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The One And Only

The recent announcement by Sony that it would be spinning off its A/V business, a year after doing the same with its PC and TV units, took this reporter by surprise. CEO Kaz Hirai has seemingly run out of patience with the CE hardware business and for the sake of its long-term survival, is laser-focused on leveraging Sony’s success in the content and entertainment worlds.

It’s all about the profits. The way Sony built its CE empire, by dominating categories with dozens of different SKUs and being on the bleeding edge of technology so it could charge a bit more for a product with a Sony shield on it, is not a very viable way of doing business anymore.

A dealer I spoke to referred to the average CE consumer today as happy with what’s “good enough.” Owning a Sony TV, like back in the Trinitron days, was an investment in long-term quality, and consumers were willing to spend more because they saw a clear difference in lesser competing products. But these days, even lesser TVs have beautiful crystal-clear displays. They are “good enough” for most people, especially at a few hundred — or thousand — bucks less. The value-add of a top-tier brand like Sony is lost on most.

Additionally, the lifespan of the average CE product is far shorter. Growing up, we had the same Zenith console TV in our living room from the time I first toddled toward it with sticky hands until I moved out after college. An investment in a top-tier TV was just that, an investment that paid off over time. The engineered obsolescence factor of today’s products hold most people back from maxing out their purchasing power because they see most products as easily replaceable.

But Sony’s decline as a CE powerhouse was years in the making. Sony invented the portable music revolution with the Walkman, and then Apple came along and reinvented it out from under them with the iPod. That market share never returned.

And when flat-panel TVs began appearing, Sony was content to revel in its dominance of the traditional CRT category and seemed to be taken by surprise by how fast LCD and plasma displays took off. They snoozed and ended up playing catch-up by having to source their displays from other companies, losing any cache that the brand had on the high end.

By most accounts, Sony’s leaner, more focused TV business is doing better since it was taken out of house last year, and Hirai predicted the unit will be profitable by the end of 2015. A renewed concentration on the higher-end larger screen sizes that still carry some margin at retail is helping. Perhaps taking a similar tack with the rest of its consumer portfolio will follow suit.

It will be interesting to see if a giant like Sony will benefit from chopping itself up. There is plenty of innovation in the CE industry coming from small, lean focused companies … just surf around Kickstarter for 15 minutes and you’ll find a dozen. Maybe many smaller Sonys will be stronger in the long run than one giant Sony. I, for one, hope so.

I’ll be heading out to Los Angeles this week for an executive roundtable for the press with Sony Electronics president Mike Fasulo and deputy president Toshi Okuda in advance of the company’s fiscal close. Stay tuned on for coverage.