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Doing too much

Our warning in 1992 that Sony was diversifying into too many markets

Sep 24th 2014

As we noted in this week's print edition, Sony's poor financial results show

that its businesses require more restructuring. Many of its problems come from

its over-diversification since the 1990s into areas such as smartphones (a

division which it recently wrote down in value by $1.7 billion), entertainment

and computers. Yet this was not the first time we said something along these

lines. Back in 1992, after a another set of disappointing results, we suggested

that Sony's diversification into tangential product lines, such as Mini Discs

and film-making, was damaging the firm's performance back then as well.

Sony: Double or quits

TOKYO

May 30th 1992

WHEN the chips are down, the gambler in Sony invariably comes to the fore. Even

by the standards of Japan s battered consumer-electronics industry, Sony has

just reported some horrendous results for the year to March 1992. Though its

sales worldwide were up by almost 6% to Yen 3.8 trillion ($28.5 billion), its

operating profit plunged 44% to Yen 166 billion. Archrival Matsushita, in

contrast, managed to contain the drop in its profits to 18%. Worse, Sony

suffered a humiliating Yen 18 billion operating loss in its final quarter as it

slashed prices ruthlessly to shift its mounting stocks of unsold goods. What

better time, then, for a high-roller like Sony to announce a spectacular new

gadget?

Sony s Mini Disc, long publicised but shown to the public for the first time

only on May 26th, is both an impressive feat of engineering and an enormous

gamble. It is to be marketed as a recordable version of today s compact discs

(CDs) and one that, like a tape cassette, does not skip beats when jolted in

the pocket or on the dashboard of a car. As such, Sony is out to position the

Mini Disc as a direct rival to the tape-based Digital Compact Cassette (DCC)

announced recently by Matsushita and Philips. But it is also trying to sell the

handy little Mini Disc machines as strictly for use on the move, while the

bulkier CD player remains at home. The thinking behind this strategy is to

stimulate new sales without killing demand for CDs and CD players; Sony is a

big supplier of both.

Some might praise Sony s ageing bosses, chairman Akio Morita, 71, and president

Norio Ohga, 62, for yet another bold stroke. Under their direction Sony has

sometimes thrived by taking the electronics industry, and consumers, by

surprise. But it has also spent a fortune in Hollywood which may take years to

earn a decent return, if it ever does. And the company s marketing strategy for

the Mini Disc looks worse than merely risky it looks nonsensical. Perhaps Sony

now needs somebody more prudent, or more calculating, at the top, though no

successor to either Mr Morita or Mr Ohga is anywhere in sight.

Consumers are already dazed by the proliferation of new formats and products

offered by the electronics industry. Sony s plans for the Mini Disc threaten to

so bewilder customers that they could stop spending money on such gadgets

entirely.

To ensure the success of the new format, the company believes that it must make

plenty of prerecorded music titles available quickly. Some 500 Mini Disc albums

mostly pop music and jazz are scheduled to go on sale on November 1st in

Japan, when the new machines reach the stores. Yet flooding the market with

prerecorded discs will only reinforce the Mini Disc s image as strictly a

playback medium in short, a direct replacement for the CD.

The same is true for Sony s emphasis on the Mini Disc s portability. The

machines that Sony, and 21 other manufacturers which have licensed the

technology from it, will offer initially will be Walkman-like players, car

stereos and portable boom-boxes . Unfortunately, the market for portable hi-fi

has proved to be almost exclusively for playback-only equipment. Most consumers

make their recordings at home.

If Sony produces a Mini Disc machine for the home, where its recording

facilities are more likely to be used, the company will be asking consumers to

scrap their new and pricey CD players along with their collections of CDs. Many

consumers will not be amused. Most could find the DCC format offered by

Matsushita and Philips both easier to understand and a better buy. DCC machines

will play conventional tapes, though not with the same pristine sound they will

produce when new digital tapes are used. DCC machines will be marketed simply

as a better type of cassette player, and will not require consumers to junk any

of their existing music collections or abandon their new CD players.

One reason Sony is pushing its Mini Discs so hard may be that the company badly

needs a new money-spinner. Its current problems have less to do with the

world-wide slump, stiffer competition, the strengthening yen and the prolonged

depression in Toyko s stockmarket (all cited by the company s managers) than

with its own over-reliance on the slow-growing market for video equipment and

its forays beyond consumer electronics.

Sony s music business, which it bought for $2 billion in 1988 from CBS,

suffered a 7% decline in sales last year. Sony's movie business, acquired when

it bought Columbia Pictures for $3.4 billion in 1989, is probably still failing

to cover the cash lavished on it. Movie revenues did grow by 2.8% last year,

thanks to box-office hits Terminator 2 and Hook . But the movie industry is

notoriously fickle. This year, or next, Sony, like any movie studio, could have

more flops than hits. For the longer term, Sony s rationale for buying CBS

records and Columbia was to reap gains from the snergy between entertainment

software (records or movies) and electronic hardware. No such gains are yet

visible.