Description
Human resources is the set of individuals who make up the workforce of an organization, business sector or an economy. "Human capital" is sometimes used synonymously with human resources, although human capital typically refers to a more narrow view; i.e., the knowledge the individuals embody and can contribute to an organization.
Sony Corporation - Future Tense?
?Sony may be remembered as the largest consumer electronics company failure in history. No other company had the Sony brand at that critical period in the late 1990s and early this decade when most of the products that dominate the market today were born.?1 Douglas A. McIntyre, Editor 24/7 Wall Street, in July 2009.
SONY REPORTS LOSS
In May 2009, Japan-based multinational conglomerate, Sony Corporation (Sony) announced that it had posted its first full year operating loss since 1995 and only its second since 31958, for the fiscal year ending March 31, 20092. Sony announced an annual loss of ¥ 98.94 billion ; with annual sales going down by 12.9% to ¥ 7.73 trillion (Refer to Exhibit I for Sony's consolidated statements of income and Exhibit II for Sony's balance sheets for the financial years 2005 to 2009). The company, which had reported a net profit of ¥ 369 billion for 2008, also warned that with consumers worldwide cutting back on discretionary spending in light of the recession, the losses could touch ¥ 120 billion for the year ending March 2010. Sony had been a dominant player in the global consumer electronics industry since its inception in Japan in 1946. Over the years, it had introduced some path-breaking products including the Walkman and the PlayStation. However, by the early 2000s, it had lost its leadership position in some of its key products like televisions and media players. In fiscal 2009, almost all its product lines were reporting losses (Refer to Exhibit III for operating income/loss by business segments of Sony Corporation). Analysts attributed the losses to its ?silo culture'4, which came in the way of cooperation between the different divisions in the company. This resulted in Sony failing to bring out innovative products on time to suit the changing needs and preferences of consumers, though it had all the required competencies. Other reasons attributed for the losses included economic recession in Sony's key markets and the appreciating Yen against major currencies. Howard Stringer (Stringer), who became the first foreigner to head Sony (in 2005), tried to address the silo culture issue and bring the different divisions together. But just when his efforts were beginning to show results, Sony was confronted with problems caused by recession that began in the US in late 2007 and had gripped most of the developed countries by late 2008. According to a BusinessWeek article in August 2009, ?Over the past few months, the financial crisis and economic downturn have dealt a set5back to Chairman and CEO Howard Stringer's efforts at restoring the company to profitability.?
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Douglas A. McIntyre, ?24/7 Wall St. TV: Sony - No Hit Products Since the Stone Age,?http://247wallst.com, July 31, 2009. Sony's financial year accounting period is between April 01 and March 31. The fiscal year 2009 refers to the period between April 01, 2008 and March 31, 2009. As of September 15, 2009, 1 US$ ? ¥ 91.205 and 1 €? ¥ 133.26. Organizations operating in a silo culture operate as separate divisions without any collaboration with one another. Due to silos, there were pronounced differences among different business units, which led to lack of cooperation and prevented the smooth running of the company. Kenji Hall, ?Sony is Still Feeling the Recession Bite,? www.businessweek.com, August 03, 2009. 1
Sony Corporation - Future Tense?
However, according to industry experts, Sony faced far more challenges than just those posed by the recession. According to Jonathan Nelson, Head of private equity firm Providence Equity, ?The challenge of changing the culture of an iconic Japanese company is even more difficult than dealing with the current challenges of the consumer electronics industry.?6
BACKGROUND NOTE
Sony was founded in 1946 as Tokyo Tsuchin Kyogo by Masaru Ibuka and Akio Morita (Morita)7. The company began with 20 employees and a capital of ¥ 190,000. Sony started off manufacturing telecommunications and measuring equipment and then began making transistor radios and tape recorders. Its focus, right from inception, was on product innovation and on offering high quality products. The company's name was changed to Sony Corporation in January 1958 to fit in with its global expansion plans. It set up a subsidiary in the US in 1960. In 1972, it set up manufacturing facilities in the US — the first Japanese company to do so. Sony believed that there was a huge demand for innovative products and hence it did not pay much importance to market research. However, it suffered a major setback in 1975 on account of its Betamax video cassette to be used in its home video cassette recorder. Before the Betamax technology could establish itself in the market, it lost out to VHS, which was backed by top studios in Hollywood (Refer to Exhibit IV for the details of Sony's format failures over the years). Sony then realized that the technology used in such products was largely determined by the owners of content. It entered the content development business and in 1988, acquired CBS Records and renamed it Sony Music Entertainment. In 1989, it acquired Columbia Pictures (which included Tristar) and renamed it Sony Pictures. Over the decades, Sony released several cutting-edge products. In 1968, Sony introduced the Trinitron Color TV, which was highly successful. Another product that did well was the Walkman, launched in 1979. Other path-breaking products from the company were the world's first Compact Disc player, the Camcorder, the Discman portable CD player, the PlayStation, and the Digital Handycam. In the early 1990s, while Sony's sales and operating revenues had shown a moderate increase, its operating income and net income began witnessing a decline. For instance, in fiscal 1991, Sony reported sales and operating revenues at ¥ 3695.51 billion and an operating income at ¥ 302.18 billion. In 1993, though sales and operating revenues increased to ¥ 4001.27 billion, operating income went down to ¥ 130.64 billion. In 1995, operating loss was ¥ 166.64 billion on sales and operating revenues of ¥ 3990.58 billion. Though Sony went through a restructuring exercise, it did not yield the desired results. In 1999, net income dropped by 19.4% to ¥ 179 billion. Between the financial years 1995 and 1999, the electronics business registered a compounded annual growth rate (CAGR) of 8.55% and the music business a CAGR of 10.5% (Refer to Exhibit V for details on Sony's business segments as of 2008). Sony banked heavily on its gaming product - the PlayStation — whose sales registered a CAGR of 215% between 1995 and 1999. In 2000, Sony's net income fell to ¥121.83 billion. In the early 2000s, Sony continued to reel under problems. In what was termed as ?Sony Shock' by the media, the company announced a loss of ¥ 111.14 billion for the quarter ending March 2003. For the quarter ending June 2003, it reported a net profit of ¥ 9.3 million, 98% lower than the profit reported in the corresponding quarter in 2002. In 2004, Sony's net profit was at ¥ 88.51 billion on sales and operating revenue of ¥ 7496.39 billion as against a net profit of ¥ 115.52
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Richard Siklos, ?Sony: Lost in Transformation,? www.fortune.com, June 26, 2009. Akio Morita was a graduate in physics, while Masaru Ibuka had a degree in electronic engineering. When Morita joined the Japanese navy as a Lieutenant, he met Ibuka at the navy's Wartime Research Committee. They became friends and planned to float a company. 2
Sony Corporation - Future Tense?
billion on sales and operating revenue of ¥ 7473.63 billion in 2003. The five years between 2001 and 2005 saw a 75% erosion in Sony's stock price (Refer to Exhibit VI for Sony's stock price chart for October 1999 and September 2009 period). The year 2005 saw Stringer becoming the first non-Japanese CEO in Sony's six-decade history. Under Stringer's leadership a major reorganization exercise was undertaken in 2005 and Sony started showing encouraging results. For the fiscal 2007, sales and operating revenue increased by 10.5% to ¥ 8.29 trillion as compared to 2006. The trend continued over the next year and for the fiscal 2008, sales and operating revenue grew by 7% to ¥ 8.87 trillion over the previous year (Refer to Exhibit VII for Sony's sales and operating revenue by geographic and business segments). Sony recorded net income of ¥ 369.43 billion in the fiscal 2008 as compared to ¥ 126.33 billion in fiscal 2007. However, the company's improved financial performance did not last long. In December 2008, Sony revised its earnings forecast stating that it would make losses for the fiscal 2009. The company reported a net loss of ¥ 98.94 billion for the fiscal 2009.
THE PROBLEMS
According to industry experts, one of the main reasons for Sony's problems was its slowness in assessing product trends. The problems that it faced with most of its products were due to its silo culture, which prevented coordination among different product divisions. The appreciating value of the Yen vis-à-vis the US dollar and the recession in Sony's major markets only compounded its problems. SILO CULTURE Over the decades, Sony had become an organization of fiefdoms and silos. It had become highly decentralized, with the different divisions competing against each other. This strategy worked wellduring the first few decades of Sony's inception, when not much interdependence was needed to bring out new products. The fact that such silos had successfully brought out products like the Walkman and the PlayStation only reaffirmed Sony's faith in them. However, as technology and products grew more complex, it became necessary for coordination among different divisions such as hardware, software, design, development, marketing, business development, and PR to manufacture and market any product successfully. But this was absent in Sony. An offshoot of the silo culture was the proprietary formats, which every division tried to protect. According to Tim Bajarin (Bajarin), President of Creative Strategies, a consulting firm based in California, ?The content guys were adamant about how their movies and music were to be protected on Sony devices. That clash created a difficult situation since Sony is an amalgam of the consumer electronics value chain.? 8 According to insiders at Sony, in several instances, different divisions did not communicate with each other. There were endless arguments among them on trivial issues. Reportedly, the divisions often had no idea about products being developed by other divisions. The silo culture was held largely responsible for Sony's failure to launch an online music store, in spite of having all the resources for it. Prior to the launch of iPod in 2003, Sony had been the top player in the portable music market, having sold more than 200 million units of the Walkman. When the iPod was launched, Sony executives in the US planned to launch a digital portable music player and an online music store. They said with its formidable presence in hardware, software, design, and content, Sony could bring out the new player and the online music store in less than a year.
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?Sony's Next Act: Will it Play?? Knowledge@Wharton, September 21, 2005. 3
Sony Corporation - Future Tense?
