Sony hasn’t been this hot since it made the Walkman

CNN
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The last time Sony was worth that much on the stock market, Bill Clinton was president and the PlayStation 2 was about to hit American store shelves.

It’s been a rough two and a half decades for Sony, the 78-year-old company that invented the Walkman and PlayStation and has long been an icon of consumer electronics. It largely missed the boat in the mobile phone revolution, and while the PlayStation has been profitable, production costs for other electronics have risen as demand softens.

But as opportunities arise in streaming, Sony is trying to transition from a consumer electronics company to an original content and entertainment company.

The strategy is working: Over the past three years, Sony’s stock (SONY) is beginning to emerge from a decade-long decline. Sony’s share price in Japan recently closed at a record high for the first time since March 2000, signaling confidence in the company’s ability to evolve its gaming offerings and focus on entertainment, Damian Thong, a research equity analyst at Macquarie, told CNN.

“If you went back 30 years ago, it was an electronics company, best known as a hardware vendor,” Thong said. “But today, the company generates revenue primarily from entertainment, which includes games, music and (TV and movies).”

Sony Group, Japan’s third-largest company by market value, has turned it around by revamping its games business beyond consoles and making acquisitions to expand its IP, said Joost van Dreunen, an assistant professor at NYU Stern who teaches the video game business. CNN.

sony acquired Crunchyroll anime powerhouse in 2021, and it acquired American video game company Bungie in 2022 for $3.6 billion.

In addition to Sony Interactive Entertainment, which makes the PlayStation, the giant Sony Group also includes Sony Pictures, which produces films such as the Spider-Man series, and Sony Music, which includes Columbia Records.

Sony is trying to unlock synergy between its subsidiaries to produce original entertainment content for consumers, van Dreun said.

That strategy of leveraging intellectual property in its brands was on display at the 75th Emmy Awards in January, when “The Last of Us” won eight primetime awards. It was the first time a television show adapted from a video game had been recognized at a Hollywood awards ceremony.

It was a big moment for Sony, which first released “The Last of Us” as a video game in 2013, before adapting it to become a TV series that aired on HBO and Max in 2023. (HBO and Max share ownership with CNN.)

Without its own streaming network, licensing its intellectual property and original content is part of Sony’s strategy to compete with streaming giants like Netflix, Disney and Amazon.

Robert Lawson, director of communications at Sony Group, said in a statement that since the company’s acquisition of EMI in 2018, making Sony Music the world’s largest music publisher, Sony has invested approximately ¥1.5 trillion in IP content across various entertainment businesses. .

“Sony Group has shifted its corporate strategies to strengthen its creative and entertainment assets,” Lawson said, noting that the company is focusing on “new collaborations between Sony sister companies,” including leaning heavily into the anime genre.

In its last fiscal year, which ended in March, Sony’s entertainment business, which includes music, movies and games, accounted for 60% of its revenue. This is double from a decade ago, when the entertainment business accounted for only 30% of revenue.

Doubling down on entertainment means moving away from Sony origin

Before there was Sony, there was Tokyo Telecommunications Engineering CorporationFounded in 1946 by Akio Morita and Masaru Ibuka. The company released Japan’s first magnetic tape disc in 1950. In 1958, the company changed its name to Sony Corporation.

In the 1960s, Sony established its business in the United States. Over the next three decades, the Japanese company emerged as a household name in consumer electronics, from the Trinitron color television in 1968 to the Walkman cassette player in 1979 to the world’s first CD player in 1982, in addition to numerous cameras. video recorders

Sony has also been involved in music since the 1960s, becoming Sony Music Entertainment in 1991 through a joint venture with CBS. However, it is largely known for electronics.

The 1990s was a time for Sony as it entered the world of gaming consoles. When the PlayStation was released in 1994, Sony disrupted the arcade and gaming industry.

Since the 1990s, Sony has been a major player in the video game console business with iterations of the PlayStation. In 2020, the company released the PlayStation 5, which has consistently outsold major competitors such as Microsoft’s Xbox Series X and Nintendo’s Switch, according to data from Ampere Analysis, a game business analytics firm.

Van Dreunen said Sony wants to evolve beyond its console business into gaming, looking for new audiences and distribution methods.

“We’re going through a softer period in gaming these days, so it raises the stakes for companies, like, what’s next?” he said “How do you continue to innovate as a leading console manufacturer and continue to grow your business?”

Thong said Sony has been successful in making it a profitable channel for third-party publishers to sell video games.

Sony has tried to diversify its gaming strategy, including the release of a video game called Helldivers 2 on the PlayStation5 as well as PC. Helldivers 2 was a hit for Sony, selling more than 12 million copies within three months of its release, according to Anna Kerr, games research manager at Ampere Analytics.

“The game business is expanding its IP,” said NYU Stern’s van Dreunen. “He’s looking for new ways to reach customers, to expand his customer reach.”

In November, Sony announced a 69% jump in quarterly net profit, driven by its gaming segment. The company has had strong quarters this year, driven by the profitability of its games.

The company is in talks to buy Kadokawa, the Japanese video game powerhouse that produces the popular video game “Elden Ring,” according to people familiar with the matter.

There have been some headwinds: Sony’s release of the game “Concord” and the latest installment in Sony Pictures’ Spider-Man universe were largely flops with fans this year. Still, it’s trial and error, van Dreunen said, and manageable spending for a company that has earmarked 1.8 trillion yen ($11 billion) for acquisitions and share buybacks through March 2027.

At Sony’s annual investor conference in May, CEO Kenichiro Yoshida said the company was taking a “creative entertainment approach.”

Sony’s emergence as an entertainment company was not always certain, Thong said.

“Sony was in quite a bit of pain for a few years, I would say,” Thong said. “And I think to their credit, they managed to weather it and see it through.”

Van Dreunen said that in the past there wasn’t as much demand for video game adaptations for film and television. However, “The Last of Us” showed that Sony had the opportunity to bring more Sony IP to the big screen.

Before “The Last of Us,” Sony also attempted a video game adaptation with “Uncharted,” a 2022 film starring Tom Holland based on a video game franchise released by Sony in 2007.

Also, Sony plans to adapt the “God of War” video game franchise, first published in 2005, to the big screen next year, Kerr said.

Sony is still in the electronics business, Thong said, noting that its image sensor business works with companies like Apple and produces high-end cameras. However, it has shed its identity as a mass consumer electronics company.

In 2025, Sony plans to spin off its online banking and insurance units, further doubling its entertainment offerings.

Shares of Sony have risen nearly 18% in the past month, outperforming entertainment heavyweights such as Disney and Netflix, and as investors piled into the Nasdaq, it crossed 20,000 for the first time this week.