Sony Still Bets on Gizmos, Not Mergers

In the New York/Hollywood media world, few executives are wittier or more charming than Howard--make that Sir Howard--Stringer, chairman of Sony Corp. of America.

Three years into his stewardship, the affable, Oxford-educated Welshman is leaning heavily on his legendary personal skills as he struggles to turn the Japanese electronics and entertainment company from a perennial straggler into a media giant.

Stringer’s power to make sweeping changes is limited by the corporate culture of the Toyko-based parent company.

A chronic window shopper in the ongoing merger frenzy that is fast-consolidating production and distribution, Sony increasingly has appeared to be a less and less important player. The recent three-way transatlantic hook-up of France’s Vivendi, pay TV giant Canal Plus and Seagram puts Sony that much further behind its Hollywood rivals--Time Warner, News Corp., Viacom and Disney--in distributing via cable, Internet and broadcast outlets.

Recently knighted by Queen Elizabeth II, Stringer says that growing through mergers and acquisitions is yesterday’s solution. From his Madison Avenue offices in New York, the 58-year-old executive oversees Sony’s U.S. entertainment and electronics assets, which throw off $19 billion a year in revenue.

By delivering its movies, TV shows, music and games over its own electronic devices directly to consumers, Stringer says Sony can bypass--even leapfrog--the conventional distribution channels and stay ahead of the digital curve.

Sony’s long-promised synergies between its gadgets and entertainment content are finally starting to click, he says, though realizing Sony Chairman and Chief Executive Nobuyuki Idei’s vision of the “networked home” is still years off.

“While everybody else has been merging, we’ve been busily building up our digital inter-relationships,” Stringer said in an interview this week at Sony’s Columbia Pictures studio in Culver City. “We are the only company in the world that by nature can have the most devices in your home.”

While many investors and analysts disagree, Stringer says that Sony, which held merger talks with parties including NBC and CBS, no longer needs a partner.

“Sony would probably have given up control of its content three years ago,” said Stringer. “But, it isn’t going to do that now because we keep thinking of new ways to deliver that content globally over all these different platforms.”

But analysts question whether Sony’s devices will be the ones that consumers gravitate to for ordering subscription services for movies, music, games and other entertainment. Sony’s first PlayStation video game console is in the hands of 76 million customers worldwide--more than the collective subscriber base of all of the nation’s cable operators. But new competitive devices--from cell phones to electronic personal organizers--are proliferating.

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The bumpy roll-out of Sony’s newly unveiled PlayStation2, plagued by chip shortages, has cast a pall over the company’s newest electronics superstar.

Stringer admits he stands on constantly shifting sands. Just a year ago, for instance, the fear was that Microsoft would migrate its operating system, dominant in the office, to the home. “That has sort of evaporated with the wind,” he says, along with the notion that consumer electronics would all be controlled by the home PC.

Stringer’s futuristic ambitions began to evolve well before Sony. After a 30-year career as a journalist, producer and top executive at CBS Inc., he resigned as president of the CBS Broadcast Group in 1995 to head a start-up of three Baby Bell telephone partners eager to enter interactive television. Ill-conceived and perhaps before its time, the venture died within a few years.

But Stringer was already a digital convert. Hired by Sony as the company’s key strategist in the U.S., Stringer hoped to push convergence forward.

Yet his hands may ultimately be tied because of Sony’s cultural passivity. In Japan, a consensus-seeking management style slows decision-making to a putter.

American executives at Sony also say the company is skittish about making any major acquisitions or investments that would jeopardize control over its content. Sony is not in the current round of discussions to buy DirecTV, the nation’s leading satellite TV provider, because of that issue.

That leaves Stringer to function largely as Sony’s interpreter and U.S. ambassador, hopping regularly from his Manhattan offices to corporate headquarters in Tokyo, as well as to Sony’s European and Hollywood operations. Married to a dermatologist with two children under the age of 8, Stringer spends only one week out of three in New York, where he lives on the Upper East Side and is an avid collector of first-edition books.

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Over the last two years, Stringer has been focused on integrating Sony’s hardware and software sides and building an infrastructure to support the digital convergence.

Now, Sony is developing a model to charge customers fees for downloading its entertainment content that can operate on its branded array of “digital platforms,” including its PlayStation 2 video game consoles, its palm-held personal organizers, PCs and advanced TV set-top boxes.