However, the music store called ?Connect', required cooperation from different units like the personal computer group, portable audio group, Sony Music, and the division that made flash memory players. Of these, three divisions had their own ideas about running music download services and portals. The differences persisted, with one group wanting to use the widely used MP3 format and others supporting the proprietary ATRAC9 format. From the beginning, there were differences among the different divisions about the features that should form part of Connect. While some divisions were of the view that Connect should have features like those offered by iTunes, BuyMusic, Musicmatch, Realnetwork's Rhapsody, etc., others called for more innovation, which according to them, was Sony's strength. Ultimately, Sony decided to sell the music in its proprietary format, with copy-restriction tools. According to people involved in the project, Sony was even against using playlists, as it was a feature popularized by Apple. When Connect was under development, Peter S Fader (Fader), Professor of Marketing, University of Pennsylvania, met Sony's executives and asked them what made Sony's product better than Apple's. According to Fader, the executives said, ?Because we're Sony.? He opined, ?It's like they didn't realize the train had left the station. In digital music, it would take something heroic to get them back on track.?10 Sony's software called Connect Player was to be used to transfer music to Sony's devices. Right after its launch, Sony began receiving several complaints about the performance of Connect Player. To address this issue, it outsourced software development to a startup. But Sony'semployees did not collaborate with the software developer. Then in 2006, Sony advised users to shift to another software, Sonicstage. But even with this software, Connect failed to take off. Sony's proprietary software and its inability to play the popular MP3 formats were cited as the main reasons for the failure. Though it was among the world's largest online music download sites and had more than 2.5 million tracks, Connect stopped selling music in March 2008. Another incident occurred in 2005 which brought to the fore how deep rooted the silo culture in Sony was. Ken Kutaragi (Kutaragi), then CEO of the video game division, hosted a major event in Las Vegas to launch PlayStation Portable. Executives from divisions like Electronics, which had supplied key components for it were not invited for the launch. In another incident, when PlayStation 3 was being developed, the project overshot both budget and time. But Kutaragi did not inform Stringer about this. When an adequate number of PlayStation 3 consoles were not released on time, Kutaragi blamed the Electronics division for the delay. According to an executive from Sony Music, ?Kutaragi likes to decide everything himself. That worked in the early days of the video game business. But in the next phase, Sony needs someone who is a better listener.?11 Stringer on his part, tried to address the silo culture in the organization by introducing a slogan ?Sony United' in 2005 and outlining several measures that could be implemented to unite the company and enhance collaboration among different divisions. Initially, analysts were of the view that Stringer had succeeded in addressing the culture related issues. However, the more than a year delay in the launch of PlayStation 3 proved them wrong. On Stringer's efforts to address the silo culture in the organization, The Times wrote, ?Repeated efforts by Sir Howard to impose a stronger culture of cooperation between divisions have met with obstruction by Sony's well- entrenched old guard and frustration for those that have sought to shake the company out of its stupor.?12
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ATRAC or Adaptive Transform Acoustic Coding is a proprietary audio compression algorithms developed by Sony. ?Sony's Next Act: Will it Play?? Knowledge@Wharton, September 21, 2005. Kenji Hall, ?Game on for Sony PlayStation's New Chief,? www.businessweek.com, April 30, 3007. Leo Lewis, ?Sony Predicts First Annual Loss in 14 Years,? http://business.timesonline.co.uk, January 22, 2009. 4
Sony Corporation - Future Tense?
PRODUCTS Though Sony was credited with several product innovations, it made some mistakes that proved costly for it. It believed that there was always a market for cutting edge products and did not take changing consumer preferences into account. It had always been a proponent of content protection and was against the sharing of its proprietary content. The products that it manufactured over the years did not, therefore, allow free sharing of its audio and video content. In the early 1990s, Sony stuck to its proprietary format MiniDisc and protected its music using ATRAC. The company wanted to control the technology and distribution of music. But at that time, the popular format was MP3 and consumers who could not listen to music in the MP3 format on their Sony gadgets shifted to players made by other companies. Till the early 1990s, Sony was able to charge a premium for its products as their quality surpassed that of its competitors. However, in the mid-1990s, competitors started launching products that were of comparable quality but priced lower. By the early 2000s, in various product categories, consumers' preferences were changing. For instance, in televisions, cathode ray tube (CRT) televisions became less popular, giving way to wide screen televisions and flat displays. Televisions In the case of televisions, Sony was caught off guard. Till the mid-1990s, Sony had been the market leader in the CRT televisions business with its Trinitron brand. Samsung, which launched its first LCD display screen in 1995, became the largest manufacturer of LCD displays in the next one decade. Samsung also expanded into DRAM chips, flash memory, and optical storage and became the world's most popular consumer electronics brand in 2005, overtaking Sony. In the mid-1990s, Samsung and LG were not popular, being seen as low-end producers of televisions. But they were quick to perceive the shifting preference toward flat panel televisions, while Sony continued to focus on improving its Trinitron, CRT television line. Samsung, with its expertise in manufacturing flat panel computer displays and semiconductors, jumped ahead by launching LCD televisions. According to Daniel Levinthal, Management Professor at Wharton, ?Sony was a leader in TV, looking to extend13its platform and protect its current business. Samsung saw digital television as a new opportunity.? Sony launched the WEGA flat screen televisions (1997), the WEGA LCD TV (2002), and the BRAVIA (2005) range of LCD televisions. The BRAVIA range became very popular. However, as it was priced high, it could not withstand the competition from cheaper Korean rivals. As of second quarter of 2008, Samsung's share in the global television market was 22.8% as against 12.5% of Sony, which was in second position. By the second quarter of 2009, Sony had slipped to third spot with a share of 11.8%. Samsung continued to be top player with a share of 23%, followed by LG with 13.7%. Analysts attributed the trouble with Sony's televisions to the company's failure to keep up with the latest technology and its inability to cut manufacturing costs. While other television manufacturers had shifted their production to low cost countries, Sony continued to make televisions in Japan —an expensive proposition. Sony also invested heavily in the LCD technology, but by the time the product was out, the price of LCD televisions had begun falling rapidly. Music Players According to industry experts, Sony's inability to come out with a digital music player like the iPod illustrated the company's weaknesses. And other companies were quick to take advantage of it. Acknowledging this, Stringer said, ?In the 20th century, this company (Sony) created great
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?Sony's Next Act: Will it Pay?? Knowledge@wharton, September 21, 2005. 5
Sony Corporation - Future Tense?
champion products ... In the 21st century, other companies took our hardware like the Walkman and added network capability and turned it into the iPod.?14 Sony was known for making cutting-edge gadgets that were small in size, had a formidable presence in music players through the Walkman and the Discman, and also had a significant presence in content. However, it could not bring all these together to create a digital music player. In 1999, two years before Apple came out with the iPod, Sony launched two digital players, manufactured by its VAIO division and personal audio division. These devices with 64 mb memory, could store up to 20 songs. They could be considered pioneers in the digital music player product category. However, they were priced high and used ATRAC to convert MP3 files into a format compatible with Sony's products. This conversion was tedious and slow. According to experts, if the three silos had got together, they could have brought out a product that could have thwarted the iPod at the initial stages itself. By October 2008, the iPod had become the best selling digital audio player. Analysts were of the view that the iPod had got ahead of the Walkman as Apple, unlike Sony, was able to integrate hardware and software. According to Eric Clemons, Professor, Operations and Information Management at Wharton, ?Indeed, Apple Computer's hit iPod could just as easily have been the sPod, with the "s" standing for Sony. There is no15reason that Sony, or anyone else, could not have [done this]. I'm still surprised that Apple did.? Gaming Consoles The absence of coordination among the product divisions also led to the delayed launch of Sony's PlayStation 3. This resulted in Microsoft's Xbox 360 and Nintendo's Wii gaining over Sony in the gaming console market. Though both Microsoft and Sony deployed the same Cell technology in their gaming consoles, Sony wanted to enhance the gadget with Blu-ray discs16. As the production of Blu-ray discs was hampered by the slow production of an essential component, the Blu-ray diode, Sony released PlayStation 3 almost a year after the release of Xbox 360, only to realize that consumers were looking for gaming experience, novelty, storytelling, and the fun factor and not superior technology or gaming excellence.17To compound the problems of PlayStation 3, game publishers began opting for multi-platform strategies to cover their costs. This meant that the games were not exclusive to PlayStation 3 — they could be played on other consoles as well. By the time PlayStation 3 was released, Sony and Toshiba were indulged in a format war between Blu-ray and HD-DVD, which continued over the subsequent years. Given Sony's previous experience with Betamax, consumers were worried about the future of their consoles which came with a Blu-ray player. To promote the Blu-ray format, all the PlayStation 3 consoles were loaded with Blu-ray discs, which made them expensive. To make them competitive, Sony reduced the price of the PlayStation 3 consoles. Due to this, PlayStation 3 sales increased by 26.3%. However, the Games division reported an operating loss of ¥ 124.5 billion for the fiscal 2008. Electronic Reader In Sept18mber 2006, Sony launched an electronic reading device called ?Reader.' It weighed nine e ounces , was of the size of a paperback book (5?X7?), and could store content of up to 80 books. Another prominent feature of the book was e-ink19, which gave the user an experience similar to reading a book.
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Kiyoshi Takenaka, ?Sony CEO says Restructuring Steps on Track,? http:/reuters.com, June 19, 2009. ?Sony's Next Act: Will it Pay?? Knowledge@wharton, September 21, 2005. Blu-ray is an optical disc storage medium that has superseded the DVD format. This format offers five times the storage capacity of traditional DVDs. Multi-platform or cross platform refers to video games released on different game consoles. Some of the popular multi-platform games are Lara Croft Tomb Rider: Legend and FIFA. 1 ounce ? 28.349 grams. E-Ink is an electronic paper that is manufactured by the US-based E-ink Corporation. 6
Sony Corporation - Future Tense?
