Toshiba Quits Music Biz, Puts Sony in Spotlight

Kenji Hall

Who says content is king? Toshiba's decision on Dec. 14 to unload its stake in music venture Toshiba-EMI for $170 million suggests that not everybody believes in the money-making potential of digital content. In recent years, the business had been a hard slog for the Japanese recording label, as CD sales slumped and pirated albums proliferated. It never really contributed much to Toshiba's bottom line, which remains heavily skewed toward chips, consumer electronics and nuclear reactors. Last fiscal year, Toshiba-EMI's music sales were equivalent to less than 1% of Toshiba's overall sales of $54 billion.

Toshiba's decision puts it firmly in the hardware camp. In announcing its sale of the 45% stake to partner EMI Group of Britain, Toshiba said: "The music content business today is less relevant to other businesses within the Toshiba group." (EMI's stable of recording companies includes Capitol, Blue Note and Virgin, which have an impressive roster of talent, from The Beatles to The Rolling Stones and Pink Floyd to jazz giant Wynton Marsalis.) By that, Toshiba has signaled that it failed to tie its consumer electronics to the vast library of songs it owned. Fact is, the company's two fastest growing divisions have been digital products, which includes PCs and other consumer electronics goods, and electronic devices, which makes NAND flash memory for storing data in music players, cell phones and other portable gizmos. Combined, they accounted for more than half of sales in the fiscal year through March 2006 and 60% of operating profits.

To me, this raises an obvious question. Will crosstown rival Sony follow Toshiba's lead and bail out of its own music business, Sony BMG? You certainly could argue that Sony would save itself a lot of grief by doing so. (The counter-argument: Toshiba's bet is on energy and chips and any direct comparison is irrelevant.) Sony has had problems trying to set up an online music store that can challenge the supremacy of Apple's iTunes store. The best-case scenario would be if Sony's music drives sales of Walkman music players. And ideally, it would be able to apply the lessons to other areas, such as movies and TV shows. One reason Sony's earnings continue to disappoint is that the company still hasn't hit on the right formula for delivering digital content. The jury is still out on whether it ever will.