Sir Howard Stringer Chairman and CEO, Sony Corporation of America
"The Broadband Entertainment Planet"
Financial Times New Media and Broadcasting Conference
Renaissance London Chancery Court Hotel - March 3, 2004
Good morning.
I'd like to thank the Financial Times for inviting me to speak at this conference. In fairness, my
motives are not entirely altruistic.
On this very day Disney's Michael Eisner is about to discover in Philadelphia "for whom the liberty
bell tolls." Does it toll for him?
These are precarious times for CEO's. I read the Lex column every morning as if it were a medical
chart. Is my company on the critical list? Am I on the critical list? Worse, is that my career obituary
staring me in the face? Am I the street's latest scalp? Am I the last to know! Don't you sometimes
wonder, whatever happened to that old fashioned journalistic seal of approval … the puff piece...when
did puff piece become an oxymoron? …Along with its popular companions…office party and
business ethics.
For two years, beginning in 1995, I was CEO of a telco-funded venture … Tele-TV…ambitiously
designed to introduce broadband convergence to a skeptical world. It failed. I'd found another
oxymoron … broadband convergence.
Ten years later I'm back, and this time with Sony. I believe we're armed and dangerous. Broadband
convergence is no oxymoron.
How do I know this? Read the FT if you don't believe me! You all know that Comcast craves Disney
… and even though Comcast declined to rationalize the deal in terms of convergence or even vertical
integration … we know better. Caution and reticence are understandable, after the AOL Time-Warner
and Vivendi- Universal experiences.
Simply put, Comcast believes in the value of content and it believes in the future of convergence in a
world of digital broadband-engaged networks and devices.
You have read countless analyses of the Comcast/Disney pas de deux. What has not been admitted is
that, as distributors like Comcast get stronger and larger by the day, and cable bills seem more like car
lease payments, these companies begin to enjoy so much leverage that they start to look like utilities.
And utilities risk being regulated.
Perhaps Brian Roberts questions Comcast's ability to maintain the dramatic growth he sustained
during the eighties and nineties, and has set his sights on the content business to provide him with the
cash flow momentum he demands. Maybe he thinks he has nothing to lose but his loneliness.
We're all in the club. Look at the landscape – content companies, wireless companies, cable, computer
and consumer electronics manufacturers, broadcasters, purveyors of hardware and software. How
many are confident their business will exist in another decade? How many have changed their business
model only to discover that today's iteration is tomorrow's anachronism?
The bible says, "They that weave networks shall be confounded."
And so we are.
The losers in this game are not shuffling the proverbial deck chairs on the titanic. They're being
jettisoned from a blitzing speedboat as the remaining passengers fight to seize the steering wheel – if
only they can locate it.
Brands, those darlings of the management consulting class, can help you cling a bit longer to the
gunwales. But they won't protect you if the ride gets bumpy for the long haul. They're just not as
sticky as they used to be. They'll buy you a little time … but he who hesitates is forgotten.
Those of us in the converging industries of media, entertainment and consumer electronics have been
buffeted by global commoditization of our wares, under siege by pricing pressure and piracy of our
content, fearful that the newer, faster, better technology in which we have just invested billions will
soon be supplanted by even newer, faster, still better technology.
No one seems to want to leave this Hobbesian dance and countless others desperately wish to join the
party.
Why?
Well, all right. For some of the usual reasons: fabulous riches, enormous power and the ever-seductive
allure of remaking the world anew.
The late historian Daniel Boorstin wrote that primitive peoples used myths to explain their past. We,
on the other hand tend to deploy myths to frame our future.
But myth, like prophesy, can be self- fulfilling. Having envisioned a connected world of devices,
services and content on demand, we are rapidly building it.
New technologies inevitably change the business calculus – that much we know. But I don't think they
change human calculus as much as we think!
I recently read in a newspaper that content is no longer king. To my mind, that certainly qualifies as
news.
If content is not king ... What is? Fiber optic cable? Satellite transmission? Wi- fi? If the play's not the
thing – then what -- the empty husk of the theater?
Content was the essential element in the age of Sophocles. It is no less essential in the age of Harry
Potter. Only the marketing channels have changed.
The only reason we know convergence is real at all is that we can hold it in the palm of our hand. And
what is it we're holding? What are we seeking when we fidget with a Walkman personal stereo? Not
the chips inside the machine. No. It's the music in the soul we're after.
That is why content is at the heart of Sony's strategy. Like a new world orbiting an ancient sun, the
broadband entertainment planet will orbit around content, as surely as the analog world did before it.
Content is the flame that beckons.
We are on the digital world's final frontier – the consumer-ready digital revolution. The consumer is
front and center – whether we like it or not. Yes, the consumer sometimes flies the skull and
crossbones … we have that reality … but even the pirates have taught us something. Like Glenn Close
in the movie "Fatal Attraction", the consumer is "not going to be ignored." Not anymore.
For the first time device and content companies can form direct and highly personal relationships with
the consumer. Because for the first time devices will connect directly to the broadband internet,
transforming business models.
Let me give you examples of devices that will cross that frontier.
