Sony Makes Its Biggest Move to Regain Profitability - The UpStream

Sony Makes Its Biggest Move to Regain Profitability

posted Saturday Feb 21, 2015 by Scott Ertz

Sony Makes Its Biggest Move to Regain Profitability

It has been no surprise that Sony has not been profitable for a very long time. With multi-million dollar losses quarter after quarter, CEO Kaz Hirai revealed a turnaround plan he was confident about, which has turned out to not be working as expected. The company has had corporate and divisional layoffs in the tens of thousands, as well as millions cut from divisional budgets. With a $1.1 billion loss, they are even replacing executives.

None of this has seemed to help enough, and more drastic measures have been considered just to keep the lights on. The television division was divided into 3 pieces in an attempt to make it more manageable and, likely, to find and cut the loose thread. Last year, the company's biggest shareholder recommended spinning off the media division entirely, to which Sony replied absolutely not. The idea did seem to spark an idea, however.

Recently, Sony identified Sony Online Entertainment as being outside of the company's core competency and sold it off. That wasn't all, however, because the segment of the company that Hirai has maintained was the most trouble is the consumer electronics division. This means televisions, phones, potentially consumer cameras and home appliances and media devices. As a result, Hirai announced this week that the company plans to move the audio and video businesses into a wholly owned subsidiary: the same strategy they recently took with their television business.

More importantly is a comment made in regards to their mobile business. Last year, the company sold off its Vaio business to focus on mobile, but has yet to find profits in that market. After purchasing Ericsson's share of the Sony Ericsson partnership, the company has not been able to compete in the low-end mobile space with companies like Xiaomi and Huawei, and doesn't have the clout to compete in the high-end space with the likes of Samsung, HTC and LG. Because of this, Hirai says that the company has yet to "rule out considering an exit strategy" with regards to mobile.

These moves will likely end up with the company taking a Polaroid-style licensing approach to their television and phone business. This would entail Sony licensing their name to 3rd parties who would actually design, produce and sell the products under the Sony brand. This is the same move that Sharp made last year in Europe.

On the positive side, Hirai said that Sony will redouble their focus on the PlayStation brand, which is currently their most successful division. Hirai said that, over the next 3 years, he expects that PlayStation, Sony Pictures (whose budget was cut significantly) and music streaming will be the primary profit growth centers for the company. It is not surprising that Hirai would have a loyalty toward the PlayStation brand, as he was promoted into the CEO role from overseeing PlayStation. Also, it has seen almost exclusive top-sales for its PS4 console since launch, only being overshadowed a few times in well over a year.

He is also interested in recurring revenue, like expanding PlayStation Now, which allows you to stream PS3 games on your PS4, a technology based on their Gaikai purchase. That service is currently a Netflix-style $20 for all-you-can-play streaming. They also seem to be considering an actual Netflix competitor, referring to recurring revenue in their Media Networks business.

Will these changes be enough to keep Sony in business, or will they continue to throw good money after bad? It is likely we will know in the coming months, as they determine how to handle mobile and release this quarter's numbers.

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