Few companies in the world have the breadth and scope of content to take advantage of the unfolding broadband revolution as Sony Corp. First there's the content: Its Sony Pictures Entertainment unit produces movies like Black Hawk Down, and TV shows that include Dawson's Creek, Wheel of Fortune
and Jeopardy!. The company's library includes more than 6,500 movies and 35,000 TV episodes from 270 series — from classics like All in the Family
and Charlie's Angels
to Seinfeld, Mad About You
and VIP, to the soap operas Days of Our Lives
and The Young and the Restless.
Sony Online Entertainment boasts the popular game Everquest, among other titles. More than 400,000 subscribers pay $9.89 per month to play Everquest online, for an average of 20 hours per week.
And Sony Computer Entertainment America produces the PlayStation 2 family of games and gaming consoles, which can also double as DVD players. The division expects PS2 to be in 20 million U.S. homes by year's end.
Sony Music Entertainment — which boasts artists as diverse as Marc Anthony, Celine Dion, Destiny's Child, Michael Jackson, Bob Dylan, Bruce Springsteen and Jennifer Lopez — launched pressplay (www.pressplay.com), a subscription-based online music streaming and downloading service, in conjunction with Universal Music Group.
Sony also boasts a staggering array of hardware. Its consumer-electronics division has populated the world with TV sets, DVD players, home-entertainment systems, camcorders, Walkman units and MP3 players. Now, with the help of Cablevision Systems Corp., it's branching out to offer cable set-tops, as well as broadband network adapters for PS2 and new wireless broadband devices that can receive and display the company's audio and video content.
And it's been a key player in Movielink, the Internet-based movie-on-demand service set to launch later this year. At the same time, Sony was one of the first studios to ink video-on-demand deals with cable operators.
Vivendi Universal S.A., AOL Time Warner and The Walt Disney Co. all boast enough heft to compete toe-to-toe with Sony in the content space. But none have the consumer-electronics offerings to install at the other end of the broadband pipe.
But even in this increasingly merged world, no one company has everything. Sony has always been at the mercy of the conduit provider — whether that's a theater owner, a video store, an Internet-service provider or a cable operator.
Without those last-mile platforms, Sony will stay trained on end devices and content.
"From the Sony standpoint, we want be a universal donor," said Sony Pictures Digital Entertainment president Yair Landau. Landau's unit is the division of Sony Pictures Entertainment charged with coordinating the broadband efforts of the company's movie, TV, cable and online gaming divisions.
SPDE took the lead in forming the Movielink Internet video-on-demand partnership with Paramount Pictures Corp., Warner Bros., Metro-Goldwyn-Mayer Inc. and Universal Studios.
"We'd like to drive VOD in all forms via all distribution media and delivery mediums," Landau said.
After signing VOD deals with In Demand last year, SPDE finished working on the Movielink initiative.
"We initiated Movielink because we think open-access delivery of entertainment is critical for our future," he said.
Cable operators, who don't believe consumers will watch movies on the PC screen, have pooh-poohed the Movielink concept. But Sony has a wider view of the service.
It sees Movielink as a distribution tool for various platforms, like the millions of college dorm rooms wired for broadband or the high-speed connections consumers can access while at work. There are also the not-so-evident wireless-broadband platforms.
"Anything that's a broadband receiver and has a screen and memory becomes a movie receiver," Landau said.
In the not-too-distant future, Movielink users with wireless receivers may be able to download titles while on the beach or in an airport lounge, said Landau.
"Our objective with Movielink is to make it as broad as possible," Landau said. "Hopefully, we can personalize it to your consumption pattern.
"There are a lot of things you can do with personalization and push marketing that are unique [to the Internet], as well the ability to play with price points.
"[VOD is] all economically and infrastructure limited," Landau added. "The key is building Internet-protocol connections between devices and the content."
Perhaps Sony's most intriguing immediate content initiative is the relationship between its online gaming unit and broadband technology.
"One of the big issues with $40 for high-speed Internet is there is not enough broadband content out there," Landau said. "At SPDE, that's a lot of what we're about."
More than 33 percent of Everquest subscribers — a disproportionate amount — access the game via a broadband connection, said Landau.
And Sony's newest online creation — ScreenBlast, which lets consumers manipulate portions of movies or songs on the PC — is designed for a broadband experience. Users can "build" their own songs from various guitar, piano and drum tracks or create mini-movie videos.
The multiplayer Everquest game was designed for a 28.8-kilobit narrowband connection, and still works over such a link. Players with faster connections don't have an advantage over narrowband players, he said.
"The game is designed that you have a quality experience at 28.8," said Landau. "[But] your character may be standing there when everyone else is running around."
But the high level of broadband use among Everquest subscribers has spurred Sony to the next step.
"We are going to be rolling out a first-person shooter game that will be sensitive to response times," Landau said. The game will be showcased at E3, the major gaming-industry conference, in May, in both a PC and PS2 version.
"One of the big killer apps is going to fully fledged Star Wars
online," to be unveiled later this year in cooperation with George Lucas, said Landau. "We think that takes it to the next level."
