With Howard Stringer's appointment as CEO, what
is Sony’s new game plan?
Sony is transforming itself from a
hardware maker to a software purveyor.
Sony’s fabled success story began half a century
ago, in 1946, in a bombed-out basement in Tokyo. Although
Akio Morita and Masaru Ibuka started the company (originally
named Tokyo Tsushin) with the intention of manufacturing
necessities, such as rice cookers and space heaters,
for the war-ravaged population of Japan, they quickly
found an export market in America for tape recorders.
Sony, as the company was renamed in 1955, went on to
introduce a string of remarkably inventive entertainment
products--including the Trinitron color television,
the Betamax VCR, the Walkman, and the CD (on which the
company still collects royalties)--and became the world’s
leading maker of branded consumer electronics. Although
over the years it bought a few content companies–-notably,
CBS Records, Columbia TriStar studio, and MGM–-as
late as 2004 it was still depending on manufacturing
for over 70 percent of its revenue.
The revenues from manufacturing, however, no longer
produced profits for Sony.
was, in a word, China. In the new millennium, Chinese
manufacturers have clearly demonstrated that they can
make the same consumer electronics, often using the
same computer chips, and sell them at much lower prices
in America and in Sony’s other main export markets.
In 2004, for example, Chinese-made DVDs were selling
to Wal-Mart and other retailers for $30 apiece--less
than half of Sony’s wholesale price. As a result,
the profit margin on DVD players fell to nearly zero.
By the first quarter of 2005, profits from most of Sony’s
consumer electronic products were in free fall. Even
though Sony was selling more TV sets than ever, profits
from these sales had plummeted a staggering 75%. Consumer
electronics had turned into a commoditized rat race.
To survive, Sony had no choice but to reinvent itself.
Sony's 2004 “new business model”aimed at
taking advantage of “the network era”--an
era in which a large portion of consumers in America,
Japan, and Europe are expected to have broadband connections
to the Internet. In a nutshell, the strategy is to use
Sony’s hardware as a means to promote, protect,
and boost the value of Sony’s games, movies, music,
and other proprietary software, all of which are anticipated
to be the engine of Sony’s future profits. Indeed,
this was clearly the direction the company was headed
even before the new business model was christened: in
fiscal 2004, while its electronics division was losing
money, Sony’s game division, although only a fraction
of revenues, was highly profitable. Indeed, it accounted
for over half of the company’s operating earnings,
with the DVDs in its Picture Division providing a large
share of the rest.
pillars of Sony’s new game plan are the Playstation
3 and the Blu-Ray laser DVD player. The Playstation
3 may sound like a child’s toy but is in fact
an incredibly powerful computer. At its heart
is a newly developed "Cell" chip, with more
teraflops of processing power than IBM’s famous
Deep Blue supercomputer has, can simultaneously support
nine different operating systems for home entertainment
and consumer electronics. It can thus function as a
“home server,” supplying television sets,
personal music players, and other consoles in the home
with entertainment content. Aside from playing DVDs,
videos-on-demand, games, and music, the new Playstation
can also instantaneously navigate the Internet to access
the Sony and other websites and download everything
from high-definition movies to action games (while billing
consumers’ credit cards for their use). In doing
so, it offers Sony a portal, if not a Trojan horse,
into consumers’ homes.
laser player, already out in Japan, increases by an
order of magnitude the amount of data that can be stored
on a disc, thanks to having a much smaller beam spot
than is found on conventional DVD players. This laser
allows it to play completely re-engineeered discs, which
though they are the size of conventional DVDs can store
20 times what a conventional DVD can store. Sony achieves
this incredible storage capability on Blu-ray discs
by using a top layer that is so hair-thin– 1/10th
of a millimeter– that the blue laser can “see”
eight layers deep. The real advantage of this layering
for Sony is that now not only will it be able to reissue
its movies in high-definition format and repackage entire
series of movies–-such as the 20 James Bond films–-on
a single DVD, but it will also be able to make some
of the layers recordable. This means that any additional
movie-related content that Sony wants to market on its
website can be downloaded and recorded directly on to
the movie’s DVD. As Sony envisions the near future,
movies on DVDs will be gateways to further consumption.
After buying the high-definition version of Spider-man
on Blu-ray, for example, a consumer might choose to
buy a Spider-man game and add it to the same DVD.
these two pillars, Sony hopes to reemerge as a new giant
on the entertainment scene: a cyberspace-based jukebox
of games, movies, and other entertainments--all available
at the click of a remote control.