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Schulhof: Bit player
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June 24, 1998: 2:01 p.m. ET
The former CEO of Sony America is now investing in new media projects
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SAN FRANCISCO (The Red Herring) - Michael P. "Mickey" Schulhof never fit in. As the only non-Japanese member of Sony's board of directors and the first American businessman to be appointed to the board of a major Japanese corporation, he was a gaijin.
In Hollywood, as president and CEO of Sony's U.S. division, where he orchestrated Sony's acquisitions of Columbia Pictures, TriStar Pictures, and CBS Records, he was also an outsider: the ponytailed set viewed Schulhof, who has a Ph.D. in physics from Brandeis University, as an egghead.
At Sony, Schulhof's career mixed the sublime and the bathetic. On the one hand, he shepherded the development of the CD--one of the most successful consumer product introductions of all time--and was an early proponent of the convergence of the computer, communications, and entertainment industries. But Schulhof was also responsible for the corporation's most famous failure: in 1994 Sony had to write off $2.7 billion because of its newly acquired film division's poor management and lackluster movies. Following the write-off, Sony head Nobuyuki Idei unseated Schulhof in December 1995.
But somehow, despite his ignominious departure from Sony, Schulhof remains an influential figure in new media. His views on convergence intact, Mickey Schulhof has recast himself as a private investor.
On the eve of Herring on Hollywood, our annual Santa Monica, California, conference on technology and entertainment, the Red Herring talked to Schulhof about his new role and his views on convergence. What struck us was how little they had altered since his days at Sony. His interest in startups and his advocacy of the Internet aside, talking with Schulhof was like taking a trip down memory lane. In an industry whose executives are more of-the-minute than couturiers, Mickey Schulhof is very late '95. His vision of the industry was formed some time between the early hyping of interactive TV and the initial failure of the Web to emerge as a new entertainment medium analogous to TV or radio--and it has not changed since.
Fresh startup
Schulhof's startup investments hardly qualify him as a major player, but he has managed to attach himself to several high-profile deals. He sits on the board of Jfax.com, a startup that lets users forward incoming voice mail and faxes to an email address. Jfax is increasing its subscriber base at a rate of 20 percent per month. In November the company announced a major deal with America Online, and it reportedly has a second-round valuation close to $100 million. Schulhof is also an investor in SportsLine USA, a $400 million company whose flagship site (www.cbs.sportsline.com) is one of the most popular on the Web. Michael Levy, CEO of SportsLine, says that Schulhof's relationship with CBS CEO Michael Jordan played an important role in the negotiation of a major deal between the two companies: in early 1997 CBS took an 11 percent stake in SportsLine and agreed to provide $57 million in advertising and on-air promotion for the site during the Winter Olympics broadcast earlier this year and on its telecasts of other high-viewership sporting events.
Schulhof has had perhaps his biggest strategic impact on Animation Science, for which he is chairman of the board and a private investor. When he first discovered the company in Paris, it was creating 3D simulations of automobile airbag performance. Drawing on his extensive network of contacts, he moved the company to Sunnyvale, where it is now developing animation software used in movie and video game production.
But Schulhof wants to extend his influence further. In speeches to organizations like the World Economic Forum, of which he is vice chairman, he propounds the widely shared vision of a networked society in which individuals and organizations can talk directly to one another through many channels, the foremost of these being the Internet.
Defending the banner
Some of Schulhof's other views, however, are oddly unrelated to the realities of today's market. Although many advertisers have lost faith in banner ads, Schulhof gives no quarter in his defense of Internet brand advertising. "People who criticize banner advertising may have the mistaken notion that it should drive retail sales," he chides. "Internet advertising may drive other kinds of sales, but the point of advertising is to enhance the likelihood that somebody will buy your product."
Schulhof is most bullish about the development of broadband video on demand. Even though video over the Web today consists largely of herky-jerky, thumbnail-size images, he calls the quality of streaming video and audio "surprisingly good" and has invested in two video-related startups--VideoNet, which is testing a video-on-demand service in the United Kingdom, and Advanced Visual Communities, which is producing videoconferencing systems. Citing advances in bandwidth and digital compression, he compares the development of broadband video to the ten-year adoption cycle of CDs. Schulhof is a bit slippery in defining when the ten-year cycle for broadband video begins and ends. Nevertheless, he is confident that broadband video is an imminent reality. "The trend is clear," he declares.
The broadband plays on
Schulhof is so confident about broadband video that he claims the Internet poses a real threat to content providers like movie studios and networks. He derides Hollywood's wait-and-see attitude and warns that it risks being blindsided by the Web in much the same way that cable TV surpassed ABC, CBS, and NBC. Referring to a recent deal struck in France between America Online and European media heavyweights Bertelsmann, Cegetel, and Canal+ (see "Tour de Force"), he notes that AOL has become extremely savvy at working with traditional media. He even mentions the possibility of an AOL cable channel.
Looking forward, he says, "The problems of new media are starting to revolve around copyright issues, which is a healthy sign." Schulhof argues that content companies' concern about intellectual property means they are realizing that the Web will soon be a viable entertainment medium and are preparing to take advantage of it.
And despite the spectacular failure of interactive TV projects like Time Warner's Full Service Network, Schulhof envisions customers downloading movies directly from Disney's servers. "Think about the amount of dark fiber in the United States," he says. "The major studios are going to want to use this excess bandwidth to gain direct access to their customer base."
Surprisingly, Schulhof thinks the phone companies will be the major agent of change. Although TeleTV--a $150 million video-on-demand alliance among Bell Atlantic, Pacific Bell, and Nynex in the mid-'90s--was a bust, he believes it will be much more difficult for the cable industry to offer the same level of interactive services. In addition, even though Schulhof's peers talk about digital cable boxes as the next computing platform, the former Sony executive dismisses the Sony-licensed WebTV as a transitional platform and questions the basic tiered-subscription business model of the cable industry; he seems to share Intel's 1996 vision of the connected PC, in which the computer also serves as a video receiver.
For a man who has been so strongly associated with convergence, Schulhof does not seem to have ventured far from the attitudes he held when he left Sony. Although his personal network is formidable, Schulhof works alone, and one senses that he brings to his investments the logic and reason of a physicist: in particular, he seems to believe that physical systems take many years to develop.
It is too early to say whether his singular long-term investment philosophy will pay off, but this time he is betting his own money, not Sony's. One thing seems certain: Schulhof will not be swayed by the vicissitudes of the new-media industry. Why should he start trying to fit in now? 
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