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Report on Sony Corporation

15.249: Japan/Korea Trip
Berrak Dogruer
Mazen Ferzly
Hiep Nguyen
Douglas C. Roach
Rafik Ward

.................................................................................................................. 17 SOURCE: SONY CORPORATION 2000 ANNUAL REPORTAPPENDIX B................................................................................................. 14 VIDEO -GAME MACHINES AND CONSOLE SOFTWARE .. 12 OTHER BUSINESS UNITS .............. 10 PICTURES : SONY PICTURES ENTERTAINMENT ...................................................... 12 INSURANCE: SONY LIFE INSURANCE CO...........COMMERCE....................................................................................................................................................................................................................................................................................................... 3 NOTE ABOUT SONY’S F OUNDER AND CHAIRMAN................................................................................................................................................................................................... 7 PRODUCT-MARKET STRATEGY ........................................................................... 13 CAR-NAVIGATION SYSTEMS ......................................................................................................... 5 MANAGEMENT.......... QUESTIONS FOR VISIT................. LTD. MISSION AND VALUES ........ 7 VISION.................................. FINANCIAL PERFORMANCE ........................................ QUESTIONS FOR VISIT............................... 13 E....................... 10 MUSIC : SONY MUSIC ENTERTAINMENT .............. 18 Page 2 of 19 ............................................................... 3 OVERVIEW ........ 8 ELECTRONICS ............................................................................................................................................................................... 12 INTERESTING CURRENT INITIATIVES ............................................................................................................... 15 APPENDIX A........................................ 14 Competition.. 9 GAMES : SONY COMPUTER ENTERTAINMENT .....................Report on Sony Corporation 15........... ...........249c Japan/Korea Trip Table of Contents COMPANY HISTORY.................. ORGANIZATION AND CORPORATE GOVERNANCE ...................................................... 8 BUSINESS UNITS ......... AKIO MORITA ... 17 APPENDIX B...............

Morita paid Western Electric (US) $25." meaning little man). a pocket- sized radio. followed by the first Sony-trademarked product. Sony launched the first home video recorder (1964) and solid-state condenser microphone (1965).249c Japan/Korea Trip Company History Overview1 Akio Morita." and "sonny.9 billion deal. Three years later. The purchases of CBS Records in 1988 ($2 billion) and Columbia Pictures in 1989 ($4. Pressured by adverse currency rates and competition worldwide. However. Sony bet wrong on its Betamax VCR (1976). Sony joined Nintendo to create a Page 3 of 19 . His firm launched one of the first transistor radios in 1955. in 1957. and Tamon Maeda (Ibuka's father. In the early 1990s. which included TriStar Pictures) made Sony a major force in the rapidly growing entertainment industry. Data Discman. It beat the competition to newly emerging markets for transistor TVs (1959) and solid-state videotape recorders (1961). it introduced Japan's first 32-bit workstation and became a major producer of computer chips and floppy disk drives. which lost to rival Matsushita's VHS as the industry standard. which sparked a consumer electronics revolution in Japan. The firm manufactured Apple's PowerBook. The next year the company changed its name to Sony (from "sonus. 1979 brought another success.Report on Sony Corporation 15. the Walkman personal stereo. was only successful in Japan (1991).000 for transistor technology licenses. but its portable CD player. The company produced the first Japanese tape recorder in 1950.law) started Tokyo telecommunications Engineering in 1946 with funding from Morita's father's sake business." Latin for "sound.in. Its 1968 introduction of the Trinitron color TV tube began another decade of explosive growth. In the 1980s. Masaru Ibuka. Sony used its technology to diversify beyond consumer electronics and began to move production to other countries.