First: the most obvious one is the home server … sometimes known as the digital entertainment center.
At Sony we call this PSX. When you attach it to a home TV and video display, PSX allows consumers
to centrally store and playback their collection of movies, home photos, music and home videos.
It also plays PlayStation 2 games and provides DVD burning capability. Soon, this device will act as a
PVR when connected to satellite or cable television, be able to transmit its content to any display in the
home and receive new content from the internet.
The PSX, with its high-speed – consumer friendly – graphic user interface, will ultimately centralize
the entertainment experience. Features that used to be spread over disparate devices such as game
consoles, PC's, digital cameras and DVD recorders will be fused into one home entertainment center.
Second: devices are becoming seamlessly connected. One example: Sony-Ericsson Bluetooth phones
and Bluetooth equipped VAIO computers. The medusa- like spaghetti wires tangled behind all those
feuding devices in your living room have got to go. Consumers want connectivity and interoperability.
Place your Sony Bluetooth phone next to your PC, and your address book is synchronized between
your PC and phone. You can now sit in the airline lounge and surf the internet on your VAIO laptop
with nary a wire in sight!
Third: consumers want multipurpose devices that function effortlessly, universally. As much as
bankers and lawyers swear by Blackberries … most have poor, black and white screens, and have
phone capability that make you wistful for yesterday's finger dials.
Today, the consumer buys mobile phones with low quality embedded cameras and music players.
They're not good enough! Today, voice communication remains the main feature of mobile handsets.
Tomorrow phones will be centered around people's lifestyles – music, games, movies, imaging – and
voice will be just another feature.
This year, Sony caused massive queues outside Japanese electronics retailers when its newest 505i
phone was launched with a 1.3 megapixel camera and memory stick. Yes, you can recognize the
person you've photographed.
Today data accounts for approximately 5% of mobile services revenues. Tomorrow the consumption of
rich data such as music and video will enhance the consumer mobile experience, and in 2006 it is
expected to account for more than 25% of revenues.
While we're on the subject of universal devices, next year we'll launch PlayStation portable – PSP –
which brings together portable games, music, pre-recorded film and TV viewing into a single device.
With this Walkman of the 21st century, there will be no more lugging a sack full of devices including
your Gameboy and DVD player on your next road trip.
With all these broadband-connected televisions, personal video recorders, PlayStations, cell phones,
mp3's and more, we will no longer need a permit from the gatekeepers when we want to reach a
consumer. We'll use our ongoing dialogue with the customer to develop greater loyalty and to offer
new tools to create and share content. This budding relationship, in turn, will enable us to better
distinguish our products and services, and to rise above the flood tide of commoditization.
That's next year.
But, later this year, Sony will launch the Connect online music store in key markets across Europe,
including the UK.
We intend to make it easier to buy music than to steal it.
The plan is for Connect to enable music lovers to download hundreds of thousands of songs from
major and independent labels. It will be a multi- lingual site adept at handling multiple currencies. It
will work with a wide range of Sony devices at various price points.
To make it even more attractive, we're also introducing new Hi MD products. The Hi MD employs a
disc the same size as the current Sony mini disc. But a single Hi MD disc can hold up to 45 hours of
music. And the battery life of the device has been extended to more than 25 ho urs on just one AA
battery. Hi MD and Sony Connect will be an exciting combination in the hands of consumers, allowing
them enormous control and flexibility to govern their musical moods and tastes.
As the relationship between Sony Connect and consumers develops, the service will begin offering
recommendations and alerting consumers to specific new music to enjoy.
I would like to say that I predicted ten years ago that ring tones on mobile phones would be a $3.5
billion business by 2003 – but I happen to have missed that one.
Nevertheless, we at Sony don't look a gift ring tone in the mouth. Sony music now enables consumers
to download not only ring tones but entire songs to their phones – for a fee, of course. In the U.S.,
Sprint PCS enabled more than 500,000 downloads of two songs by Sony music recording artist
Beyonce. And you'll soon be able to connect your Sony Ericsson phone to view downloads of movie
trailers.
There are other multi-billion-dollar businesses waiting in the digital wings. Sony's broadband game
networks – featuring the Everquest and Star Wars games – are creating new interactive worlds and
attracting more than 750,000 paid subscribers in the process. And as the network of users expands,
value is added to the game for existing players.
Beyond music and games, we've just introduced a portable, broadband-connected television – Air
Tact.
The broadband-enabled television, which is at the center of Sony's vision of the networked home, has
recently won a vote of confidence from traditional computer manufacturers including Dell, HP and
Gateway – all of whom have entered the television and consumer electronics market for fear of being
locked out of the living room.
Here in the UK, HDTV is still a question mark. For years in the U.S. we too wondered how HD would
evolve. Which would come first…the programming or the devices….the chicken or the egg…so to
speak. And what impact regulation would have on the process. We are now seeing an explosion, as the
consumer – recognizing the enormous appeal of HDTV – votes with his wallet and his time. Programs
created in HD are everywhere…and HD-enabled televisions are becoming the rage.
