December 16, 2010 7:42 pm

Sony has a lot to play for as it seeks 3D success

Of all the things that could have spoiled the debut of Sony’s 3D television business this year, an Icelandic volcano was perhaps the furthest from Akira Shimazu’s mind.

Mr Shimazu, the lead project manager for 3D ventures at the Japanese company, was busy with other matters when ash from the erupted Eyjafjallajökull peak began grounding European air traffic in April. He was co-ordinating what he describes as Sony’s most complex and wide-ranging roll-out ever.

It was a tightly connected series of product launches involving three-quarters of the sprawling electronics and entertainment group’s divisions – from televisions and video games to professional film and broadcast gear – in addition to television networks, filmmakers, game developers and other outside partners.

“The organisation chart for 3D is basically the organisation chart for Sony,” he said in an interview at the company’s headquarters in Tokyo.

The volcano forced Mr Shimazu to delay a vital step in his intricate logistical dance: test shooting European football matches ahead of the World Cup in South Africa in June.

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Sony’s engineers were set to show 25 matches in 3D in concert with ESPN, the US sports channel, in what would be the first big global test of modern 3D broadcasting. The games would be watched by early adopters of Sony’s 3D televisions, which were scheduled to go on sale a week or two before the first kick-off in Johannesburg.

3D has been a buzzword in the consumer electronics industry all year. Most Japanese and South Korean hardware manufacturers are offering 3D televisions, hard disk recorders and DVD players.

Yet no company has as much riding on the technology as Sony. In addition to TVs, the group makes PlayStation game consoles, owns the Sony Pictures movie studio and is the lead developer of Blu-ray DVDs, the only disc format large enough to store high-definition 3D feature films.

Sony, which is currently restructuring itself, returned to profit in the first quarter after two years of losses and generated Y31.1bn ($385m) of net income in the three months to September 30 against a Y26.3bn loss in the same period last year.

Sir Howard Stringer, Sony’s boss since 2005, is said to have pushed for an aggressive 3D consumer-products strategy, over the objections of more cautious executives. With it, he hopes to prove the company’s hardware-plus-content model can generate money-making synergies – something that has not always happened in the past. As one analyst at a European investment bank puts it: “My biggest concern about Sony is that it’s six companies instead of one.”

A decade ago, for instance, neither Sony’s record label, Sony Music, nor its iconic Walkman brand kept it from losing the emerging digital-music market to Apple. Given its sometimes fractured history, 3D may do more for Sony than lift revenues at its far-flung divisions, says Pelham Smithers, an independent analyst. “This whole exercise brings together their various businesses in a way that can only be good for the company.”

Mr Shimazu says internal co-operation helped him to overcome the volcano crisis. To make up for the delays, he called in extra specialists from different parts of the company’s hardware and content operations in London, Los Angeles and Tokyo.

The disruption had left Sony just two or three weeks to ship purpose-built 3D broadcast trailers to South Africa and get them working smoothly. To finish in time, staff in Johannesburg camped out on the floor of World Cup broadcast centre. “Everyone knew that 3D was a top management priority,” he says.

A nimbly-executed product launch is no guarantee that consumers will embrace Sony’s 3D world. A shaky US economy, the scarcity of original 3D content so far, and consumer discomfort with clunky 3D glasses have slowed initial sales of 3D TVs.

Research groups estimate that 3m-4m 3D sets will be shipped this year, equal to about 3 per cent of global high-definition TV sales and below some analysts’ and industry executives’ early predictions. South Korea’s Samsung has vaulted well ahead of Sony and other Japanese groups in terms of the number of 3D TVs sold.

Hisakazu Torii, an analyst at DisplaySearch, a research group, says premiums on 3D televisions are likely to start shrinking next year. Still, that could hurt Sony less than more hardware-centric groups. “Companies that are trying to do 3D with TVs alone are going to be in a tough spot,” he says. “Sony has more options.”

Sony will not reveal how much it has invested in 3D, but analysts say the financial risks are relatively small, since 3D TVs use standard plasma or LDC panels with a few tweaks, and making them does not require expensive new factories or assembly lines. That makes it easy for new competitors to enter the market – one reason prices may fall quickly – but keeps initial investment costs low.

Mr Shimazu admits early demand has been “not as good as the optimistic forecasts”. But Sony is sticking by its goal of selling 2.5m 3D televisions in the Japanese fiscal year to March.

Mr Shimazu says Sony’s 3D efforts show it is a “healthy company” that can compete against the likes of Apple in innovation. “I think we proved that,” he says.

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