Sony earmarks $200 million for broadband investments

The consumer electronics giant wants to reinvent itself as a "broadband entertainment company" and says it will fork over about $200 million to other companies to make it happen.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
LAS VEGAS--Sony wants to reinvent itself as a "broadband entertainment company" and says it will fork over about $200 million to other companies to make it happen.

The consumer electronics giant has established a $100 million investment fund in the United States and created a similar stockpile for the Japanese market. Both will invest in a variety of companies, Sony executives have said over the past few days, giving few specifics.

At the Comdex computer trade show here, executives said the company is gearing up for a networked world in which commonly used household devices offer speedy access to online news and information, entertainment, and goods and services. But the ability to deliver will depend on the existence of high-speed connections to the Internet.

Recognizing that the infrastructure still needs to be built, Sony has decided to give the process a push.

"We're going to invest in any technology that will accelerate 'broadband' use," Sony chief executive Nobuyuki Idei said Monday at a press conference after a keynote speech in which he outlined Sony's plans to become a leading company in the post-PC era. Broadband refers to technologies such as cable or digital subscriber lines (DSL) that send data across a network at much greater speeds than common dial-up connections.

Sony's investment funds won't be used to replicate the work of others such as MCI Worldcom or AT&T.

"We don't plan to build our own broadband infrastructure," said Kazuo "Kaz" Hirai, president of Sony Computer Entertainment America. "We're talking to cable companies and making sure the technology details work together."

Hirai talked during Idei's keynote about new capabilities of the highly anticipated Sony PlayStation 2, including the ability to download games to a machine, rather than having to buy them from a store. However, that would be a tedious download indeed at today's dial-up modem speeds. Sony is hoping to help establish infrastructure for cable and DSL modems that can reach a large concentration of households.

Sony has an obvious interest at stake in broadband investments. By investing in a faster Net, Sony is hoping to recoup the investment on its new PlayStation in a hurry.

Analysts say the chip that lies at the heart of the new system is complicated and expensive, with the cost to make PlayStation 2 estimated to come out at around $300. The retail price of the system could go higher, depending on how much Sony wants to subsidize the price.

The hardware isn't where Sony makes its money, though. Downloading software directly to the system would help boost profit margins on the most profitable part of the PlayStation business: game sales.

The stock market and venture capital firms have recently been favoring companies that are working on Internet infrastructure issues. Money flowing into the communications category during the third quarter of 1999 alone nearly tripled compared to the year-ago quarter to $2.6 billion, according to the most recent Money Tree Survey from consulting firm PricewaterhouseCoopers.

The size of Sony's planned investments isn't particularly significant in light of what others are spending. Microsoft invested $5 billion in AT&T in May, $200 million in broadband service provider Teligent earlier this month and $30 million in DSL provider Northpoint in April, just to name a few.

What the fund does signal is a shift in strategy on the part of Sony. In the past, big Japanese companies such as Sony have favored partnering over investing in companies--and usually when investments have taken place, it's to gain access to a specific technology, analysts have said.

News.com's Jim Davis reported from San Francisco and Michael Kanellos from Las Vegas.