Sony Walkman Wants the Spotlight Back

The pioneer in personal music devices takes on Apple and the iPod phenomenon with a video player, but what about its music software?

It wasn't supposed to be the headliner event. But on Oct. 12, at a Sony (SNE) announcement for five new Walkman music players and an Internet-linked stereo, execs let slip that they were working on a video-playing Walkman. "We are developing a product that plays video," Hiroshi Yoshioka, Sony's senior vice-president, said, adding: "I can't comment on details." If the video Walkman ever becomes a reality, it might finally put the Japanese electronics giant on close-to-equal footing with Apple (AAPL).

It's hardly a surprise that Sony is scrambling to match the undisputed leader in portable digital music players. A pioneer in the portable music industry three decades ago with its cassette-tape-playing Walkman, Sony has struggled to narrow the gap with Apple's iPod. But the Japanese giant has been slow to react. Even after Apple launched an iPod that could store and play TV shows and other downloadable videos last October, Sony's Walkman division has continued to roll out music-only players.

The newest of the Walkman lineup, which resemble cigarette lighters and will go on sale in Japan on Oct. 21, come with a new technology that cancels out most external noise, which vastly improves their sound quality. (Sony says it plans to sell the five new players overseas later this year.) But none are capable of handling video footage.

PAINFUL LESSON.

  Apple wasn't the first to have a video player, but its dominance in music players has forced rivals to change or risk becoming outdated. Apple has sold 60 million iPods, accounting for more than three-quarters of the digital music player market. It's also sold 1.5 billion songs from its iTunes store, or roughly 70% of all online music sales. By comparison, Sony's share in music players is around 10%.

Being beaten at its own game by a computer maker has been a painful lesson for Sony's proud hardware engineers. Sony built its brand on cutting-edge tech products with hip designs. But in the electronics industry, hardware is no longer king. Apple gave them a lesson on how something as seemingly minor as user-friendly browsers could make all the difference between a good product and a runaway hit.

Nobody has been working harder to change the hardware-centric culture at Sony than its chief exec, Howard Stringer. He has tied Sony's long-term recovery partly to the success of its software strategy and has taken pains to reprogram hardware engineers to abandon the notion that they rank above the software crew.

FOUNDATION IS THERE.

  To lead the effort, Stringer lured Tim Schaaff from his executive post at Apple, where he was in charge of QuickTime, the multimedia software for creating, editing, and playing audio and video on computers. "There are plenty of software engineers, particularly for embedded software within individual devices," Stringer told journalists in Tokyo, during a roundtable discussion in late June. "We don't do software applications for network devices very well, and that's what we're trying to improve."

Logistically, adding a video feature to the Walkman wouldn't be as tricky as it might seem. Sony already makes a carry-around multimedia and gaming console, PlayStation Portable, which lets users surf the Internet over a Wi-Fi connection, watch movies on mini-discs, and play games. It also can draw from a huge library of digital content.

With its own Hollywood studio and vast archives of TV shows, Sony can make quick work of bulletproofing the copyright protections on content. That might even persuade other movie studios to open their vaults to Walkman users. Apple has already shown there's an appetite for downloads of your favorite episode of Lost or Desperate Housewives. And with its combination of killer technology and design fanaticism, Sony might be the one company to come up with an original player that isn't an iPod look-alike.

COMPATIBILITY ISSUE.

  Sony will have to differentiate itself from the pack, though. Besides Apple, Creative Technology (CREAF), and Archos are among a growing number of manufacturers coming out with video players. But the market for portable music players is also expanding, with Gartner forecasting 51% growth this year to 201 million units and 24% next year to nearly 250 million, and that gives Sony a golden opportunity.

Yoshioka, who heads Sony's audio division, wants to double the Walkman's market share to 20% "as soon as possible." But he also acknowledges that it could be tough slog.

Sony hasn't figured out how to let consumers switch painlessly to a Walkman from one of the other music players on the market. Any first-time Walkman buyer would have to start a new music collection from scratch. No song stored in iTunes would be compatible with Sony's SonicStage software. "We're not working on that yet," says Yoshioka. Could be time for Sony's software engineers to get to it.