In addition, we'll soon see:
The realization and acceptance of long-promised video on demand, with immediate access to
hundreds of thousands of films and television shows;
A new generation of Sony Walkmen that directly access networked music collections – any time,
anywhere;
Real-time transmitting of personal video – you'll be able to access your child's football or tennis
match while you're out of town on business.
As a result of open standards, direct broadband access via devices and consumer control of their
environment, the current value chain – and the business models based upon it – will necessarily evolve.
And, yes, the dinosaurs die in this version of the story, too.
But if the rest of us are to crawl out of the analog swamp and walk upright into the digital age, we will
have to have better protection of our content. By ‘better' you might think I mean ‘some'– given that
protection is all but nonexistent at present. But, in fact, we need much more than ‘some.' and we need
it right away. Al Sykes talked about "search," "find" and "obtain" – he did not mention the word
"pay"!
While in the long term it is plausible to be optimistic, in the short term the facts are grim and I'm afraid
I'm going to make you listen to them again:
600,000 copies of movies are illegally downloaded each day;
Smith Barney estimates the film industry lost $3.5 billion due to piracy last year;
This year's loss to piracy may well exceed $5 billion,
In 2003, more than 50 major films were pirated before their release. In many cases, the films are
available on street corners before they're available in theaters.
Need I mention that things are even worse in the music business?
Global record sales have declined from $40 billion in 1999 to $28 billion in 2003;
In France, music sales fell more than 14 percent last year;
In Germany, where piracy is frighteningly routine, the number of music sales was exceeded only
by the number of illegal downloads.
Everywhere you look, anyplace you travel, piracy, both physical and digital, is eroding the foundations
of legitimate business and the integrity of artist rights. And the problem is growing worse by the day.
In the U.K., authorities seized five times as many pirated DVD's last year as the year before.
In Shanghai, the cost of a brand new pirated DVD film is a single, depreciated dollar.
The motivation of pirates is readily understood. As Chesterton said, "thieves respect property. They
merely wish the property to become their property that they may more perfectly respect it."
This is not a secondary issue for those of us in music, film and other content businesses. Let me tell
you what Sony has at stake in the fight to secure intellectual property rights: just about everything.
We are encouraged by the aggressive enforcement undertaken by some. My hero of the moment is Mr.
Jose Maria Alvarez del Mansano, the mayor of Madrid, who has become a canny crusader, cracking
down on street corner piracy. However, we remain dispirited by the lax approach of many other
governments to the widespread theft within their jurisdictions.
While we press for stronger legal protection, we are actively developing a new and more sophisticated
generation of copy protection. DRM – digital rights management – will allow us to safeguard content
on devices in a manner that is easy for consumers to use and understand.
DRM allows us to tailor our copy protection to individual media, individual content, and – critically
important – to different types of devices. It allows content companies to create new business models
and allows consumers to choose the terms of usage – whether it's based on time, copying rights, type
of media or other variables of consumption.
Sony is incorporating DRM into all of our memory stick media, which store and access content from
multiple devices.
The Blu-ray disc, supported by ten major C.E. and two IT companies, is the leading edge of DRM.
Blu-ray plays and records in high definition and has a storage capacity roughly six times that of DVD.
And with Blu-ray, copy protection is built in. One critic called Blu-ray "perhaps the first true
convergence device."
Let me at this time re- iterate:
First, there can be no genuine convergence without content. And for content to thrive, copy protection
and the rights of creators must be assured.
Second: technological breakthroughs unleash enormous economic power. That is why, for those best
positioned to champion the digital revolution, there is long-term confidence beneath the near-term
anxiety. Sony's vision of the future – in which audiovisual, mobile and communications technologies
combine to access games, multi-media entertainment and communication – grows more real each day.
Third: broadband convergence will do more than make some companies rich. It will also unleash social
and cultural energies that are difficult to predict and just as hard to control. It will provide local artists
with the means to distribute their visions to a global audience. It will allow individual communities the
means to pick and choose which influences – local and global – they embrace. And it will give
millions of people around the globe an outlet both to create and to appreciate what others create.
Fourth: mobility connected to the home facilitates man's visceral need for the traditional fixed abode –
the home – to be coupled with his complementary nomadic instinct – the car.
Fifth: ultimately, technological audacity will be subjugated by the commands of culture. Yes,
commerce will flow from new devices, new services, new relationships; but also from new art forms
born to exploit new ways of looking at the world and at ourselves.
The human condition is the recurring subject of the human race. It is the reason media exist. We will
find new ways of exploring that ancient subject through entirely new devices, new services and new
forms of content. New technology will serve an ancient need for self-awareness and self-reflection.
We have seen this picture before.
When the Apollo space mission reached its remarkable destination, it took a portrait of the earth and
transmitted the image back home. The photo of the globe was stunning – a thing to marvel out loud
about. But it was also an insightful commentary on technology's role as an exponent of culture. As
Marshall McLuhan wryly observed, "we went all the way to the moon to look at ourselves."
So it is with the broadband entertainment planet. We will travel far in the digital age now opening
before us. But as Eliot wrote, "the end of all our exploring will be to arrive where we started and know
the place for the first time."
