Sony's emotional ties to TV business threaten the company

Sony's emotional ties to TV business threaten the company

Summary: For Sony, its emotional ties to the TV market keep it from really making a play for the digital living room.

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TOPICS: Hardware, Mobility
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Sony has lost money on its TV business for several years in a row yet company executives continue to believe that the cutthroat business is critical to its identity. Sony's stubborn streak on the TV business could sink its plans going forward.

It's not a good sign when profit margins are much thinner than the TVs you produce.

The consumer electronics giant reported a dismal third quarter earlier this week and its TV business was the biggest reasons. Sony just can't get the TV business right and the industry is in a race to the bottom on pricing. Toss in weak demand and Sony's TV business is a mess.

In the tech world, the TV parallel is the PC business. IBM ultimately decided that the PC market wasn't worth chasing even though its identity used to be tied to computers. Sony is in the same situation. Unlike IBM though, Sony keeps rolling that HDTV up a hill. Sony appears to be fighting an unwinnable TV war and the decision to stick it out appears to be driven by emotion more than anything.

An analogy to HP keeping its PC business doesn't apply to Sony. Why? HP is making money on its PC business. TVs have been a sinkhole for Sony for years.

Unfortunately for Sony, its emotional ties to the TV market keep it from really making a play for the digital living room. Yes, Sony has a four screen strategy (TV, phone, tablet, PC), but the first one on the list isn't worth the hassle. Simply put, Sony's affection for the TV business may be the quintessential case study on what technology companies shouldn't do when innovating. Also:Sony controls its smartphone fate, but will still fail

Macquarie analyst Jeff Loff explained in a research note:

Sony said TV sets are core to the company. This to us seems a legacy view. We worry its competitors will re-envision “TV,” seeing value in semiconductors, software, interfaces, content and services. In this framework we think Sony would be better served to re-define TV itself, leveraging its hardware, software and media/game content (capturing value in a $100–200 box rather than a commodity TV set). We find little justification for operating a TV business when we think Sony can accomplish the same goal (integrated entertainment experience across devices) without selling money losing sets.

The logical choice for Sony is to ditch the TV business and use those funds to compete elsewhere. But there's nothing logical about Sony's affection for the lowly TV business. Here are from choice quotes from Sony Computer Entertainment Chairman Kazuo Hirai on a Nov. 2 conference call with analysts in Japan.

Hirai said:

We believe that the TV business is essential for Sony's future growth strategy. That's our perception about the TV business. The entire management team has a great sense of urgency regarding the fact that the TV business has continuously recorded losses for the last seven fiscal years.

I will take the lead in implementing the plan to improve the profitability of the TV business with the aim of extricating us from this loss-making structure as soon as possible. The entire Sony Group will be involved in this profitability improvement plan, as it cannot be achieved by the TV business alone.

The problem: Sony's entire company will be focused on curing the TV business and miss opportunities elsewhere.

Hirai continued about how Sony misjudged demand and then said:

It's obvious that we need to design and manufacture at an appropriate cost only the volume of units that we sell, and we need to have a level of fixed costs that is appropriate for the size of our business. We also need to provide customers with products and services that will sell.

The problem: Sony can't be cost competitive today and it has already cut the low-hanging expenses.

Hirai then laid out a TV fix-it plan:

TV business sales for this fiscal year are expected to be JPY875 billion, and we expect to record an operating loss of JPY175 billion. In fiscal '12, we aim to reduce the operating loss by about half, and return to profit in fiscal year '13, assuming no increase in sales.

The problem: Hirai thinks he has the time to take two years to fix the TV business. By then, Apple will be in the market. The chances that Sony will turn a TV profit in fiscal 2013 are slim and none.

Then there's the Sony leapfrog courtesy of new undisclosed technology. Hirai said:

Regarding product differentiation, we will deploy unique technology such as super resolution high image quality engines that create the industry's best picture.

There will come a time when a next generation panel will take the place of LCD panels. So that we can lead the industry in this transition, we have accelerated the development of our next generation TV. Due to competitive reasons, I cannot discuss today what type of technology we are focusing on.

The problem: Hail Mary passes in the TV industry don't last long.

Hirai added:

We have made a business unit for the Group that is developing and designing the next generation TV. Here, we will create the next generation of home entertainment that fits with the entire Company's next generation product strategy.

The problem: We've heard this before from Sony.

The bottom line is that Sony is attached to the TV business for no logical reason. Loff---in addition to most analysts---certainly isn't convinced:

Sony’s TV turnaround plan gives us no confidence we will see TVs profitable within a two-year time frame.

A lot can change in two years---in fact a lot will---Sony's obsession with fixing the TV business is a threat to the entire company.

