Sony’s decision to buy Bertelsmann out of their music joint venture is based on an analogy that has failed Sony twice before. It’s a mystery to us why Sony thinks the third time is the charm.
Sony first used the analogy back in 1989 when it bought Columbia Pictures for $3.4 billion. Sony said it was going to adopt an idea from the computer industry, where hardware was tightly integrated with software. Sony had the hardware, in the form of televisions, CD players and other types of consumer electronics. Sony wanted to add the software–Columbia Pictures’ movies–to run on that hardware. But, as we said at the time, the analogy didn’t even hold in the computer industry. Successful hardware companies like Hewlett-Packard have almost no presence in software, and successful software companies like Microsoft almost never do hardware.
Sure, IBM was big in both hardware and software, but that was because buyers of its mainframes and minicomputers had no choice but to buy IBM software to run on them. In personal computers, where software ran equally well on any IBM-compatible computer, IBM sold lots of hardware but couldn’t pay people to use its software. So, if Sony wanted to be like IBM, it was misunderstanding how the hardware-software analogy would apply to consumer electronics. Sony’s world was like PCs, not mainframes. No one would buy a Sony CD player just because they wanted to view a Columbia Pictures movie. No one who owned a Sony television would choose to watch a movie from Columbia Pictures rather than one from a competitor.
The whole notion was silly. For good measure, Sony’s expertise in consumer electronics did nothing to prepare it for the wacky world of Hollywood. Sony ended up writing off almost the entire value of the Columbia Pictures purchase.
Undaunted, Sony resurrected the hardware-software analogy when it unveiled Sony Connect in 2006. Sony tried to compete with Apple’s iPod by selling devices that could only download songs from Sony’s music division and setting up an online service whose songs could only be played on Sony devices. Where Sony saw tight integration of its hardware and software, customers saw massive inconvenience. Would they have to carry around a bunch of different devices to listen to their music? Let’s see, “Born to Run” was issued on the Columbia Records label, so I’ll pull out my Columbia MP3 player. . . .
Sony Connect bombed, too.
So, why does Sony think it will benefit by investing more heavily in the declining music industry? Are customers going to buy Sony-Ericsson mobile phones so they can get Sony songs as ring-tones?
We don’t think Sony’s analogy will work any better this time than it has in the past.
