Humble Pie: Japanese Food for Thought
I n the wake of the disastrous results of Japanese companies in Hollywood, a fictitious memo about the future of media that should have circulated within Japan’s influential Ministry of International Trade and Industry :
TO: MITI Task Force on New Media Futures
FROM: Subcommittee on Strategic Visions
RE: Hollywood Lessons
Morita- san now leaves his Sony stained with the legacy of multibillion-dollar losses in Hollywood. That is a tragedy. Matsushita and its MCA publicly battle in America’s newspapers. That is embarrassing. The Americans are increasingly boastful and arrogant. That is annoying.
The past five years in Hollywood have made our electronics companies look like insular media bumpkins. Promises of synergy have yet to materialize, and it does not appear as if our substantial investments in American content have dramatically improved Japan’s abilities to create profitable new markets. Our hardware companies seem structurally and culturally incapable of managing American software creativity or successfully integrating it into their technology strategy. They have lost face and credibility.
Clearly, now is the time for MITI to offer administrative guidance to our media technology industries. The Hollywood lessons are bitter and expensive, but they give us the opportunity to propose more productive approaches for Japan’s global media strategy. These suggestions should form the basis of a new strategic dialogue about Japanese media.
1. Discourage majority acquisitions of foreign media enterprises in favor of encouraging structured minority investments.
It is foolish to insist on owning software companies whose skill and expertise we do not know how to enhance. That’s not strategy; that’s self-indulgence. Recall Sumitomo Bank’s $500-million investment for a 12.5% limited partnership in Goldman Sachs in the 1980s compared to General Electric’s outright acquisition of Kidder Peabody. What has proven more valuable-- 12.5% of Goldman Sachs or all of Kidder? Ownership of software does not inherently confer added value any more than buying a factory inherently makes it more productive. Japanese companies must have the willingness and humility to learn; 100% owners too often lose the desire to be humble and listen.
Matsushita and Sony should restructure their ownership of American software properties. But they must be encouraged to sell to companies that promise to be partners and not parasites. Our primary strategic intent should be to influence creativity, not simply own it. We would be wiser to encourage 50 $10-million investments in smaller American multimedia companies that we can learn from and influence than outright ownership of a $1-billion company that views us as little more than a wallet that also manufactures silicon chips. MITI must play a more active role in the diffusion and sharing of multimedia knowledge and information.
2. Acquire Media Properties, not Media Companies.
Must we own Time Warner to own Superman? Must we own Toho Studios to own Godzilla? Must we own Sega to own Sonic the Hedgehog? Of course not. Owning the rights to intellectual property can be far more valuable than owning the means of their production. We need to pursue a strategy of licensing creative intellectual property much more aggressively.
Back when Sony was called Tokyo Telecommunications, Morita- san did not acquire technology companies--he acquired licenses for technology. He procured licenses from Bell Telephone for the transistor and used them as seeds to grow Sony’s technology. We should encourage Japanese companies to acquire intellectual property licenses to grow multimedia innovations.
For example, we could acquire the rights to create a Madonna CD-ROM for the Asian marketplace and bring it to an American CD-ROM developer we partly own. In essence, owning creative licenses offers a less expensive, less risky way to build relationships between hardware platforms and software products. Licensing offers a mechanism for both learning and profit. MITI can play a role in giving preferential treatment to foreign companies that are reasonable about licensing intellectual property.
3. Insist that American middlemen become partners.
Unfortunately, most American media companies, investment bankers and Hollywood agents have viewed deals with Japanese companies as a way of extracting maximum amounts of yen rather than creating productive long-term partnerships. We must not make those mistakes again. We should now politely--but firmly--insist that investment banks and Hollywood agents who bring us investment opportunities become co-investors in the deals they propose. To quote a popular Americanism, they must “put up or shut up.”
4. Focus on Asia more than the West.
Demography is destiny. We’ve been too concerned with American media. Asia is growing far faster than either Europe or the Americas. To be sure, Japan must have a strong presence in the West, but exciting growth and cultural media compatibility will come from the East. Already, karaoke is a multibillion-yen business in Asia. This has been a successful cultural technology export for Japan. Japanese video games are also doing very well.
Japan is strongly positioned to be a medium between American software and Asian markets. Our media sensibilities should be more Asian than global. Sell off portions of MCA and Columbia but retain all Asian rights?
5. Nintendo-Sega vs. Microsoft-Intel.
Nintendo and Sega succeed not because they mimic the West but because their Japanese games have global appeal. In many respects, their game consoles have become global standards. Perhaps we should explore ways to encourage Sega and Nintendo to license their architectures to Sony, Matsushita, NEC, Fujitsu, NTT and other electronics companies--much as Microsoft and Intel have created a common architecture for business computers. Many American software companies would be delighted to support such a platform. Again, the opportunity emerges to forge equity partnerships that make economic sense.
These are just preliminary discussion points--but it is clear that Japan’s new-media industries need to dramatically expand their strategic visions of the future. This is where tomorrow’s policy debates should start.
