At CES at the beginning of the year, Sony unveiled its latest concept car VISION-S new SUV prototype (VISION-S02) and announced the establishment of a mobility company to officially enter the field of smart cars. But some have questioned the company's "late set.".
On Tuesday, Microsoft announced its acquisition of Activision Blizzard for $68.7 billion. As Microsoft's competitor in game consoles, Sony plunged 13% in the Japanese stock market that day.
"Before there are wolves and then there are tigers", Sony seems to be in a dilemma, but in fact, the company's focus has long shifted. A growing number of investors believe that the $157 billion Japanese business may be on the verge of fulfilling an ambition they have been unable to achieve for decades: to become the world's most complete entertainment company.
Departmental collaboration is getting smoother
Over the years, Sony has created or purchased multiple suitable tools to achieve its goals: from miles Davis to Mariah Carey's world-class singer productions, to Hollywood film and television studios, plus leading game group PlayStation. However, the Japanese business giant has not been able to coordinate the whole "orchestra" well, so that the various "voices" can "play" harmoniously between each other.
Today, while the entertainment industry is facing huge shocks, including music, movie and TV streaming services, blockchain-based games, and a metaverse that could disrupt everything, Sony seems to have found a way for its different entertainment groups to work together.
Sony's movie studios are working on Spider-Man and other Marvel blockbusters, and its well-established library of movies and TV shows is filling the bottomless pit of streaming content. The world's second-largest music business is profiting from the growth of Spotify and TikTok.
With the PlayStation console, Sony has decades of experience in gaming — an area that Netflix, Apple, Amazon and other wealthy players are eager to enter. All of this has to do with cutting-edge hardware, including VR headsets and other gear that, in the eyes of many, will be the gateway to the metaverse. Pelham Smithers, an independent analyst who has focused on Sony's business for years, said: "Sony's strategy puts them in a unique and powerful position. They have music, TV, movies, video games, these are all things that people want, but only Sony can use them in a scale and a joint way. He added: "In this future era where entertainment will be consumed in a more immersive environment, no company will be more obvious than it will be the center of the metaverse." ”
Investors seem to share this view, with Sony's stock price currently at a 20-year high, with the vast majority of analysts following the stock rating "buy."
The Uncharted series is the flagship of two generations of PlayStation players and a great example of Sony Group's partnership strategy. The film's release was the result of a collaboration between Sony's games division and Sony Pictures. In the group's previous culture, such cooperation once seemed impossible.
In 2018, Kenichiro Yoshida became Sony's CEO, and the executive, who has worked at Sony for 32 years, said: "The cultural issue is very important. The Uncharted project is an example of his desire to promote cultural change within Sony. He added: "I highly recommend sony pictures and the PlayStation team to start working together. ”
It's no coincidence that Sony has such a soft spot for the Uncharted series, and the game's treasure hunt depends on a combination of luck and judgment. For years, Sony has struggled to balance the two at the same time.
Tony Vinciquerra, chairman of Sony Pictures Entertainment, said: "A number of the group's companies have been trying to do Uncharted for the past 10 years. In 2017, when I first came here, I asked: 'Why can't we get this job done?' ’”
The project was launched after discussions between Vincila and Jim Ryan, president of Sony Interactive Entertainment. After the release of Uncharted, there are 10 more projects between the game division and Sony Pictures that are about to enter the development phase. Vincichira said: "What we need to do is what is good for the Sony Group as a whole. ”
Doug Creutz, an analyst at Cowen & Co in San Francisco, said the company has finally found the right mix today. "For a long time, they were a big conglomerate looking for direction," he said. But now they've found the right entertainment focus, they have a strong position in music and video games, and they're attractive in TV and movies because they can sell content to the highest bidder. ”
Over the past 20 years, Sony's various investments have often been seen as errors of judgment. Many of the company's business lines were retained, and the reasons given by senior management were "emotional reasons", so Sony became a misplaced group, institutionally resisting simplification and unification.
Mio Kato, an analyst who published on smartkarma, an independent investment research platform, said Kenichiro Yoshida "executed and pushed the project forward" after taking charge of Sony. "I don't think people see much of a competitive gap between Sony and other companies in this space," he said. Sony just seems to have better ideas faster. They have regained their ability to innovate. ”
Fade out of the streaming wars
Nielsen's data shows that the most widely circulated shows in the U.S. aren't critically acclaimed Netflix originals like "Squid Game" or "Stranger Things," but rather "Seinfeld," an outdated sitcom that debuted 33 years ago.
In 2019, Netflix signed a 5-year agreement with Sony Pictures Entertainment, so Seinfeld is currently a Netflix exclusive series. Before the exclusive contract was signed, there was a fierce competition between streaming services for the show, and the rights to the show were eventually sold for $500 million.
Sony Pictures is far smaller than its Hollywood-based rivals, and Sony believes the smartest strategy in the streaming war is to exit altogether. Instead of launching their own services, they followed what Sony executives call "arms dealers," selling film and television rights to the highest bidders.
Of course, the current market seems to be a seller's market, as Disney, Amazon, Apple, Warner Bros. and others are expected to spend billions of dollars on content to attract streaming users. According to Morgan Stanley's estimates, the top eight media companies in the U.S. are expected to spend a total of about $140 billion on content in 2022, and the streaming war will usher in more than 10% spending growth in the next few years.