and the company introduced a Walkman with the capability to download music from the Internet. in a joint venture with Intel. Then the company announced two deals to deliver music to customers digitally: It agreed to merge Columbia House with online music retailer CDnow (called off in March 2000). Sun Microsystems. which can play DVD movies and connects to the Internet.249c Japan/Korea Trip new kind of game console. VHS gamble.jp/en/SonyInfo/IR/) Page 4 of 19 . 1 This section was adapted from information provided on Sony’s website (http://www. it also introduced its 128-bit PlayStation2. placing all of its US entertainment holdings under a new umbrella company called Sony Broadband Entertainment. In 2000 Sony formed PlayStation. Rather than support an industry-wide standard.) In 1998 Sony shipped its first digital. The move could set up a winner-take-all rivalry that recalls Sony's Betamax vs.Report on Sony Corporation 15. (Sony and Philips created the CD and continue to receive royalties from it.co. and Sony formed a joint venture in early 1999 to develop networked entertainment products. The company later restruc tured. in 1997 Sony teamed up with Philips Electronics to make another recording media.sony. and it agreed to allow Digital On-Demand to sell downloaded music from in-store kiosks to consumers. and launched its Wega flat-screen TV. Sony released PlayStation in Japan (1994) and in the US (1995) to great success. called Super Audio CD. Philips. it developed a line of PC desktop systems. folded TriStar into Columbia Pictures.com Japan to sell game consoles and software online. Also in 1999 Nobuyuki Idei became CEO. combining Sony's CD-ROM drive with the graphic capabilities of a workstation. high-definition TV to the US. Although Nintendo pulled out in 1992. merged its Loews Theatres unit with Cineplex Odeon. which could replace videotapes and CDs. Two years later.

2 Mr. he traded this life of comfort and privilege for the uncertainties of a start-up. In 1966. Mr. Annual Report. Because of this belief. Inc. Sony Corporation claimed to employ 19187 people. Morita changed the company's name to "Sony Corporation" from "Tokyo Telecommunications Engineering Corporation" in 1958. Mr. in true entrepreneurial spirit. As of March 31. Although this is a marketing concept widely used by companies today. Morita drove the issuance of Sony's American Depositary Receipts. in 1946. called Tokyo Telecommunications Engineering. Note About Sony’s Founder and Chairman. Morita believed that a company’s lifeblood stemmed from its brand. rather than their 2 Sony Corporation. however it is not clear where they draw the organizational boundaries in providing this figure. Akio Morita Akio Morita had been groomed since the third grade to become the successor of a 14- generation family business: a prominent sake-brewing company in Nagoya. 2000. Morita wrote a book called Never Mind School Records that stressed his belief that companies should emphasize the capabilities of individuals.Report on Sony Corporation 15. Pentax. when most companies were producing products under somebody else's name. It is notable that this year.. it was revolutionary at that time in Japan. Sony is rated the number one brand name by American consumers. 2000. during an era of incredible turmoil in postwar Japan. Mr. However. for example. In 1961. Page 5 of 19 . was making products for Honeywell. ahead of Coca-Cola and General Electric.249c Japan/Korea Trip In early 2001 Sony set in motion plans to set up online banking operations with Japan's Sakura Bank and JP Morgan Chase. Ricoh for Savin and Sanyo for Sears. a first among Japanese companies. He was also responsible for push behind the subsequent listing of Sony shares on the New York Stock Exchange in 1970. according to a Harris survey.

He was also an author of the book Made in Japan and other books.S.S. Business Council. magazine Time as the only Asian member on its list of the 20 most influential business people of the 20th century. Mr. 2000.S. Morita served as a co-chair of various conferences. an idea that sprung from Mr. 1999. even outdoors. One of the legacies of the founders is the belief that R&D and product development can lead new forms of enjoyment for customers. Morita’s curiosity. and personnel development. Morita remained a leader in all areas of Sony’s management. An example of this is the Walkman. Akio Morita Mr. overseas operations. He assisted in improving Japan-U. including the creation of new products.Report on Sony Corporation 15. marketing. The Walkman was based on the unprecedented concept of enjoying your favorite music anywhere and anytime. The Trilateral Commission.S. and the World Economic Forum in Davos. Until his death on October 3. Economic Relations Group. and was instrumental in raising questions about Japan's employment and personnel development. including the Japan-U. 3 In 1998. This point of view sparked a heated-debate in Japan. Page 6 of 19 . His role in these organizations was instrumental in easing trade friction with the U. and directed his energy to furthering mutual understanding between Japan and the rest of the world. also known as the "Wise Men's Group". and other organizations. 3 Ibid. Mr. Morita was chosen by the U. relations by playing leading roles in the Keidanren (Japan Federation of Economic Organizations). the Japan-U.S.249c Japan/Korea Trip prior academic background and history.

