The Course Ahead for Sony

January 11, 2007, 11:00 AM by Scott M. Fulton, III

Scott Fulton, BetaNews: Sony has been badly in need of good news this year, and even if it came a few days after CES opened, a nice piece of it may have come this morning: NPD's figures for US market share in televisions for the first 11 months of 2006 are out, and Sony has retained its position at #1 in unit sales by 5%, and in flat-panel displays specifically, #1 in dollar volume by a 21% margin. Sony reported these numbers this morning, jubilantly.

When a major manufacturer shows off its wares at CES, it's usually the cream of the crop; and Sony's plan this year was no different, touting its Bravia line of optimum performance video gear. Among the high-performance features of its best HDTV displays is essentially a set-top box, but Sony is trying to position this device as a high-performance component. It complements the tuning functions of the TV set with a tuner for Internet video, such as from AOL Video. I spoke yesterday with the senior vice president of AOL Video, and we'll have that interview later.

In the meantime, Info-Tech analyst Carmi Levy is here to discuss Sony with us, because at CES, Microsoft used a good chunk of the Bill Gates keynote to re-introduce the Xbox 360 as a set-top box and a networking gaming device, with the added advantage of a 10.4 million unit installed base. On top of that, the show sustained an assault from the outside, with Apple entering the fray with a low-cost set-top box with networking capabilities. So the initial reviews for Sony's Bravia Internet Video Link came in, and they were far less than stellar, because it doesn't seem to keep up with the connectivity drive that Microsoft appears to have championed this time.

Carmi, I’m wondering, in the face of competition in the IPTV space from both Microsoft and Apple, does Sony just pack up and say, ah, forget it?

Carmi Levy, Senior Research Analyst, Info-Tech Research: No, Sony can’t afford to, because if Sony packs up and says forget it, then Sony is essentially out of this market, and this is the market that Sony dominated for how many generations? So Sony can’t afford to walk away. Sony’s going to get beaten up in the process because it is now doing battle with companies infinitely larger than the consumer products companies with which it did battle in previous generations. It’s a very different and more difficult playground for Sony than it’s ever been, and they’ve stumbled badly over the last decade. But at the same time, Sony has no choice. It’s either that or go out of business.

Scott Fulton: Well, [Sony CEO] Sir Howard Stringer strikes me as an extraordinarily intelligent man, with at least as much business savvy as Bill Gates. Maybe he doesn’t have the historical wins to his credit, but he has both business savvy and an interest in all things cerebral.

Carmi Levy: Right.

Scott Fulton: He’s an economist at heart, so he should be able to solve this problem.

Carmi Levy: Should be.

Scott Fulton: But it’s a monumental problem, and I wonder – it’s like the war in Iraq. Where does he start?

Carmi Levy: It’s hard because Sony’s bleeding from so many injury spots that it’s kind of difficult to tell him where he needs to begin. Certainly Sony needs to begin with great product, and it’s hard to argue [against the notion that] Bravia will deliver that kind of product. The question is, that’s at the top end. Sony needs to cover every strata of the market if it wants to survive and thrive. Start at Bravia, but then I would expect them to make announcements that address the mid- and low-end tiers of the market where it traditionally has not had much of a presence, if it wants to truly root that brand identity in the market and position itself as an alternative to the increasingly strong branding from Apple, from Microsoft, and other traditional technology companies that typically haven’t played in the consumer space.

Sony needs to not be perceived as only a premium company, Sony needs to become a multi-line company again. So that’s one. Two, Sony needs to partner, and again not deliver the best technology, but deliver the best integrated technology with partners who get the market. Sony cannot be driven by hardware-based innovation alone. It is not going to have another success with the Walkman like it had in the early ‘80s because the Walkman was a hardware-only play, whereas Apple has proven that the iPod – which was the heir apparent to the Walkman – was in fact a partnership-driven play. So Sony’s going to have to do exactly the same thing with its entire line-up, that introducing great product isn’t going to be enough any more. I would expect Sony to look to Apple’s model and to Microsoft’s model, where you negotiate with agile partners in the consumer space who can deliver the content, and you make sure that your devices play ball with those services. That’s Sony’s next step.

Scott Fulton: Carmi, as always, thanks for your insights.