Show Biz: Don't Count Japan Out

For months, Matsushita President Yoichi Morishita gruffly brushed off suggestions that he was trying to sell MCA Inc. But on a sunny April morning, at his cherry blossom-festooned Osaka headquarters, he finally dropped all pretenses.

Morishita blamed the disaster on rapid changes in the multimedia market that made the unit unmanageable. More likely, by constantly thwarting MCA's expansion plans, he simply riled its powerful U.S. deputies beyond reconciliation.

Either way, Americans watching the rout of Matsushita Electric Industrial Co. are drawing some tenuous conclusions. Many see the botched Hollywood foray as proof that Japanese electronics and American entertainment don't mix. Sony Corp. could be next, they say. In the end, Japanese companies will give up on software and stick with building "boxes."

That conclusion, however, is off the mark. True, Matsushita failed to leverage hardware sales off MCA's Jurassic Park. It could have promoted its video-game machines by giving away free copies of spin-off games. And Sony Pictures Entertainment had a string of box-office flops, forcing a huge write-down last fall. It may try to sell as much as one-third of its studio holdings.

But synergy between software and hardware is alive and well. Smith New Court Inc.'s Tokyo analyst Joseph Osha points out that Sony makes good use of Billy Joel and Mariah Carey albums to market its minidisk audio players in Japan. For years, huge profits from such performers' sales have subsidized its low-margin audio gear.

DIGITAL VIDEODISK WARS. Possession of Hollywood studios has also added heft to both companies' bids in the raging format wars over digital videodisk (DVD), says Barclays de Zoete Wedd Securities (Japan) Ltd. analyst David Benda in Tokyo. These gizmos, due out next year, will hold untold hours of music and motion pictures.

What's more, the entertainment avenues Sony and Matsushita chose aren't the only alternatives. In 1992, Toshiba Corp. and trader Itochu Corp. each spent $500 million for 5.6% stakes in a spin-off of Time Warner Inc.'s entertainment business. The goal wasn't control. What Toshiba sought, says Vice-President Akira Kuwahara, was simply "good relations" with an entertainment software company and a home for its hardware wizardry. Today, the three companies are collaborating on DVD, cable TV, and schemes for the Info Superhighway.

But the best proof that the Japanese can manage software is the fact that their creations are everywhere. Super Mario Bros., Sonic the Hedgehog, and Donkey Kong Country crowd the video-game shelves, just as Mighty Morphin Power Rangers clog the airwaves. How many Americans realize that these bright-suited superheroes sprang, fully formed, from a Japanese TV show made by movie producer Toei Co. and toymaker Bandai Co.?

For the American version, Toei supplies footage of Rangers fighting enemy Putties to U.S. licensee Saban Entertainment in Los Angeles, which splices in the well-scrubbed American high school kids. Launched in 1993 on Fox Children's Network, the Rangers still top children's television ratings. And synergy? Bandai sold $353 million worth of Ranger products in the U.S. and Europe last year. Japanese companies also created VR Troopers, Super Human Samurai Syber Squad, and dozens of cartoons. Coming soon: a cyber-Barbie called Sailor Moon, featuring the Space Age school girls Bandai introduced in Japan--along with dolls--in 1991.

In Asia, Japan's neighbors are throbbing to its cultural beat as never before--from the TV soap opera Tokyo Love Story to the pop group Southern All-Stars. The wave is linking young people "from Tokyo to Singapore," says Shiro Honda, a program officer at the Toyota Foundation. "It could foster

dialogue on a scale and closeness never seen before." This is not the heady world of Hollywood, where Japanese and countless other investors have all gotten burned. But from the looks of it, Japan's affair with global entertainment has barely begun.

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