Many of these values continue to resonate through Sony today. Organization and Corporate Governance Vision. but now also concentrates on content and services for that are essential to the devices it supplies. To promptly apply highly advanced technologies which were developed in various sectors during the war to common households. b. To bring radio communications and similar devices into common households and to promote the use of home electric appliances.249c Japan/Korea Trip Management. and where engineers with sincere motivation can exercise their technological skills to the highest level. Mr. e. The first section was the “Purpose of Incorporation”. To rapidly commercialize superior technological findings in universities and research institutions that are worthy of application in common households. Mission and Values When the company was founded in 1946. d. Today. To reconstruct Japan and to elevate the nation's culture through dynamic technological and manufacturing activities. To promote the education of science among the general public. h. Ibuka created the Founding Perspectus. which was broken down into the following eight points:4 a. To establish of an ideal factory that stresses a spirit of freedom and open-mindedness.Report on Sony Corporation 15. the company focuses on supplying electronic devices for user Page 7 of 19 . c. f. This addition of content and services has made Sony essentially a vertically integrated entertainment business. To actively participate in the reconstruction of war-damaged communications network by providing needed technology. g. a document outlining the mission and values that he wanted his company to adopt. The company continues to focus on communications and home electric appliances. To produce high-quality radios and to provide radio services that are appropriate for the coming new era.

televisions. and mobile devices. Sony is striving to strengthe n the core Electronic business by applying information technologies to product design. CEO Idei Nobuyuki has openly stated that he wants Sony to become a “broadband entertainment company. as they become available over networks. information and communication equipment. in the case of music or movies. distribution. and financial services businesses. Sony is now releasing network-focused products in four categories: digital TVs and set-top boxes. Through Sony Music Entertainment Inc. Thus.html Page 8 of 19 . It manufactures audio/video equipment.249c Japan/Korea Trip entertainment. Idei wants Sony to create Web- content and associated hardware that will work together to form a complete entertainment system.Report on Sony Corporation 15. PlayStation 2.co. and home video game systems.especially on the Internet.jp/en/SonyInfo/CorporateInfo/History/prospectus. 1998-00. For instance.” He wants Sony to be wherever people gather . http://www. Product-Market Strategy To make this vision a reality. and sales. production. Sony is also strengthening its business in the worldwide music and image-based software 4 Sony Corporation. semiconductors and other electronic components.sony. VAIO home-use PCs. The belief is that this will strengthen the value of Sony’s music. focusing on broadband networks. and the associated content and services that enhance the functionality of these hardware products. pictures. Business Units Sony has developed many innovative products and is now one of the world's foremost companies in the consumer and industrial electronics and entertainment business areas. Sony’s vision is to continue with this strategy. game. and Sony Pictures Entertainment.

