Even Michael Jackson may not save Sony

Business Times - 23 Jul 2009

By WILLIAM PESEK JR

SONY Corp is channeling the spirit of Michael Jackson.

Facing Sony's first back-to-back annual losses in half a century, chief executive officer Howard Stringer is eyeing an obvious payday: film rights to the late star's wildly anticipated last concert rehearsals.

And who can blame Mr Stringer, given that Sony owns the rights for Jackson's Off the Wall, Thriller, Bad, Dangerous and HIStory albums? Yet even blockbuster sales from a new Jackson video won't save Sony from the two biggest drains on profits: Japan's flagging economy and a dearth of innovative ideas.

Yes, Sony's getting a boost from renewed demand for Jackson's tunes following his June 25 death. And, as Bloomberg News reported on July 20, Sony Pictures is close to acquiring the rights to film of Jackson's last rehearsals, having offered $50 million for the footage.

Given the huge interest Jackson's death generated, this specific investment may pay off.

Investors tend to get all excited when a Sony film has a big weekend. Fat box-office receipts from the likes of Angels & Demons certainly help, yet they don't trump a laundry list of problems ranging from Apple Inc's iPod music player to Amazon.com Inc's Kindle book reader to weak global demand.

Cost-cutting helps, especially with Japan in recession and deflation returning. Sony is eliminating 16,000 jobs, shutting factories and reducing the number of suppliers to cope with the global crisis. In May, the company forecast that it would post a second straight annual loss for the first time since 1958.

Sony's real problem, though, is a general lack of must-have, industry-shaking products. Stringer, for example, is under mounting pressure to cut prices on PlayStation 3 to make the US$400 game console more competitive.

And that's one of Sony's biggest headline-grabbing products in recent years.

An innovation slump is what's killing Sony's bottom line. Here, a big anniversary adds insult to injury. It's been 30 years since the 1979 unveiling of the Walkman, the portable music player that revolutionised the electronics world in the 1980s and became emblematic of Japan's economic rise.

More recently, Sony has been a microcosm of what ails Japan. Like Japan, Sony is a behemoth that once set the global standard, but has since lost its primacy and self-confidence. Sony, also like Japan, grew complacent at the worst imaginable time - amid a rapidly changing global environment.

While Sony rested on its laurels, South Korea's Samsung Electronics Co churned out smart products, earned money and surpassed Sony's market capitalisation. Samsung isn't about to cream Apple, yet its shares are up 53 per cent this year; Sony's are up 20 per cent.

Of course, Sony's gain is nothing to sniff at in this global environment. The real question is the future.

Mr Stringer is still whittling away at the excesses of the 1980s, a period when many Japanese companies got overextended.

It was a time when executives thought they had to be in just about every market. The result was that Japan's corporate giants are involved in everything, but stretched too thin.

On June 19, Mr Stringer told shareholders that he is making 'steady progress' in cutting costs. There are limits to what Mr Stringer - Sony's first non-Japanese chief - can do, though. Culture is part of the challenge. Within Sony are myriad fiefdoms with proud traditions of autonomy.

Change comes slowly. An even more stubborn reality is that fat-trimming is no substitute for killer products.

Even speculation about where Sony goes from here seems underwhelming. The Japanese press is buzzing about Sony developing a portable PlayStation video console with cell-phone features. Given that Apple's iPhone has its own gaming features, let's hope Sony is thinking big here. Very big.

Mr Stringer is certainly talking big about marrying the strengths of Sony's vast entertainment content and hardware-electronics units. Doing that successfully might return Sony to profitability. The trouble is, Sony has been pledging to pull that off for many a year.

Word of a possible Jackson deal boosted Sony 29 cents to US$24.63 a share in New York Stock Exchange composite trading on Monday. Even though Jackson's popularity peaked in the 1980s, the public outpouring following his death rivalled that for Elvis Presley and John Lennon.

Put together well, Jackson's footage probably could reap rewards for Sony.

In a statement about Jackson last month, though, Mr Stringer may have said more than he had planned.

He called Jackson a genius who 'reflected the passion and creativity of an era'. That comment once might have been used to describe Mr Stringer's company.

Sony used to be the bellwether of global electronics. It also was part of Japan's post-World War II revival, becoming one of the most-respected brands and most-feared competitors anywhere. Now, rivals are winning the spotlight. It's not unlike where Japan finds itself in Asia.

The next couple of years are critical if Sony hopes to regain its greatness. Otherwise, Sony, like Jackson, may be remembered as a star that shone most brightly in the 1980s.

The author is a Bloomberg News columnist. The opinions expressed are his own.