Claims about Sony

by on May 29, 2013 at 2:04 pm in Current Affairs, Film | Permalink

A new report from the investment banking firm Jefferies delivered a harsh assessment of Sony’s electronics business. “Electronics is its Achilles’ heel and, in our view, it is worth zero,” wrote Atul Goyal, consumer technology analyst for Jefferies, in the report, released this week.

Here is more.  And oh, there is this:

…Sony’s most successful business is selling insurance. While it doesn’t run this business in the United States or Europe, Sony makes a lot of money writing life, auto and medical policies in Japan.

Its financial arm accounts for 63 percent of Sony’s total operating profit last year. Life insurance has been its biggest moneymaker over the last decade, earning the company 933 billion yen ($9.07 billion) in operating profit in the 10 years that ended in March.

Hazel Meade May 29, 2013 at 2:17 pm

Odd, but a lot of companies (i.e. IBM) have evolved away from their original market.
My guess is that other cuntries in SE Asia have been stealing the electronics market share from Sony and driving down electronics prices to the point that it’s no longer profitable to make them in Japan.
Sort of the same thing that Japan did to the US electronics makers in the 70s. I remember the days when people were bemoaning how Japan was stealing all of America’s electronics and automobile manufacturing business. Now, my guess is that China, Malaysia, and Indonesia are taking that business, and for largely the same reasons – lower cost labor. Japan has been a fully industrialized country for a long time, with the living standards to match.

prior_approval May 29, 2013 at 2:46 pm

Or, in another interpretation, an electronics company that becomes entwined with entertainment industry is doomed to follow that industry’s dictates.

In other words, the company that brought us the Walkman (remember ‘Home Taping Is Killing Music’? – yep, the Walkman was the trigger) ended up here – ‘The Sony BMG CD copy protection rootkit scandal of 2005–2007 concerns copy protection measures implemented by Sony BMG on about 22 million CDs’ http://en.wikipedia.org/wiki/Sony_BMG_copy_protection_rootkit_scandal

Sony essentially killed its own core business to favor a dying model based on the idea that copying/distributing audiovisual entertainment is not something easily done by anyone with a PC.

Then there was this -

‘Sony’s move to disable Linux on the PlayStation 3 is being met by a proposed class-action lawsuit accusing the company of unjustly enriching itself at the expense of its customers.

Citing “security concerns,” Sony announced in March it was no longer supporting the so-called “Other OS” feature on the game console. This, after the company had repeatedly promoted the $500 device as one to “play games, watch movies, view photos, listen to music and run a full-featured Linux operating system that transforms your PS3 into a home computer,” according to a lawsuit,

The PlayStation 3 had emerged as a favorite among researchers looking to create homebrew supercomputers on the cheap. When clustered, the PS3′s Cell processor — developed by Sony, IBM and Toshiba — can rival the power of a supercomputer, researchers say.’ http://www.wired.com/threatlevel/2010/04/playstation-linux/

Sigivald May 29, 2013 at 3:41 pm

Neither of those are important to Sony’s profitability; only, in effect, a few geeks cared about either of those, and I don’t think they cost Sony measurable sales.

(Note that the Linux thing is three years old, and a “proposed class-action lawsuit” is nothing. Hell, I’ve run Linux since 1995 and hung around a bunch of advocates for a long time, and I never recalled Sony actually “promoting” it as “a home computer” because Linux.)

All the supercomputer homebrew in the world didn’t sell as many PS3s as “a week of normal sales”; Sony has sold over 70 million PS3s during its lifetime. THe numvber sold “to run Linux!!!” or for supercomputer clusters is rounding error.

(Now, the real “DRM made Sony suck” argument is that they keep crippling their mainstream or semi-mainstream products with it. MiniDisc died young because you couldn’t fill them at faster than 1:1 speed, effectively, because of their insane DRM ideas. [It would have been killed by flash memory in any case.] Their stupid insistence on MemoryStick rather than SD is another point against them.)

But the big reason Sony is in trouble, is that their products just aren’t exceptional, for the most part. The PS3 is the exception there, in being a world-class device in its segment.

Sony makes perfectly good car stereos and home theater amps – but they’re not actually better than the competition, particularly. Sometimes they’re worse.

Sony’s reputation in Japan is, by all accounts I’ve heard from people who know JDM, not stellar.

prior_approval May 30, 2013 at 12:51 am

This is the problem with being old – I remember when Sony was an innovative company, making boatloads of money with products that the entertainment industry attempted to destroy. Betamax may have lost the VCR format war, but Sony made a lot of money in video. VHS was just one of many formats at the time – the 3/4″ format being a fine example of Sony’s ability to completely replace an older paradigm – film, especially in the case of newsgathering.

