Sony Seeks Relevance in an Apple-Centric Age

Sony (SNE) once set the standard for inventing products people never knew they wanted—from the Walkman to the CD player to game consoles. That knack for shaping consumer tastes powered the Japanese company's market share and ability to command premium prices for its gear. If that sounds a lot like the recent history of Apple (AAPL), that's a big part of Sony Chief Executive Sir Howard Stringer's current challenge.

So how can Sony set itself apart in an Apple world? Stringer is taking a page from the iPod maker's playbook: He wants to digitally funnel Sony's trove of music, movie, and gaming content directly to its TVs and other devices. Key will be Sony's PlayStation 3 game console and its wireless Blu-ray players, which Stringer is pushing as media hubs that (like Apple's iPhone and its Apps store) can link audiences to content without a computer.

Stringer's strategy faces challenges, as shown on June 29 when Hulu, the video website run by NBC Universal, News Corp.'s (NWS) Fox, and Disney's (DIS) ABC, unveiled its much-anticipated subscription service to push TV shows to consumer devices. Hulu Plus will be available exclusively for hardware made by Apple and Samsung at its debut. Sony wanted to be part of the initial deal, and will now have to wait until fall to get in on the action. It's a setback because Sony is eager to use content deals to spur sales of its gear. "That's the experience you need to drive Sony into the digital future," Stringer said before the Hulu decision.

Stringer's predecessor, Nobuyuki Idei, tried to marry content and hardware and was thwarted by warring factions within the company. The recession gave Stringer an opportunity to upend the status quo. Besides firing 19,500 people and outsourcing much of Sony's TV manufacturing, he replaced long-serving division chiefs with younger, more collegial managers. "There are still silos at Sony," says Richard Doherty, who runs the market research firm Envisioneering. "But now at least they're sending smoke signals to one another."

Stringer says he chose his team—dubbed the Four Musketeers—because he deemed them less likely than their predecessors to use the "past as a blueprint." The Musketeer to watch is Kaz Hirai, 50, who worked at Sony Music and helped popularize the PlayStation. Hirai now runs the Networked Products & Services Group. Before his ascension, the TV, game, and movie units each had their own way of delivering Web content. Hirai has got them working together, Stringer says, and made it possible for consumers to use one account to access movies, shows, and Webisodes on any Sony device—much as Apple does with iTunes.

Stringer hopes to use the PlayStation Network as a model for the entire company. That four-year-old service has 50 million registered users who can buy or rent video, games, and music over the Web. Stringer aims to sell 350 million networked gadgets and generate $3.4 billion from network services, which include movies and games, by Mar. 31, 2013. No one doubts networked gadgets are the future, and everyone is pursuing them. "People like their stuff to work together," says Jeff Barney, who oversees digital products at Toshiba. "That's where Apple has challenged us." Sony also faces Microsoft (MSFT), which has similar hopes for its Xbox 360 game console.

Stringer's competitive advantage may lie in 3D, a technology Sony is spending $100 million to promote, according to U.S. marketing chief Mike Fasulo. Again, Stringer hopes to spur sales of 3D TVs and DVRs with a rush of content—from a Wheel of Fortune game to World Cup coverage shot in 3D. "A television without content is like a refrigerator without food or a car without gasoline," Sony Pictures chief Michael Lynton said during a June presentation.

Doherty sees Sony ahead of Panasonic (PC) and Samsung in 3D: "Sony is in the catbird seat as far as having the most Blu-ray players out there [and] they have the only game console that can be upgraded to 3D." Still, recession-squeezed consumers may not be ready to spend $3,900 for a Sony 46-inch 3D set. So Stringer may have a hard time hitting his target of $11.3 billion in 3D-related sales by mid-2013, analysts say.

In fiscal 2009 and 2010, Sony lost a combined $1.4 billion. In May, however, the company said it would earn $540 million this year, a sign the cost-cutting has stabilized its financial position. Now Stringer has to prove that the long-promised synergies of his businesses can be realized.

The bottom line: Sony is increasingly being eclipsed in consumer electronics by Apple. So it's pushing its content over networked devices to fight back.

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