January 2025

The Swadesh DeRoy Memorial Scholarship

Pen Category Winner

SONY’s Resurgence – How Sustainable is it?

The downfall of giants like Blackberry, Yahoo, and Nokia serves as a bitter reminder that even the sun sets in paradise. In fact, in the last 80 years, the average lifespan of a US S&P 500 company has fallen from 67 years to 15, making the survival of large corporations exceedingly rare. Nevertheless, even rarer than the longevity of corporate giants are the revival of fallen companies. Once a titan of the electronics industry, Sony, the Japanese multinational conglomerate, faced significant corporate challenges in the 2000s. In recent years, however, Sony has demonstrated a remarkable resurgence through innovative strategies. The question that remains is whether this resurgence is a temporary flicker or a sustainable turnaround.

Sony’s Electronics Kingdom Resurrected?

In the wake of the 21st century, Sony’s decline in the electronics market marked a significant transition for a company once hailed as a paragon of innovation. Countless theories have been developed on why. The New York Times criticized Sony’s failure to ride the “waves of technological innovation” such as digitalization and
transition to software. Entrepreneur Sohrab Vossoughi highlighted the outdated marketing strategy that focused on specs rather than user experience. Former executives pointed to hubris within the company as a reason for losing its competitive edge.

Despite these challenges, Sony has shown signs of revival. Notably, the company dominates the production of image sensors used in smartphones. In the 2023 fiscal year, Sony captured 45% of the global market share for CMOS image sensors, a market projected to be worth $28.6 billion by 2029. Sony’s impressive profile in the semiconductor business stems from the intensive restructuring implemented by former CEO Kazuo Hirai, who cut off thousands of jobs, sold off the Vaio PC unit, separated the TV bureau into a subsidiary, and renewed Sony’s smartphone lineup, allowing the company to concentrate resources on semiconductors.

The prevalence of AI in electronics is also influencing Sony’s semiconductors – Lorenzo Servadei, Sony AI’s senior researcher for chip design, expressed how Sony’s authority in image sensors and its AI expertise can be converged to address the complexities of image sensors. “Recent advancements in AI have created sophisticated methods with both generative and optimization capabilities. Some of these methods can incorporate physics information and combine it with data-driven algorithms, making them promising for image sensors,” he said in an interview with Sony.

Considering the position semiconductors hold in the current global paradigm, the choices made that time proved to be extremely smart. With the U.S.-China rivalry highlighting semiconductors as a critical strategic resource in terms of both economy and security, the Japanese government is now actively supporting efforts to rebuild its
semiconductor industry, reserving billions of dollars for funding this major policy goal.

In the past, Japan was considered a powerhouse in the semiconductor industry, holding a 50% share of the global market in 1988. However, it fell behind South Korea and Taiwan, and by 2017, its market share dropped to below 10%. As Japan seeks to re-enter the chip race, Sony is anticipated to play a vital role. In fact, in 2021, with an overall investment of 20 billion USD from the Japanese government, Sony has formed a joint venture, JASM, with Taiwan’s TSMC to operate a chip plant in Kumamoto. In 2024, JASM increased its production scale and successfully improved its expected cost structure and supply chain efficiency for production.

Subscriptions, Creation Shift, and AI

While Sony has traditionally been viewed as an electronics company, its entertainment division has gained global prominence since the late 1990s. Ventures in game, music, and film have supported Sony’s growth during its electronics downturn, and continues to serve as a crucial pillar of the company. In fact, the three business segments are responsible for nearly 60 percent of the company’s annual revenue.

Since 2018, Sony’s game business – namely, PlayStation – has increasingly contributed to the group’s revenues. In spite of the “console cycle,” which typically leads to declines in sales, Sony has attenuated fluctuations through its subscription economy. According to Nikkei Asia in 2018, Sony’s fixed-tangible-asset turnover ratio, which measures how efficiently a company uses its fixed assets to generate revenue, rose to about 11 times in 2018, exceeding that of Apple. This success was attributable to the increase in revenue due to the subscription system. At that time, PlayStation subscription fees were around 5,000 yen annually, with around 30 million members. As of 2023, the 47.4 million members pay fees ranging from around 7,000 to 15,000 yen (depending on the tier of the subscription), indicating that today, the subscription revenue that Sony draws from the gaming sector is quite significant. In this perspective, subscriptions are a sustainable growth strategy of raising and maintaining the profitability of the game industry, a vital element for Sony’s path to growth.