But your dismissal of Sony’s relevance as an electronics company in such an area as games consoles (the physical gaming market size alone being roughly equivalent to Hollywood) merely shows just how far Sony has fallen.

Though it is good you brought up Minidisc, which is finally being discontinued this yea, since it is another example of how Sony was captured.

The examples are numerous, after all. But rooting the people who actually legally bought your product? Only an entertainment industry type could imagine that would be a good way to increase sales of other Sony technology products.

rpl May 30, 2013 at 7:49 am

Supercomputers made out of PS3s were only ever a thing because IBM was pokey in getting the QS21 and QS22 blades to market. For a long time if you wanted to program a Cell processor, the PS3 was the only game in town. They were, however, always a second-best solution because the PS3 makes a terrible supercomputer node (low density, limited memory, limited to gigE, just to name a few obvious shortcomings). Like Sigivald said, this kind of use was only ever going to be rounding error in Sony’s sales.

Sbard May 29, 2013 at 5:15 pm

It’s South Korea (Samsung and LG) and China that have been hurting the Japanese electronics conglomerates, not southeast Asia.

dan1111 May 30, 2013 at 5:16 am

Anyway, labor costs in Japan are not very relevant to this. Sony (like everyone in the sector) manufactures in a variety of locations in the world in order to take advantage of low labor costs.

Sony’s problem is they just haven’t been much of an innovator or made very good products for quite awhile. My recent experience with them was a Sony Ericsson phone. It had hardware issues and serious software flaws. It ran a custom version of Android that was slow, clunky, and not compatible with lots of Android apps and features. Its desktop software was a nightmare that did not work correctly, while trying to tie you into Sony’s media business like iTunes. Other people I know have had quality problems with their cameras and laptops, as well.

Sony electronics have been on a long, slow decline. They have been living off a reputation as a “premium” brand that was built long ago but hasn’t been justified for years.

david May 29, 2013 at 2:30 pm

But the great secret of the conglomerate has always been to use internal diversification to enable individual industries to survive structural change. Why end that practice now? Is there another company besides Nintendo and Microsoft with meaningful human capital and established branding in the console market?

Anon. May 29, 2013 at 2:42 pm

Does the console market even matter? It’s an airline-tier industry.

C May 29, 2013 at 4:47 pm

Just from a consumer’s perspective, the console matters a lot. And just based on my casual reviews of the various technology and gaming sites (e.g., Endadget, Kotaku, Tom’s Hardware, etc.) there is much anticipation and coverage of both the Xbox One and the Playstation 4. I also use PS3 for streaming Amazon Prime and Crunchyroll (Netflix is another option), and the latest iterations of both devices will undoubtedly expand further into this realm with more applications and much greater internal storage (and I’m sure access to cloud storage).

Brett May 29, 2013 at 4:52 pm

It’s even less profitable than most airlines at this point, too. Both Sony and Microsoft have taken multi-billion dollar net losses in their gaming divisions since 2000.

It’s the curse of the conglomerate: a bad division can drain money off of the good ones, weakening the company overall. They usually only make sense when there are issues with getting financing and investment at a lower firm size.

Rahul May 29, 2013 at 2:38 pm

In the last five decades life expectancy in Japan has shot up by 15 years.

I wonder if people somehow managed to live longer than actuarial expectations, would a life insurer have a passing phase of good times?

Alex Godofsk May 29, 2013 at 2:52 pm

Many life insurers also sell annuities (you’re already employing a bunch of actuaries anyway) which are a natural hedge against mortality trends.

Norman Pfyster May 29, 2013 at 7:01 pm

What do you mean by “passing phase”? People living longer than expectations is how life insurance companies make money.

Rahul May 29, 2013 at 11:35 pm

What I meant was: Say magically for the next 5 years no one died, contrary to all expectations. Wouldn’t a life insurers balance sheet look suddenly quite rosy (since they had planned on paying out for deaths in these 5 years but none happened). Eventually the deaths will catch up bringing the profits back on track.

I could be wrong.

Norman Pfyster May 30, 2013 at 9:22 am

Yes, that’s true in the big picture. Everyone dies eventually. The final effect on the income statement is tempered by the reserves life insurance companies carry (the older a policyholder is, the larger the reserve; increases in reserves lower current profits and the release of reserves (income) upon the death of the policyholder offsets a portion of the claim payment (expense). Further, reserve valuation tables are usually conservative and based on older mortality experience, so if a whole population is living longer than prior generations, the reserves will be higher than is economically “correct” for the longer-lived generations.).

