10.02.14

Special Delivery: The Spin on Sony’s TV Spin-Off

Michael-Heiss

By Michael Heiss, HiddenWires. In moves that were, at least in one case, somewhat expected, Sony made two important announcements on F...

Michael HeissBy Michael Heiss, HiddenWires. In moves that were, at least in one case, somewhat expected, Sony made two important announcements on February 6th that are critical to the future direction of the company. I recommend readers check out the official press release here before delving into the significant coverage this has received across the broad spectrum of general media, business/financial, enthusiast and trade press as well as the blogosphere. Of course, given the fact that HiddenWires can be said to be part of at least a few of those categories, and the fact that both involve 'spin-offs', I couldn’t let the opportunity to combine my penchant for puns with a bit of analysis as to how all of this might impact the world of custom and systems integration. The Sony PC Business The first of the two announcements is the one that was telegraphed to the business press in advance: Sony is selling off its PC business that has been operating under the VAIO brand, and will exit the category. Its focus mainly on laptops in recent years means that there is probably little impact on your enterprise systems or on client system infrastructure. In terms of support where you may have provisioned a VAIO product in a system, Sony and the new owner will continue to provide support. [caption id="attachment_4221" align="aligncenter" width="400"]The Sony VAIO product line will be discontinued but still supported. The Sony VAIO laptop will be discontinued but still supported.[/caption] My take on this is that while the VAIO products have always been well respected in terms of design and reliability, the market simply had a hard time accepting the higher prices for the improved value proposition. With lower-priced competitive products narrowing the feature gap the rationale to purchase a Sony no longer made sense to many. Without server/enterprise products on the high side and a successful play in the tablet space on the other, it is easy to see how VAIO got caught in a price-compressed market to the point where the business just didn’t make sense for Sony. Hmmm. Does that sound anything like what has been going on the TV/video display market? Although the pundits will debate it, exiting the PC business would seem to make sense. There is no other spin on this spin-off than that it probably just had to be done. The Sony TV Business The second part of the announcement is both more interesting and directly relevant to our portion of the market. The 'TV set' business has been central to Sony’s brand identity and high reputation going back as far as 'Tummy TV' and Trinitron in the 1960s. Yes, times have been a bit tougher for them in recent years as this key strategic business unit, that initially faced competition only from the other Japanese legacy brands and, depending on the market, the then US or European domestic brands, had to deal with the emergence of the Korean giants LG and Samsung as major competitors that won respect and market share as top-tier players. [caption id="attachment_4222" align="aligncenter" width="413"]A vintage Sony Trinitron from back in the day where Sony was able to extract value from the added quality of their models and the gap to competitors’ sets was greater than it is in the digital era. A vintage Sony Trinitron from back in the day where Sony was able to extract value from the added quality of their models and the gap to competitors’ sets was greater than it is in the digital era.[/caption] Closer to the present, the TV market has been shaken up and made incredibly price-competitive thanks to the major impact on the TV market from the likes of Vizio here in the US through very effective use of warehouse and 'big-box' chains, the China-based players such as TCL, the latest round of second- and third-tier independent brands including Westinghouse, Polaroid and Element, and the strength of retailer house brands such as Best Buy’s Insignia here in the USA. A quick look at the financials from any of the remaining Japanese legacy brands (Panasonic, Sharp, Toshiba, etc.) quickly shows that being in the TV business is just not the profitable fun it once was. Continued Support for Installed Sony Products So, what’s a brand and their parent corporation to do? Some have simply bowed out, as Pioneer and Mitsubishi have done. Some have sold off/spun off their brand names to others, as Philips has done here in the US. Some choose to soldier on, at least for the moment. Given Sony’s most recent move, there is another option to try: a 'spin-off ' that isn’t literally an 'offing' in the sense of a divestiture such as the sale of the VAIO business, rather, a spin-off into a separate corporate identity with its own balance sheet and financials, but which is still owned by the parent company. That, as it appears, is what Sony has done. To allay any fears, Sony will 100% own the new entity despite the spin-off, so you do not need to worry about clients being left in the lurch with sets that you have sold them, or about factory product support. Given the size and prominence of the brand and the huge universe of installed products, abandoning existing owners is something Sony cannot and will not do. Looking at the press release, it is not necessary to read between the lines to pick up some clues as to Sony's future direction that might serve us all well without spinning anything off. Big Screens are Still a Seller One line in the release reads "TVs continue to play a vital role as the centerpiece of the home viewing experience…" Yes, I agree. Whether the actual programme content is 'main screen' or 'second screen', whether it is delivered by traditional terrestrial broadcasters, cable or satellite, or if it is fed from an over-the-top source, a Roku, an AppleTV, a Chromecast or other 'dongle', a PC or laptop, an app resident on a smartphone or a tablet, it still has to be seen somewhere on a big screen. [caption id="attachment_4223" align="aligncenter" width="600"]Your customers will still want the big screen experience. Your customers will still want the big screen experience.