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Sony's 'The Interview' woes highlight struggle to meld gadget, entertainment businesses

FILE - In this Dec. 22, 2014 file photo, people walk past a TV screen showing a poster of Sony Pictures Entertainment's 'The Interview.'
Image Credit: AP Photo
December 27, 2014 - 6:55 AM

TOKYO - Sony's iconic gadgetry and the star appeal of Hollywood may have appeared to be a perfect match when the electronics giant bought Columbia Pictures in 1989. A quarter century later, it's apparent that Sony Corp. has not attained the magic synergy it was hoping for.

The stolid silence of Sony's Tokyo headquarters over the hoopla surrounding Sony Pictures Entertainment's "The Interview" underscores the longstanding divide between the Japanese parent company and its U.S.-led and -run motion pictures subsidiary, successor to Columbia Pictures.

Marrying the cultures of Sony Corp., a quintessentially Japanese company, and its Hollywood studio was such a challenge that company founder Akio Morita and his successor as chairman, Norio Ohga, never really tried, analysts say. Instead, they left Sony Pictures to mostly run itself.

"They're separate businesses run by separate management," said Damian Thong, a senior analyst at Macquarie Capital Securities (Japan). "Since the late 1990s it's been run basically as a stand-alone business."

Sony Corp. in Tokyo refused requests for comment on developments related to "The Interview," referring all inquiries to Sony Pictures in the U.S. After first withdrawing the movie from a planned Christmas release on as many as 3,000 screens, Sony Pictures made the movie available on various digital platforms Wednesday, a day after Sony and independent theatres agreed to release it in over 300 venues on Christmas.

There were no plans to release the movie in Japan, even before hackers objecting to its satirical portrayal of an assassination of North Korea's leader Kim Jong Un staged a massive cyberattack on Sony Pictures.

As entertainment has shifted to digital delivery systems, technology analysts say it has become increasingly clear that Sony botched an opportunity to outdo Apple in creating a far more influential and valuable business from melding its consumer electronics expertise with ownership of a major movie studio and recording label.

"It feels like there has been a lot of fumbling and a lack of co-ordination there for too long," said Rosenblatt Securities analyst Martin Pyykkonen. "They really haven't won in anything in a long time when they could have been a leader in terms of bringing devices and technology together. So shame on them."

The lack of integration between Sony's main divisions carries throughout the group and is among the reasons why the once iconic electronics giant has fallen behind, says Sea-Jin Chang, author of "Samsung vs. Sony" and a business professor at Singapore University.

Looking back, Chang believes Sony's 1989 acquisition of Columbia Pictures was mainly a trophy purchase driven by Morita's personal whims.

"They made all the possible mistakes they could make in an acquisition," Chang said. "It was driven by ego. It suffered from bad implementation. If you teach a class on M&A (mergers and acquisitions) this is the case study on how not to do it," he said.

Sony's top executives have generally refrained from meddling in the moviemaking process, giving Sony Pictures an autonomy that allows the studio creative leeway. But in turn the Sony brand has not gotten much exposure through the films it produces.

"To be fair, I don't think there has ever been that much of a synergy in the sense that a Sony picture has ever sold a Sony product in a meaningful way," Thong said.

Twenty or 30 years ago, that didn't matter so much. But now that Sony Corp.'s overall brand appeal has faded, it needs all the help it can get.

Sony Pictures has its ups and downs but has been a relatively strong performer in recent years, with hits like "American Hustle" and "22 Jump Street" adding to the studio's brand value.

"Sony Pictures overall is quite important from a marketing relationship point of view, just because it's one of the few properties now that is really getting people to see the Sony name anymore," said Benjamin Cavender, a senior consumer electronics analyst at China Research Group in Shanghai.

Some of the frustration with this longstanding malaise boiled over last year when an activist investor, New York hedge fund manager Daniel Loeb, bought a 7 per cent stake in the company and urged CEO Kazuo Hirai to spin off the entertainment division. Hirai didn't, but Sony cut costs, laying off dozens of workers, to boost Sony Entertainment's profits before Loeb sold his stake earlier this year.

Like many long-established companies that have been caught off guard by technological upheaval, Sony was still making too much money in its traditional lines of businesses to have the incentive to try something radically different, analysts said.

In the meantime, a traditional tendency toward building consensus fostered bureaucratic obstacles between its various lines of business that make "it very difficult for anyone to integrate anything within the organization because people aren't talking to each other and they're not sharing information," Cavender said.

"Sony is run like a group of silos," agreed Wedbush Securities analyst Michael Pachter, who bought more than 8,000 shares of Sony stock after Loeb tried to shake things up. "I don't think Sony was ever going to be the first mover (in entertainment's digital shift), but being Japanese meant things moved a lot slower than they should have been. They could have been a lot more nimble."

Instead, Sony has been outmanoeuvred by technology companies that anticipated the changing trends. Apple introduced the iPod to accompany its iTunes music store followed up by the iPhone and iPad, devices that have become entertainment and information hubs. Google bought the video site YouTube in 2006 and then gave away its Android software to create the leading technology platform on mobile devices. Netflix has built the Internet's biggest video subscription service by working with a wide variety of devices, including Sony's PlayStation video game console. Amazon.com has been trying to orchestrate its own digital medley of devices, video, music and books.

Sony, meanwhile, is still struggling to serve both its home and global markets and to decide if it will stick with its television manufacturing business or spin it off entirely, focusing instead on more profitable areas such as imaging sensors, games and entertainment.

"It used to be that you'd see a Sony TV or Sony Walkman and think, "Man, Sony is the coolest product to have," and that doesn't exist to the same extent anymore," Cavender said.

"It's important that they handle what they do with Sony Pictures very carefully. From a marketing point of view, it means a lot."

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AP Technology Writer Michael Liedtke in San Francisco contributed to this report.

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Elaine Kurtenbach is on Twitter: http://www.twitter.com/ekurtenbach

News from © The Associated Press, 2014
The Associated Press

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