Tokyo Sony is currently playing for its future on the lawn of the Etihad Stadium in Manchester. In February, company boss Kenichiro Yoshida agreed with English football club Manchester City to virtually recreate their home stadium in the Metaverse, that increasingly lifelike decorated digital world that the digital economy is betting on as the next boom. There, for example, fans should be able to relive games “live”, play video games in real time and meet other fans.
For Yoshida, the three-year trial is a digital prototype for conquering a new market. “There is an opportunity to create a new ‘Kando’ through technology,” he told a strategy meeting on Wednesday, just a week after the company reported record profits of 8.7 billion euros.
Kando, translated as emotion or enthusiasm, is the key term for Sony’s rebirth after a deep crisis. The word stands for the company’s mission to move the hearts and minds of customers and to connect people through content and technology. That sounds aloof. But Yoshida’s speech shows how the term reflects the rapid change of the former figurehead of the Japanese electronics industry.
20 years ago Sony, inventor of the transistor radio and the Walkman, was still the world market leader in flat screen televisions and a driving force in notebooks and mobile phones. Now these devices do not appear in the presentation at all or only marginally. Instead, Yoshida devoted most of his speaking time to video games, music studios and the film business, which he also sees as growth engines in the virtual world. “The Metaverse is a social space for live events where music, film and anime animation meet and expand together.”
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From the point of view of Serkan Toto, founder of the video game consultancy Kantan Games, the turning point has finally been achieved. “Today’s Sony group isn’t what it used to be,” says the Tokyo-based expert. Sony continues to be a conglomerate that combines financial services, entertainment and traditional electronics. “Essentially, entertainment such as video games, music or films has become the core of the brand in the public perception,” says Toto.
Analysts see it the same way. Doug Creutz of the US investment bank Cowen described Sony as an “underrated entertainment powerhouse”. The importance of the three divisions for Sony’s resurgence cannot be overlooked.
First a pioneer, then into the crisis and now finally successful
As early as the 1990s, Sony was working under the slogan “Digital Dream Kids” for a connected world in which content such as video games and films drove sales of hardware. The group even experimented with the first versions of the metaverse. The software and hardware were just not ready for the idea.
Instead, in the early part of the century, Sony was pushed into the doldrums by more agile Asian rivals like Samsung in its traditional core TV or mobile phone businesses. Between 2008 and 2014, Sony was making losses or just about profitable.
Not even hard cuts like the sale of the computer division or the focus on premium models for flat screen TVs and smartphones helped. Only the appointment of the Playstation specialist Kazuo Hirai as the new CEO in 2012 brought about a turning point.
>> Read here: Sony will become Japan’s second most profitable industrial conglomerate, after Toyota
In 2013, the manager declared “Kando” as the company’s purpose and entertainment as the new engine. The current company boss Yoshida has accelerated this course since 2018. The 62-year-old former chief financial officer has not only made the cut back divisions for televisions and smartphones profitable again.
Sony’s focus on entertainment is driving business numbers to new heights. In the fiscal year that ended in March, the division already accounted for 51 percent of sales and 64 percent of operating profit.
The group predicts lower profits for 2022 due to rising raw material prices. But for Citigroup Japan analyst Koto Ezawa, the growth isn’t over yet: “We like Sony’s long-term growth prospects, driven by the development of virtual worlds and the metaverse.”
Video games as a pillar, music and films as a growth market
The most important pillar is now Sony’s video game division with sales of 20 billion euros and an operating profit of almost 3 billion euros. With more than 100 million customers of the Playstation Network, it is also the Group’s largest Internet platform. It owes its growth to the Playstation console, which is fighting for gamers with Microsoft’s Xbox.
Demand for the Playstation 5, even in its second year, far exceeds supply as the global chip crisis slows production. Sony announced last week that it had secured enough chips for 18 million PS5s by 2022. Analysts assume up to 22 million interested parties.
However, investors also emphasize the smaller music business, especially in the current times of crisis. “It’s best able to withstand an economic downturn,” said Yasuo Nakane, an analyst at Mizuho Securities. Due to the global growth of streaming platforms, the music division could become Sony’s profit engine.
Demand for the console far outstrips supply even in its second year,
(Photo: Bloomberg)
The film business is hardly inferior. Sony benefits from not operating a streaming platform like Netflix itself, says analyst Doug Creutz. He therefore described Sony as a “weapons supplier” that can satisfy the film hunger of all platforms.
However, Sony wants to selectively develop its own platforms. So the Japanese bought Crunchyroll, a distribution channel for anime films. Basically, the group wants to focus on content and artists, said CEO Yoshida. This includes turning video games into films and holding concerts on the gaming platform.
In addition, Sony continues to thrive on its early investment in image sensors for digital cameras and smartphones, where the Japanese are world leaders. Sony is also investing heavily in artificial intelligence and robotics.
Through its premium televisions, smartphones and cameras, Sony continues to develop critical software and hardware that in turn drives the evolution of digital entertainment. Sony is even making another excursion that even Apple shied away from because of low profit margins: With the car manufacturer Honda, he wants to build electric cars from 2025, which, according to Yoshida, should redefine entertainment on wheels.
Sony’s new wealth allows counterattacks against old competitors
However, the excursion into mobility is also viewed critically. In fact, the competition is growing in core businesses: Facebook is expanding into virtual worlds. South Korean arch-rival Samsung wants to dethrone Sony in image sensors. And Xbox maker Microsoft bought game developer Activision Blizzard for $69 billion in January to beat the Playstation.
However, the company is now rich enough to counter it. For example, the group is investing in a chip plant that the Taiwanese chip group TSMC is building in Japan. Yoshida also expects a lot from the planned purchase of the game developer Bungie, which at $3.6 billion is a bargain. “We want to learn live service technology from Bungie,” Yoshida said. This becomes especially important in the metaverse, where real-time communication counts.
More: Inside Valley – Valley correspondent Stephan Scheuer tests the hands-on Metaverse