Topics: Hardware, Mobility

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49 comments
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  • RE: Sony's emotional ties to TV business threaten the company

    I'm not clear on what you think would be the right way forward; they'd be pretty stupid to dump the TV business, and there's no reason why it can't be turned around - after all, few TV makers are held in such respect as Sony. - Sure they led the world when margins were big, and they could command a premium price; them days are gone, but it's the business model that needs revising, not the choice of technology.<br><br>TV is here to stay, and Sony are well placed to take advantage of the digital future of TV. Doesn't necessarily mean they'll succeed - but the logic to try makes much more sense than walking away, surely?
    Heenan73
    • RE: Sony's emotional ties to TV business threaten the company

      @Heenan73 I think that respect is past tense. They had the best tube tv, bar none. Now with LCD/LED they are just over priced.
      happyharry_z
      • RE: Sony's emotional ties to TV business threaten the company

        @happyharry_z I have to agree with Heenan. They still make the best TVs and they're the ones that everyone else tries to measure up to....but you're definitely paying a premium for them.
        biobat
      • Past Tense

        @happyharry_z Dumont, Zenith, Admiral ...
        Too Old For IT
    • RE: Sony's emotional ties to TV business threaten the company

      @Heenan73
      Who holds Sony TVs in high reguard? Not for years has that been true. Overpriced, under performing and with the recent issue of recalls due to the sony sets catching fire during usage sony is far from regarded as quality. I do repairs and refurbs and Sony is the least in demand tv I deal with and when i go to follow up at other stores on new items most dont reccomend sony tvs even if tyhey carry them.
      Fletchguy
      • RE: Sony's emotional ties to TV business threaten the company

        @Fletchguy

        I've been servicing home electronics for almost 30yrs and never have I seen a company like Sony hit the skids the way they have. Not including the recall for 'melting' tv's, the rash of defective panels for the last few years, mostly of Chinese flavor, have made me and many in my trade to tell people to avoid Sony at all costs. The only time I'll let a Sony lcd in the door is one that's totally dead. Maybe then, I can actually get a repair out of them. Other than that, I send them down the road. They need to face facts, the Chinese have beat the Japanese at their own game. In that respect, the consumer is screwed. And for the person waving the Vizio flag, they make nothing. They're branding only using the cheapest vendor of the week. They announced last month their sets are 'not repairable' out of warranty or in warranty. If it breaks during warranty, they send you a refurb that'll last about as long as the first one did.
        tvdoc50
  • RE: Sony's emotional ties to TV business threaten the company

    This is not a new phenomenon for Sony. They fell off the horse at the end of the 1990s by placing all their eggs in the Trinitron basket, continuing to push tube technology on consumers that had grown weary of the standard and wanted the new hotness (flat-panels) EVEN at the expense of the superior PQ the Sony tubes still produced.<br><br>Ever since then, Sony has been playing catch up, having to eat their pride and continually forge alliances with this manufacturer or that and ultimately relying on everyone but themselves to remain in the TV market. When tubes failed they signed deals with NEC and Hitachi for plasma production, which completely and utterly flopped. <br><br>They had to exit the plasma market with their tail between their legs, and essentially beg Samsung for the opportunity to co-produce glass for a new range of LCDs. Along with partnerships with various other glass producers along the way (Sharp, Chi-Mei etc.), this has essentially kept them afloat, and now they're taking on water again.<br><br>I have a Sony XBR 909 and it is among the best LCDs produced in along time. Unfortunately, that still puts it far behind the Pioneer Elites of 3 years ago which have long since been discontinued in my eyes. Sony used to have a mindset of dominating a market with the best product in exchange for the highest price. Now they still charge exorbitant prices, and don't have the technology cornered enough to justify those prices.<br><br>Still, even with all that, Sony will *never* abandon television completely. This is a company that once won an Emmy award for a piece of consumer electronics. A company so in love with their star product, they produced a tiny 5 inch model to commemorate the 25th anniversary of the entire existence of Trinitron in 1996. They see their identity in TV and will sink the ship before they separate themselves from it.<br><br>By the way, about the only thing less effective than Sony's pitiful attempts at remaining competitive in TV, is the commenting system on this site. Half the time comments don't even show up, or show up minutes or hours later. You guys might want to fix that.
    Playdrv4me
    • RE: Sony's emotional ties to TV business threaten the company

      @Playdrv4me Wow... I'm glad someone else noticed as well. A third of the time, my comments just disappear - I thought it was just me.

      On that note - Vizio coming into the ring with their great picture and lowest prices we have seen to date, makes them a player that overshadows Sony. I had the opportunity at the time of purchasing my big screen TV to go with a Sony that had been marked down $600 (55" arena), and when placed next to the Vizio, and a half an hour of trying to determine which I should go with, the Sony had a clear issue with fast motion (which ironically, they were touting as one of their strengths), while the Vizio did not, and the Vizio was $800 less even after the discount!

