May 5, 2004 1:28 PM PDT

Apple, Sony on a collision course?

Sony's foray into music downloads this week unleashes the most potent rival yet to Apple Computer's iTunes Music Store, setting the stage for a high-stakes battle between two technology titans known for stylish innovation.

And if you squint just a little, Apple and Sony seem to look more alike by the day.

It's not just that both are using pop singer Sheryl Crow to tout their digital music services. Both companies are increasingly positioning their products as the centerpiece of "digital homes," envisioning a time when digital media flows easily across home networks between computers, televisions, MP3 players and other devices.

News.context

What's new:
Sony's latest foray into the digital music retail business unleashes the most potent competitor yet against Apple's iTunes Music Store.

Bottom line:
The two technology titans are coming at the vision from different angles, but the launch of Sony's Connect song store may well presage a high-stakes battle between them over control of the digital home.

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Sony and Apple are coming at the vision from different angles, and there is little chance that anyone will ever mistake them. But Tuesday's launch of Sony's Connect song store may well presage a deepening conflict between the two companies in coming years.

"We're talking about companies that are vying for similar things but coming about it in different ways," Jupiter Research analyst Michael Gartenberg said. "With Apple, the core tech is the Macintosh. Sony has a lot of irons in the fire."

Each company is looking closely at a long-predicted future, when digital "convergence" potentially allows traditionally separate hardware and software markets to merge into a single device that can surf the Net, play movies, music and video games, and serve as the brain of a network that distributes that content to subsidiary devices around a home.

The signs that this convergence is taking root are growing daily, driven by fast-rising adoption rates for broadband Internet services, home networking advances, and growing use of digital media such as video games and online music.

"Certainly, with Sony, Apple and Microsoft, the traditional definition of what these companies are is changing," said Dominic Ainscough, an analyst at The Yankee Group. "They are going more head-to-head from a product perspective."

Sony's rise and loss of control
The Connect store and associated electronics are part of Sony's bid to recapture its role as the personal electronics leader. Its position has long been taken for granted but has been eclipsed to a surprising degree by Apple over the past two years.

Sony literally invented portable mass-market audio, with the introduction of the Walkman tape player in 1979. But the company saw its dominance slip with the emergence of the MP3 compression format, which made it feasible to store digital music files on computer hard drives and transfer them over the Internet.

A number of rivals stepped into the void in the late 1990s with players to handle the new MP3 format. But the market never really took off until Apple released the first iPod player in October 2001. Armed with its tiny hard drive and enviable interface, the iPod did for Apple what the Walkman had done for Sony in the early 1980s.

Adding insult to injury, Apple's successful release of the iPod drew in large part from the Walkman's own early days. Staffers from Sony spent days riding the subways of Tokyo with the unfamiliar headphones in their ears, trying to elicit people's questions and interest--not unlike the way Apple has used the iPod's white earbud headphones as one of its best advertising campaigns. Sony, similar to Apple's later rock star-studded events, enlisted celebrities to have their photos taken while wearing Walkman headphones.

After an initial cool reception, the portable tape player exploded in popularity. Sony cemented its place at the top of the portable audio market, and the Walkman brand became ubiquitous enough to find its way into many dictionaries. Ten years after its launch, Sony had sold 50 million of the devices worldwide, doubling that figure just three years later.

But while CD-based Walkmans also have been popular, the portable digital realm has proven more difficult for Sony.

The company saw portable cassette tape sales falling after the late 1980s and began looking for a recordable medium to replace them. Ordinary CD sales were rising fast, but the company believed that consumers would gravitate toward something that would be skip-free and could record audio as well. The result was MiniDisc and its ATRAC (Adaptive Transform Acoustic Coding) audio format, introduced in 1992.

But the 1990s became the decade of computers and networked audio instead of MiniDiscs. Consumers found little reason to move their fast-growing CD collections to MiniDisc. And when MP3 audio exploded into the public consciousness in the late 1990s, MP3 players became the device with buzz.

Sony was doubly crippled by this development. With much of its resources behind the MiniDisc, it continued to push that format. But its music label also worried about the unauthorized copying and Internet swapping that quickly became part of MP3 culture, a concern that helped hamper the company's embrace of the new format and let other companies take the advantage, analysts say.

Its response in part was to keep pushing its ATRAC format, which could be copy-protected. Its Music Clip digital player included a complicated antipiracy system in which music had to be checked in and checked out of the device and PC. The devices failed to reach anything like the market sweep of the Walkman.

Then along came Apple's iPod. With its big hard drive-based storage instead of removable discs, and later its own proprietary format for iTunes music, the company appeared to be playing Sony's own game--and for now, is winning.

Sony Connect's launch was aimed in part to recapture the giant's lost momentum. The company clearly remains committed to the MiniDisc system and stressed that there are many different kinds of Connect-compatible devices on the market as opposed to Apple's iPod-centric store.

"Consumers will benefit from the flexibility that only Sony can offer, with access to the largest selection of portable audio players on the market, priced to fit anyone's music lifestyle," Jay Samit, Sony Connect general manager, said in a statement.

More than 2.5 million devices compatible with the store have already been sold, at price points ranging from $60 to $400. The company expects that number to rise to 7 million by the end of the year.

But the lack of a high-capacity hard drive player similar to the iPod, which sold more than 800,000 units last quarter alone, remains striking. Sony subdivision Aiwa has announced a small hard-drive based player called the Giga Pavit, similar to the iPod Mini, and Samit has said a larger player, which may also play video, could be in the offing from Sony.

That aim to leapfrog beyond the iPod is likely to be the area of future battles between Sony and Apple. Led by Apple CEO Steve Jobs, the computer company has focused specifically on music and on letting customers create digital content such as home video, home recording and digital photography, while avoiding Sony's home turf of TV-based products.

Apple has eschewed making products such as a set-top or TiVo-like device for the television or bringing video onto the iPod, saying the market isn't yet ready.

"People are buying these devices to listen to music," Jobs said in a conference call last week, adding that music is a background activity for many people, unlike video watching. "You can't drive a car when you are watching a movie. It's really hard, anyway."

The Microsoft wild card
The convergence between different kinds of devices is becoming increasingly common, ranging from combination CD and DVD players that support MP3 playback to Sony's next-generation PlayStation video game console, which will play CDs, games and DVDs, in addition to making digital recordings of TV shows.

But if Apple and Sony are destined to bump more squarely against each other in this realm of merging hardware, both will find Microsoft increasingly in their way as well.

The software giant has also identified this converged multimedia market as a centerpiece of its future strategy. It's pushing the Media Center PC--and handheld devices that can link to the Media Center to download music and videos--as its own candidate for the digital home's network hub. Microsoft's Xbox game console is also beginning to serve in this role.

Unlike Apple or Sony, which produce their own hardware, Microsoft has the advantage of working with a wide array of partners that can sell devices loaded with its software. That means that companies like Dell and Hewlett-Packard can help shoulder much of the design and marketing work needed to persuade consumers to adopt a certain technological vision.

Apple has taken some note of this, allowing HP to distribute a co-branded version of the iPod. But for the most part, Apple and Sony products remain under the tight control of their creators.

Analysts say these visions are likely to clash for years to come and will likely end in a detente. While Apple and Sony are each pushing for consumers to adopt a whole line of products, from top to bottom, most homes are expected to ultimately mix and match products from various different companies.

"This isn't going to reach the point where you have a Sony home or an Apple home," Yankee's Ainscough said. "You're still going to have multiple brands in a single home."

CNET News.com's Ina Fried contributed to this report.

 

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