However, the number of titles Sony released was limited and the books were difficult to download, as the online bookstore was difficult to navigate through. At this juncture, Amazon came out with its e-reader Kindle, which was similar to Reader in display technology, external storage, and microprocessor. While, for Reader, content had to be transferred using a PC, Kindle was a wireless reading device. Kindle came with a 3G connection that allowed users to download books from Amazon's online store without connecting to the Internet. This additional feature resulted in Kindle becoming more popular. By November 2007, Kindle had sold around 90,000 titles while Sony's Reader had sold only 25,000. In this case too, Sony stuck to its proprietary e-Book format, with anti-copying software. In the 2003-08 period, Sony had lost its leadership position to strong competitors in some major product categories. For instance, it lost market share to Apple in portable music players and to Nintendo and Microsoft in gaming consoles. Sony's other products like mobile phones, camcorders, and digital cameras also did not perform up to expectations. Though Sony resorted to price cuts, they were of no use. According to The Wall Street Journal, ?As demand cooled in 2008, Sony slashed prices of its TVs, video players, and cameras to keep inventory from stacking up. But Sony struggled to cut its costs fast enough to keep up with falling prices.?20 RECESSION IN KEY MARKETS Sony's problems were compounded by the recession in the US and its impact on the world markets. After the holiday season that ended in December 2007, Sony posted quarterly revenues of • 2,859 billion — an all-time high. In February 2008, Toshiba stopped promoting its HD DVD format,21, which left the way clear for the Blu-ray to be adopted as the standard high definition format. However, just when it appeared that Sony was emerging out of its problems, the recession made its impact felt on consumers, who postponed the purchase of luxury products. The demand for consumer electronics fell drastically. By the time Sony had won the format war in February 2008, most of the developed economies in the world were in the grip of recession. In the next few months, the sales of Blu-ray players were not up to Sony's expectations and till March 2009, Sony had sold only 2.2 million Blu-ray players as against an estimated 5 million units. The recession also affected the sales of premium products - high-end televisions, premium digital cameras, and Sony's new OLED televisions. Sony also announced that the economic downturn had hindered Stringer's plans to restore the company's profitability. Sony was severely affected by the Yen appreciating against the US dollar and the euro. Around half of Sony's manufacturing took place in Japan in-house through a vertically integrated operation but only 15% of its electronics sales were domestic. When the value of the Yen was depreciating against major currencies in the world between early 2006 and mid-2007, it was a profitable proposition for Sony. The company also took advantage of growing overseas demand, where its products were competitive due to the weaker Yen. But when the Yen surged, Sony was caught off guard. In October 2008, the Yen appreciated and hit a 13-year high against the US dollar at ¥ 94.62 per US dollar. The appreciating Yen severely impacted Sony's exports as its products became less competitive and cost more to buyers in non-Japanese markets. This significantly eroded the value of revenues that the company earned in the non-Japanese markets. According to Atul Goyal, Analyst from CLSA, in the case of the Japanese currency strengthening by one Yen against the US dollar, the negative impact on Sony's operating profit would be to the tune of ¥ 4 billion. Similarly, in the case of the euro, the impact on operating profit was ¥ 7.5 billion.
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?Sony Losses Raise Pressure on Stringer,? http://online.wsj.com, May 15, 2009. Toshiba (HD DVD Optical Disc) and Sony (Blu-ray disc) were entangled in a high definition optical disc format war, promoting their format as the standard for storing high definition video and audio content. 7
Sony Corporation - Future Tense?
At the same time, South Korean competitors like Samsung and LG benefited as the Korean Won depreciated vis-à-vis the Yen. In January 2008, one Japanese Yen was equivalent to 8.7 Won. By December 2008, the Yen had appreciated to 14.87 Won, which gave the South Korean companies an edge over Sony. According to Stringer, ?What this recession has done is expose the weaknesses in our system that we didn't want really to admit.?22
THE SOLUTION?
In his efforts to solve Sony's problems, Stringer decided to reorganize the company in February 200923. He said, ?There is still a lot of the old Sony, and not enough of the new, which constrains our competitiveness. We simply have no alternative but to dramatically change the way we do things. Without those changes, it will be very difficult to return to profitability.?24 Sony was reorganized into two groups - The Networked Products & Services Group and The New Consumer Products Group (Refer to Exhibit VIII for Sony's Organization Structure in April 2007 and in April 2009). Under the first group would be Sony Computer Entertainment, personal computers, mobile products including the Walkman, and Sony Media Software and Services. The main aim of the group was to bring in new products using Sony's technologies and also to increase the pace of innovation, which would lead to higher revenues and profitability. Forming a part of these processes was the expansion of the PlayStation network platform. The New Consumer Products Group included television, digital imaging, home audio, and the video business of the company. Its focus was on achieving profitability and growth through product innovation, and improving efficiency and speed of operations. Another area of interest was development and growth in the emerging markets. As part of the reorganization efforts, two cross company units were created. One was the Common Software and Technology Team which was to develop and implement integrated technology and software solutions. The group was also required to provide coordinated software development services. The other unit was the Manufacturing/Logistics/Procurement team responsible for ensuring efficient supply chain solutions for the business groups. The reorganization also witnessed a reshuffle of some of the top executives in the company. Stringer assumed responsibility as President of Sony, in addition to his existing positions of CEO and Chairman. After the reshuffle, the Electronics division came under his purview. This brought in a new control structure at Sony, which was expected to be operationally convenient and to unite the different silos. While restructuring Sony, a lot of young blood had been infused into the top management. This was also viewed as a move to break the Japanese tradition of seniority in favor of performance. According to company sources, the reorganization was expected to speed up the production of networked products and services. They were of the view that it would help the different divisions like the PCs, mobiles, and entertainment divisions, and also other divisions like television, digital imaging, home audio, and video to work in close collaboration. The reorganization also involved the closure of eight of its 57 manufacturing sites and a reduction of the workforce by 16,000. This was expected to reduce costs by ¥ 300 billion. Sony's fortunes continued to plunge even in the first quarter ending June 2009, as it posted an operating loss of ¥ 25.7 billion. The sales and operating revenue decreased by 19.2% from the ¥ 1979 billion reported in the quarter ending June 2008 to ¥ 1599.9 billion. The average value of the Yen was 7.5% higher against the US dollar and 23.5% higher than the euro between April and
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?Game On,? www.economist.com, March 07, 2009. The new organization structure was effective from April 2009. Justin McCurry, ?Sony Chief Forecasts Record Losses,? www.guardian.co.uk, January 22, 2009. 8
Sony Corporation - Future Tense?
June 2009 as compared to the period between April and June 2008. Sony announced that it expected a loss to the tune of ¥ 120 billion for the financial year ending March 2010. While announcing the results for the quarter ending June 2009, Sony noted that the losses were less than expected because of the cost reductions achieved by its restructuring efforts. Analysts were of the view that with the restructuring, Stringer might find it easier to follow his plans and revive Sony. He was expected to face less opposition as most old timers had been eased out of the company and the top management had been infused with young blood. Industry experts remained skeptical about the success of Stringer's latest reorganization program and its ability to bring Sony back to profitability. They pointed out that there had been several such programs at Sony since 1994, most of which had failed to achieve the desired results. Commenting on the reasons for the failure of earlier efforts, Fortune, wrote in June 2009, ?The culprit in nearly every case has been Sony's tradition-bound mentality, one 25 at remained too focused on building th excellent analog machines in an increasingly digital world.? Analysts believed that the global recession and the resultant problems at Sony provided a good opportunity for Stringer to take radical measures to bring the company back on to the growth path and to help it regain its competitiveness. Pointing 26 a possible solution to one of the Sony's to problems, Larry Dignan, Editor and Chief of ZDNet , said, ?Sony is simply too large to navigate and is hampered by a bunch of businesses that are struggling. To make thing worse, these businesses don't go together. These businesses just don't add up to be a lean, mean Sony machine. The solution: Breakup of the company. Does Sony need to be in content? Does it really need to manufacture TVs? Is it in businesses that just aren't worth saving? Would a bunch of baby Sonys do better? Those questions are probably being asked, but there's no intention to do anything about it. It's a shame given that the Sony brand is stellar, but the company is the opposite of too big to fail - it's too big to fix.?27
Richard Siklos, ?Sony: Lost in Transformation,? Fortune, June 26, 2009. ZDNet is a website webzine published by Ziff Davis Publishing Company. ?Is Sony Too Big to be Fixed,? http://seekingalpha.com, May 14, 2009. 27
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Sony Corporation - Future Tense?