[/caption] Separate where the content comes from and what it is viewed on and you, too, will be reminded that big content requires both big sound AND a big picture. The display and all that goes with it will remain central to our businesses for the foreseeable future. Even better, it insulates us from the price compression that is driving all of these business shifts. Quality matters, and is something we can extract a premium for. To that very point, here are two other lifts from the Sony press release: "…Sony has significantly enhanced product competitiveness and accelerated its shift to high-end models, especially in the area of 4K… Sony plans to reinforce the company's leading position in the 4K market by strengthening its product lineup while also bolstering its 2K models with wide color range and image-enhancing technologies" (emphasis is mine]. The message inside of this is that while there will be situations where a value/entry-priced display is appropriate, where possible, the proper path to both profit and client satisfaction is to go for the best display, and perhaps then some. Or, as they say in the programme production world, 'Add a bit of headroom.' Quality Works The message is clear. You’ve heard it here and elsewhere before and you will hear it again: don’t promote 4K/UHD on the basis of resolution and pixel count alone. The benefits in 4K sets as well as premium Full HD models derived from improved image performance and colour reproduction deliver easily-perceivable improvements, even as we wait for more native 4K content to be available. Sony is going in that direction; perhaps you should, too. Another message within this is clear, and it is also a constant mantra: quality, be it image or sound, in a unique and elegant design, sells. If you can prove the benefit, people will pay for it. Even before the recent announcements, we saw hints of Sony’s moves to focus on the higher end of the market from some of the products teased in Sony President and CEO Kaz Hirai’s keynote address at CES in January. A great example of that was his brief tease of a forthcoming 147" short-throw front projector. This type of product, with high-performance and in an elegant, well-finished industrial design is something that you are unlikely to see in this form from low-priced brands. Whether this specific model ever makes it to market or not, there is a clear message here. Similarly, Sony jumped on the 'high-resolution audio' bandwagon at CES as well, to further strengthen the idea that while low-priced products may build market share, all too often that can turn into profitless prosperity. Going upscale at least gives a brand – be it a manufacturer, retailer or integrator – room to differentiate themselves from competitors and extract value from what they sell and install. [caption id="attachment_4224" align="aligncenter" width="562"]The 147" short-throw front projector hinted at by Sony’s Kaz Hirai during his CES keynote indicates that Sony is not exiting the video display business, but is looking to take it up-market and perhaps in a different direction. The 147" short-throw front projector hinted at by Sony’s Kaz Hirai during his CES keynote indicates that Sony is not exiting the video display business, but is looking to take it up-market and perhaps in a different direction.[/caption] To be sure, this spin-off of the Sony TV business can also be said to be a way for it to hedge its bets. The release clearly states that the target of reaching profitability this year will be missed, although one presumes it is hoped that these moves will make it possible sooner rather than later. One can also say that while insulating the main business from the rest of the TV business by putting it in a separate business removes the drag on the balance sheet 'just in case'. Finally, there is no question that doing an organisational corporate spin-off while retaining ownership does lay the groundwork for a possible sale or true spin-off at some point if things do not turn around. Conclusion At the end of the day, there appear to be three bottomline messages here. First, you have to adapt your business model to face the marketplace reality. Sometimes that involves painful decisions, but if the choice is to make the hard call or risk disaster your decision should be obvious. Second, when seeing announcements such as this, always look at the root and first-party details to make certain that you get the unfiltered information. Next, read between the lines to see what may be driving the announcement. Then, and only then, see what the pundits such as your humble author here have to say and filter them out to draw the conclusion and direction for any action that best suits your business. Lastly, take close note of what other companies, large or small, whether they compete directly with you or not do in situations that you may encounter. Find the messaging and lessons that you might be able to apply to your world – or to those that perhaps you might be best to avoid. With this, hopefully the only 'spin' your business sees will be positive. Michael Heiss is a technology consultant and journalist, CEDIA Fellow, CEDIA ESC 2 Certified, and US correspondent for HiddenWires. You can contact Michael by leaving a message below or via the HiddenWires LinkedIn group, and follow him on Twitter @captnvid.