March 16, 2000 10:45 AM PST

Sony shifts gears to tap convergence trend

Sony is reshuffling its corporate management to capitalize on the convergence of entertainment and technology--and to better compete against AOL Time Warner.

Sony Electronics of America (SEL) yesterday said it will reorganize parts of its electronics business to better realize the company's goal of becoming a "broadband entertainment company" by getting internal operating units to work together more effectively. The end result, it is hoped, will be that digital devices, as well as interactive services and new forms of entertainment to animate those devices, will get into consumers' hands more quickly, executives said.

Clearly, pressure has been placed on Sony in the aftermath of the AOL-Time Warner merger to make more authoritative moves in combining its entertainment and technology assets. Sony's goal, as with AOL, is to provide new interactive services over a growing array of gadgets such as digital music players, cable set-top boxes, cell phones and game consoles.

"Sony has been thinking more and more in terms of products fitting together (with their content properties)," said Schelley Olhava, an analyst at International Data Corp. "That's been an overarching theme for a while."

Turning rhetoric into reality hasn't been easy for Sony, though. This is SCA's second major reorganization in two years, the last one being in March 1999. In that reorganization, all of Sony Corporation, including its U.S. operations, were realigned to become a more effective competitor in an Internet-driven economy.

Still, the company is described by former employees and observers as consisting of many independent fiefdoms that sometimes fight against each other for resources and in the market with competing products.

"It has taken Sony longer than they expected to get the pieces working together," another source, who has worked with Sony on various projects, said on a condition of anonymity.

Sony has taken a number of steps in the last few weeks that indicate Sony Corporation of America (SCA) chairman and CEO Howard Stringer is taking concrete steps toward breaking down those walls between the various units. (Sony Electronics is a business unit within SCA.)

According to a plan drawn up by executives at Sony Electronics, one of these steps involves taking the group responsible for audio-video products such as DVD players, TiVo, DirecTV, WebTV set-tops boxes and stereo equipment and placing it alongside a group consisting of the company's PC and digital imaging operations (encompassing digital cameras and the like).

The formerly separate entities will be headed by Fujio Nishida, former head of the company's Consumer Products Marketing Group. Dick Komiyama, former head of the Personal Network Solutions Company, will serve as deputy of the new Consumer Electronics Group. The pair will report to Teruaki Aoki, who continues in his role as president and COO of Sony Electronics. Additionally, sales and marketing operations for the PC and digital imaging group will be consolidated into the company's San Diego offices.

Changing the company's structure is not a matter undertaken on a whim. Sony's electronics business continues to account for about 60 percent of the company's overall profit, compared with about 35 percent for the PlayStation games business during the most recently completed quarter.

"I think the indication is that Sony has recognized how these product groups need to work together to (bring about) convergence," said an entertainment industry source familiar with the company's plans. "The only way to force that to happen is through moves like this."

Stringer has made High speed pipe dreams?other moves in recent days as well. On Monday, Sony created a new business unit in its Sony Pictures Entertainment division targeted at providing content delivery to online and game services over broadband networks. Broadband refers to technologies such as DSL and cable modems that provide faster delivery of data over the Internet.

Yair Landau, who was head of business development initiatives for the studio, is president of the new unit, called Sony Pictures Digital Entertainment. Landau is charged with tapping into the company's film and TV archives and business relationships to create new online content and interactive TV programming such as online games, video-on-demand services and other initiatives.

"This important venture clearly demonstrates Sony's intent to marshal our tremendous range of assets in film, television, new media and content creation to take a leadership position in the burgeoning field of broadband entertainment," Stringer said in a statement concerning the changes at Sony Pictures.

Additionally, Sony last month created a new Broadband Services Unit that has a similar charge, but with a focus on the partnerships that will help Sony with bringing that content to customers. For instance, the Broadband Services Unit, headed by Emily Susskind, will be responsible for developing services for use by cable operators such as Cablevision in New York.

The lesson for You've got Time WarnerAOL Time Warner in all of this is that it may be hard to realize the vision of a synergistic relationship between content producers and service providers.

Stringer has been working on the plan to integrate Sony's operations for about 18 months already, according to other individuals close to the company. "The content business and hardware business have different interests, so there's a need to coordinate them," he added.

"AOL Time Warner will run into the same kinds of problems," he speculated.

Last month, speaking on the issue of how Sony is trying to become a "broadband entertainment company," Aoki, president of Sony Electronics, told CNET News.com that 10 years ago, Sony bought music and movie studios to provide content for its hardware.

"We really didn't realize any synergies in the past 10 years," Aoki said of the acquisitions. "Now it's really time for us to exploit the synergies between the software and content and hardware by using the broadband network (to distribute content)."

The restructuring has come about because there is the basic idea in the high-tech industry that there will be some sort of hardware device--either a PC or a cable set-top box--that is connected to the television. This device will store and play content that comes from DVD, traditional video programmers like cable companies, and the Internet.

Sony is hoping that by combining formerly separate units, they will be able to come up with a hit in a market IDC says will eventually outpace even consumer PCs. Even if Sony Electronics' TV-centric devices such as Internet enabled DVDs, TiVo personal video recorders and cable set-tops don't take off, there's always the PlayStation 2 game console, which will do many of the same things but will be targeted at a younger audience.

Overall, the market for devices, including set-top boxes, handheld computers and gaming consoles, is set to grow from 11 million units shipped in 1999 to 89 million units in 2004. The market will grow from revenue of $2.4 billion last year to $17.8 billion in 2004, according to IDC.

"Sony has a wonderful opportunity to sell different platforms into different markets depending on what demand is and where the (devices) are most likely to be accepted," said Paul Di Senso, senior media analyst with SRI Consulting.

 

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