As SPDE puts more games online, Landau envisions a combination of business models. Some standalone games will be available for a fee; others will be bundled in a subscription package.
SPDE has talked to such Internet heavyweights as Yahoo! Inc., America Online and Microsoft Network about linking their platforms to Sony's online content. Cable and DSL providers are also in the mix, Landau said.
"We've had lots of discussions with those guys on lots of issues," he said.
AOL's major relationship with gaming-software producer Electronic Arts and Microsoft's Xbox gaming console both complicate matters, he noted.
"Yahoo! is an evolving one," Landau said. "With Movielink, we've had positive conversations with Yahoo!, AOL and DSL providers."
The MSO Factor
On the MSO side, negotiations are trickier, as many operators consider Movielink to be a direct competitor to their VOD offerings.
"The dynamic is complicated with the MSOs," Landau conceded.
But other elements are also at play, said Landau. MSOs recognize the importance of content, he said, but recent contract disputes with programmers have made operators wary of similar arrangements involving new platforms — even though Sony's online-gaming content might help to sell cable modems.
"They're bitter," Landau said. "The lines have gotten drawn in the sand, much more formally … that distribution is more important than content. The reality is, you need both."
Operators also aren't sure whether they want to drive subscribers to the TV or the PC, he added.
"Some cable operators are a little schizophrenic about modem service to the PC and modem service to the set-top," Landau said. "Do they want you using your PC that much?"
But operators should consider online gaming to be an important content element of cable-modem service, said Landau.
"The smart cable operator comes to our booth at E3 to bundle Star Wars" with their cable-modem product, he said.
And then there's Sony's potential Trojan horse: successive generations of the PS2.
"By the end of Christmas, PS2 will be in 20 million homes in the U.S.," Landau said. There are plans to eventually sell broadband network adapters for that console.
Cable operators would then be involved in networked gaming consoles, much in the same way as cable modems allow for online broadband gaming. But the economics for that business have yet to be established, he said.
And with Sony involved in Cablevision's digital set-top rollout, it may only be a matter of time before the CE company develops an all-in-one box with the set-top, DVD player, gaming console and hard drive in one unit.
Current economic models will also play a key role in VOD's future development. Hollywood has built a sequential release system that keeps squeezing more revenue from the same product using new platforms.
"VOD windows, for both cable and the Internet, are slotted after home video and DVD release," Landau said. "Ultimately it becomes an alternative form of delivery for DVD, but that evolves over time."
Landau believes Sony will eventually deliver movies the consumer can own and store. "VOD is a rental medium and DVD is for sales," he said. "I'm hopeful there will be PPV transactional and SVOD."
SVOD Prospects
Like others in Hollywood, Landau believes cable has done a lousy job in establishing and marketing pay-per-view. That track record is MSOs' "single biggest challenge" in launching VOD, he said.
Sony currently has a subscription VOD output deal with Starz Encore Group LLC, which doesn't kick in until January 2006. Sony's movie product currently runs on Home Box Office, and the two companies are discussing SVOD rights.
"Everybody is certainly actively looking at it," he said. "We think SVOD will be very successful, and we're hopeful transaction VOD will be successful.
"A lot depends on how we market to consumers. The big limitation has been poor product positioning."
New platforms, such as DVD, also help to give new life to library material, and Sony owns a ton of that. But don't look for Seinfeld
episodes to show up on VOD or Internet servers anytime soon.
That's because lucrative programs like Seinfeld
still command strong prices in the TV syndication market, Landau said.
The same is true for popular first-run network shows, like Sony-produced Dawson's Creek, which airs on The WB. The delicate economic equation between Sony and AOL Time Warner Inc.'s broadcast network makes it difficult to think about new means of episode delivery, such as placing episodes on a cable VOD server immediately after their first airing.
For starters, The WB has exclusive rights to rerun those episodes, and VOD availability could hurt those repeats. Such repurposing only seems to work when the studio also owns the network.
"We don't see Dawson's Creek
on SVOD anytime soon," Landau said. "It's all about economics."
Sony runs a popular Dawson's Creek
promotional Web site, called Dawson's Desktop (www.dawsonsdesktop.com). But The WB balked at Sony's request to promote that Web site during the show, preferring to drive viewers to its own Web site (www.thewb.com).
Similar Internet plays may be even further out. "Scale economics still don't work on the Internet," Landau noted.
For instance, a Victoria's Secret fashion show tested Broadcast.com's servers to the limit two years ago, logging 400,000 hits. But a year later, 15 million viewers watched the event when it was telecast by ABC.
Sony is branching out somewhat into uncharted territory by launching a same-day download of its soap opera The Young & the Restless, which airs on CBS.
The test, conducted with Real Networks Inc., has yet to launch, but the idea is for people to download the shows they missed. It will employ both a per-episode and a monthly subscription fee model.
"Those are unique situations," Landau said. "It's compelling there because there's no archival medium right now."
Viewers who miss an episode of Y&R
can't catch it reruns or in syndication, as is the case with Dawson's Creek
or Seinfeld.
