Week 4: Coherence premium, Sony’s dilemma.

While reading ‘HOLLYWOOD: The Study of the U.S. Film Entertainment Business’ written by Lora Yan Chen, there is a chart that displays the profit and loss statements of the Big Six and their parent companies in 2014. The proportion of revenue and profit of Sony is really shocking. The revenue of Sony is only $300 million less than that of Comcast which is the leader of the entertainment industry, but the profit of Sony is only $571 million, far less than the $14,904 million of Comcast. That is 6^th time Sony run into a net loss in a duration of consecutive seven years.

How could that happen?

Sony has a very large production span. Its main business covers 9 areas: mobile phone, laptop, camera, television, gaming, film, music, financial services, and other electronic devices. As the leading company in Japan, Sony tries to create its own business empire at a cost of the ‘coherence premium’. Exactly as what is addressed in the article, the company is highly fragmented and plagued by low overall growth, even net loss. Among all the business segments, mobile phone, television, and laptop are 3 main domains that Sony is losing money.

It is hard to resist the temptation to suppress the ambition for expansion, but Sony might overestimate their ability at keeping the ‘huge body’ in balance.

In February 2014, Sony announced the plan to sell off its VAIO computer division to another PC company because of ‘various reasons’. One of them is to focus on personal mobile phone devices. Yet it turns out that the adjustment this time is still not ‘focus’ enough. In 2015, Sony Corp announced to terminate the employment contract with 1,000 workers in its smartphone business, most of them in Europe and China. Sony’s smartphone business workforce has to be cut off by 30% to 5,000 by 2016. By reallocating the resources in their hand, Sony is getting used to its huge body. In the profit and loss statement of 2017, Sony made $4.38 billion net profit. Although the mobile services face a net loss, the overall performance of Sony is quite promising.

There is no doubt in the ability of technical research and development of Sony. The first digital camera of my family was Sony and it is still Sony after two decades. I personally like the design and smooth function of Sony electronic devices, not only in the digital camera but also voice recording pen, laptop, television, and mobile phone.

There are external factors that shock this huge business empire, like the rise of Apple, Samsung, and the changes in customers’ preferences. But it is also important to evaluate the competitiveness of a company based on the internal analysis. By clarifying the value that a company wishes to create for customers, the capability that it currently owns and periodically reexamine all the products, Sony might be able to avoid the financial crisis in the first place.

References:

1.        Sony vows deeper restructuring, warns of another loss this year, retrieved May 2014, from https://goo.gl/hBr4i8

2.       Sony to fire 1,000 smartphone workers, retrieved January 2015, https://goo.gl/v8hgav

3.       Sony quits the PC business to focus on mobile, Feb 2014, https://goo.gl/2as82g