Sony Walkman Finally Gets the Picture

The groundbreaking portable music device can now try to catch Apple's iPod on video turf. Will great headphones and battery life be enough?

The Walkman has finally made the jump to video. Almost a year and a half after Apple unveiled its video iPod, Sony has a product to speak to it. In an unusually low-key announcement on Mar. 8, the Tokyo technology and entertainment giant posted details about the new portable video player on its Japanese-language Web site, eschewing the usual over-the-top glitz of a major product launch.

That doesn't lessen the importance for Sony (SNE). Chief Executive Howard Stringer has spent nearly two years rebuilding the company's street cred. He and his crew have axed unprofitable products, shed noncore assets, and nearly restored profits to TVs and semiconductors. Yet the Walkman business, once the symbol of Sony's tech superiority, has been disappointing. Despite its best efforts and a slew of design updates, Sony's portable players have made little headway in dethroning Apple (AAPL).

But the video Walkman, about which executives have been dropping hints for months, should help (see, 10/13/06, "Sony Walkman Wants the Spotlight Back"). The new players share features with other Sony gizmos and have all the trappings of a hit. At just a third of an inch thick and 53 grams, they're slimmer and lighter than previous iterations.

Good News/Bad News

The new A-series—which comes in 2, 4, or 8 GB models—has just three buttons, a departure from the buttons galore of the company's legacy products. What's more, their 2-in. liquid-crystal-display color screens are rectangular, so you can choose to watch videos either vertically or horizontally, a standard feature of the best-selling Sony-Ericsson phones available in Japan.

The announcement coincided with another tidbit of good news to lift Sony's shares. In a report, Morgan Stanley (MS) analyst Masahiro Ono raised his target stock price for the company to 7,000 yen, from 5,900, citing Sony's smarter product-launch strategy and better cash-flow management. By the close of trading in Tokyo, Sony was up 2.9%, while the benchmark Nikkei 225 Stock Average rose just 1.9%. (Not all was well: Sony was named among seven computer and electronics makers sued by 3M (MMM) for alleged patent infringement on rechargeable lithium-ion battery technology. The lawsuit was filed overnight at a district court in Minnesota.)

But the video Walkman didn't hurt the cause. The players build on Sony's strength in stretching out battery life, lasting 30 hours when playing music or eight when watching videos. Audiophiles are sure to dig the headphones' noise-canceling technology, which Sony first introduced in Japan last fall.

Booming Media Market

It's unclear whether those features are enough to put Sony on equal footing with Apple, SanDisk (SNDK), or Creative Technology (CREAF). Apple's iPod has up to 10 times the memory capacity of the new Walkman, and its iTunes Music Store has a wide selection of TV shows, movies, and music videos. By contrast, Sony's Connect online store in the U.S. (and Mora in Japan) offers no video downloads yet. And others, such as SanDisk's Sansa View, sport bigger screens.

Sony is keen to boost its presence in the market for portable digital media players, which researcher Gartner Inc. estimates will grow 23% from last year, to 227.2 million units in 2007. By 2010, it's forecast to gain 54% from 2006 levels. In the U.S., Apple rules the sector, with its iPod owning 72% of the market in 2006, vs. SanDisk's 11%, and Creative Labs' 4%, says The NPD Group. Sony's share is a tiny 1%.

In Japan, the split remains wide as well, with Apple at 50.7% in February compared to Sony's 19.8%, Tokyo-based market researcher BCN ranking says.

Sony hasn't laid out its strategy for the new Walkman. But there's little chance it can win over iPod fans. The main reason: software. For starters, iTunes remains the gold standard for organizing digital audio and video files, while Sony users only recently have given the SonicStage software decent marks.

Clip-Happy Consumers

Copyright protection software, known as digital rights management, also makes iTunes incompatible with a Walkman. The same goes for using Sony's SonicStage and an iPod. Most people would find it more trouble than it's worth to reload all their podcasts and music and other data to make the switch.

The Walkman's price, between $175 and $280, might not seem much cheaper than Apple's $249 30-GB video iPod and $349 80-GB version. But remember that the Walkman relies on NAND flash memory, which means it's less vulnerable than the iPod's hard disk drive to skipping or breakage when dropped or bumped.

Sony's decision to go with less memory suggests it's betting that young hipsters will download and watch short clips from YouTube, music videos, and home videos instead of full-length feature films or TV shows. And while a growing number of consumers are viewing videos online from a PC, fewer than 10% of U.S. households download video content, according to a recent study published by the NPD Group. Most consumers who buy portable video players end up using them primarily to listen to music and podcasts, analysts say.

Still the move to less memory is a bizarre one for a company that has its own Hollywood studio and a massive library of TV shows. Sony is expected to shed more light on the subject in the next few days. But it could be months before consumers weigh in with their wallets.

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