Regional Breakdown of Sales Source: Merrill Lynch Electronics Within the Electronics Division. Electronics accounted for 66% of fiscal 2000 revenues.249c Japan/Korea Trip markets and in the insurance business through Sony Life Insurance Co. Sony has its main manufacturing plants in Asia (primarily Japan). “Sony: Outlook 2000” Page 9 of 19 . 1.872 22 Other Regions 10..124 30 Europe 13. Mexico.152 subsidiaries and 107 affiliates worldwide. Ltd. Televisions.012 32 US 19. 2%. Information and Communications.Report on Sony Corporation 15. 5 Merrill Lynch 2000. The regional breakdown of sales is shown in Table 1. a 5 consolidated subsidiary in Japan. 7%. Sony has 1. and the US. 10%. 6% and other. sales are reported using five product categories: Audio. The product portfolio for each of these segments is shown in Table 2. music business. Europe. insurance business. Video. and Other.082 100 Table 1.. and sells its products worldwide. 9%. game console and software business. motion-picture and television business.080 of which were consolidated in fiscal 2000.074 16 Total 63. Region $ (Millions) % of Total Japan 20.

(SMEI) and Sony Music Entertainment Japan (SMEJ). These are principally sold in Japan. Product Portfolio Source: www. SMEI is composed of a number of subsidiaries. Sony Disc Manufacturing. Sony Discos.sony. Sony Classical. PS one and PlayStation 2 entertainment hardware and related software. and Sony Music Nashville. Music: Sony Music Entertainment The Music division is split into Sony Music Entertainment Inc.249c Japan/Korea Trip Games: Sony Computer Entertainment The Sony Computer Entertainment Division (SCE) develops.com Page 10 of 19 . the United States and Europe. and enters into licenses with third party software developers. designs and sells PlayStation..Report on Sony Corporation 15. SMEJ subsidiaries include Sony Records and Epic Records. including Columbia Records. Information & Audio Video Televisions Communication Other Car navigation Audiotapes 8mm/Digital8 Car systems Batteries Broadcast and professional video Car audio equipment equipment Color Cellular phones CRTs Electronic CD players Digital still cameras Flat panel displays Computer displays components Computer Headphones Digital Video Personal LCD monitors peripherals LCDs Professional Hi-fi components DVD players monitors/projectors Data media Optical pickups IC recorders VHS Projection IC recording media Semiconductors MiniDisc systems Videotapes Personal computers Satellite Personal component broadcasting stereos Videotape recorders reception systems Professional-use audio equipment Telephones Radio-cassette tape recorders Video printers Radios Tape recorders Table 2.world.

Celine Dion. group in 1999. was the biggest selling eighteen vol. 2000. television. debuted in the top spot on ORICON. first-week sales of her career. MDs. "Heartbreaker". Software is manufactured principally for the Music business.1.249c Japan/Korea Trip SMEI and SMEJ produce recorded music and video through contracts with many artists worldwide in all musical genres (lists some samples). gave have grown exponentially since the Mariah Carey the biggest album's release. The Music business has an extensive and geographically diversified software manufacturing capacity. DVDs. a five-time Jennifer Lopez' On The 6 album ® Grammy Award winner. the Games business and third parties. and produce and manufacture CD-ROMs.Report on Sony Corporation 15. million albums worldwide in the past decade. Page 11 of 19 . Super Audio CDs and pre-recorded audio and videocassettes. Dixie Chicks' second album. from her Sales of Macy Gray's On How Life Is Rainbow album. In 1999 Charlotte Church L'Arc~en~Ciel's albums ark and ray became the biggest-selling debuted as the number one and female classical artist in the number two albums. respectively. which was released album by a country music on her 18th birthday on February 9. Ami Suzuki's 2nd album infinity Fly. market and distribute CDs. SMEI and SMEJ manufacture. on world. and films. the weekly Japanese ranking chart ORICON after their releases on July 1. 1999. established her as a triple-threat has sold more than 100 talent in music.

