Sony revamps to promote Net entertainment strategy

Company executives announce a corporate restructuring and new deals to bring more online services to Japanese consumers as part of an ongoing attempt to metamorphose into an "Internet" company.

4 min read
Sony executives in Japan have announced a corporate restructuring and new deals to bring more online services to Japanese consumers as part of an ongoing attempt to metamorphose into an "Internet" company.

At a briefing in Japan, Sony CEO Nobuyuki Idei outlined the company's vision for the coming year. Part of the effort to remake the company into an entertainment company will include a restructuring of its U.S. entertainment assets.

Sony said it will group three of its U.S. media units under a new company called Sony Broadband Entertainment to be formed in July. The company will oversee the operations of Sony Pictures Entertainment, Sony Music Entertainment and Sony Online Entertainment.

The expected move follows a restructuring of Sony Electronics of America announced earlier this month. The reasoning, Sony says, is that it hopes to move more quickly to capture new markets resulting from its transformation to a "broadband entertainment company."

The changes are intended to help Sony expand its offerings of digital content that can be piped into customer's homes through high-speed Internet connections to Sony hardware.

The company has gathered its online gaming, music and motion pictures sites under one umbrella to position itself as a consumer electronics company closely tied to the Internet.

"In the upcoming era, the significance of content will increase further in areas such as financial services and auction services," Sony's Idei said at a news conference. "From now on, Sony will be a personal solution company to make individual lives better."

To accomplish Idei's goals, Sony's new unit may partner with other companies in the distribution of digital content through broadband service providers, executives said.

Part and parcel with Sony's transformation, the company said it would set up an online bank with Sakura Bank and J.P. Morgan. Sony said it sees the new bank becoming profitable within three years and will at first target Sony Internet subscribers. The company already has offline ventures in life insurance and mutual fund sales.

Sony's shares in Japan rose 5.6 percent to 14,500 yen ($138.08), capping a 10.5 percent gain for the last two days, as investors looked favorably on the company's plans to establish an online bank, according to Bloomberg News.

Sony's Internet vision hinges in part on the PlayStation2, a video game console Sony will eventually fit with a hard disk drive, high-speed modem and keyboard. With the hardware available in Japan, the company already is looking to find ways to adapt content from its music and motion pictures groups for viewing on the PlayStation and other machines.

Sony has approached Silicon Valley companies, seeking technology to enhance content viewing over broadband networks such as specialized Web browsers and content production tools, according to those familiar with the company's plans.

Sony also hopes to offer its content on handheld devices that go beyond the organizer functions associated with today's Palm gadgets. New handheld devices in development will have audio-visual capabilities and will be geared for wireless communications, Sony said.

Analysts see these devices as another outlet for e-commerce services, such as stock trading and movie ticket purchases, which would add to revenues from wireless access services and advertising.

The company will sell 3 million cable set-top boxes to Cablevision Systems of New York and will introduce its PlayStation2 game console in the United States next year, both of which could enable the kinds of e-commerce services Sony is offering in Japan.

Sony also offered investors good news in the form of forecasts for shipments of the PlayStation2, a key driver of the company's profits. Executives said shipments of the device will hit 1.4 million units by March 31 and 4 million next year in Japan. The game console was released March 4.

In the United States and Europe, where the console will go on sale later this year, Sony said it expects to ship 6 million units in the 12 months ending March 2001.

On a less positive note, the company did say it had to start a voluntary program to exchange software shipped with 1.2 million units that enables the system to play DVD-based movies because of a glitch that lets the system play movies sold in other countries.

A representative for Sony Computer Entertainment, the company's U.S. PlayStation arm, stressed that the program was voluntary and not a product recall. She also said she was not aware of any lawsuits filed against the company by movie studios.

Sony rose $14.25 today on the New York Stock Exchange, or about 5.5 percent, to $269.69. The shares have risen more than threefold in the past year, "(driven) by the PlayStation and the Internet," said Jeffrey Pittsburgh, principal of Pittsburgh Securities.

"Although Sony's chairman put a value on the company of $200 a share when the stock was running up two months ago, I have a 12-month target of $400," he said in a previous interview.

Others are more circumspect in their evaluation of Sony's potential.

"It's nonsense to buy Sony as an Internet-oriented company unless the company generates profits of several hundred billion yen out of this business," Hideki Watanabe, an analyst at HSBC Securities Japan, told Bloomberg News. Watanabe today cut his rating on Sony to "reduce" from "hold."