Exhibit I Sony Corporation - Consolidated Statements of Income (2005-09)
In million Yen Financial Year Ending March 31 Sales and Operating Revenue: Net Sales Financial service revenue Other operating revenue Total sales Costs and Expenses: Cost of sales Selling, general and administrative Financial service expenses (Gain) loss on sale, disposal, impairment of assets Equity in net income (loss) of affiliated companies Operating income (loss) Other Income: Interest and dividends Foreign exchange gain, net Gain on sale of securities, investments, net Gain on change in interest in subsidiaries and equity investee Other Other income Other Expenses: Interest Loss on devaluation of securities investments Foreign exchange loss, net Other Other expenses Income (loss) before income tax & minority interest Income taxes Income (loss) before minority interest Minority interest in income (loss) of consolidated subsidiaries Cumulative effect of an accounting change Net Income (Loss) attributable to Sony?s stockholders 6,565,010 537,715 88,600 7,191,325 5,000,112 1,535,015 482,576 27,994 7,045,697 29,039 174,667 14,708 0 5,437 16,322 29,447 65,914 24,578 3,715 524 25,518 54,335 186,246 16,044 170,202 1,651 (4,713) 163,838 6,692,776 720,566 97,255 7,510,597 5,151,397 1,527,036 531,809 73,939 7,284,181 13,176 239,592 24,937 0 9,645 60,834 23,039 118,455 28,996 3,878 3,065 22,603 58,542 299,505 176,515 122,990 (626) -123,616 7,567,359 624,282 104,054 8,295,695 5,889,601 1,788,427 540,097 5,820 8,223,945 78,654 150,404 28,240 0 14,695 31,509 20,738 95,182 27,278 1,308 18,835 17,474 64,895 180,691 53,888 126,803 475 -126,328 8,201,839 553,216 116,359 8,871,414 6,290,022 1,714,445 530,306 (37,841) 8,496,932 100,817 475,299 34,272 5,571 5,504 82,055 22,045 149,447 22,931 13,087 0 21,594 57,612 567,134 203,478 363,656 (5,779) -369,435 7,110,053 523,307 96,633 7,729,993 5,660,504 1,686,030 547,825 38,308 7,932,667 (25,109) (227,783) 22,317 48,568 1,281 1,882 24,777 98,825 24,376 4,427 0 17,194 45,997 (174,955) (72,741) (102,214) (3,276) -(98,938) 2005 2006 2007 2008 2009
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Sony Corporation - Future Tense?
In million Yen Financial Year Ending March 31 Earnings per Share (Common Stock) Basic Diluted Depreciation and amortization Capital expenditures R&D expenses Average exchange rate (Yen/US $) Average exchange rate (Yen/Euro) Source: Sony Annual Reports, 2005-09. 175.90 158.07 372,865 356,818 502,008 106.5 133.7 122.58 116.88 381,843 384,347 531,795 112.3 136.3 126.15 120.29 400,009 414,138 543,937 116.0 148.6 368.33 351.10 428,010 335,726 520,568 113.3 160 142 98.59 98.59 405,443 332,068 497,297 99.5 2005 2006 2007 2008 2009
Exhibit II Sony Corporation - Balance Sheets (2005-09)
(In million Yen)
Assets
As of March 31 Cash and time deposits Marketable securities Notes and accounts receivable, less allowances Inventories Deferred income taxes Other Total current assets Film costs Investments and advances Property, plant and equipment, less depreciation Intangibles, net Goodwill Deferred insurance acquisition costs Deferred income taxes Other Total other assets Total Assets 2009 660,789 466,912 853,454 813,068 189,703 636,709 3,620,635 306,877 4,798,430 1,175,863 396,348 443,958 400,412 359,050 511,938 2,111,706 12,013,511 2008 1,086,431 427,709 1,090,285 1,021,595 237,073 1,146,570 5,009,663 304,243 4,335,648 1,243,349 263,490 304,423 396,819 198,666 496,438 1,659,836 12,552,739 2007 799,899 493,315 1,369,777 940,875 243,782 699,075 4,546,723 308,694 3,888,736 1,421,531 233,255 304,669 394,117 216,997 401,640 1,550,678 11,716,362 2006 703,098 536,968 985,508 804,724 221,311 517,915 3,769,524 360,372 3,519,907 1,388,547 207,034 299,024 383,156 178,751 501,438 1,569,403 10,607,753 2005 779,103 460,202 1,025,362 631,349 141,154 519,001 3,556,171 278,961 2,745,689 1,372,399 187,024 283,923 374,805 240,396 459,732 1,545,880 9,499,100
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Sony Corporation - Future Tense?
Liabilities and Stockholders? Equity
Short-term borrowings Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Deposits from customers in banking business Other Total current liabilities Long-term debt Accrued pension and severance costs Deferred income taxes Future insurance policy benefits and other Other Total long-term liabilities Minority interest in consolidated subsidiaries Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost Total stockholders' equity Total Liabilities Source: Sony Annual Reports, 2005-09. 303,615 147,540 560,795 1,036,830 46,683 1,326,360 389,077 3,810,900 660,147 365,706 188,359 3,521,060 250,737 4,986,009 251,949 630,765 1,155,034 1,916,951 (733,443) (4,654) 2,964,653 12,013,511 63,224 291,879 920,920 896,598 200,803 1,144,399 505,544 4,023,367 729,059 231,237 268,600 3,298,506 260,032 4,787,434 276,849 630,576 1,151,447 2,059,361 (371,527) (4,768) 3,465,089 12,552,739 52,291 43,170 1,179,694 968,757 70,286 752,367 485,287 3,551,852 1,001,005 173,474 261,102 3,037,666 281,589 4,754,836 38,970 626,907 1,143,423 1,719,506 (115,493) (3,639) 3,370,704 11,716,362 142,766 193,555 813,332 854,886 87,295 599,952 508,442 3,200,228 764,898 182,247 216,497 2,744,321 258,609 4,166,572 37,101 624,124 1,136,638 1,602,654 (156,437) (3,127) 3,203,852 10,607,753 63,396 166,870 806,044 746,466 55,651 546,718 424,223 2,809,368 678,992 352,402 72,227 2,464,295 227,631 3,795,547 23,847 621,709 1,134,222 1,506,082 (385,675) (6,000) 2,870,338 9,499,100
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Sony Corporation - Future Tense?
Exhibit III Sony Corporation - Operating Income/Loss by Business Segment (2007-09)
(In million Yen)
For the Year Ended March 31 Electronics Games Pictures Financial Services All other Total Corporate and Elimination Consolidation Total
Source: Sony Annual Report, 2009.
2007 251,256 (232,325) 26,705 84,142 32,808 162,586 (12,182) 150,404
2008 441,787 (124,526) 58,524 22,633 60,800 459,218 16,081 475,299
2009 (168,084) (58,476) 29,916 (31,157) 30,367 (197,434) (30,349) (227,783)
Exhibit IV Sony Corporation - Format Failures
1975 - Betamax: Sony developed Betamax against the VHS format. Though the quality of the video was better and the size of the tape was smaller, Betamax failed to become the standard format, with analysts attributing it to higher costs. 1987 - Digital Audio Tape: This was introduced as a successor to the analog cassette tape. Digital audio tape combined spinning-head technology and digital encoding. The players were expensive and were not received well by the consumers. Sony discontinued the product in 2005. 1992 - Minidisc: The Minidisc was a small recordable digital music standard. But the music came with strict digital copy protection, and was based on ATRAC audio data compression. The product was priced high, and did not gain popularity. 1992 - ATRAC Audio Compression: this was developed to fit high quality audio files in a small disc like Minidisc. ATRAC was also used in Sony's Walkman, and the Walkman only played ATRAC 3 initially. It was only in 2004 that it started supporting the MP3 format. 1998 - MemoryStick: This technology was developed by Sony for use in digital cameras and portable music players. A removable flash memory card, it was also used in PlayStation Portable, PDAs and mobile phones. Later variations of MemoryStick Duo and Micro were also launched. But the format failed to take off, especially with other manufacturers. 2005 - Universal Media Disc: This was an optical disc medium developed for use in PlayStation Portable. Games and movies were distributed in this format. Its proprietary nature and lack of writers and blank discs made its adoption difficult. The format also did not receive support from movie studios. PlayStation Portable Go did not use this format.
Compiled from www.fastcompany.com and other sources.
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Sony Corporation - Future Tense?
Exhibit V Sony Corporation?s Business Segments (2008)
Business Segment Electronics Games Music Pictures Financial Services Segment Details Audio, video, televisions, information and communications equipment, semiconductor components, and other products. Games console and software businesses conducted by Sony Computer Entertainment Inc. Businesses of Sony Music Entertainment (Japan) Inc. Motion Pictures and television programming distributed by Sony Pictures Entertainment Inc. Sony Financial Holdings Inc., and its subsidiaries Sony Life Insurance Company Limited., Sony Assurance Inc., Sony Bank Inc., and Sony Finance International Inc. The music recording business of Sony Music Entertainment, and Sony Music Entertainment (Japan) Inc., and network services related business of So-net Entertainment Corporation.
Others
Source: www.sony.net.
Exhibit VI Stock Price Chart of Sony Corporation (October 1999 - September 2009)
Source: www.bigcharts.com.
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Sony Corporation - Future Tense?
Exhibit VII Sony Corporation - Sales and Operating Revenue by Geographic and Business Segments
(In million Yen)
2009 Overseas U.S.A. Europe Other Areas Japan
2008
2007
2006
2005
5,856,774 6,815,040 6,167,854 1,827,812 2,221,862 2,232,453 1,987,692 2,328,233 2,037,658 2,041,270 2,264,945 1,897,743 1,873,219 2,056,374 2,127,841
5,306,785 5,058,863 1,957,644 1,977,310 1,715,775 1,612,576 1,633,366 1,468,977 2,203,812 2,132,462
Electronics Audio Video Televisions Information and Communications
5,032,920 5,931,708 5,443,336 453,976 558,624 522,879
4,782,173 4,827,663 536,187 571,864
1,042,014 1,279,225 1,143,120 1,275,810 1,367,078 1,226,971 942,517 1,103,212 950,461
1,021,325 1,036,328 927,769 842,537 921,195 816,150
Semiconductors Components Others Game Pictures Financial Services All Other Sales and operating revenue
Source: Sony Annual Reports, 2005-09.
205,062 662,453 451,088
237,870 833,334 552,365
205,757 852,981 541,167 974,218 966,260 624,282 287,599
172,249 800,716 481,390 918,252 745,859 720,566 343,747
184,235 751,097 546,794 702,524 733,677 537,715 389,746
984,855 1,219,004 717,513 523,307 471,398 855,482 553,216 312,004
7,729,993 8,871,414 8,295,695
7,510,597 7,191,325
doc_317898770.docx
Human resources is the set of individuals who make up the workforce of an organization, business sector or an economy. "Human capital" is sometimes used synonymously with human resources, although human capital typically refers to a more narrow view; i.e., the knowledge the individuals embody and can contribute to an organization.