acquisition and distribution ? ? home video . focus ed on leasing and credit financing ? ? Sony Trading International Corporation.production. Ltd. Sony Pictures Studios.com Pictures: Sony Pictures Entertainment Subsidiaries of the Sony Pictures Entertainment Division (SPE) include: Columbia Pictures. Operations of SPE include: ? ? motion picture .acquisition and distribution ? ? television broadcasting ? ? operation of studio facilities Insurance: Sony Life Insurance Co.249c Japan/Korea Trip Figure 1. and the Culver Studios.. Other Business Units The other business units include: ? ? Sony Finance International.Report on Sony Corporation 15. Columbia TriStar Home Video. includes insurance-related underwriting businesses. production. acquisition and distribution ? ? television – programming.sony. Screen Gems.. the Columbia TriStar Television Game Show Network. Sample of Sony Artists Source: www.world. a satellite distribution services program supplying businesses in Japan Page 12 of 19 . Sony Pictures Classics. These focus primarily on individual life insurance. Inc. a parts trading services within the Sony group ? ? Sony Broadcast Media Co. and individual automobile insurance. Ltd. Sony Life Insurance Co.. Ltd.

which tend to be more aggressive when it comes to pricing Sony's products. in February 2000. 7 In contrast. Matsushita's approach is designed to let new online distribution channels coexist more easily with its network of direct affiliate shops. the two largest Japanese consumer electronics manufacturers. on the other hand. over 80% of its volume comes from major discounters. Matsushita. Kenneth. while the local affiliate shops will provide after-sales support. Being a direct affiliate entitles a local retailer to better financing and merchandising terms. both companies have relied on distribution through major discount stores. Interesting Current Initiatives E-commerce Sony and Matsushita Electric. are each in the process of implementing new e-commerce strategies in Japan.000 direct-affiliate shops nationwide. Although Sony has over 2..” Industry Standard 7 Ibid. but also through smaller local retailers with whom they have established "direct-affiliate" relationships.Report on Sony Corporation 15. Interestingly. with major discounters producing less than half of all sales. the United States and Germany.000 direct-affiliate shops. Over the years. The company will develop new products and services to be sold through Pana Sense.249c Japan/Korea Trip ? ? Other location-based entertainment businesses in Japan. 6 Li. “Sony bets on E-Commerce. relies mainly on its chain of 20. SonyStyle. 2000. 6 Sony's strategy reflects its desire to reduce the role of the big discounters as middlemen. a chain of directly owned retail stores to provide customer support. and thus retain greater control over prices. The company is launching its e-commerce site and E-Sony Shop network. Sony launched its e-commerce site. 2000. Page 13 of 19 . the major difference between the two strategies has to do with the way that they account for traditional sales channels.com.

CVDs.Report on Sony Corporation 15. unveiled an alliance with game software makers Sega Corp. 2000 “Sony Loses Points for Playstation2 Announcement”. in online game distribution. which has been around for some time in Japan and Europe. Under the agreement. Currently.000 systems have been sold in the United States. These systems incorporate sophisticated technology. 2000 Page 14 of 19 . Sony Corp.249c Japan/Korea Trip Car-Navigation Systems The worldwide car navigation systems market is poised for explosive growth. One of the key factors affecting the growth of this market is the navigation databases that underlie these systems. which ranges in upwards of $3000. Sony plans to develop 8 Leif. 28. proprietary database. Sony currently has a 7% share of this market worldwide. a major hurdle in popularizing these products is their cost. C. and Namco Ltd. 50. has yet to catch on in the United States. PlayStation 2 sold over one million units in the United States after its first three months. 9 In February. This system can play DVDs. these systems are not likely to gain popularity unless they become more economical. Sony recently acquired Etak in an effort to develop an independent. driven by new technologies. Sept. Current navigation databases lack accuracy and sufficient detail. To date. Video-Game Machines and Console Software Sony’s Playstation 2 (PS2) is claimed to be the first next-generation game console. despite being limited by a shortage of components. 2001. including web-access and advanced voice recognition. However. 8 Car-navigation technology. installation of standard equipment in more car models and a downtrend in prices. “Car Navigation” Automotive Weekly 9 Industry Standard. and CD-Roms. DVD-based digital systems are the latest to hit the market.