Stringer points to the more than three dozen small Internet start-ups that Sony’s New York-based music company has invested in to develop music streaming capabilities for future digital distribution.

Last year, he also struck a deal with cable operator Cablevision Systems to develop set-top boxes and digital services drawing on Sony content. Now being tested, they are expected to be on the market next year.

Stringer boasts that Sony’s “EverQuest” “is the most successful multiplayer online game in the world.” He says about 300,000 subscribers pay $10 a month to play against others on its Web site, The Station.

Sony recently licensed rights to George Lucas’ “Star Wars” to develop another interactive game based on the classic movie. The Station also provides an interactive outlet for other programming, including its popular TV game shows “Wheel of Fortune” and “Jeopardy.”

Sony is also working on a way to charge consumers for streaming movies over the Internet, something the company says is technically worked out, but “the business plan and the complication of how you do it are still being discussed,” he says.

Sony plans to launch its movie streaming service before next summer and predicts it will be well ahead of any other studio. Ultimately, he said, customers will be able to access these movies over any Sony device, including the PlayStation. He did not rule out aggregating movies of several studios under one Web site, but said “it’s easier said than done.”

Stringer believes that one of Sony’s advantages is its household name around the world. Now, it is trying to establish a global content base to match, making a more concerted effort than other studios to produce content indigenous to overseas markets such as India, Germany and Latin America.

Three years ago, Sony became managing partner of Telemundo, the nation’s second-largest Spanish-language broadcaster. Its undisclosed investment for 50% of the network and 25% of the seven TV stations has more than doubled in value.

Part of Stringer’s agenda also has been to strike more cooperation between Sony’s once disparate electronics and entertainment camps. “When I first came here three years ago, the companies were pretty separate,” recalls Stringer. “In the analogue age, they talked about synergy but there really wasn’t any.”

Stringer says his latest move to “streamline and contemporize all the companies” was at the heart of last week’s restructuring of Sony Pictures Entertainment, the parent company of Columbia Pictures and Columbia TriStar Television.

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The reorganization was a succession plan of sorts as Sony prepares for the forthcoming retirement of 70-year-old studio Chairman John Calley. It put control of the struggling movie division under president Mel Harris and gave added responsibility to various business executives.

“By making the changes, we’ve put a lot more younger, smarter people in positions who buy into the technological changes,” said Stringer.

Regardless, Stringer couldn’t help but acknowledge that the studio’s poor box office performance over the last two years prompted the shake-up, which forced out marketing chief Bob Levin and will bring more voices into the movie selection process that had fallen mainly to movie Chairwoman Amy Pascal.

“These changes don’t happen by accident,” said Stringer. “I would like to make the movie side more profitable. That’s a legitimate goal and Tokyo would probably applaud me . . . . The Japanese don’t call me up and say ‘do X or do Y,’ they say ‘Oh, my God, look at our market share.’ ” Sony is currently ranked seventh in market share with just 8%, behind all its competitors.

Now, Stringer says his priority is moving content onto the Internet. “We need to demonstrate that we understand the technology, the security issues, the billing issues so people can join us or follow us,” he says. “We’re not exclusive, we’re not trying to shut anybody out. But we want to be first to do it all.”

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Sony’s Strategy

Sony has fallen behind as a merger frenzy has given its studio rivals both the power to produce content and distribute it over an array of cable, Internet and broadcast outlets. But the Japanese entertainment and electronics giant plans to put its content directly onto consumer electronics, including those listed below:

PlayStation 1: Since September 1995, Sony has sold 76 million of these $99 game consoles for the home.

PlaysStation 2: The latest $299 version is compact and “broadband ready” and eventually will be able to link to the Internet and to download movies from Sony’s library or elsewhere.

Clie: Launched in September, this hand-held device will do for entertainment audio and visual what the Palm has done for the business executive.

The Memory Stick: The size of a stick of gum, this storage device makes digital downloads portable.

EverQuest: Consumers who buy the CD-ROM for this video game can play against others online at Sony’s The Station Web site for a monthly fee of $10.

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Stock Price

Sony’s shares have slumped with the global tech sector since spring. Monthly closes and latest: Thursday: $86.06, up $2.63

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Sources: Times research, Bloomberg New