Sony Corporation - Future Tense?
?Sony may be remembered as the largest consumer electronics company failure in history. No other company had the Sony brand at that critical period in the late 1990s and early this decade when most of the products that dominate the market today were born.?1 Douglas A. McIntyre, Editor 24/7 Wall Street, in July 2009.
SONY REPORTS LOSS
In May 2009, Japan-based multinational conglomerate, Sony Corporation (Sony) announced that it had posted its first full year operating loss since 1995 and only its second since 31958, for the fiscal year ending March 31, 20092. Sony announced an annual loss of ¥ 98.94 billion ; with annual sales going down by 12.9% to ¥ 7.73 trillion (Refer to Exhibit I for Sony's consolidated statements of income and Exhibit II for Sony's balance sheets for the financial years 2005 to 2009). The company, which had reported a net profit of ¥ 369 billion for 2008, also warned that with consumers worldwide cutting back on discretionary spending in light of the recession, the losses could touch ¥ 120 billion for the year ending March 2010. Sony had been a dominant player in the global consumer electronics industry since its inception in Japan in 1946. Over the years, it had introduced some path-breaking products including the Walkman and the PlayStation. However, by the early 2000s, it had lost its leadership position in some of its key products like televisions and media players. In fiscal 2009, almost all its product lines were reporting losses (Refer to Exhibit III for operating income/loss by business segments of Sony Corporation). Analysts attributed the losses to its ?silo culture'4, which came in the way of cooperation between the different divisions in the company. This resulted in Sony failing to bring out innovative products on time to suit the changing needs and preferences of consumers, though it had all the required competencies. Other reasons attributed for the losses included economic recession in Sony's key markets and the appreciating Yen against major currencies. Howard Stringer (Stringer), who became the first foreigner to head Sony (in 2005), tried to address the silo culture issue and bring the different divisions together. But just when his efforts were beginning to show results, Sony was confronted with problems caused by recession that began in the US in late 2007 and had gripped most of the developed countries by late 2008. According to a BusinessWeek article in August 2009, ?Over the past few months, the financial crisis and economic downturn have dealt a set5back to Chairman and CEO Howard Stringer's efforts at restoring the company to profitability.?
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Douglas A. McIntyre, ?24/7 Wall St. TV: Sony - No Hit Products Since the Stone Age,?http://247wallst.com, July 31, 2009. Sony's financial year accounting period is between April 01 and March 31. The fiscal year 2009 refers to the period between April 01, 2008 and March 31, 2009. As of September 15, 2009, 1 US$ ? ¥ 91.205 and 1 €? ¥ 133.26. Organizations operating in a silo culture operate as separate divisions without any collaboration with one another. Due to silos, there were pronounced differences among different business units, which led to lack of cooperation and prevented the smooth running of the company. Kenji Hall, ?Sony is Still Feeling the Recession Bite,? www.businessweek.com, August 03, 2009. 1
Sony Corporation - Future Tense?
However, according to industry experts, Sony faced far more challenges than just those posed by the recession. According to Jonathan Nelson, Head of private equity firm Providence Equity, ?The challenge of changing the culture of an iconic Japanese company is even more difficult than dealing with the current challenges of the consumer electronics industry.?6
BACKGROUND NOTE
Sony was founded in 1946 as Tokyo Tsuchin Kyogo by Masaru Ibuka and Akio Morita (Morita)7. The company began with 20 employees and a capital of ¥ 190,000. Sony started off manufacturing telecommunications and measuring equipment and then began making transistor radios and tape recorders. Its focus, right from inception, was on product innovation and on offering high quality products. The company's name was changed to Sony Corporation in January 1958 to fit in with its global expansion plans. It set up a subsidiary in the US in 1960. In 1972, it set up manufacturing facilities in the US — the first Japanese company to do so. Sony believed that there was a huge demand for innovative products and hence it did not pay much importance to market research. However, it suffered a major setback in 1975 on account of its Betamax video cassette to be used in its home video cassette recorder. Before the Betamax technology could establish itself in the market, it lost out to VHS, which was backed by top studios in Hollywood (Refer to Exhibit IV for the details of Sony's format failures over the years). Sony then realized that the technology used in such products was largely determined by the owners of content. It entered the content development business and in 1988, acquired CBS Records and renamed it Sony Music Entertainment. In 1989, it acquired Columbia Pictures (which included Tristar) and renamed it Sony Pictures. Over the decades, Sony released several cutting-edge products. In 1968, Sony introduced the Trinitron Color TV, which was highly successful. Another product that did well was the Walkman, launched in 1979. Other path-breaking products from the company were the world's first Compact Disc player, the Camcorder, the Discman portable CD player, the PlayStation, and the Digital Handycam. In the early 1990s, while Sony's sales and operating revenues had shown a moderate increase, its operating income and net income began witnessing a decline. For instance, in fiscal 1991, Sony reported sales and operating revenues at ¥ 3695.51 billion and an operating income at ¥ 302.18 billion. In 1993, though sales and operating revenues increased to ¥ 4001.27 billion, operating income went down to ¥ 130.64 billion. In 1995, operating loss was ¥ 166.64 billion on sales and operating revenues of ¥ 3990.58 billion. Though Sony went through a restructuring exercise, it did not yield the desired results. In 1999, net income dropped by 19.4% to ¥ 179 billion. Between the financial years 1995 and 1999, the electronics business registered a compounded annual growth rate (CAGR) of 8.55% and the music business a CAGR of 10.5% (Refer to Exhibit V for details on Sony's business segments as of 2008). Sony banked heavily on its gaming product - the PlayStation — whose sales registered a CAGR of 215% between 1995 and 1999. In 2000, Sony's net income fell to ¥121.83 billion. In the early 2000s, Sony continued to reel under problems. In what was termed as ?Sony Shock' by the media, the company announced a loss of ¥ 111.14 billion for the quarter ending March 2003. For the quarter ending June 2003, it reported a net profit of ¥ 9.3 million, 98% lower than the profit reported in the corresponding quarter in 2002. In 2004, Sony's net profit was at ¥ 88.51 billion on sales and operating revenue of ¥ 7496.39 billion as against a net profit of ¥ 115.52
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Richard Siklos, ?Sony: Lost in Transformation,? www.fortune.com, June 26, 2009. Akio Morita was a graduate in physics, while Masaru Ibuka had a degree in electronic engineering. When Morita joined the Japanese navy as a Lieutenant, he met Ibuka at the navy's Wartime Research Committee. They became friends and planned to float a company. 2
Sony Corporation - Future Tense?
billion on sales and operating revenue of ¥ 7473.63 billion in 2003. The five years between 2001 and 2005 saw a 75% erosion in Sony's stock price (Refer to Exhibit VI for Sony's stock price chart for October 1999 and September 2009 period). The year 2005 saw Stringer becoming the first non-Japanese CEO in Sony's six-decade history. Under Stringer's leadership a major reorganization exercise was undertaken in 2005 and Sony started showing encouraging results. For the fiscal 2007, sales and operating revenue increased by 10.5% to ¥ 8.29 trillion as compared to 2006. The trend continued over the next year and for the fiscal 2008, sales and operating revenue grew by 7% to ¥ 8.87 trillion over the previous year (Refer to Exhibit VII for Sony's sales and operating revenue by geographic and business segments). Sony recorded net income of ¥ 369.43 billion in the fiscal 2008 as compared to ¥ 126.33 billion in fiscal 2007. However, the company's improved financial performance did not last long. In December 2008, Sony revised its earnings forecast stating that it would make losses for the fiscal 2009. The company reported a net loss of ¥ 98.94 billion for the fiscal 2009.
THE PROBLEMS
According to industry experts, one of the main reasons for Sony's problems was its slowness in assessing product trends. The problems that it faced with most of its products were due to its silo culture, which prevented coordination among different product divisions. The appreciating value of the Yen vis-à-vis the US dollar and the recession in Sony's major markets only compounded its problems. SILO CULTURE Over the decades, Sony had become an organization of fiefdoms and silos. It had become highly decentralized, with the different divisions competing against each other. This strategy worked wellduring the first few decades of Sony's inception, when not much interdependence was needed to bring out new products. The fact that such silos had successfully brought out products like the Walkman and the PlayStation only reaffirmed Sony's faith in them. However, as technology and products grew more complex, it became necessary for coordination among different divisions such as hardware, software, design, development, marketing, business development, and PR to manufacture and market any product successfully. But this was absent in Sony. An offshoot of the silo culture was the proprietary formats, which every division tried to protect. According to Tim Bajarin (Bajarin), President of Creative Strategies, a consulting firm based in California, ?The content guys were adamant about how their movies and music were to be protected on Sony devices. That clash created a difficult situation since Sony is an amalgam of the consumer electronics value chain.? 8 According to insiders at Sony, in several instances, different divisions did not communicate with each other. There were endless arguments among them on trivial issues. Reportedly, the divisions often had no idea about products being developed by other divisions. The silo culture was held largely responsible for Sony's failure to launch an online music store, in spite of having all the resources for it. Prior to the launch of iPod in 2003, Sony had been the top player in the portable music market, having sold more than 200 million units of the Walkman. When the iPod was launched, Sony executives in the US planned to launch a digital portable music player and an online music store. They said with its formidable presence in hardware, software, design, and content, Sony could bring out the new player and the online music store in less than a year.
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?Sony's Next Act: Will it Play?? Knowledge@Wharton, September 21, 2005. 3
Sony Corporation - Future Tense?
