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Sony’s A/V Spin-Off Marks End Of An Era

TOKYO — Sony’s announcement that it will spin off its audio/video products segment into a wholly owned subsidiary effectively closes a long chapter on the company’s reign as a longtime leader in the consumer electronics industry.

CEO Kaz Hirai told analysts and reporters here that the goal of the spin-off is to realign Sony’s focus on profits from its entertainment businesses, such as movies, music and video games. Hirai said other units, specifically the company’s smartphone business, could eventually be spun off as well, though nothing was currently planned.

In addition to the split-off, the company will realign its hardware business into tiers based on their growth prospects, with a renewed focus on movie, music, gaming and imaging sensors as the primary revenue generators, as well as network services.

On the bottom of the priority list: home-theater equipment, audio receivers, video players and music players, all categories that Sony had, at one point, held dominant positions in.

The blueprint for the move was established in 2014, when Sony spun off its struggling PC and TVs divisions.

Hirai said he expects the subsidiary model to produce leaner, more focused business units that can adjust more quickly to market conditions and put more autonomy in the hands of managers.

The move also appears to reverse Hirai’s unification initiative, dubbed Sony One, which he introduced in 2012 as part of an ambitious comeback strategy.

In the end, he said, Sony wants to grow operating profit to $4.2 billion in three years, and turn a profit within the TV business this year.

Hirai told reporters that Sony will “stress profitability, not uniform growth in scale.”

Rather than pursuing sales volume, Sony will focus on growth in profitable areas such as its image sensor unit, which anticipates greater demand for better smartphone camera technology and increased use of sensors in next-generation vehicles.

Currently, Sony’s imaging business is very profitable but also very dependent, ironically, on the continued success of Apple and the iPhone. Apple is Sony’s largest customer for the sensors, which drive the cameras in iPhones. And while Apple holds a dominant position in the smartphone universe, its biggest rival, Samsung, produces its own imaging sensors, and any momentum change in market share could swing the scale of Sony’s success in the OEM market.

Beyond that, Sony is mostly now a content and entertainment company. But not all is rosy in those businesses either. The recent hacking scandal at Sony Pictures led to the departure of its chief executive.

Sony Music is still an industry leader, but the music business itself is in flux, and technology is allowing a whole generation of artists to essentially become their own music distributors. The future is muddy at best.

The saving grace for Sony, beyond imaging, is its powerful PlayStation franchise. The company rang up very strong holiday sales of PlayStation 4, and the overall gaming console business was up 20 percent in 2014 over 2013, according to The NPD Group.

Curiously, on the gaming side, Sony took the opposite tack of its content strategy and recently sold off Sony Online Entertainment, which hit home runs with massive multiplayer online games like “EverQuest,” to an investment firm.