Sony Recharges Its Batteries With an Internet Strategy
Sony Corp. made news last week with the U.S. launch of its visionary PlayStation2 product in Los Angeles and the naming of a new president in Tokyo, whose appointment signals that the company will continue internal reforms to prepare itself for a future dominated by the Internet.
In Japan, Sony is regarded once again as a model, leading its country’s industries into a new age of technology and international opportunity. It has put defeat behind it.
Everyone recalls Sony’s dramatic history. It’s the company whose legendary co-founder, the late Akio Morita, came to America in the 1950s to learn its ways and to spread the name of his fledgling transistor radio company.
Sony became a world leader in consumer electronics, known for the Walkman, the camcorder, Trinitron television sets and many other products.
Alas, it also became known for disastrous investments in the movie business. Under the illusion that linking entertainment software with its hardware was a simple matter, Sony purchased Columbia Pictures and other studios in 1989 and promptly lost its shirt and became an object of ridicule.
For most of the 1990s, Sony profit fluctuated and the company’s stock price remained flat--until the last year when the price, for its U.S. listing on the New York Stock Exchange, rose to more than $300 a share. The stock has since fallen to $219 a share--and it will be split two-for-one this week.
The stock has risen on investor enthusiasm for the vision of Noboyuki Idei, Sony’s chief executive since 1995, who sees the PlayStation2 as an all-purpose gateway to the Internet of the future.
PlayStation2, introduced to the U.S. market at the Electronic Entertainment Expo in Los Angeles, is a game machine that can be connected to the Internet. It can play digital videodiscs, or download movies and music videos. Powered by an advanced Toshiba processor, the machine has so much capability that it can be adapted to guide a ballistic missile--and caused concern in the Japanese government about letting it out of the country.
But the product’s real promise and the gist of Idei’s vision is that PlayStation2, when homes have broadband Internet capabilities, will eliminate distance and allow people to enjoy interactive family celebrations across continents and oceans--with the aid of Sony camcorders, PlayStations and the Internet.
That’s the not-too-distant future. Meanwhile, PlayStation2 can produce extraordinary graphics for interactive games.
Games are a serious business--an estimated $7-billion industry worldwide that is growing 25% a year. It’s a business of young people from every corner of the Earth, devising new ways to adapt computer and Internet technology to graphic storytelling, as movie pioneers did a century ago in storefront theaters.
That Sony--a big company with $63 billion in annual sales and 175,000 employees--is in touch with the youth movement of the games industry is a tale that holds lessons for business everywhere--and insights into the prospects for global entertainment and markets in the coming decade.
Idei, 62, stepped up to chairman last week so he could pursue long-range reform of Sony and named Kunitake Ando, 58, as president, putting him in charge of day-to-day operations.
Idei wants to make Sony a holding company, with some operational divisions spun off as separate entities. Among the options under consideration is combining Sony Music and Sony Pictures, which together contribute $11 billion or 17% of Sony’s annual revenues, in a separate company.
Such moves by a U.S. company would raise no eyebrows, but in the traditional corporate cultures of Sony and Japan they are revolutionary.
But Sony has already moved beyond its old ways. Five years ago, it was going to rely on Nintendo to supply games for the original PlayStation game machine. But Nintendo turned Sony down because of technical differences.
So Sony reached out to independent game developers, courting and financing them and securing their output for PlayStation. As a result Sony leads the field in Japan--and will have a head start on Microsoft and others in world markets with the advanced machines.
“Sony will have 30 million PlayStations in world markets by the fall of 2001, when Microsoft’s X-box comes to market,” notes analyst Mitsunobu Tsuruo of Nomura Securities in Tokyo.
But if Sony is respected in Japan, it arouses less enthusiasm so far among U.S. institutional investors. One major money manager, who asks to speak anonymously, doubts Sony’s ability to gain a place on home Internet services because it has no alliances with U.S. cable or television networks to ensure distribution for its entertainment products.
Where other companies are combining, its critics say, Sony remains an inward looking Japanese company.
The critics have a point. As mergers create entertainment powerhouses, Sony would seem to need alliances. Sony has held talks with other music companies--Bertelsmann and Seagram--but no ventures have resulted. Talks with NBC and its parent company, General Electric, have likewise come to naught.
That could change as Ando becomes more prominent in company affairs. “Ando, who was once personal assistant to Morita, is even more at ease internationally than either Morita or Idei,” says John Nathan, author of “Sony: The Private Life,” a 1999 book about the personalities that built the company.
Sony is making a technological alliance with Palmtop Computing to bring a hand-held Sony computer to market this summer.
What U.S. critics may miss is that Sony’s perspective is different. It sees the Internet as a wireless communications medium--and PlayStation2 as a device primarily for wireless Internet transmission.
Japan, which has lagged most major technology trends of the 1990s, is catching up fast in wireless. It is now second to the Scandinavian countries in use of cellular telephones, and it is first in use of wireless phones for Internet connections,
Furthermore, Sony is looking to wider world markets than just the United States. It is definitely looking to its own backyard in Asia, where by the end of this decade “two thirds of all the world’s people aged 15 to 40 will reside--the prime ages for consumer markets,” notes Kenneth Courtis, the Tokyo-based vice chairman of Goldman Sachs Asia.
Already Tokyo is a powerful influence on the pop culture of that region: Much of the pop music that Chinese youngsters listen to originates in Tokyo; youth magazines in Asia originate in Tokyo. That’s not generally recognized by U.S. experts. But then they may be looking inward too much in a changing world.
*
James Flanigan can be reached at jim.flanigan@latimes.com.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Sony’s World
Sony gets roughly equal revenues from the United States and Japan, plus a sizable chunk from Europe. Sony’s revenue split:
*
Japan: 32%
U.S. 30%
Europe: 22%
Other areas: 16%
*
Source: Company reports
Entertaining Choices
Sony, which has just launched its PlayStation2 game machine, likes to point out that consumers worldwide are spending nearly as much on video games as they do at movie theaters. Still, total film revenues--including video rentals and sales--remain far higher than those of games. Consumer spending, in billions of dollars, in 1999:
*
Music: $14.0
Home video rentals: 9.8
Home video sales: 8.8
Movie box office: 7.5
Video and computer games: 6.9
*
Sources: Recording Industry Assn. of America, NPD Group, Video Store magazine