However, the music store called ?Connect', required cooperation from different units like the personal computer group, portable audio group, Sony Music, and the division that made flash memory players. Of these, three divisions had their own ideas about running music download services and portals. The differences persisted, with one group wanting to use the widely used MP3 format and others supporting the proprietary ATRAC9 format. From the beginning, there were differences among the different divisions about the features that should form part of Connect. While some divisions were of the view that Connect should have features like those offered by iTunes, BuyMusic, Musicmatch, Realnetwork's Rhapsody, etc., others called for more innovation, which according to them, was Sony's strength. Ultimately, Sony decided to sell the music in its proprietary format, with copy-restriction tools. According to people involved in the project, Sony was even against using playlists, as it was a feature popularized by Apple. When Connect was under development, Peter S Fader (Fader), Professor of Marketing, University of Pennsylvania, met Sony's executives and asked them what made Sony's product better than Apple's. According to Fader, the executives said, ?Because we're Sony.? He opined, ?It's like they didn't realize the train had left the station. In digital music, it would take something heroic to get them back on track.?10 Sony's software called Connect Player was to be used to transfer music to Sony's devices. Right after its launch, Sony began receiving several complaints about the performance of Connect Player. To address this issue, it outsourced software development to a startup. But Sony'semployees did not collaborate with the software developer. Then in 2006, Sony advised users to shift to another software, Sonicstage. But even with this software, Connect failed to take off. Sony's proprietary software and its inability to play the popular MP3 formats were cited as the main reasons for the failure. Though it was among the world's largest online music download sites and had more than 2.5 million tracks, Connect stopped selling music in March 2008. Another incident occurred in 2005 which brought to the fore how deep rooted the silo culture in Sony was. Ken Kutaragi (Kutaragi), then CEO of the video game division, hosted a major event in Las Vegas to launch PlayStation Portable. Executives from divisions like Electronics, which had supplied key components for it were not invited for the launch. In another incident, when PlayStation 3 was being developed, the project overshot both budget and time. But Kutaragi did not inform Stringer about this. When an adequate number of PlayStation 3 consoles were not released on time, Kutaragi blamed the Electronics division for the delay. According to an executive from Sony Music, ?Kutaragi likes to decide everything himself. That worked in the early days of the video game business. But in the next phase, Sony needs someone who is a better listener.?11 Stringer on his part, tried to address the silo culture in the organization by introducing a slogan ?Sony United' in 2005 and outlining several measures that could be implemented to unite the company and enhance collaboration among different divisions. Initially, analysts were of the view that Stringer had succeeded in addressing the culture related issues. However, the more than a year delay in the launch of PlayStation 3 proved them wrong. On Stringer's efforts to address the silo culture in the organization, The Times wrote, ?Repeated efforts by Sir Howard to impose a stronger culture of cooperation between divisions have met with obstruction by Sony's well- entrenched old guard and frustration for those that have sought to shake the company out of its stupor.?12
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ATRAC or Adaptive Transform Acoustic Coding is a proprietary audio compression algorithms developed by Sony. ?Sony's Next Act: Will it Play?? Knowledge@Wharton, September 21, 2005. Kenji Hall, ?Game on for Sony PlayStation's New Chief,? www.businessweek.com, April 30, 3007. Leo Lewis, ?Sony Predicts First Annual Loss in 14 Years,? http://business.timesonline.co.uk, January 22, 2009. 4
Sony Corporation - Future Tense?
PRODUCTS Though Sony was credited with several product innovations, it made some mistakes that proved costly for it. It believed that there was always a market for cutting edge products and did not take changing consumer preferences into account. It had always been a proponent of content protection and was against the sharing of its proprietary content. The products that it manufactured over the years did not, therefore, allow free sharing of its audio and video content. In the early 1990s, Sony stuck to its proprietary format MiniDisc and protected its music using ATRAC. The company wanted to control the technology and distribution of music. But at that time, the popular format was MP3 and consumers who could not listen to music in the MP3 format on their Sony gadgets shifted to players made by other companies. Till the early 1990s, Sony was able to charge a premium for its products as their quality surpassed that of its competitors. However, in the mid-1990s, competitors started launching products that were of comparable quality but priced lower. By the early 2000s, in various product categories, consumers' preferences were changing. For instance, in televisions, cathode ray tube (CRT) televisions became less popular, giving way to wide screen televisions and flat displays. Televisions In the case of televisions, Sony was caught off guard. Till the mid-1990s, Sony had been the market leader in the CRT televisions business with its Trinitron brand. Samsung, which launched its first LCD display screen in 1995, became the largest manufacturer of LCD displays in the next one decade. Samsung also expanded into DRAM chips, flash memory, and optical storage and became the world's most popular consumer electronics brand in 2005, overtaking Sony. In the mid-1990s, Samsung and LG were not popular, being seen as low-end producers of televisions. But they were quick to perceive the shifting preference toward flat panel televisions, while Sony continued to focus on improving its Trinitron, CRT television line. Samsung, with its expertise in manufacturing flat panel computer displays and semiconductors, jumped ahead by launching LCD televisions. According to Daniel Levinthal, Management Professor at Wharton, ?Sony was a leader in TV, looking to extend13its platform and protect its current business. Samsung saw digital television as a new opportunity.? Sony launched the WEGA flat screen televisions (1997), the WEGA LCD TV (2002), and the BRAVIA (2005) range of LCD televisions. The BRAVIA range became very popular. However, as it was priced high, it could not withstand the competition from cheaper Korean rivals. As of second quarter of 2008, Samsung's share in the global television market was 22.8% as against 12.5% of Sony, which was in second position. By the second quarter of 2009, Sony had slipped to third spot with a share of 11.8%. Samsung continued to be top player with a share of 23%, followed by LG with 13.7%. Analysts attributed the trouble with Sony's televisions to the company's failure to keep up with the latest technology and its inability to cut manufacturing costs. While other television manufacturers had shifted their production to low cost countries, Sony continued to make televisions in Japan —an expensive proposition. Sony also invested heavily in the LCD technology, but by the time the product was out, the price of LCD televisions had begun falling rapidly. Music Players According to industry experts, Sony's inability to come out with a digital music player like the iPod illustrated the company's weaknesses. And other companies were quick to take advantage of it. Acknowledging this, Stringer said, ?In the 20th century, this company (Sony) created great
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?Sony's Next Act: Will it Pay?? Knowledge@wharton, September 21, 2005. 5
Sony Corporation - Future Tense?
champion products ... In the 21st century, other companies took our hardware like the Walkman and added network capability and turned it into the iPod.?14 Sony was known for making cutting-edge gadgets that were small in size, had a formidable presence in music players through the Walkman and the Discman, and also had a significant presence in content. However, it could not bring all these together to create a digital music player. In 1999, two years before Apple came out with the iPod, Sony launched two digital players, manufactured by its VAIO division and personal audio division. These devices with 64 mb memory, could store up to 20 songs. They could be considered pioneers in the digital music player product category. However, they were priced high and used ATRAC to convert MP3 files into a format compatible with Sony's products. This conversion was tedious and slow. According to experts, if the three silos had got together, they could have brought out a product that could have thwarted the iPod at the initial stages itself. By October 2008, the iPod had become the best selling digital audio player. Analysts were of the view that the iPod had got ahead of the Walkman as Apple, unlike Sony, was able to integrate hardware and software. According to Eric Clemons, Professor, Operations and Information Management at Wharton, ?Indeed, Apple Computer's hit iPod could just as easily have been the sPod, with the "s" standing for Sony. There is no15reason that Sony, or anyone else, could not have [done this]. I'm still surprised that Apple did.? Gaming Consoles The absence of coordination among the product divisions also led to the delayed launch of Sony's PlayStation 3. This resulted in Microsoft's Xbox 360 and Nintendo's Wii gaining over Sony in the gaming console market. Though both Microsoft and Sony deployed the same Cell technology in their gaming consoles, Sony wanted to enhance the gadget with Blu-ray discs16. As the production of Blu-ray discs was hampered by the slow production of an essential component, the Blu-ray diode, Sony released PlayStation 3 almost a year after the release of Xbox 360, only to realize that consumers were looking for gaming experience, novelty, storytelling, and the fun factor and not superior technology or gaming excellence.17To compound the problems of PlayStation 3, game publishers began opting for multi-platform strategies to cover their costs. This meant that the games were not exclusive to PlayStation 3 — they could be played on other consoles as well. By the time PlayStation 3 was released, Sony and Toshiba were indulged in a format war between Blu-ray and HD-DVD, which continued over the subsequent years. Given Sony's previous experience with Betamax, consumers were worried about the future of their consoles which came with a Blu-ray player. To promote the Blu-ray format, all the PlayStation 3 consoles were loaded with Blu-ray discs, which made them expensive. To make them competitive, Sony reduced the price of the PlayStation 3 consoles. Due to this, PlayStation 3 sales increased by 26.3%. However, the Games division reported an operating loss of ¥ 124.5 billion for the fiscal 2008. Electronic Reader In Sept18mber 2006, Sony launched an electronic reading device called ?Reader.' It weighed nine e ounces , was of the size of a paperback book (5?X7?), and could store content of up to 80 books. Another prominent feature of the book was e-ink19, which gave the user an experience similar to reading a book.
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Kiyoshi Takenaka, ?Sony CEO says Restructuring Steps on Track,? http:/reuters.com, June 19, 2009. ?Sony's Next Act: Will it Pay?? Knowledge@wharton, September 21, 2005. Blu-ray is an optical disc storage medium that has superseded the DVD format. This format offers five times the storage capacity of traditional DVDs. Multi-platform or cross platform refers to video games released on different game consoles. Some of the popular multi-platform games are Lara Croft Tomb Rider: Legend and FIFA. 1 ounce ? 28.349 grams. E-Ink is an electronic paper that is manufactured by the US-based E-ink Corporation. 6
Sony Corporation - Future Tense?