over a year later than its initial targeted release.com next year”. This summer Sony is expected to release the hard drive extension module for PS2 with Ethernet capability.(2001) “Microsoft Declines Comment on Xbox Profitability” Page 15 of 19 . 11 10 Li. This release is currently scheduled for July . Kenneth. Sony will release the game "i.800 yen.mode is a wireless protocol developed by NTT DoCoMo. 2000 ”Sony may spin off Playstation. Industry Standard 11 Reuters. and also includes software for online billing. Xbox is scheduled for launch this fall and is aimed to attract the same core video game fan base of teenage boys that Sony Corporation targeted with its PlayStation 2. which is expected to compete directly with Playstation 2. It will be followed on April 26 with the "Check.mode devices will hit store shelves on March 29.i-TV" (pronounced 'cheeky TV' with 'i' for I-Mode) another interactive game that has players watching and ranking TV programs and personalities in a game-show like setting with some cute on-screen animal pals.Report on Sony Corporation 15.) On April 19.800 Japanese yen. according to the volume of data they send and receive.249c Japan/Korea Trip methods to distribute game contents via fiber-optic cables to game arcades run by Sega 10 and Namco. It also costs 2. launched in the United States last fall. The Xbox incorporates a Broadband high-speed Internet connection. The networked game lets players meet and interact as animated characters. (I. A cable that will enable PS2 units to connect to I. music or other content.mode Mo Issyo" priced at 2. but requires consumers to purchase a peripheral to play DVD movies.. The system contains security software to guard against copyright infringement of networked games. Competition Competition for the PS2 is as follows: ? ? Microsoft will be launching a product called Xbox. Games will be billed as “packet data transmission”.

mode Internet accessible phone system.making Dreamcast game console business to focus on the more profitable software and game arcade business.Report on Sony Corporation 15. Page 16 of 19 . Sega recently partnered with NTT DoCoMo to jointly develop a network to connect the arcade games to the i. Furthermore.249c Japan/Korea Trip ? ? Sega announced recently that it was exiting its loss.

Financial Performance Source: Sony Corporation 2000 Annual Report Page 17 of 19 .249c Japan/Korea Trip Appendix A.Report on Sony Corporation 15.

but demand clearly surpassed supply. the device was an instant success. CD-Rom. etc. What is your view on convergence of the home game and home PC market? Addtionally can you give us a sense of what additional might eventually be available through Playstation 2? MP3 Players ? ? Why is the electronic division pushing MP3s when the music industry is fighting it? In particular. and what would you do differently next-time? ? ? Playstation 2 is much more technically advanced than previous gaming units. 3Com. and includes a DVD. How do you see this partnership playing out.Report on Sony Corporation 15. What do you think of non- traditional consumer electronics manufacturers (Creative. and how will you differentiate your product from Microsoft? ? ? Sega has traditional been a fierce competitor in the home gaming market. You sold over 1 million copies in three months. How did you forecast demand. Sony Playstation 2 ? ? Microsoft is rumored to be selling its Xbox for $50 under cost.) moving into the market for electronic gadgets player market? Founders Page 18 of 19 . but you are now partnering with Sega to provide games in their arcades. how is your electronic division responding to your music divisions concerns over music piracy? ? ? There has been a lot of press about the gadget wars. ? ? When you released Playstation 2. and Ethernet connectivity. What is your perception of Microsoft’s entrance into the home gaming market.249c Japan/Korea Trip Appendix B. Analysts have speculated that it could evolve into the next generation computer for the home. Questions for Visit The following are the questions prepared by the Sony team for the upcoming visit.

Report on Sony Corporation 15. but are now going direct to consumers. how does SonyStyle fit into your distribution strategy? Page 19 of 19 . How has their vision carried forward to the new management team? E-Commerce ? ? You have always relied heavily on retailers in your distribution chain.249c Japan/Korea Trip ? ? Both of your founders have passed away in the past few years. Some CD retailers have even begun to sue you. In light of this.