Tom (Not that one) May 29, 2013 at 3:19 pm

Depending on whether the new PlayStation monitors who you are as you sit in your living room (as the new Xbox does), their games console division could be in for a few good years.

Vernunft May 29, 2013 at 4:39 pm

You mean the company that lost all your credit card info and then didn’t let you play online for weeks while they sorted that mess out?

Yeah, you go buy your PS4.

Peter May 29, 2013 at 3:50 pm

Life insurance in Japan used to be as loathsome a scam as it still is in the United States. Policies were sold, not bought, with solicitations by straight-commission agents being the way most transactions began. Agents were under pressure to sell to friends and family members, the so-called “warm market” (I have made a solemn vow that I will physically assault anyone who uses that hate-filled term in my presence unless they’re referring to the temperature inside a store. Sorry for the digression). The one main difference is that most of the Japanese agents were women, while the life insurance scam in America is male-dominated, if not quite a sausage party.

Thankfully, things have gotten better in Japan in the last decade or so. Today many customers initiate the sales themselves by contacting insurance companies, often after doing online research. It’s also increasingly common for people to get life insurance as a fringe benefit through their jobs rather than buying individual policies.

msgkings May 29, 2013 at 4:34 pm

Hey Peter, what are your thoughts on the stock market? It has been a pretty warm market in my opinion, but maybe cooling off a bit.

(just seeing what he’ll do)

Rahul May 29, 2013 at 11:38 pm

You have life insurance?

dan1111 May 30, 2013 at 4:47 am

I don’t like pushy salespeople either, but that doesn’t make something a scam.

collin May 29, 2013 at 4:05 pm

Does this mean Sony has the potential to become Japan’s version of General Motors?

Chris S May 29, 2013 at 4:50 pm

+1

My thoughts exactly. GM was a great finance company until they sold Ally.

bluto May 29, 2013 at 4:56 pm

GE Capital remains the biggest profit generator in the conglomerate, by a good margin.

Axa May 30, 2013 at 7:15 am

+1

Thanks for bringing GE Capital into discussion. I was about to post about it at the end of comments.

Brett May 29, 2013 at 4:56 pm

The electronics division is being dragged down heavily by the HD TV business, which is an unprofitable mess of a market with way, way more supply than there is demand to produce HD TVs at any profitable level (particularly with the Chinese now getting into an already-crowded market for them). I wish Sony would just cut their losses and shut down their production of HD TVs, but they won’t.

Ray Lopez via a US-based Proxy Server (PH offline again) May 30, 2013 at 1:02 am

You mindless video game freaks would not have any worries over Playstation or Xbox if you switched to the Royal Game, chess, which does not need fancy animation. And you would lern something intellektual and long-term kool. As for Sony, like a typical Asian company they will march into diminishing returns with a gusto.

Max May 30, 2013 at 6:47 am

The PS3 lost money initially, but eventually turned the corner. The PS4 will be profitable from day one.

I don’t know how Sony manages to lose money on TVs and stuff. Just outsource everything to China and milk the brand name.

dan1111 May 30, 2013 at 7:00 am

“Just outsource everything to China and milk the brand name.”

That is exactly what they have been doing, but it only works for so long. Eventually your products actually have to be superior in order to command a superior price.

I think they ran into trouble with TVs so quickly because TVs are simple and quality is easy to assess; it is hard to maintain a premium brand. Only one component–the screen itself–matters. Customers can instantly compare the quality in store. As soon as discount brands like Vizio offered a comparable picture quality, they were toast.

Albigensian May 31, 2013 at 11:06 am

I don’t know why anyone should be surprised that consumer electronics tends not to be very profitable. After all, many consumer electronics products are essentially commodities, which by definition are low-margin products.

But Sony seems to have gone out of its way to engender customer ill-will. It’s not just that many Sony electronic products are poorly made (although they are), but Sony’s pushing proprietary standards (e.g., Memory Stick instead of SD Card in cameras), and their fiasco of a few years ago when they put rootkits in their CDs. There’s just a lot of consumer dislike and distrust of Sony- and in so many ways Sony has earned it.

In any case, as a maker of consumer electronics and also a media company, Sony’s loyalties will inevitably be divided when it comes to copyright and copy protection (‘DRM”) battles- as a media company Sony wants everything locked down tight, yet other consumer-electronics manufacturers have championed more open, relaxed protection. How can/does Sony serve both masters?

In any case, the days of Trinitron TV sets (let alone transistor radios) were a very, very long time ago. What has Sony done lately to make it stand out?

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