Sony and Its Blu-Ray Strategy [9:12 pm]
Even though Sony helped bring about the digital revolution, the company has failed to adapt to it. The standardization required to manufacture consumer digital products undercut the value of Sony’s branded products. For example, the Chinese and other low-labor-cost manufacturers, using the same computer chips, could make the same DVD players and digital TV sets as Sony for a fraction of the cost. The result was a commoditized rat race that became unprofitable for Sony. When it became clear that Sony had to “revolutionize itself,” as Sony’s previous chairman Nobuyuki Idei termed it, the revolution involved transforming Sony from a company that had focused on engineering proprietary products, such as the Trinitron color television set, the Betamax VCR, and the Walkman, into one that could capitalize onâ€”and protect from piracyâ€”the streams of digital data that would include games, movies, music, and other intellectual property. When Sir Howard assumed the leadership of Sony this year, part of his mandate was to move the company, as he put it, “from an analog culture to a digital culture.”
The Blu-Ray DVD is a critical piece of this strategy. [...] When I asked Sir Howard if there was concern that the Blu-Ray DVD would result in a further eroding of the world moviegoing audience, he answered that it was “a chicken-and-egg problem.” The “chicken” was theatrical movies; the “egg” the DVD (plus television and licensing rights). Sir Howard, who is also chairman of the American Film Institute, pointed out that it would be difficult to conceive of great movies, such as Lawrence of Arabia, being made without a movie theater audience to establish them; the dilemma is that it’s the “egg” not the “chicken” upon which the studios increasingly depend for their money.
So, even while trying to avoid fatally injuring the chicken–movies–Sir Howard said that studios are under increasing pressure to “optimize” their profits from the proverbial golden egg, the home audience. Indeed, the Blu-Ray DVD make this balancing act more difficult: With its interactive features, it appeals to the very teenage audiences on whom the multiplexes now so heavily depend. It’s also a vital part of Sony’s latest version of its PlayStation, due to be released next year. The prior versions of PlayStation have sold more than 100 million units and have provided the Sony Corporation with up to 40 percent of its profits.