Sony Sends 15 Million Songs to Cloud to Close ITunes Gap: Tech

Sony Corp. will probably put songs by Michael Jackson and Whitney Houston online in Japan through its streaming music service. The trouble will be finding listeners who haven’t bought them from Apple Inc. (AAPL) in the past seven years.

Sony said it will introduce Music Unlimited, a cloud-based catalog of 15 million songs, in its home market by the end of December after rolling it out in 16 other countries first. The company hopes flat fees, unlimited listens and accessibility through mobile and gaming devices will help close the gap with iTunes, which started offering downloads in Japan in 2005.

Music Unlimited’s late arrival in the world’s second- biggest music market will serve as a test of new Chief Executive Officer Kazuo Hirai’s ability to bring Sony (6758)’s different units closer together. Hirai, who started in the music division, is trying to turn a profit after four years of losses and has said that integrating the company’s hardware and software offerings as “One Sony” is key to that.

“Sony still has its silo structure,” said Takashi Watanabe, an analyst at Goldman Sachs Group Inc. in Tokyo. “A lack of collaboration between sections probably caused a delay in offering the online entertainment service. Sony is trying to change that.”

‘Vague’ Explanation

Sean Yoneda, a spokesman for Sony, declined to specify a date for Music Unlimited’s introduction in Japan. Sony’s music unit was the second-biggest contributor of operating income at the Tokyo-based company, trailing financial services, in the fiscal year that ended in March 2011, according to data compiled by Bloomberg.

Sony has yet to deliver on a 2009 plan to lure customers to its hardware devices by integrating online services for games, music, books and films, Watanabe said.

“Music content could be a key factor to revive Sony,” he said. “The time is over where an electronics company can excel just because it has a good device. You have to have a very good platform to capture your clients within your system.”

Still, Hirai, 51, didn’t list the company’s entertainment business among the top priorities when he announced his plan for reviving the company April 12.

“Sony’s explanation of how it plans to leverage its content business in its electronics business has been vague,” said Yoshiharu Izumi, an analyst at JPMorgan Chase & Co. in Tokyo.

Springsteen, Jackson

Sony introduced its online music service under the name Qriocity in the U.K. and Ireland in December 2010. Renamed in August 2011, it has boosted its catalog to 15 million songs released by Sony’s own music units -- which include Jackson, Houston and Bruce Springsteen -- and others including Universal Music Group, the world’s largest recorded music company, and Warner Music Group.

Photographer: Tomohiro Ohsumi/Bloomberg

Kazuo Hirai, president and chief executive officer of Sony Corp. Close

Kazuo Hirai, president and chief executive officer of Sony Corp.

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Photographer: Tomohiro Ohsumi/Bloomberg

Kazuo Hirai, president and chief executive officer of Sony Corp.

Music Unlimited lets users stream songs via Web-connected Bravia televisions, some Walkman models, PlayStation game players, personal computers and Android-based mobile phones. The service was expanded to the PlayStation Vita in March after being enabled on Sony Tablets and other Android-based tablets in October.

By contrast, iTunes users can buy music and store it on PCs or portable devices for listening without an Internet connection.

Walkman, Android

Sony introduced a download option for non-networked Walkman music players in December and a similar service for Android application users last month, according to company statements. Yoneda declined to say how many subscribers Music Unlimited has.

Until Music Unlimited becomes available locally, Japanese customers who want to buy songs from Sony online must do so through other providers, including iTunes. That means Sony has to split the revenue with those providers.

Sony’s global revenue from music production totaled 458 billion yen ($5.6 billion) in the year ended March 2011, according to data compiled by Bloomberg. Online sales make up almost half of the music unit’s revenue, and about 70 percent of that comes from selling songs on iTunes, Watanabe estimated.

The Japanese music market totaled 353.8 billion yen last year, according to the Recording Industry Association of Japan. Downloads accounted for 72 billion yen, according to the industry group’s website.

Apple unveiled its iPod music player in 2001 and started the iTunes music store in 2003. The company has benefited as consumers shifted from CDs to online music services and offers iTunes on its own devices, such as the iPod, iPhone and iPad tablet, as well as PCs from other manufacturers.

ITunes, Spotify

A stronger presence by Sony in the online music business could put pressure on Apple and possibly lead to changes in the iTunes fee structure to bring higher margins to content owners, including Sony, Watanabe said.

Natsuki Eto, a Tokyo-based spokeswoman for Sony, said negotiations with content owners are among the matters that must be resolved before Music Unlimited can be introduced in new markets, including Japan.

“If we manage to make an entry this year, it would be appropriate timing,” she said. “There are issues to clear to start our service in each region.”

The number of songs on Music Unlimited is lower than the approximately 20 million titles offered through Cupertino, California-based Apple’s iTunes store. London-based streaming service Spotify Ltd. offers more than 16 million songs, including Sony artists, according to Alison Bonny, a spokeswoman.

Google Music

ITunes charges from 99 cents to $1.29 per song, while Spotify costs $5 to $10 a month. Music Unlimited charges a monthly fee of $3.99 for its basic plan or $9.99 for a premium plan offering unlimited access and programmed music channels.

Google Inc. (GOOG), owner of the world’s biggest search engine, is also challenging Apple’s dominance in online music. Google entered the market in November, letting users store and stream as many as 20,000 songs online and listen to tracks on multiple devices. The Mountain View, California-based company has partnerships with 1,000 record labels, including Vivendi SA’s Universal Music Group, letting it offer 13 million songs.

Spotify, which started in the U.S. in July, has grown to about 2 million subscribers, according to Ken Parks, chief content officer for the company.

Beyond increasing revenue from music, Sony could use its content to boost sales of smartphones by introducing products such as a free-download phone, Watanabe said.

Sony had a 4.2 percent share of the smartphone market last year, while Apple controlled 18.9 percent, and Suwon, South Korea-based Samsung (005930) had 18.5 percent, according to researcher Gartner Inc.

In September, Hirai unveiled the Sony Entertainment Network that will let users access all Sony software content, including music, from a single account.

Even so, Sony’s content services have yet to be integrated. Electronic books aren’t on the new platform, Video Unlimited isn’t available on PlayStation game devices and game contents aren’t offered on all Sony products.

“As there are many existing applications for different devices, it’s technically difficult to put them on SEN all at once,” said Eto, the spokeswoman.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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