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2014-09-25 13:08:21
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.