generation of multimedia technologies. Matsushita's engineers, who are young and aggressive, are brilliant at taking electronics technologies and pushing them just a little further, just a little cheaper. The company's museum in Osaka--right next to the world's largest VCR assembly line--is filled with visionary prototypes of technologies just waiting to burst into the mass market.

But for all their technical cleverness, these prototypes are little more than black boxes that need software to animate them. They need the Cannells, the Lucases, the Bochcos and the Lynches.

While MCA's Black Tower isn't exactly a hotbed of creativity, MCA is a company that understands how to manufacture creativity with cost controls. It's also a company whose leaders genuinely appreciate the power of technology. Yes, MCA vehemently opposed Sony's Betamax and the VCR invasion. But don't forget that top MCA executives Lew Wasserman and Sidney Sheinberg were personally involved in the company's failed Discovision venture with IBM--an effort to mass produce optical video disc players and platters for consumers.

That venture may have been ahead of its time, but it hardly revealed a lack of imagination or courage. So why wouldn't Matsushita's hardware prowess and software ambitions mesh perfectly with MCA's software factories and its hardware sensibility?

Simple--because people matter more than strategic desires or technological strengths.

Compare MCA/Matsushita to Sony/CBS Records/Columbia Pictures and the contrasts are as stark as an Osaka merchant and a Texas lawyer.

Look at Sony. It's still being run by its founder, Akio Morita, a self-proclaimed maverick who is criticized by Japanese nationalists for being too Western and reviled by some Americans for being too Japanese. Years ago, Morita hired an opera singer--Norio Ohga--as an adviser and ultimately makes him the company's president. He puts the president of his U.S. subsidiary, Michael P. Schulhof, on his board of directors (the first large Japanese company to do so). Schulhof, who, like Morita, was trained as a physicist, is also a "wild duck" and was once a protege of music guru Clive Davis. Schulhof has worked for years within Sony and knows how to balance the imperatives of Japanese culture with the imperatives of American creativity.

Morita himself has long been interested in American pop culture, forging a joint venture with CBS Records in Japan more than a decade ago. The company takes pride in its innovations--even when they lose millions in the marketplace. Sony launched its "typecorder"--a laptop word processor--over a decade ago and it bombed. The Walkman, on the other hand, was a tremendous success. The company's 8-millimeter video camcorders are also redefining old markets even as they create new ones. In short, Sony is a company that likes to play with new ideas and interesting people.

The point is obvious: Sony has a living founder who actively encourages innovation and innovators. It's not crazy to think that this blend will appeal to the creative community that surrounds CBS Records and Columbia. Indeed, this community might love the chance to help shape the hardware that shapes the software that they create.

Matsushita's situation is different. Konosuke Matsushita--the company's founder--died last year at age 94. "He was like a god," one Japanese observer told me last year in Osaka. Matsushita's values still permeate the company, but it's clear his successors aren't just extending the company's tradition if they seek to acquire MCA--they're radicalizing it. Matsushita's traditional strength is not innovation and creativity and managing wild ducks--it's being as creative as you can within the constraints of cost controls and global mass production.

Similarly, while Lew Wasserman and Sidney Sheinberg still run their company, they are as much symbols of its past as architects of its future. How well will the next generation of MCA management get along with its Osaka counterparts? Who will Matsushita's Michael Schulhof be?

Purely as a diversification, an MCA acquisition may make sense for Matsushita--but where are the people who will create the synergies? Simply having hardware and software capabilities in the same company is no guarantee of success. If it was, RCA would own GE, not the other way around.

"Don't underestimate them," says Schulhof, president of Sony Corp. of America and Sony's point person on its Columbia Pictures and CBS Records units. "While they don't have a reputation for innovation, they are very, very good at consumer electronics and they are very persistent. They also compete successfully in markets that we are not in."

I have tremendous respect for the people I know at Matsushita and MCA. They are very good at what they do. I don't think they are going to be as good at things they have never done before. Matsushita knows that culture and tradition matter.

There is a very fine line between vision and delusion. Akio Morita and Lew Wasserman are both men of vision. Morita has already made his multibillion-dollar bets. It's not yet clear whether Wasserman's vision will be best achieved through Japanese eyes. But then, nothing ventured, nothing gained.

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