Sony Ousts Head of U.S. Operations

Sony Corp., moving to reassert control over its languishing U.S. entertainment and electronics operations, on Tuesday ousted Michael P. Schulhof as its top official here and gave its two senior Japanese executives a firm grip over the businesses.

The departure of the architect of Sony’s $8-billion venture into entertainment represents what many analysts believe is a long overdue admission that Sony’s U.S. assets--which include Sony Music, Columbia Pictures and TriStar Pictures--have been badly managed under his tenure. A year ago, Sony disclosed a staggering $3.2-billion loss on its movie operations after suffering through such expensive box office bombs as “Last Action Hero” and “I’ll Do Anything” and a major studio spending spree.

Although Schulhof’s ouster as chief executive of Sony Corp. of America was officially termed a resignation “to pursue new business interests in the new technologies and entertainment arena,” sources said it came after repeated clashes with Nobuyuki Idei, Sony’s newly installed president and heir apparent to Chairman Norio Ohga.

Schulhof’s departure marks a milestone in U.S.-Japanese business relations. Unlike many U.S. managers who have clashed culturally with Japanese bosses, Schulhof thrived at Sony, earning the trust over his 21-year company career of legendary Sony founder Akio Morita and his then-chief lieutenant, Ohga.

Schulhof was the first American to break into the inner sanctum of a top-level Japanese company when he was named a Sony director in 1989. A physicist by training who piloted the Sony jet personally, Schulhof was eventually given charge of operations ranging from selling the Sony Walkman and Mariah Carey albums to distributing the movie “Money Train” and hit TV shows such as “Seinfeld.”

Ultimately, Schulhof failed to achieve much in the way of “synergy” among Sony’s entertainment and consumer electronics businesses--the justification for Sony spending about $8 billion since 1988 on movies and music.

Schulhof’s move caps what has been an unprecedented year in the entertainment industry for mergers and high-level hirings and firings. Some analysts saw Schulhof’s leaving as a precursor of yet another big deal: the sale of all or part of the studio. But Sony sources deny that. And Idei has publicly stated Sony’s support of its entertainment businesses.

Nonetheless, Idei, since being elevated last spring to his post at the Tokyo electronics giant, has been closely scrutinizing Sony’s operations.

That includes Sony’s $8-billion electronics division in the United States. Despite having the largest consumer electronics market share in the United States, Sony’s unit has had its share of problems, including poor consumer acceptance of its “mini-disc” music player and soft sales of its digital broadcast satellites. This summer, Sony failed to win enough support among Hollywood studios and U.S. computer firms for its digital video disc format, instead agreeing to a compromise with rival companies. And its profitable music group saw its market share slip into third place behind rival PolyGram.

Schulhof was especially tarnished by spending about $500 million in 1989 to hire producers Jon Peters and Peter Guber to run the studio, which resulted in a free-spending era that cost Sony dearly. Sony executives in Japan were said to be irked that Schulhof gave Guber a rich production deal when Guber left in 1994.

Schulhof clung to his job over the past two years amid scathing criticism. But in an interview, Schulhof said the cause of his leaving was a difference in management style.

“This is not about performance,” Schulhof said. “Mr. Idei and Mr. Ohga’s styles were very different . . . it became cumbersome for me dealing with two different management styles.”

Idei on Tuesday was named to oversee Sony’s U.S. electronics business, while Ohga was named chairman of both Sony Pictures and Sony Music. No successor for Schulhof was named.

Schulhof’s departure throws into question the future of a number of top Sony entertainment executives, including Executive Vice President and former CBS executive Jeffrey Sagansky, Sony Pictures President Alan Levine and Columbia/TriStar studio chief Mark Canton. Sources said that Sony’s entertainment operations may eventually report directly to Idei, and that Sony would eliminate the middleman function that Schulhof served.

Ironically, Schulhof issued a memo in March that gleefully announced Idei’s appointment, which he and other U.S. executives welcomed because Idei was considered more friendly to entertainment than Sony hard-liners who would like the company to divest the businesses.

Sony patriarch Morita, who supported the move into entertainment, has been inactive in the company since the early 1990s and suffered a disabling stroke two years ago.

Schulhof and Idei (pronounced Eh-day) clashed over a number of business issues. Schulhof also chafed under Idei’s more formal style, which includes doing business in writing. Previously, Schulhof communicated with Morita and Ohga in twice-a-day phone calls.

The breaking point apparently came Monday night after Idei decided to strip the New York-based Schulhof of oversight of Sony’s consumer electronics businesses.

The resignation came as Sony executives were gathered in New York for regularly scheduled board meetings of its U.S. group this week. In a memo to Sony employees, Ohga said it “is with sadness” that he was telling them that Schulhof was leaving.

Speculation was rife that Schulhof’s leaving was tied to Sony’s desire to sell part of its entertainment business to the public. Observers said investors might have been wary of investing in a company led by Schulhof, who had overseen big losses. But sources close to Schulhof and Sony denied that the potential public offering played a major role.

They also denied that Schulhof’s departure is a precursor to an outright sale. That speculation increased this spring when Sony’s Japanese rival Matsushita Electric Industrial sold 80% of MCA Inc. to Seagram Co. for $5.7 billion.

Hollywood was abuzz with names of potential Schulhof successors, including recently fired Time Warner music chief Michael Fuchs. But most discount that scenario, noting that Fuchs’ abrasive management style would not mesh with Sony’s.

Schulhof, who turned 53 last week, has a Ph.D in physics from Brandeis University.

Not a charismatic personality, Schulhof, known as Mickey, moved somewhat uneasily from being an electronics whiz to becoming an entertainment mogul when Sony bought CBS Records in 1988 for $2 billion and Columbia Pictures in the late 1980s for $3.4 billion.

In a Vanity Fair article earlier this year titled “The Lost Tycoon,” Schulhof said he isn’t a “social animal” and described himself as “private and introspective.” Still, he was a regular at the Hamptons social scene on Long Island and hosted one of this past summer’s biggest parties there.

Asked about his accountability for the huge loss in Sony’s movie business last year, Schulhof said all decisions were made jointly with Tokyo. “Ohga’s style and Morita’s style was that we all shared responsibility at the company. So I take as much responsibility as Sony takes,” Schulhof said.

Sony’s movie operation has returned to profitability this year, with hits such as “Legends of the Fall,” “Little Women” and “Bad Boys,” despite box office disappointments such as “First Knight.”

Wall Street analyst Harold Vogel, of Cowen & Co., said Schulhof “was never part of the Hollywood crowd and had difficulty incorporating it into his business strategy. It was a forced takeover, much like Matsushita and MCA. He was plunged into it, and it didn’t grow organically.

“The problem with all this is you can’t force hardware companies into the software business. It doesn’t auger well for the big mergers this year.”

Times staff writers Amy Harmon and Chuck Philips contributed to this story.

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