Vinciela said: "The streaming war is a good thing for us. These streaming services say they can be profitable in 2023 or 2024, and they're likely to do that, but to get there, they'll need to put in a lot of money, which will be billions of dollars worth of investment, and that investment is done by buying us the rights. ”
Last year, Sony struck a deal with two major streaming companies, Netflix and Disney+, to allow the two companies to offer Sony's movies to users at streaming services between 2022 and 2026. The total value of these transactions is estimated to be close to $3 billion.
Some analysts believe that with the slowdown in subscriber growth for services like Netflix and Disney+, Sony's "arms dealer" model now looks more sensible. The slowing growth of streaming services has led some investors to question whether the model can actually bring enough returns. At present, the entire industry is expecting that after the end of the initial "staking" phase, there will be an integration period between streaming media companies, and eventually only a few services can stay.
For Sony's arms dealer strategy, this is a potential risk, the future of streaming media companies in the content investment will be reduced, after entering the integration period, the price of content copyright will also be reduced. Doug Creutz said Sony's arms dealer strategy "is certainly different from what others have done." Everyone else wants to be Netflix, and they're currently losing a lot of money to achieve that goal. ”
The potential problem for Sony, Cruz said, is that after the streaming war moves towards the inevitable consolidation, fewer companies can buy content from Sony, undermining its current price advantage. To counteract this, Sony tried to set up its own niche streaming service, what Kenichiro Yoshida calls an "interest community," to serve a small group of dedicated viewers, including anime fans. Sony acquired Zee Entertainment last year, and they subsequently set up an entertainment streaming service in India, while Netflix and Disney+ are also actively pursuing this market.
Another business that has improved at Sony is its film division. Led by Vinciquila and Tom Rothman, who runs Sony Pictures Entertainment Film Group, the group's profits rose sharply. Much of the division's success is due to the Spider-Man series of films, which helped Sony's film division achieve good results in 2021, although the global box office has once again been frustrating under the interference of the epidemic.
Sony Pictures made three spots in the nation's top ten films, led by Spider-Man: No Way Home, which, after its release in December, brought in more than $668 million in revenue and quickly became the sixth-highest-grossing film in the history of American cinema.
Sony executives are also happy to admit that Sony's film and television studios are small compared to Disney, Warner Bros. and other Hollywood groups. But Kenichiro Yoshida says he will work to keep the studio, even though Amazon bought MGM for $8.45 billion last year, suggesting that the industry has begun to enter a period of consolidation.
"It's no secret that we are a very small industry player compared to our massive competitors," said Vinciquila. We're not big, but we have three entertainment companies working together, and you'll find that we have a lot of assets, a lot of intellectual property, and we can compete in the space we want to go into. ”
However, there are still some major shareholders who believe that there will always be risks around the company. Against a backdrop of global investor frustration or disdain for the Japanese management's ability to create profits and value, Sony corporation, while globalized, remains essentially a Japanese company.
Since Kenichiro Yoshida took over Sony, the company's stock price has skyrocketed by more than 180 percent. However, its market capitalization is still about 20 times less than Apple's market capitalization. Smith said that while Sony has performed better than the vast majority of Japanese companies because they focus more on return on equity and make a huge difference in the company's capital through buybacks and successful acquisitions, Sony's performance on Japan's domestic stock market has been lackluster, and this huge disconnect still exists.
Entering the game to build a car brings risks
Damian Thong, a senior analyst at Macquarie in Tokyo and one of the few analysts who has a "neutral" rating on Sony's stock, said there are many reasons to be cautious about Sony despite its seemingly dramatic transformation.
He noted that the company's announcement in early January that it would create a new subsidiary, Sony Mobility, to explore entering the electric vehicle market was a particular wake-up call for investors. The project emphasizes that the car of the future will become an "entertainment hub on wheels," meaning Sony's cars are likely to serve more as stores for its content offerings than intend to compete with real automakers like Tesla or Toyota.
Some observers said the ambition and ostentation in the announcement gave a glimpse of the shadow of the "old" Sony, as well as the historical tendency to lose focus at the wrong moment. On the one hand, Sai'an said, given the company's conservative approach in other areas, its ambitions and willingness to take risks in electric vehicles are impressive. After all, the size of the auto market is as high as $3 trillion, and such a large market has a strong attraction, and investors' love for automotive industry disruptors is also very obvious.
On the other hand, Sony's chances of success in the automotive sector are not high, and investors should worry that the full promotion of the electric vehicle business will destroy the company's value and bring years of losses. Although the scale of electric vehicles is lower than that of traditional car-making businesses, it is still difficult to expect Sony to make any kind of profit through this adventure before 2030.
Analysts pointed out that Apple has also been developing its own car project for the past 7 years, and until now, the world's highest market capitalization company has not achieved significant results.
As always, Sony's problem is that history proves that the company tends to have some unexpected results. The company's success in consumer electronics in the 1980s was met with skepticism from U.S. businesses, and despite Nintendo and Sega's scorn for it, they were successful in gaming. Their efforts on mobile phones and personal computers once looked likely to succeed, but the end result was less than satisfactory.
Now, with a bigger puzzle surrounding the company, have investors really figured out how to evaluate the 76-year-old tech and entertainment company? Is Sony really going into the electric car space? After all, in the eyes of some people, this is a manifestation of "not doing the right thing".
Most importantly, is the company finally regaining its former glory?
Source: Sina Technology