Sony this week make a clear statement of intent to stick to devices and new online services, such as music services which will rival iTunes, and to get out of major chip businesses, as its management comes to terms with its failure to totally dominate the third generation of home gaming consoles.
The music announcement took center stage, and as with all music services, fear of the potential for the Apple iPhone appears to color every similar decision, whether it is taken by major players in Consumer Electronics companies, operators or handset leaders. Sony and Japan’s second largest cellular operator, KDDI said they would launch a music service together, and that announcement has more than a touch of iPhone panic about it.
For three years handset makers and operators have been predicting that the music lead of the iPod would be short lived and that the handset was the natural place for a music service, but instead of just keeling over and accepting its fate Apple got to the handset first and now all those confident noises are overpowered by hurry up sounds as everyone that cannot benefit from the iPhone, prepares for life alongside it.
If a music service does not have the support of a major operator, or a handset manufacturer the size of Nokia, in any given region, then its unlikely to survive the mid-term music onslaught that the iPhone is stimulating. Either the iPhone will get you, or one of the responses to the iPhone will.
The licensed content from both the prior KDDI music effort, called Lismo (Listen Mobile) and the now defunct Sony Connect service will both be on the new service, which will become part of the KDDI ‘au’ portal, called the ‘au x Sony Music Project.’
The service will also work with the Sony Walkman and ‘NetJuke’ high definition conventional stereo system, offering music just as easily directly over cellular spectrum, or downloaded and copied from the PC, or from conventional audio equipment.
In Japan something like half of online music is downloaded specifically for a handset, but so far mobile phones, PCs and audio equipment have been separate environments. For instance rival operator Softbank offers free downloads of music intended for a handset, but which are sent to a PC for sideloading because it’s cheaper than using cellular bandwidth to download them. But the sideloaded content won’t play on the PC or on conventional music equipment and payment for the track is triggered through the operator’s billing system only once these tracks are downloaded to a handset.
KDDI and Sony say they are aiming for an environment where music can be enjoyed freely across the mobile phone, PC, and audio equipment, which is virtually identical to way that AT&T and Apple have teamed up over the iPhone, but using the Walkman brand instead of iTunes. Last month Sony announced new Walkman players which can hold 8GB of music and video, just the same as the iPhone.
Another Asia-Pacific defensive move against the arrival of iTunes was also taken this week by 3 Hong Kong, which will launch the new Omnifone MusicStation service there, available now, as a subscription service costing just $1.55 a week. 3 MusicStation includes catalogs from all the major record labels including UMG, Sony BMG, EMI and Warner Music.
The service will come with a full Traditional Chinese interface in addition to an English language interface, and could be ready made for the broader Chinese market. Low iPod penetration there, and the lack of iTunes stores in Asia-Pacific except in Australia, Japan and New Zealand, means that most consumers side-load music to their phones.
The Sony deal with KDDI also comes on the back of a ‘DVD Burning’ service launching by the operator under the same ‘au’ portal brand, which launched at the end of September.
‘DVD Burning’ uses CPRM technology to allow KDDI customers to burn movie, animation, and video content to DVD-RWs on their PC via their broadband connection. Initially it will launch with 1,000 video titles, rising to around 5,000 by the end of the year with content from 60 content providers including major studios such as Warner Brothers.
The use of CPRM is another Sony link and is a system of content transfer which uses a hidden key to make any piece of memory, such as recordable DVDs and Flash memory, capable of storing copyrighted content safely. If that content is copied it remains encrypted and is decrypted on demand, but the key cannot be found by a consumer to transfer with the content so remains fixed to the piece of memory
This system used to offered by just four companies namely IBM, Intel, Matsushita and Toshiba, but has since gathered Sony’s support and is now used on the Sony formats for flash memory. The update to this is a copy system called the DTCP-IP (Digital Transmission Copy Protection on IP) derived from the 4Cs group, and operated now by Hitachi, Intel, Matsushita, Sony and Toshiba.
These music and online video burning deals look like they are designed to secure the Japanese market, primarily for Sony devices in Music and for DTCP members for the video and for KDDI, again a shut out for Apple, which uses its own proprietary Fairplay DRM.
Apple has promised to launch the iPhone in Japan in Spring of 2008, but it doesn’t look like it will be through KDDI.
These Sony moves seem to mean that it is operating a strategy of working through operators, in the same way as Apple over music, and very unlike Nokia, which has created its own OVI portal which will offer music, video and games to mostly handsets, but also to PCs, and perhaps later to set tops. Nokia may feel that it has the brand to take devices to market in competition with its operator customers, but Sony perhaps, and Sony Ericsson in particular, don’t feel ready for that approach.
However the operator route may not be available to Sony in the US, where AT&T’s music effort is clearly based around the iPhone (and Napster see separate item today) and Verizon, which has already partnered with MTV and RealNetworks Rhapsody music service.
The KDDI Sony music deal comes in Japan, just as Apple has resolved difficulties elsewhere, finally nailing down its deal with Orange for iPhone distribution in France. Orange will be the exclusive carrier partner in France for the iPhone which will hit the streets there on November 29. The device will go on sale there in an 8GB model for €399 and can be bought to go with any Orange contract.
The Japanese market for video to handsets is very different to the rest of the world, with KDDI alone having shipped 5 million 1 seg ISDB-T handsets which can view free to air TV services, and a total of some 10 million expected to be shipped across Japan by the end of this year, two years into availability of the service.
While Sony’s move to focus both on devices and online services, it is clearly moving away from component supply, a business it has always been a little uneasy with. Sony spend around $2 billion during the past three years, getting into microprocessor design as the legendary Ken Kutaragi, the now retired Sony games console chief, took the company into manufacturing of the IBM Sony Toshiba designed Cell chip. The Cell is at the heart of the Sony PlayStation 3 console, as well as workstations and supercomputers supplied by IBM, but has not yet shipped in the numbers needed to drive down its costs.
Sony will sell the Cell manufacturing facilities to Toshiba with newspapers saying that it will pay under $1 billion, which will result in a crystallized loss for Sony on the chip facility in Nagasaki. The deal will be complete by March next year. New Sony CEO, Howard Stringer, said earlier this year that it had to cut back on chip spending and would probably not do a 45 nanometer version of the device. Given that the PS3 is shipping in lower numbers than Sony initially projected, it has its work cut out catching up, not only with the Microsoft Xbox shipments, but trying to keep up with the runaway success of the Nintendo Wii.
Toshiba recently announced a version of the Cell chip to drive a system for PC users to control a DVD player from a range of 10 feet using hand commands.
Finally Sony Computer Entertainment America introduced the new 40GB model of its PlayStation 3, which was the version just launched in Europe which does not offer PS2 compatibility. Sony is trying to drive down the cost of its PS3 and offering PS2 compatibility when Microsoft doesn’t offer backward compatibility on the Xbox, is now seen as an unnecessary cost. The device will sell for $399 and will still include a bundled Blu-ray player.