The Amazing Sony-Man To lift Japan's electronics powerhouse to new heights, Nobuyuki Idei has to spin a web that connects TVs and PCs--starting inside his own company.
By Brent Schlender; Nobuyuki Idei

(Business 2.0) – It would be difficult to name a company more threatened than Sony by the stampeding herd of business and technological trends that make up what we call "digital convergence." CEO Nobuyuki Idei has had to contend with the breakneck pace of advances in electronics, software, and networking as consumer devices become ever more computer-like. He's also had to try to bring a collaborative culture to a historically balkanized company and stave off the incursions of Apple, Dell, Gateway, Hewlett-Packard, and Microsoft, which have targeted consumer electronics as their next frontier to conquer.

During his eight-year tenure at the helm, Idei's reputation and his company's stock price have soared high and swooped low, much like Sony Pictures's Spider-Man swinging through the canyons of Manhattan. Last year was his toughest in more than a decade, as profits fell precipitously and Sony, despite the phenomenal success of its PlayStation game machine, seemed a step behind in making the new flat-panel TVs, MP3 players, and DVD recorders that have consumers salivating.

So in October, the 65-year-old CEO announced a sweeping reorganization aimed at lifting profits and stimulating the company's creative juices. His most provocative action was to put a visionary and controversial executive--PlayStation chief Ken Kutaragi--in charge of the company's vaunted television and home electronics divisions. The goal is no less than the reinvention of the television set. Meanwhile, Idei is also pouring more resources and energy into mobile devices.

Idei sat down with contributing writer Brent Schlender twice in late 2003, in San Jose and in New York, to explain how he hoped to jump-start the company. He was in a buoyant mood on both occasions, in large part because Sony is on the verge of introducing important new additions to the PlayStation line--the PSX home server and, later this year, the PSP portable personal entertainment device--that he thinks will redeem the company's reputation as a technological trendsetter and demonstrate how both home and mobile electronics will soon evolve.

How has the consumer electronics market changed in recent years?

A lot has changed. The global market has more and more concentration around specific leaders of all kinds. For example, Nokia has more than a 30 percent world market share in cell-phone handsets. And seven telephone carriers in the world control most of the distribution of handsets. There's concentration of market power in retailing too, with Wal-Mart, Circuit City, and Best Buy. Probably one account like a Best Buy is bigger than all of Central and South America. That's kind of scary too. They are asking for this camera model or this TV and can control us much like the mobile carriers control cell phones. And, of course, the PC industry is essentially controlled by Microsoft and Intel, while Dell is the only profitable PC company.

But Dell has started selling TVs and MP3 players now, and we sell PCs, and Nokia's mobile phones can do e-mail and take photographs and play games. Not only are the devices becoming integrated, so are the companies that dominate what once were more distinct industries. It's not so much a convergence phenomenon anymore--that's already happened. It is the integration of these industries. The big challenge for us, then, is, what will be Sony's countermeasure to all this concentration of marketplace power?

How has Sony itself changed since you took over as CEO?

Early on, Sony made devices that received broadcast content from media companies that was more or less free of charge. I'm talking about radios and televisions. Gradually we evolved to building devices that play recorded content, which is why we eventually got into the music and movie businesses: We could sell both the device and the content. Now, with the Internet, the nature of how the devices acquire and play and store digital content is changing once again. We're still in the learning stages of this.

We're also beginning to learn about how network devices really work from our experience in mobile telecommunications. Today's wireless systems in Japan and Korea are already the most sophisticated networking architectures in the world because they blend voice and data and now are beginning to provide truly interactive broadband content. Our dream of what we wanted to do in the home with networked devices is already becoming possible in the mobile world. That's why we have decided to put so much more emphasis on our mobile devices.

Does this new emphasis on mobile technology mean you are less hopeful about home networks and traditional consumer electronics?

Not at all. In Japan, at least, this also is the year that television becomes connected to interactive broadband networks. That means the PC and the TV are going to be connected to each other. But the TV is going to be completely reinvented too, and be much more than just a monitor.

The TV is sort of an open standard, but the PlayStation is our own extra standard. So by combining the two, our dream is that we can make a very interesting and unique new platform. The PSX is our first home server. It has a 250-gigabyte hard drive that can store anything--video or music or digital photographs for use on your TV and audio system--but it also can run PlayStation games and burn DVDs.

What about the PC as the home server? Microsoft and others would argue that the PC is the best place to manage your stored content.

People are also going to have a PC on the home network, and so, of course, you should be able to edit and manage what's on the server over the network with that PC if you want. The Media Center PC that we developed with Microsoft is another way to have a home server. But there's a graphical user interface on the PSX set-top box that lets you navigate stored files on it and on your PC with your TV too. In reality, we think many homes will have both a PC-based server and a TV-based server. Wireless technology can make all of this seamlessly connected.

You recently broadened the responsibilities of Ken Kutaragi, the "father" of the PlayStation, Sony's most profitable product, to supervise Sony's semiconductor operations and, more important, television and home audio/video products. Are you grooming him to take your place?

My challenge is to develop professional managers and at the same time to simplify the structure of the company. This will be a big test for Ken, but that is the idea. Give him more responsibility so that he will grow.

I've known Ken since he was very young, and I know he can grow and change. The problem is the size of the job. Two weeks ago I went to see Steve Jobs. I see many similarities between Ken Kutaragi and Steve Jobs in how they work and lead. Apple Computer and Sony Computer Entertainment are about the same size, and [Jobs and Kutaragi] are both micromanagers who like to dive into the details of things. But at Pixar Animation, Steve Jobs is very hands-off. Yet both of his companies are very successful. It's very interesting. He's learned when to be hands-on and when to be hands-off.

If Ken can learn when to be hands-off, like Steve, well, that is what I'm hoping for. He can still be deeply involved in inventing the next-generation PlayStation and the portable PlayStation, which are top priorities for the whole company because they drive our semiconductor operations and are related to how we would like to reinvent the television and home AV business, which he will also manage, but in a more hands-off way.

What is the next signature product coming from Sony? Is it a reinvented television, or is it a portable device?

I believe the PSP--the portable PlayStation personal media player, which we hope to introduce in late 2004--has the potential to be bigger than anything we have seen before now or can imagine today. It will be the Walkman of the 21st century. I have no doubt about that, or about the success of the next-generation PlayStation 3 or the extension of the Vaio PC brand into new kinds of products or the reinvention of the television. It's all going to happen. We're very ambitious.

Back in the early 1990s, you once proposed that Sony should acquire Apple Computer. Now Apple is becoming a big player in consumer electronics with its iPod MP3 player and its iTunes online music store. Do you view Apple as a primary competitor now? Do you ever still consider acquiring Apple?

There are a lot of joint projects going on between Sony and Apple. I've seen Steve Jobs three times in the past year, and we talk a lot about how we can define common technologies for, say, music downloads. We are working with Apple on improving connectivity with camcorders. We make great use of QuickTime in our Sony Ericsson telephones and in our Clié PDAs.

But we would like to work more closely with them. My plan now is to get Steve Jobs together with our own Steve--Ken Kutaragi. They haven't met yet. It would be interesting to see how they would get along, because both of them think they have all the answers. [Laughter] Where we go from here with Apple all depends on the chemistry between Ken and Steve.