However, the number of titles Sony released was limited and the books were difficult to download, as the online bookstore was difficult to navigate through. At this juncture, Amazon came out with its e-reader Kindle, which was similar to Reader in display technology, external storage, and microprocessor. While, for Reader, content had to be transferred using a PC, Kindle was a wireless reading device. Kindle came with a 3G connection that allowed users to download books from Amazon's online store without connecting to the Internet. This additional feature resulted in Kindle becoming more popular. By November 2007, Kindle had sold around 90,000 titles while Sony's Reader had sold only 25,000. In this case too, Sony stuck to its proprietary e-Book format, with anti-copying software. In the 2003-08 period, Sony had lost its leadership position to strong competitors in some major product categories. For instance, it lost market share to Apple in portable music players and to Nintendo and Microsoft in gaming consoles. Sony's other products like mobile phones, camcorders, and digital cameras also did not perform up to expectations. Though Sony resorted to price cuts, they were of no use. According to The Wall Street Journal, ?As demand cooled in 2008, Sony slashed prices of its TVs, video players, and cameras to keep inventory from stacking up. But Sony struggled to cut its costs fast enough to keep up with falling prices.?20 RECESSION IN KEY MARKETS Sony's problems were compounded by the recession in the US and its impact on the world markets. After the holiday season that ended in December 2007, Sony posted quarterly revenues of • 2,859 billion — an all-time high. In February 2008, Toshiba stopped promoting its HD DVD format,21, which left the way clear for the Blu-ray to be adopted as the standard high definition format. However, just when it appeared that Sony was emerging out of its problems, the recession made its impact felt on consumers, who postponed the purchase of luxury products. The demand for consumer electronics fell drastically. By the time Sony had won the format war in February 2008, most of the developed economies in the world were in the grip of recession. In the next few months, the sales of Blu-ray players were not up to Sony's expectations and till March 2009, Sony had sold only 2.2 million Blu-ray players as against an estimated 5 million units. The recession also affected the sales of premium products - high-end televisions, premium digital cameras, and Sony's new OLED televisions. Sony also announced that the economic downturn had hindered Stringer's plans to restore the company's profitability. Sony was severely affected by the Yen appreciating against the US dollar and the euro. Around half of Sony's manufacturing took place in Japan in-house through a vertically integrated operation but only 15% of its electronics sales were domestic. When the value of the Yen was depreciating against major currencies in the world between early 2006 and mid-2007, it was a profitable proposition for Sony. The company also took advantage of growing overseas demand, where its products were competitive due to the weaker Yen. But when the Yen surged, Sony was caught off guard. In October 2008, the Yen appreciated and hit a 13-year high against the US dollar at ¥ 94.62 per US dollar. The appreciating Yen severely impacted Sony's exports as its products became less competitive and cost more to buyers in non-Japanese markets. This significantly eroded the value of revenues that the company earned in the non-Japanese markets. According to Atul Goyal, Analyst from CLSA, in the case of the Japanese currency strengthening by one Yen against the US dollar, the negative impact on Sony's operating profit would be to the tune of ¥ 4 billion. Similarly, in the case of the euro, the impact on operating profit was ¥ 7.5 billion.
20 21
?Sony Losses Raise Pressure on Stringer,? http://online.wsj.com, May 15, 2009. Toshiba (HD DVD Optical Disc) and Sony (Blu-ray disc) were entangled in a high definition optical disc format war, promoting their format as the standard for storing high definition video and audio content. 7
Sony Corporation - Future Tense?
At the same time, South Korean competitors like Samsung and LG benefited as the Korean Won depreciated vis-à-vis the Yen. In January 2008, one Japanese Yen was equivalent to 8.7 Won. By December 2008, the Yen had appreciated to 14.87 Won, which gave the South Korean companies an edge over Sony. According to Stringer, ?What this recession has done is expose the weaknesses in our system that we didn't want really to admit.?22
THE SOLUTION?
In his efforts to solve Sony's problems, Stringer decided to reorganize the company in February 200923. He said, ?There is still a lot of the old Sony, and not enough of the new, which constrains our competitiveness. We simply have no alternative but to dramatically change the way we do things. Without those changes, it will be very difficult to return to profitability.?24 Sony was reorganized into two groups - The Networked Products & Services Group and The New Consumer Products Group (Refer to Exhibit VIII for Sony's Organization Structure in April 2007 and in April 2009). Under the first group would be Sony Computer Entertainment, personal computers, mobile products including the Walkman, and Sony Media Software and Services. The main aim of the group was to bring in new products using Sony's technologies and also to increase the pace of innovation, which would lead to higher revenues and profitability. Forming a part of these processes was the expansion of the PlayStation network platform. The New Consumer Products Group included television, digital imaging, home audio, and the video business of the company. Its focus was on achieving profitability and growth through product innovation, and improving efficiency and speed of operations. Another area of interest was development and growth in the emerging markets. As part of the reorganization efforts, two cross company units were created. One was the Common Software and Technology Team which was to develop and implement integrated technology and software solutions. The group was also required to provide coordinated software development services. The other unit was the Manufacturing/Logistics/Procurement team responsible for ensuring efficient supply chain solutions for the business groups. The reorganization also witnessed a reshuffle of some of the top executives in the company. Stringer assumed responsibility as President of Sony, in addition to his existing positions of CEO and Chairman. After the reshuffle, the Electronics division came under his purview. This brought in a new control structure at Sony, which was expected to be operationally convenient and to unite the different silos. While restructuring Sony, a lot of young blood had been infused into the top management. This was also viewed as a move to break the Japanese tradition of seniority in favor of performance. According to company sources, the reorganization was expected to speed up the production of networked products and services. They were of the view that it would help the different divisions like the PCs, mobiles, and entertainment divisions, and also other divisions like television, digital imaging, home audio, and video to work in close collaboration. The reorganization also involved the closure of eight of its 57 manufacturing sites and a reduction of the workforce by 16,000. This was expected to reduce costs by ¥ 300 billion. Sony's fortunes continued to plunge even in the first quarter ending June 2009, as it posted an operating loss of ¥ 25.7 billion. The sales and operating revenue decreased by 19.2% from the ¥ 1979 billion reported in the quarter ending June 2008 to ¥ 1599.9 billion. The average value of the Yen was 7.5% higher against the US dollar and 23.5% higher than the euro between April and
22 23 24
?Game On,? www.economist.com, March 07, 2009. The new organization structure was effective from April 2009. Justin McCurry, ?Sony Chief Forecasts Record Losses,? www.guardian.co.uk, January 22, 2009. 8
Sony Corporation - Future Tense?
June 2009 as compared to the period between April and June 2008. Sony announced that it expected a loss to the tune of ¥ 120 billion for the financial year ending March 2010. While announcing the results for the quarter ending June 2009, Sony noted that the losses were less than expected because of the cost reductions achieved by its restructuring efforts. Analysts were of the view that with the restructuring, Stringer might find it easier to follow his plans and revive Sony. He was expected to face less opposition as most old timers had been eased out of the company and the top management had been infused with young blood. Industry experts remained skeptical about the success of Stringer's latest reorganization program and its ability to bring Sony back to profitability. They pointed out that there had been several such programs at Sony since 1994, most of which had failed to achieve the desired results. Commenting on the reasons for the failure of earlier efforts, Fortune, wrote in June 2009, ?The culprit in nearly every case has been Sony's tradition-bound mentality, one 25 at remained too focused on building th excellent analog machines in an increasingly digital world.? Analysts believed that the global recession and the resultant problems at Sony provided a good opportunity for Stringer to take radical measures to bring the company back on to the growth path and to help it regain its competitiveness. Pointing 26 a possible solution to one of the Sony's to problems, Larry Dignan, Editor and Chief of ZDNet , said, ?Sony is simply too large to navigate and is hampered by a bunch of businesses that are struggling. To make thing worse, these businesses don't go together. These businesses just don't add up to be a lean, mean Sony machine. The solution: Breakup of the company. Does Sony need to be in content? Does it really need to manufacture TVs? Is it in businesses that just aren't worth saving? Would a bunch of baby Sonys do better? Those questions are probably being asked, but there's no intention to do anything about it. It's a shame given that the Sony brand is stellar, but the company is the opposite of too big to fail - it's too big to fix.?27
Richard Siklos, ?Sony: Lost in Transformation,? Fortune, June 26, 2009. ZDNet is a website webzine published by Ziff Davis Publishing Company. ?Is Sony Too Big to be Fixed,? http://seekingalpha.com, May 14, 2009. 27
25 26
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Sony Corporation - Future Tense?
