Two years after taking over the helm of Sony Corp., Chief Executive Howard Stringer is quietly preparing a big move to expand the company and challenge rival Apple Inc. in an area that has thus far promised more than it has delivered: video-downloading services.
People familiar with the situation say Mr. Stringer is planning to use Sony's technology-packed PlayStation 3 and PlayStation Portable videogame machines, along with its Bravia high-definition television sets, to develop products and services to let users download television shows and movies, similar to the way they download music using Apple's iTunes store and iPods. A Sony spokesman declined to comment on the company's strategy.
As Internet connections have become faster, analysts have expected the next big potential market to be in downloading movies and television shows. Some analysts believe it could be significantly larger than the digital music market. Park Associates, a market-research and consulting firm, estimates that annual revenue from Internet video, including ad-based and user-paid services, could exceed $7 billion in the U.S. alone by 2010.
Apple offers video-compatible iPod devices and the iPhone, along with downloadable television shows, music videos and movies for purchase on its iTunes Store. But analysts say there is no clear winner yet and the market is up for grabs.
'The real key is going to be who is providing the best high-definition experience for viewers,' says Kurt Scherf, a Park Associates analyst who studied this market. He adds that companies ranging from electronics makers to cable companies and content providers are all experimenting in search of the best strategy.
Establishing a dominant position in this area is crucial for Sony, whose Walkman music devices lost out to Apple's iPods when Sony failed to launch compelling music-downloading software. The move also could help boost lagging sales of the PS3 and PSP videogame devices. The PS3, in particular, has been a big disappointment even though Sony made a large investment in its development to build a state-of-the-art machine.
Sony, which has spent the last few years restructuring, has already been moving in this direction. Last week, the company unveiled a new Walkman for the U.S. market that for the first time can play movie trailers and music videos in addition to music. In a sign that Sony might have given up at least for now on trying to beat Apple in music, it also said that it was phasing out its music download service called Connect and that the latest Walkmans would use Microsoft Corp.'s Windows Media software.
This year, Sony introduced a module for its U.S. television models that can download Internet content. It will roll out a similar device in Japan this fall that will let consumers download videos from a number of Internet services. Meanwhile, Sony's PlayStation unit last month launched new features for the PS3 and PSP in Europe that let consumers use their game machines to record television shows onto their PS3s and transfer them onto their PSPs.
But Sony faces huge challenges in this market. For a start, it will be competing with some of the most powerful names in global business. In addition to Apple, Microsoft has also been positioning its competing Xbox 360 device to be used for video-downloading. Internet companies, as well as television and movie studios, cable companies and mobile operators, are jockeying for a piece of the action.
Apple's set-top device called Apple TV, which lets users play music video from their PC-based iTunes library, hasn't been selling strongly since it went on sale earlier this year, analysts say. Since introducing video on iTunes in October 2005, Apple saw a big increase in video downloads for the first year, but analysts say the number has tapered off recently. In response, an Apple spokeswoman said, 'We're the No. 1 video download store.'
Still, industry observers say Sony has one possible advantage in its quest to become a major player in the video downloading market: Content companies like movie studios may be wary of the way Apple dominated the digital music market, and may be more encouraged to work with another company, especially one that owns a movie studio of its own and understands their concerns. Last week, a dispute erupted into public view between Apple and one of its biggest suppliers of television shows, General Electric Co.'s NBC Universal, over pricing of television episodes and other issues. As a result, Apple has vowed not to sell NBC programs from the coming fall season.
'We've been saying for years that if there's a company that can marry all this emerging content to products that people want, it's Sony that's going to make it happen,' says Parks Associates analyst Mr. Scherf.
The foray into video downloading will be a crucial test for Mr. Stringer, who has succeeded in slashing costs at Sony but must now prove he can also find new areas of growth. Since the failure of the Walkman to beat the iPod, Sony has been struggling to come up with a new product that defines the industry standard in innovation.
It is also a test of whether Mr. Stringer has succeeded in taming Sony's fiercely independent corporate culture. In the past, the company has struggled to get its various units to cooperate. An area like video downloading would require extremely close teamwork among the electronics, movie and videogame units.
Mr. Stringer has recently appointed executives with a track record of cooperation. One is Kazuo Hirai, the new head of the PlayStation group, who in June succeeded Ken Kutaragi, the creator of the PlayStation. Mr. Stringer also expanded the role of an electronics executive, Katsumi Ihara, who Sony executives say understands the importance of integrating compelling software with good hardware.
People familiar with the situation say Mr. Stringer has been laying the groundwork in recent months to shift the company's focus to video downloading. For example, they say he decided to end Sony's unsuccessful efforts to challenge Apple in the music-downloading business in order to focus on the new strategy. In May, Mr. Stringer quietly decided to shut down the unit that was charged with creating a portable music player and online music service. Sony said last Thursday that the service would be phased out and the latest Walkmans would use Microsoft's Windows Media software.
The people privy to Sony's plans also say Mr. Stringer, over the protests of some executives, personally enforced a decision to adopt a certain digital-rights management software that will eventually be used in Sony's products. That is an indication of how serious he is about making sure the company's various units come together to make this strategy a success, they say.