Sony Examines Digital Music Strategy

Sony has learned several lessons from its reluctance to quickly embrace music download services and is now working hard to make up ground against the dominance of competitors such as Apple Computer, a senior executive said on Thursday.

The Tokyo-based consumer electronics giant wasn't as quick off the mark as Apple, RealNetworks, and some others in offering a system for downloading music to digital players. When it did launch a service it stuck to a proprietary encoding system and offered no support in its players for the widely used MP3 format. The result has been a poor showing for Sony--traditionally one of the strongest names in portable audio--in the market for players based on flash memory and hard-disk drives.

"Because we had a music business, Sony was reluctant about introducing an IPod type of new product, but we (learned) many lessons," said Ken Kutaragi, executive deputy president of Sony, speaking at The Foreign Correspondents' Club of Japan.

Working Together

Until recently, Sony's numerous divisions did not work as closely together as they could have to develop a coherent online music strategy, but that is now changing, Kutaragi said.

Sony formed an internal group called Connect Company that spans several business units. Its goal is to tie together its digital music efforts in the areas of hardware, content, online sales, and software, and to help Sony develop a more user-friendly digital music system. Later Sony said it would offer a new version of its Network Walkman player with support for MP3. Owners of earlier models can get their players upgraded to support the format.

"Right now we are sharing a common agenda, common technology and a common interest. It's just starting," Kutaragi said. "The situation in the past few years (has been) a bit frustrating for everyone."

"We have invited many people from the industry to join the Sony group and started to communicate with many people, started to collaborate with many companies, publishers and content services, so we are growing up," he said.

Financials Down

Several hours after Kutaragi spoke, Sony announced a downward revision to its full year financial forecast. It blamed the revision on price competition and lower demand for some of its products, and again underlined the difficulties its portable audio business is facing.

The structure of the market for personal audio products changed drastically with the arrival of players based on flash memory and hard-disk drives, leaving Sony's product range unable to meet and catch up, according to Takao Yuhara, corporate senior vice president in charge of finance and investor relations at Sony.

Sony's range of CD and MiniDisc players lost some sales to the newer technologies, which are increasing their share significantly in Europe, he said.