Will Sony's digital dream come true?

As Sony turns 50, the electronics giant looks toward the convergence of television and the personal computer for its future.

Mike Yamamoto Staff Writer, CNET News.com

Mike Yamamoto is an executive editor for CNET News.com.

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Mike Yamamoto

May 4, 1996 7:00 a.m. PT

5 min read

Nobuyuki Idei is the president of one of the world's most powerful corporations, but on this particular day he sounded more like a grandfather reminiscing about his youth at the family dinner table.

"In those good old days, Sony made electronics equipment, three national networks ruled the airwaves, computers referred to IBM mainframes, and phone companies minded their own business," Idei said in a speech seven months after taking the helm of the Japanese multinational. These days, he added, "it seems that everyone is jumping into everyone else's business, and the old rules are broken."

At the age of 50, Sony is having a midlife crisis. Once dominant in all things electronic, the conglomerate is now facing the "maturation" of the home entertainment industry, where widely available technology and low-cost labor have led to rising competition and smaller profits. As a result, Sony is staking much of its future on personal computing, a relatively unknown territory where companies that survive more than a year are often considered hardened veterans.

The company made its first public move in this direction six months ago by announcing a major partnership with Intel to develop its own brand-name computers for release this fall. While Sony has offered few details, the new product is expected to be something along the lines of Oracle's much-touted Network Computer, a relatively "dumb" machine limited to Internet and basic word-processing functions designed to retail for around $500.

In March, Sony announced that it will develop an operating system that would support such a network PC, a bold move that could eventually put the company in direct competition with such software heavyweights as Microsoft and Sun Microsystems, as well as Oracle.

This is hardly business as usual. Those inside the company and out say its strategy is ultimately based on the eventual merging of the television set and the personal computer--a convergence that digital soothsayers predict will be felt with Loma Prieta-like magnitude from Hollywood to Wall Street. If it ever happens, that is.

"They're at a crossroads. The brand name of Sony doesn't mean anything in the PC market," said Kimball Brown, analyst with the Dataquest research group. "On one hand, they have to get in; on the other, I'm not convinced they can."

That seems to be the consensus among many analysts and executives, who say that Sony has at best an uphill task in trying to establish itself as a major player in computers. But few are willing to write off the company, which has led a mostly charmed life--and its timing may prove right again as recent projections of stagnant PC sales turn out to be exaggerated. Moreover, as the industry shifts its focus from the Internet to corporate intranets, the leading vendors could be leaving some room for others in the home consumer market.

On the hardware side, Sony may be well positioned to compete because of its long experience with television boxes. A primary obstacle to the convergence of PCs and TVs is the illegibility of computer text on a standard screen from sofa-viewing distances, something Sony might be able to fix.

"They have to leverage the television side of things. Who needs another standard 14- or 15-inch monitor?" Dataquest's Brown asked. "You have to contribute where you have the most advantage: 25- to 55-inch TVs, things you can actually see."

Beyond the technology, the electronics giant has one weapon in the consumer battle that perhaps even Bill Gates envies: the Sony label. According to a recent Louis Harris poll, Sony is the most respected and recognizable brand name in the United States, surpassing General Motors, Coca-Cola, and AT&T.

And, as some would say, image is everything. "They're in a good position to go out and make a statement with their reputation and brand ID," said Tim Bajarin, president of Creative Strategies Research International in Santa Clara, California.

What everyone is wondering, however, is what that statement will be. "The question becomes what are the digital devices that they can come up with," Bajarin added. "Set-top boxes, Net computers, desktop computers...What will bring the digital future into the home?"

Sony expresses confidence that it can add the PC to its long string of consumer successes. This is, after all, the company that gave us the Walkman.

But it is also, others note, the company that gave us Betamax--and refused to abandon the hapless video recorder even as it was being ridiculed as the electronic equivalent of the Edsel.

Such stubbornness--to the point of arrogance, some would say--was also seen during the early years of Sony's foray into the movie business, a controversial attempt to lock up the home entertainment market from studio to store shelf that unwittingly helped U.S. companies regain the upper hand in technology.

The acquisition of CBS Records in 1988 and Columbia and TriStar studios the following year soon became an albatross for Sony, which spent much energy and capital trying to meld the volatile elements of entertainment with the traditional sensibilities of a Japanese corporation, a relationship that many characterized as a match made in hell.

Profits began to fall accordingly, dropping 70 percent in 1993 and another 60 percent in 1994. In a widely publicized report, Sony wrote off $3.2 billion in losses attributed to its movie operation.

Since then, however, Sony has started getting things under control, and its numbers were back in the black by the end of last year. The turnaround has been attributed in no small part to Idei himself, who has reorganized the company and taken back control over many of its U.S. ventures.

Now, Idei is turning his attention to the future. If he's decided what kinds of products that future will yield, the Sony president hasn't announced them; he has, though, come up with another one of those curiously awkward Japanese marketing phrases to convey his mission: the "Digital Dream Kids."

"It reflects the happy image of our future customers," he said. "I want Sony to be the kind of company which lets these future customers achieve their dreams through our products and services. I want Sony's engineers to become the Digital Dream Kids, and I myself want to be a Digital Dream Kid."

Yet if these digital kids dream of the TV and the PC becoming a single possession as ubiquitous as the Walkman, it may be some time before it's safe for them to wake up.

"TV takes the role of the fireplace in living rooms, and the PC takes the role of an appliance device," said Vic Wheatman, an analyst with the Gartner Group. "While it would be useful for the two to come together, it will be a while before it happens."