MCA Deal May Help Matsushita Rejuvenate Itself : Entertainment: The Japanese consumer electronics giant’s recent performance has been sluggish. The merger would give it a much-needed jolt.

Matsushita Electric Industrial Co.’s purchase of MCA Inc. would represent a crucial bid to revitalize the Japanese consumer electronic giant’s flagging fortunes.

Matsushita probably could not add much to MCA management, but analysts say MCA needs little direction. The Japanese company, however, needs MCA’s high earnings growth to help offset its sluggish performance. MCA’s broad library of recordings and movies would help the company counter rival Sony Corp.’s push into such new product areas as high-definition television and digital audiotape.

MCA’s board late Sunday approved key terms of the purchase. An agreement is expected to be announced as early as today. The merger would not only give Matsushita a strong Hollywood presence but would add glamour to the company’s dowdy image.

MCA’s biggest contribution to Matsushita, observers say, could be the massive jolt that would inevitably result when the Hollywood producer merged with one of Japan’s most conservative companies. It is a jolt Matsushita needs to shift from being a maker of “me-too” products to a company capable of putting together the kind of innovative and complex consumer goods that are in demand these days.

Once ranked as Japan’s top company in terms of management and products, Matsushita has fallen from the list of pre-eminent companies in surveys of Japanese businessmen and consumers. Sony is usually ranked first or second. Top rankings are important for hiring scarce university graduates. Since they can reflect pessimism about a company’s future, they also can affect company morale.

“At this rate, we could end up as just another massive subcontractor,” Akio Tanii, Matsushita’s president, warned in a recent magazine article.

There already are indications that the merger talks have forced changes inside Matsushita. Tanii broke with tradition in pushing for the MCA acquisition without seeking the consensus of his management team.

Some find that fresh approach appealing. “We have been negative on (Matsushita). They were accumulating a lot of money and not doing anything with it,” said Boris Petersik, an analyst at Barclay’s de Zoete Wedd. “Now they are trying to add something; it’s a good signal.”

Other positive signs, Petersik said, are the company’s aggressive posture on computers--as indicated by recent ventures with Tandy and AT&T; and a push in workstations and supercomputing.

The company is no slouch. In the half year ended Sept. 30, profit climbed 16% on a 12% increase in sales.

But Sony just announced sales that were up 37.6% during the period. Sony’s video sales grew by 36.3%, against Matsushita’s 8% increase.

Sony’s profit growth was a more modest 6%, because of interest on debt related to its purchase of Columbia Pictures. When those charges are excluded, operating income was up a sizable 36%.

One problem for Matsushita has been its foray into the video camcorder business. The passport-sized camcorder that Sony introduced last year has swept the market, helping to boost to 50% the share held by camcorders that use 8-millimeter tapes. Matsushita is fighting a losing battle against Sony with its clumsier, compact version based on the VHS recorders that are popular in homes.

The camcorder battle is not irreversible. But it has been a humiliating setback for Matsushita, which decisively trounced Sony’s Beta format with its VHS standard in the fight for the much larger market for home-use videocasette recorders.

Matsushita’s weakness partly reflects its size and its need to protect a large base of existing products. But the company is also fighting with weaponry more effective two decades ago than in today’s fast-paced battles.

Matsushita’s marketing strength in the 1960s and 1970s came from its network of 20,000 retail stores in Japan selling only Matsushita products. Its development and manufacturing strength was the result of a complex structure in which hundreds of divisions were assigned the production of certain products and components. Working independently, those divisions moved quickly to introduce new products and feverishly cut costs.

If Sony introduced a new product, such as the Walkman or the first VCR, Matsushita could calmly wait until the market was big enough to enter--then quickly move to the head of the pack.

The Matsushita group is still a master at cutting costs. Asked by its parent to boost efficiency in 1987, Kyushu Matsushita Electric, which makes magnetic tape recording heads, cut production costs by 50% in two years. The company arranged for management telephone calls to be automatically cut off after 10 minutes. At the same time, new investments in production helped shave expenses and speed product development time.

But cutting costs was not enough. By the mid-1980s, consumer products were getting too complex for a single division to handle. Furthermore, half of Matsushita’s sales were coming from industrial products such as computers, semiconductors and telecommunications devices. Development of those products required complex coordination by numerous divisions as well as quick decision-making. Matsushita’s system was geared to neither.

With retails sales of small electronics shops weakening, Matsushita lost its ability to come from behind in a new market.

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