It has been a long wait for Sony Corp. (SNE) For the past two years, the Japanese electronics giant has been gearing up for the second installment of its Spider-Man franchise, the web-slinging superstar that grossed a cool $403 million at the box office when Tobey Maguire last leapt into theaters in his red leotard. Since then, though, Sony has been a decidedly low-swinging outfit. Sinking sales of its TVs, personal digital devices, and video recorders zapped earnings last year, which fell by 23.4%, to $851 million, for the fiscal year ended on Mar. 31. Film sales, meanwhile, fell 40%, to $320 million, off its Spider-Man-charged year, and music revenues struggled in the face of piracy and dwindling market share. So any signs of a comeback are welcome at Sony these days, whether they shoot webs or not.
The leading man in the Sony revival story is Sir Howard Stringer, a rumpled 62-year-old Welsh-born executive who has his own mission: to turn Sony's perennially underperforming entertainment unit into an engine for growth, not just an afterthought for a company built on electronic gizmos. And in recent months, Sir Howard has been moving faster than Spider-Man through Times Square.
Stringer has placed his biggest bet -- $5 billion -- in a bid to buy Kirk Kerkorian's Metro-Goldwyn-Mayer Inc. (MGM) studio. That would give Sony Hollywood's largest collection of older movies just as new technologies for offering flicks on demand, over the Internet, and on DVD are taking off. That follows a November, 2003, deal he engineered to merge his struggling music company with rival Bertelsmann's BMG unit. If approved by European and U.S. regulators, as expected this year, the merger will give the combined company 25% of the market while slicing an estimated $250 million from overhead. "For a while some of us weren't sure what Howard did at Sony," jokes former Viacom (VIA) President Frank Biondi. "Now we see that he's remaking the entire operation."
And just in time. Stringer, Sony's vice-chairman, is under pressure from Sony CEO Nobuyuki Idei to cut costs by 10%, part of an overall corporate mandate to reduce overhead companywide. At the same time, headquarters expects Stringer to help finally make good on the long-held -- but rarely accomplished -- goal of using Sony's movies, TV shows, and music to fuel sales of new consumer-electronic formats. Sony executives would not comment for this story.
For now, Stringer has focused heavily on cost-cutting. Last year, he forced out spendthrift music chief Thomas D. Mottola and installed former NBC President Andrew Lack, a deputy from Stringer's days as head of CBS (VIA). Lack slashed more than 1,000 jobs, cutting $100 million. At Sony's film studio, Stringer ordered more than 500 layoffs and has told film executives to rein in profit-participation that was among the richest in the industry. To add muscle, he brought in Michael Lynton, a turnaround expert who shrank costs at Time Warner Inc.'s (TWX) international AOL operation. Lynton has been ordered to find more places to cut as he streamlines the often chaotic moviemaking process.
So far, so good. But it's always easier to cut than create. While Sony has been profitable in 9 of 11 quarters, Stringer wants to stabilize earnings by grabbing MGM, which has a more than 4,000-film library that generates $450 million in cash flow from sales of DVDs and to cable TV. But MGM is still a long shot, in part because he had to jury-rig a financing scheme to reduce the parent company's involvement, bringing in two private equity firms and bidding mostly with debt. MGM now says it is looking at alternatives, which could lead to rich new bids from NBC or Time Warner, both of which are itching to get their hands on the studio.
ANOTHER FORMAT FIGHT
If it does win MGM, Sony intends to combine those films with the 3,500 it currently owns to help push a next-generation DVD technology, called Blu-Ray, that offers films in high-definition. Sony needs the added muscle of a large collection of films to help win over Hollywood, which is holding back, waiting for a competing high-definition DVD pushed by Sony's nemesis Toshiba (TOSBF), with help from Warner Bros. and possibly Microsoft (MSFT). To promote its own format, Sony intends to start shipping versions of its movies on DVD and Blu-Ray in 2005, according to industry insiders. Sony "knows that getting a library is key to the Next Thing -- in this case video-on-demand or the Internet," says DVD pioneer and industry consultant Warren Lieberfarb.
In the meantime, Sony is rolling out entertainment on the Internet through Movielink, an online service it pioneered that is now being operated by five major studios. As for the music business, Sony is hustling to catch up with the likes of Apple Computer Inc.'s (AAPL) iTunes. This spring, it launched a new online music service called Connect, which has deals with McDonald's Corp. (MCD) and United Airlines Inc. (UALAQ) to offer coupons for songs. It's all part of Stringer's attempt to push the Japanese giant into a fast-consolidating entertainment world before it's too late.
By Ronald Grover in Los Angeles and Tom Lowry in New York