ReadWriteWeb DeathWatch: Sony

Sony has posted losses for four consecutive years, and the company has lost its leadership position in just about every market it used to dominate. Can Sony’s new rock star CEO refocus the company before Apple, Microsoft and Samsung devour everything it has left?

The Basics

Remember the Walkman? The CD? The CD Walkman? Sony created (and co-created) all of them, along with the Trinitron TV, Blu-Ray discs, the PlayStation and dozens of other consumer electronics devices that helped create our modern world. But over the last few years, others have captured Sony’s traditional markets, while very little Sony innovation has made an impact. The result is a bloated workforce, unsold inventory and a stock that’s down more than 90% from its all-time high in 2000.

The Problems

Sony lacks focus. It’s not unusual for large Asian corporations to do a bit of everything (Samsung builds dump trucks and Yamaha makes golf clubs), but Sony’s product line is particularly aging and messy. Because it has tried to do too much for too long, Sony hasn’t done anything particularly well. As the company’s new CEO put it: “It’s one issue after another. I feel like ‘Holy s***, now what?’”

Consumer electronics used to be Sony’s cash cow, but now it’s more of an expensive hobby. Sony’s VAIO line of PCs no longer commands a premium. Improving phone cameras have eroded point-and-shoot camera sales, and Sony’s SLRs have barely dented the market. Sony’s eReader charge died long ago.

But the biggest devastation has come in TVs. While Sony packed its spendy sets with features like Google TV, Samsung made a less expensive, more reliable product that still included the things (like Netflix and Pandora) that customers really wanted. Earlier this year, Sony admitted defeat, hacking its ambitious plan to produce 40 million TV sets per year by 50%.

Gaming also hasn’t gone well. The company that pushed Sega out of the console business has fallen on hard times. The PS Vita handheld has been a flop, even in Japan, where the previous generation PSP continues to outsell it even as tablet and smartphone gaming threatens the entire category. The PlayStation 3, Sony’s gaming bread and butter, is aging poorly. Despite a giant pavilion at the recent Electronic Entertainment Expo (E3), Sony barely made a peep at the show. Microsoft, which also had no new hardware, still made a stir with its SmartGlass platform announcement. Game publishing looks no better, with the once-mighty Sony Online Entertainment now best-known for being part of a 2011 hack that compromised millions of accounts.

Phones are still a growth business, but Sony is late to the game. Its newest Xperia Android smartphones are solid middle-of-the-pack contenders, while Samsung and HTC are worlds ahead in features and carrier relationships. Unless Sony can create meaningful tie-ins with its gaming or entertainment properties, purchasers will consider Sony handsets only when the price is right. 

The Players

Sony’s new CEO, Kazuo Hirai, is the best thing to happen to the company since the PlayStation 2. Like his predecessor Howard Stringer, Hirai speaks fluent English and “gets” the Western market. He studied here as a child and even translated for the Beastie Boys when they toured Japan. Unlike Stringer, who never learned Japanese, Hirai also “gets” Sony, and he showed the ability to turn around a struggling business when he headed up the PlayStation division. He’s also shown that he’s willing to make hard calls, announcing roughly 10,000 layoffs and stating that “We will force through reforms, and there will be no sacred cows” - gutsy rhetoric for a company steeped in tradition and faced with Japan’s worker-friendly labor laws.

The Prognosis

Sony isn’t going bankrupt in the near future, but when upper management acknowledges the bleeding, things are bad. There are problems that won’t get better on their own. Sony’s phones are likely to languish in the U.S. and Europe, and perform better in Japan. Some mildly interesting consumer electronics products, like the new Google TV box, won’t be enough to change the company’s fortunes. Its film and video division (one of the few lines of business still making a profit) will probably perform well, but without an anchoring technology, distribution will depend on third-party partners. Gaming remains Sony’s strongest chance to gain a distribution foothold in the living room, and the next year will be critical.

If Hirai has his way, the Sony of 2015 will be a smaller, more focused, more innovative company that may have shed much of its commodity electronics business to focus on gaming, telecommunications and entertainment content. If he doesn’t get his way, Sony will continue to leak money until it breaks up under its own weight.

Can This Company Be Saved?

Of course it can, but three things need to happen. First, Hirai needs to be able to make several rounds of painful cuts and dramatically reduce the company’s exposure to commodity business. Second, it needs to deepen partnerships with major U.S. mobile carriers and produce at least one flagship phone that can compete with the likes of the Samsung Galaxy 3. Finally, the PS4 game console must put Sony back on top of the gaming business. That’s going to require a solid hardware platform, an extremely competitive price point (the Xbox 720 may sell for as little as $100), and content that leverages Sony’s entertainment titles, from existing PlayStation franchises to its movie and music libraries. There’s been some interesting movement on the game front (like its acquisition of the streaming game service Gaikai), but execution is everything.

The Deathwatch So Far

Research In Motion: Things are hurtling downhill even faster than expected. Massive losses - more than 11 times worse than expected - and new delays in its Hail Mary BlackBerry 10 operating system update have made the company’s dire situation even harder to ignore.

HP: No change in status

Nokia: No change in status

38 Studios: No change in status

Barnes & Noble: No change in status