Sony's Diffuse Strategy

I have always been a fan of Sony, buying their electronic products and appreciating their quality---as well as appreciating the amazing story of the company---how it arose from the ashes of post-World War II Japan, starting with little more than a few educated, ingenious workers.

So the long, slow decline of the company has been painful for me to watch. It started for me when I bought a Sony device---either a very small entertainment system or a very large boom box depending on how you look at it---that turned out to be crap. Since then, I have followed their stumbling course on the pages of the Wall Street Journal. Their decline has multiple causes. The arrogant dismissal of LCD and plasma TVs because the Trinitron has a better picture. (The Trinitron still has a better picture, but finally, Sony has acknowledged that it doesn't matter, they were wrong, and they are scrambling to try to catch up in LCD TV production. They have teamed up with Samsung to build an expensive new factory---probably just at the point when the best profits from LCD TVs are gone and they are turning into a commodity. Ironically, plasma and LCD TV picture quality is not equal to CRT picture quality, but people want giant screens and a giant CRT screen would have a box behind it that filled up your whole living room. This is because CRT pictures are made by shooting all the electrons out of a "gun"---a single point origin, and the box must encompass this cone, which requires a certain depth per amount of screen area.)

But for me, the central mistake of Sony is their purchase of, and continued ownership of---Time Warner. I think Time may now be sold, which would make it just Warner. In addition, I'll confess I don't know all the details of Sony's ownership of media companies.

What I object to is the basic idea of Sony owning media companies. It stems from them not knowing who they are anymore. They are the tinkerers, they are the builders of great electronic gizmos. This is their business and an attempt to add movies to this is bound to fail. The purchase came about, some of you will recall, in the go-go 90s. There was a theory at that time that hardware didn't matter anymore---only software. When applied to consumer electronics, that meant all the stuff Sony made didn't matter, so Sony went out and bought Warner Brothers said they could own the "content"---which 90's gurus assured everyone was the only source of future profit.

I remember reading at that time (can't specify the year, sorry, but obviously more toward the beginning of the 90s and the end of the 90s) that Cisco was irrelevant company because they only supplied the physical means for the Internet and that didn't matter---only for software and the "content". I remember when I read that I thought, "that's wrong," but I didn't take the next logical leap to realize "Cisco stock must thereby be undervalued and I should buy it." Had I taken that next logical leap, I would now be an extremely wealthy man---had I had any money to buy the stock in the first place.

So Sony went out and bought Warner Brothers, like a million other similar dumb moves in the 90s. But all that BS has been discredited for a long time now, so why hasn't Sony sold Warner Bros. long ago?

These various threads came together in the train wreck of the release of PlayStation 3. They still make the best video games I told myself, the true believer clinging to his faith. I noted the PlayStation 2---which was how many years old?---was still outselling the relatively new Xbox 360 on a month-to-month basis. Okay, that is just competing against Microsoft---not a real company. Everything they make outside of their desktop software fails, from their mobile phone operating systems, to the software they built for one of the Baby Bells to help the deliver TV, etc. They are in fact a utility, not accompany---they cannot compete.

But still, PlayStation has been a great product, everyone agrees. Not that I play video games.

So what did Sony do? They put a Blu-Ray DVD player into each PlayStation 3. This ended up delaying the release of PlayStation 3 quite a while---maybe a year---because they had trouble moving into mass production of the new Blu-Ray technology. The delay gave Nintendo the chance to come up with their innovative new Wii and released at the same time as PlayStation 3. Another case perhaps of Sony, the former king of innovation, being out-innovated. The Blu- Ray story itself looks like a Sony replay. Sony came up with the best videotape machine technology, I think it was called BetaMax. But the other technology ended it up winning and becoming the standard somehow. I have a feeling the same thing will happen with high-definition DVDs players.

But the real key to this whole screw-up is the linkage to Time Warner. That is why the Blu-Ray had to be in the PlayStation 3. Because controlling the dominant DVD player technology, will help boost their distribution of movies---or so they imagine. So they tie the whole company into one long string---and it's sink or swim for everyone at the same time. Except that such an unwieldy strategy almost guarantees the sink outcome---with a delayed, expensive, unprofitable PS3.

It reminds me of Wal-Mart's current floundering---once again stemming from not knowing who you are. Wal-Mart has been having trouble expanding in recent years. This has come about because they are one of the most successful companies in the history of the world and they have almost completely filled up their niche---which is selling retail commodities of every imaginable type at the lowest possible price in America outside the major cities.

Having achieved this singular success, all they had to do was maintain what they had. Shareholders of stock could have been rewarded with dividends---eliminating the need for constant expansion. Instead, Wal-Mart has embarked on two major strategies---international expansion and becoming the next Target. International expansion has failed because there are quintessentially an American company. Becoming the next Target has failed as well. Why is this? Run the historical tape. Target came onto the scene after Wal-Mart was already there (as I understand it). They knew they could never out Wal-Mart Wal-Mart. So, they created their own similar, but somewhat different specialty. It is called Target. They do it extremely well, and like most specialties, it is not easily learned. Target happens to make somewhat more money per square foot because they sell slightly higher-end items. So some accountant at Wal-Mart decided if they just do what Target does, they will boost Wal-Mart's income by X. amount. How sad.

Watching the once great elephant flounder.