Stringer's Sony Turnaround Plan

By next March Sony is expecting to post a net loss for its fiscal year of about $90 million. The company is confident that its restructuring plan and focus on key products will allow Sony to become profitable again. Sony CEO Howard Stringer believes that the firm's HD lineup, including the PS3 and Blu-ray, will be at the center of the turnaround.

Faced with falling electronics prices, tough competition from other manufacturers, and increased restructuring costs, Sony Corp. is expecting a net loss of $90 million for its fiscal year ending March 2006, which would be the first annual loss for the Tokyo-based electronics firm in over a decade -- since the original PlayStation made its debut.

Sony's first foreign CEO, Sir Howard Stringer, has been tasked with leading the company back to profitability. As such, in September Stringer outlined a three-year restructuring plan that will eliminate about $2 billion in costs, 10,000 jobs, and several unprofitable operations. In a recent interview with The Hollywood Reporter, he elaborated on the products Sony will place an emphasis on -- clearly, Microsoft isn't the only company to have dreamt up the "HD Era."

Sony's "Pearls"

The self-described "Sony Warrior," Stringer is certain that high-definition products are the key to Sony's future success. "We have an HD value chain that no one else in the business has," he said. "[This] high-definition value chain that starts with cameras and goes through projectors and television sets and ends up with the PS3. You can see an HD necklace with all the pearls connected."

"Owning the content as we do is all of a sudden part of an integrated relationship with the device. Each understands the value of the other. And that is what makes Sony so unique, since we make them both," Stringer continued. "More and more, you will see Sony's fully integrated HD strategy."

Part of this HD strategy naturally involves the Sony-led Blu-ray format, which is steadily gaining more and more studio support and would seem to have the upper hand in the battle against the Toshiba-led HD DVD format.

"Our alternative based on the premise that if you are going to take the DVD to the next generation, the customer experience better be more exotic. So, Blu-ray offers far more capacity and the potential for 3G (third-generation wireless technology) and interactivity. The Blu-ray package has greater selling power than transitional technology. But our studio's support for it, with so much of (the studio's) content digitized, was a selling point," Stringer said.

"We own two studios. I don't think we would have been able to push Blu-ray through without them because the initial enthusiasm for HD-DVD was because it was cheaper," he explained.

PS3 and Blu-ray

The combination of Blu-ray and the PS3 could be a real winner for Sony; just as the PS2 was the first DVD player in many households, the PS3 will no doubt be the first taste of hi-def movies for many consumers. And the first standalone Blu-ray players will cost much more than the PS3, making the console seem like a bargain even if it is $400.

"The reason Sony has suddenly gained support for Blu-ray is simple," an unnamed high-level studio executive close to the discussions told THR. "PS3 is a subsidized Blu-ray play[er] that will sell 20 million units. The first HD player will be on the market for $1,000. PS3 could be at $300 or $400. Sony will be selling them at a loss the first six months to a year just to get Blu-ray players out in the market. So studios realize they need to have their content on it."

To further stress the PS3's multimedia capabilities, THR says it "will be bundled with a selection of preloaded films, TV programs and games," although it's not clear if this information is coming from Stringer or elsewhere. It would seem that preloaded films and other content would require the HDD add-on, which Sony previously said would not be bundled with the PS3. It should be noted that Microsoft's Xbox 360 HDD will also come preloaded with video, music, and game content.

PSP gaining steam

In addition to HD products and the PS3, Sony is taking advantage of the portable media player market with its PSP, whose UMD format quickly gained the support of Hollywood. While Apple's iPod still dominates the portable music player scene, as a pure multimedia device the PSP has established itself swiftly and is about to experience its first holiday selling period.

"Why would someone want to pay $1.99 per download of one TV series episode on a closed system like a video iPod when they can transfer all the content they want from their own devices like DVRs to our multimedia portable player at no extra cost? Consumers already can do this with the PlayStation Portable," Stringer said.

"Innovation and quality will win the day. It just doesn't hold the day as long as it used to because you are going to be copied faster and imitated faster. So your market leadership is more difficult to sustain over a longer period of time. But eventually consumers are going to want devices that play everything and everybody's content in the end. And the customer is king. So, I have no doubt that Sony will prevail," he concluded.

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