      To this day, I'm not sorry I made the choice I did. Vizio needs to work on their design, but their display quality and regular updates are fantastic. With competitors like this coming in at far lower pricing and seemingly better quality, Sony either better step up their game, or step out.
      thoiness
      • RE: Sony's emotional ties to TV business threaten the company

        @thoiness irony = I just commented on another zdnet comment system and it disappeared. Who wants to bet this (a complete waste of a post) actually appears?
        thoiness
    • RE: Sony's emotional ties to TV business threaten the company

      @Playdrv4me GE won an Emmy for Vertical Interval Reference (VIR) color control system about 30-35 years ago. Technical Emmys to TV manufacturers aren't that uncommon. When was the last time you saw a GE TV?
      jabster17
  • RE: Sony's emotional ties to TV business threaten the company

    "Hirai thinks he has the time to take two years to fix the TV business. By then, Apple will be in the market."

    If you repeat a rumor enough it becomes true? Outside of a quote in a book, there's no actual evidence this will happen ... but tech writers have convinced themselves it is gospel.
    Ididar
    • And, so what?

      @Ididar If apple DOES enter the TV biz, they'll be facing the same problems tht Sony has now --trying to charge high prices for a commodity product. Let's face it, an apple TV ain't gonna' sell like an iphone or an ipad.
      sackbut
      • RE: Sony's emotional ties to TV business threaten the company

        @Ididar

        Agree on this one as long as Apple insists on replacing the entire screen. They really think people are going to ditch their otherwise completely functional 50" HDTV?
        CyberGuerilla
      • RE: Sony's emotional ties to TV business threaten the company

        @sackbut Agree. If Apple is smart, they will make their own set-top box (or wherever people stick them now)--essentially a TiVo with the Apple treatment. Apple has no business getting in the display business and will get killed. But Apple won't ever be a branded "technology" company that other companies could put in their own products (e.g., Google TV). That could be Apple's Achilles' heel as the proliferation of set-top boxes continues.
        jabster17
    • RE: Sony's emotional ties to TV business threaten the company

      @Ididar
      Thank God "Apple" is, as of now, not rumored to be entering defense, pharmaceutical, food, etc industries or for that matter running the government..... Otherwise people, companies, and organizations that are already in there, shall simply make way for Apple.

      Note: Its the tone of the statement that conveys unshakable belief (may or may not be false) rather than a journalistic opinion.
      ashwinipn
    • RE: Sony's emotional ties to TV business threaten the company

      @Ididar Apple will probablly try to get its foot in whatever it can lead its faithful masses to buy. With such a large supply of lemmings that will think it's better because it's Apple, they may succeed in the short term, but I think Apple's bubble will burst in the not-too-distant future when people begin to realize what they really are...an electronics manufacturer that sells overpriced items by using really good marketing strategy.
      garyleroy@...
  • RE: Sony's emotional ties to TV business threaten the company

    Um, what exactly does the brain trust at Macquarie think the video portion of all that "integrated entertainment experience across devices" is going to be displayed on, if not a TV? Sony's problem is not TVs per se, but the fact that their sets are so expensive.
    Vesicant
    • RE: Sony's emotional ties to TV business threaten the company

      @Vesicant This exactly. Sony televisions are way higher than its competition. It's fine to price your TVs higher than the no-name trash, but when LG, Toshiba, Samsung, and other big name companies all make televisions for a much lower price, it's no wonder Sony is doing badly, regardless if their TV is actually better than the competition.

      I know it's a super-extreme example, but look at the price between the 70 inch Sony Bravia and Sharp Aquous. Both have good brand recognition and for all I know, the Sony is a thousand times better than the Sharp, but the Sharp costs $3000 while the Sony costs $22,000. I think I'd take a gamble on the Sharp, wouldn't you?
      Aerowind
      • RE: Sony's emotional ties to TV business threaten the company

        @Aerowind: Sony whole business model in every single brench is to ripofff consumers. When you got a superior product (iphone, ipad) it work and your swimming in billlions of profits. but when you have inferior products and still base your entire business model on ripping offf consumers.... you loose money. Sony was once a great company, but since the rootkit fiasco (for wich they should have been shutdown). Sony is just s common crook.
        Mectron
      • RE: Sony's emotional ties to TV business threaten the company

        @Aerowind: the current going rate for the 70" Sharps is under $2500 and they recently introduced one that should discount down to under $2k by spring.
        They also just introduced an 80incher.

        Sony's legacy thinking problem goes beyond TV: they have been living off brand loyalty for so long, they haven't noticed none of their products lead in any market. Instead, they keep producing "me too" products that are at best average and at worst an embarasment to the company.

        They have reached a point where they are a consumer electronics company that's only kept afloat by its non-electronic products. They don't understand that the world has moved beyond the do-everything vertically integrated company model of the last century. In this age you have to be the unquestioned best at *something* other than customer loyalty.

        And that is not Sony.
        fjtorres