Exhibit I Sony Corporation - Consolidated Statements of Income (2005-09)
In million Yen Financial Year Ending March 31 Sales and Operating Revenue: Net Sales Financial service revenue Other operating revenue Total sales Costs and Expenses: Cost of sales Selling, general and administrative Financial service expenses (Gain) loss on sale, disposal, impairment of assets Equity in net income (loss) of affiliated companies Operating income (loss) Other Income: Interest and dividends Foreign exchange gain, net Gain on sale of securities, investments, net Gain on change in interest in subsidiaries and equity investee Other Other income Other Expenses: Interest Loss on devaluation of securities investments Foreign exchange loss, net Other Other expenses Income (loss) before income tax & minority interest Income taxes Income (loss) before minority interest Minority interest in income (loss) of consolidated subsidiaries Cumulative effect of an accounting change Net Income (Loss) attributable to Sony?s stockholders 6,565,010 537,715 88,600 7,191,325 5,000,112 1,535,015 482,576 27,994 7,045,697 29,039 174,667 14,708 0 5,437 16,322 29,447 65,914 24,578 3,715 524 25,518 54,335 186,246 16,044 170,202 1,651 (4,713) 163,838 6,692,776 720,566 97,255 7,510,597 5,151,397 1,527,036 531,809 73,939 7,284,181 13,176 239,592 24,937 0 9,645 60,834 23,039 118,455 28,996 3,878 3,065 22,603 58,542 299,505 176,515 122,990 (626) -123,616 7,567,359 624,282 104,054 8,295,695 5,889,601 1,788,427 540,097 5,820 8,223,945 78,654 150,404 28,240 0 14,695 31,509 20,738 95,182 27,278 1,308 18,835 17,474 64,895 180,691 53,888 126,803 475 -126,328 8,201,839 553,216 116,359 8,871,414 6,290,022 1,714,445 530,306 (37,841) 8,496,932 100,817 475,299 34,272 5,571 5,504 82,055 22,045 149,447 22,931 13,087 0 21,594 57,612 567,134 203,478 363,656 (5,779) -369,435 7,110,053 523,307 96,633 7,729,993 5,660,504 1,686,030 547,825 38,308 7,932,667 (25,109) (227,783) 22,317 48,568 1,281 1,882 24,777 98,825 24,376 4,427 0 17,194 45,997 (174,955) (72,741) (102,214) (3,276) -(98,938) 2005 2006 2007 2008 2009
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Sony Corporation - Future Tense?
In million Yen Financial Year Ending March 31 Earnings per Share (Common Stock) Basic Diluted Depreciation and amortization Capital expenditures R&D expenses Average exchange rate (Yen/US $) Average exchange rate (Yen/Euro) Source: Sony Annual Reports, 2005-09. 175.90 158.07 372,865 356,818 502,008 106.5 133.7 122.58 116.88 381,843 384,347 531,795 112.3 136.3 126.15 120.29 400,009 414,138 543,937 116.0 148.6 368.33 351.10 428,010 335,726 520,568 113.3 160 142 98.59 98.59 405,443 332,068 497,297 99.5 2005 2006 2007 2008 2009
Exhibit II Sony Corporation - Balance Sheets (2005-09)
(In million Yen)
Assets
As of March 31 Cash and time deposits Marketable securities Notes and accounts receivable, less allowances Inventories Deferred income taxes Other Total current assets Film costs Investments and advances Property, plant and equipment, less depreciation Intangibles, net Goodwill Deferred insurance acquisition costs Deferred income taxes Other Total other assets Total Assets 2009 660,789 466,912 853,454 813,068 189,703 636,709 3,620,635 306,877 4,798,430 1,175,863 396,348 443,958 400,412 359,050 511,938 2,111,706 12,013,511 2008 1,086,431 427,709 1,090,285 1,021,595 237,073 1,146,570 5,009,663 304,243 4,335,648 1,243,349 263,490 304,423 396,819 198,666 496,438 1,659,836 12,552,739 2007 799,899 493,315 1,369,777 940,875 243,782 699,075 4,546,723 308,694 3,888,736 1,421,531 233,255 304,669 394,117 216,997 401,640 1,550,678 11,716,362 2006 703,098 536,968 985,508 804,724 221,311 517,915 3,769,524 360,372 3,519,907 1,388,547 207,034 299,024 383,156 178,751 501,438 1,569,403 10,607,753 2005 779,103 460,202 1,025,362 631,349 141,154 519,001 3,556,171 278,961 2,745,689 1,372,399 187,024 283,923 374,805 240,396 459,732 1,545,880 9,499,100
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Sony Corporation - Future Tense?
Liabilities and Stockholders? Equity
Short-term borrowings Current portion of long-term debt Notes and accounts payable, trade Accounts payable, other and accrued expenses Accrued income and other taxes Deposits from customers in banking business Other Total current liabilities Long-term debt Accrued pension and severance costs Deferred income taxes Future insurance policy benefits and other Other Total long-term liabilities Minority interest in consolidated subsidiaries Capital stock Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost Total stockholders' equity Total Liabilities Source: Sony Annual Reports, 2005-09. 303,615 147,540 560,795 1,036,830 46,683 1,326,360 389,077 3,810,900 660,147 365,706 188,359 3,521,060 250,737 4,986,009 251,949 630,765 1,155,034 1,916,951 (733,443) (4,654) 2,964,653 12,013,511 63,224 291,879 920,920 896,598 200,803 1,144,399 505,544 4,023,367 729,059 231,237 268,600 3,298,506 260,032 4,787,434 276,849 630,576 1,151,447 2,059,361 (371,527) (4,768) 3,465,089 12,552,739 52,291 43,170 1,179,694 968,757 70,286 752,367 485,287 3,551,852 1,001,005 173,474 261,102 3,037,666 281,589 4,754,836 38,970 626,907 1,143,423 1,719,506 (115,493) (3,639) 3,370,704 11,716,362 142,766 193,555 813,332 854,886 87,295 599,952 508,442 3,200,228 764,898 182,247 216,497 2,744,321 258,609 4,166,572 37,101 624,124 1,136,638 1,602,654 (156,437) (3,127) 3,203,852 10,607,753 63,396 166,870 806,044 746,466 55,651 546,718 424,223 2,809,368 678,992 352,402 72,227 2,464,295 227,631 3,795,547 23,847 621,709 1,134,222 1,506,082 (385,675) (6,000) 2,870,338 9,499,100
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Sony Corporation - Future Tense?
Exhibit III Sony Corporation - Operating Income/Loss by Business Segment (2007-09)
(In million Yen)
For the Year Ended March 31 Electronics Games Pictures Financial Services All other Total Corporate and Elimination Consolidation Total
Source: Sony Annual Report, 2009.
2007 251,256 (232,325) 26,705 84,142 32,808 162,586 (12,182) 150,404
2008 441,787 (124,526) 58,524 22,633 60,800 459,218 16,081 475,299
2009 (168,084) (58,476) 29,916 (31,157) 30,367 (197,434) (30,349) (227,783)
Exhibit IV Sony Corporation - Format Failures
1975 - Betamax: Sony developed Betamax against the VHS format. Though the quality of the video was better and the size of the tape was smaller, Betamax failed to become the standard format, with analysts attributing it to higher costs. 1987 - Digital Audio Tape: This was introduced as a successor to the analog cassette tape. Digital audio tape combined spinning-head technology and digital encoding. The players were expensive and were not received well by the consumers. Sony discontinued the product in 2005. 1992 - Minidisc: The Minidisc was a small recordable digital music standard. But the music came with strict digital copy protection, and was based on ATRAC audio data compression. The product was priced high, and did not gain popularity. 1992 - ATRAC Audio Compression: this was developed to fit high quality audio files in a small disc like Minidisc. ATRAC was also used in Sony's Walkman, and the Walkman only played ATRAC 3 initially. It was only in 2004 that it started supporting the MP3 format. 1998 - MemoryStick: This technology was developed by Sony for use in digital cameras and portable music players. A removable flash memory card, it was also used in PlayStation Portable, PDAs and mobile phones. Later variations of MemoryStick Duo and Micro were also launched. But the format failed to take off, especially with other manufacturers. 2005 - Universal Media Disc: This was an optical disc medium developed for use in PlayStation Portable. Games and movies were distributed in this format. Its proprietary nature and lack of writers and blank discs made its adoption difficult. The format also did not receive support from movie studios. PlayStation Portable Go did not use this format.
Compiled from www.fastcompany.com and other sources.
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Sony Corporation - Future Tense?
Exhibit V Sony Corporation?s Business Segments (2008)
Business Segment Electronics Games Music Pictures Financial Services Segment Details Audio, video, televisions, information and communications equipment, semiconductor components, and other products. Games console and software businesses conducted by Sony Computer Entertainment Inc. Businesses of Sony Music Entertainment (Japan) Inc. Motion Pictures and television programming distributed by Sony Pictures Entertainment Inc. Sony Financial Holdings Inc., and its subsidiaries Sony Life Insurance Company Limited., Sony Assurance Inc., Sony Bank Inc., and Sony Finance International Inc. The music recording business of Sony Music Entertainment, and Sony Music Entertainment (Japan) Inc., and network services related business of So-net Entertainment Corporation.
Others
Source: www.sony.net.
Exhibit VI Stock Price Chart of Sony Corporation (October 1999 - September 2009)
Source: www.bigcharts.com.
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Sony Corporation - Future Tense?
Exhibit VII Sony Corporation - Sales and Operating Revenue by Geographic and Business Segments
(In million Yen)
2009 Overseas U.S.A. Europe Other Areas Japan
2008
2007
2006
2005
5,856,774 6,815,040 6,167,854 1,827,812 2,221,862 2,232,453 1,987,692 2,328,233 2,037,658 2,041,270 2,264,945 1,897,743 1,873,219 2,056,374 2,127,841
5,306,785 5,058,863 1,957,644 1,977,310 1,715,775 1,612,576 1,633,366 1,468,977 2,203,812 2,132,462
Electronics Audio Video Televisions Information and Communications
5,032,920 5,931,708 5,443,336 453,976 558,624 522,879
4,782,173 4,827,663 536,187 571,864
1,042,014 1,279,225 1,143,120 1,275,810 1,367,078 1,226,971 942,517 1,103,212 950,461
1,021,325 1,036,328 927,769 842,537 921,195 816,150
Semiconductors Components Others Game Pictures Financial Services All Other Sales and operating revenue
Source: Sony Annual Reports, 2005-09.
205,062 662,453 451,088
237,870 833,334 552,365
205,757 852,981 541,167 974,218 966,260 624,282 287,599
172,249 800,716 481,390 918,252 745,859 720,566 343,747
184,235 751,097 546,794 702,524 733,677 537,715 389,746
984,855 1,219,004 717,513 523,307 471,398 855,482 553,216 312,004
7,729,993 8,871,414 8,295,695
7,510,597 7,191,325
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