(Business 2.0) – When Howard Stringer was appointed head of Sony's U.S. operations in the spring of 1997, the prevailing wisdom was that he'd accepted a suicide mission. Eight years had passed since Sony bought Columbia and TriStar Pictures, and in that time, the Japanese had lost (or, as they saw it, been fleeced out of) more than $3 billion in Hollywood. They were bitter, even vengeful. Quite possibly, they wanted out. Meanwhile, Stringer, the former president of CBS, had no experience in the movie business, no experience in the music business, and a degree of technological fluency that let him get by in Silicon Valley in the way a tourist with high school French gets by in Marseille. He wasn't a mogul. He was a broadcaster-in-exile--a journalist, for God's sake--and a nice guy, to boot. Obviously, he was screwed.

Or so it seemed. Today, six years later, Stringer is ascendant. On his watch, Sony Pictures has gone from dead last place to near the front of the Hollywood pack, and from being an apparently bottomless cash sink to being one of Sony's few financial bright spots last year--to the tune of $491 million in profits, more than half of the beleaguered parent company's overall total. He is beloved by Sony's Japanese leadership, particularly CEO Nobuyuki Idei. Indeed, at a time when a high percentage of Stringer's peers in medialand have lately been ousted (and not just ousted: humiliated, excoriated, made into punch lines), he has just been promoted to vice chairman of the Japanese parent company. At this moment, he may have greater job security than any other executive in the media business.

But now, just when the 61-year-old Stringer (a.k.a. Sir Howard--he was knighted in 2000) should be cruising toward retirement, he has been saddled with an even more improbable task than turning around Sony Pictures: the reformation of Sony Music. Once again, the smart money is betting against him. And once again, I think, the smart money might be wrong.

Not that Sir Howard is casting himself as some kind of music-biz Svengali. When I visited him recently in his aerie near the top of Sony's Madison Avenue headquarters, he greeted me with an eager offer to play a CD by a new Sony artist, Mary Fahl, and then spent several minutes fiddling in vain with the remote control for his stereo--a hulking rig that looked less like a sound system than like a console on the space shuttle. Finally, the music came forth: a female aria that bathed the room in a warm, soporific haze. "Um, gripping," I said. Stringer smiled. "I know, I know," he said. "I'm still struggling to come to terms with the post-Freddie Mercury era."

To understand Stringer's success at Sony, it helps to begin with the fact that he's British. (Welsh, to be precise.) In an industry choking on self-aggrandizement, his gift for self-deprecation--and his grasp of its tactical uses--has been one of his primary assets. (That he manages to be self-effacing while being called Sir Howard is especially impressive.) His affability, his geniality, and his British comfort with good form and stylized politesse have served him well in dealing with the Japanese. And, no doubt, with Hollywood too.

Stringer, typically, says the kudos for the turnaround at Sony Pictures should be aimed at John Calley, who stepped in as chairman after the disastrous reigns of the notoriously profligate Peter Guber and the famously inept Alan Levine. But Stringer deserves a share of the credit. He has put relentless pressure on superfluous costs, while still endorsing large, if calculated, risks. He has patiently stood by talented executives such as Amy Pascal, the Columbia Pictures chief responsible, after several lean years, for Spider-Man and the Charlie's Angels franchise. Most important, he has refused to buy into the self-serving fiction that the Hollywood system--because it exists to support, ahem, "creativity"--is somehow sacrosanct. "The movie business is designed to make as many people in Hollywood as much money as possible and not leave anything for the studio," Stringer harrumphs. "That's a perfect year for the Hollywood community."

By taking a whack at a few of that community's sacred cows, Sir Howard has raised his share of eyebrows. Eighteen months ago, for instance, he declared his intention to "blow up our TV operation because it hasn't made money in 10 years." No longer would Sony produce prime-time series at a loss; no longer would it maintain a roster of extravagantly paid in-house talent, churning out a stream of mostly failed products. Budgets would be strict, deadlines met. Hollywood was aghast--but the strategy is already paying off. In 2001 the division took a $67 million hit to cover restructuring costs, but last year the TV unit helped boost profits at Sony Pictures. "The entertainment business is not a science," Stringer says. "But that doesn't mean it's immune to rationality."

Sir Howard may be right, but the ultimate test of that axiom lies ahead, in his bid to rescue Sony Music. The effort began in January, with the ejection of Tommy Mottola from his throne atop the music company. Mottola was a legendary impresario and diva magnet--the man behind Mariah Carey, Celine Dion, and J-Lo. He was also imperious and unaccountable; his personal overhead, for travel and expenses, was said to be $10 million a year. When times were good, this was marginally tolerable. But with the division running up losses of $72 million last year and its market share falling, Stringer decided it was time for a change and brought in his longtime pal Andy Lack, former president of NBC, to make it happen.

The obvious temptation is to see Mottola as the new incarnation of Peter Guber, and to try to import the lessons of Sony Pictures directly into Sony Music. Lack has already launched a cost-cutting jihad, with an April announcement of 1,000 layoffs. But the problems at Sony Music, as in the rest of the music business, run deeper than costs. They also run deeper than Internet file-sharing, the industry's favorite scapegoat. In fact, with some critical interpretation, the rise of Napster and its successors can be seen less as a cause than as a symptom of maladies that are profound and structural--ranging from overpriced CDs to formulaic product to an outmoded business model based mainly on distribution and marketing muscle. The movie business may be screwy, but it's not fundamentally broken. The music business is.

Sir Howard agrees. "The music industry has offended the consumer," he says. "It has offended the retailer, offended the artists, offended the publishers. The radio stations are basically a duopoly now; they're not helping the situation. MTV is no longer playing music videos--they're doing something weirder. You've got all this anger out there, you've got all this fragmentation, and so the music business has to be reworked, reinvented, and reorganized from the ground up."

That Stringer sees this--and that he's not simply yelling "Piracy, piracy!"--is the first encouraging sign for the future of Sony Music. The second is the appointment of Lack (who, rumor has it, is being groomed to succeed Stringer as head of Sony USA, as Sir Howard becomes more of a global figure for the company). When word came down that Lack had been chosen, the music establishment groaned and wailed: He has no experience in the industry; he's an outsider, a suit. To which the only sane reply is this: Thank goodness. Given the self-inflicted nature of the music industry's problems, only an outsider has a hope in hell of honestly confronting them, let alone fixing them.

Stringer and Lack have one final advantage: their corporate parentage. Whatever form tomorrow's record business takes, digital technology will be at its center, for the future of music is, irrefutably, online and on the hard drive. And these, of course, are key domains for Sony's electronics business. Under Mottola, Sony Music was a walled city in which communication and cooperation with the managers in Tokyo (or even a few floors up in New York) were strictly avoided. Stringer and Lack intend to knock down those walls, which will give Sony Music a chance--not a guarantee, a chance--to devise a high-tech strategy ahead of its equally befuddled rivals.

What it all comes down to is a question posed three years ago by Idei. At a breakfast with a few journalists at Davos, Sony's chairman said, in his Japanese-accented English, "I say to the heads of my music division: Music as a packaged-goods business is over. What you do now? What you do now???"

If Stringer and Lack come up with an answer, they will do more than reverse the slide of Sony Music. They will go a long way toward realizing the much-derided rationale for Sony's incursion into American entertainment in the first place: hardware-software synergy. The odds against them are undeniably long. But then, Sir Howard has heard that before.

John Heilemann's next book, "The Valley," will be published by HarperCollins in 2004.