Sony is also evolving its film segment. As of September 2024, Sony is embarking on a multibillion-dollar initiative to produce more original content and evolve into a fully integrated media corporation. CEO Kenichiro Yoshida, in an interview with the Financial Times, emphasized the importance of the so-called “creation shift” — focusing on creating intellectual property rather than merely distributing it. In recent years, Sony has been working to capitalize on its media industry, resulting in successes such as The Last of Us and Uncharted, both transitioned from video games into television series and films respectively. Challenges aren’t entirely nonexistent, however — Investors are calling for concrete plans for the “creation shift,” and there are potential complications to arise regarding using AI to generate media contents.

Finally, the emergence of AI has brought notable paradigm shifts to the entertainment industry worldwide, and Sony is actively utilizing its tech resources to ride this trend. In 2020, Sony established a new subsidiary, named Sony AI, to advance AI research and development, especially in the entertainment field. By converging its thriving music industry with its newly-established but flourishing AI technology, the Sony AI team is venturing into leveraging AI in sound separation and music restoration. Most recently, the team successfully utilized the sound separation tool to remaster the sound of 1962 film Lawrence of Arabia for its re-release in 2024. Yuki Mitsufuji, a lead research scientist of the team, highlights the “creative potential of AI in sound and music restoration and collaboration” as a new paradigm for music.

Fostering Positive Change in Corporate Culture

Sony’s vision before its fall from grace in the 2000s was focused on fulfilling the Japanese tradition of monozukuri by operating a product-development system wholly dedicated to consumers. Its mission to “fulfill the engineers’ dreams” motivated employees to develop creative products with diligence and passion. Around the time of Sony’s downfall, however, employers and employees alike have reported experiencing weakened dedication among colleagues as well as reluctance toward risk-taking as a result of the infamous “company system (カンパニー制).” The company system, according to Takuma Miyazaki in his 2006 book ｢技術空洞｣, generated internal silos and significantly deteriorated the concept of cooperative independence within Sony.

Since the leadership of Kazuo Hirai, Sony began to reconstruct the corporate culture with the idea of “One Sony” to improve transparent communication and joint decision-making among siloed departments in the company. This is anticipated to improve the goal-orientation of employees and motivate them to consider the vision of Sony as a whole. Furthermore, through its Kando(感動) Program, Sony is seeking to provide unique experiences for employees, leading them to engage in creative work. These initiatives for improving the corporate atmosphere can be seen as relatively abstract compared to investments in semiconductors and development of AI for music restoration. At the same time, the ambiguity of these measures suggest potential for a variety of concrete actions to be executed in the future, calling hopes for cooperative innovation.

Visions for Sony’s Corporate Odyssey

Sony's journey from decline to resurgence highlights the complexities of maintaining success in the dynamic global market. By strategically refocusing its resources and efforts on high-demand sectors like semiconductors and embracing innovative business models in entertainment, Sony has demonstrated its commitment to adaptability and growth, and that its recent developments following its downfall are steady and lasting.
However, this is not to say that Sony has guaranteed immortality as a company now – the challenges of maintaining a passionate corporate culture and navigating technological advancements in key areas like AI, will be crucial for ensuring that this revival is not just a fleeting moment. As Sony continues to reinvent itself, its
ability to harmonize its legacy in the electronics and entertainment field with new, innovative strategies will ultimately determine whether Sony can secure its place as a lasting leader in the global industry.

Bibliography

Books

• Hirai, K. (2021). ソニー再生変革を成し遂げた「異端のリーダーシップ」. 日本経済新聞出版.
• Miller, C. (2022). Chip War: The Fight For the World’s Most Critical Technology. Simon & Schuster.
• Miyazaki, T. (2007). 技術空洞Lost Technical Capabilities. 光文社.

Articles & Websites

• Choi, W. (2021). Sony’s Revival and Samsung’s Future. Chosun Ilbo.
• Clarke, P. (2024) CMOS image sensors: Sony heads towards 50% market share. EeNews Europe.
• Fulford, B. (2003). The Pride That Killed Sony. Forbes.
• Hama, T. (2018). Game subscription fees help turn Sony back into a winner. Nikkei Asia.
• Inagaki, K., Keohane, D. (2024). Sony chief bets on original content as part of ‘creation shift’. Financial Times.
• Kelleher, K. (2015). How Sony Got Up and Out of Its Death Bed. Time Magazine.
• Landers, P. (2022) Sony Aims for High-End Electric Car That Bills Extra for Entertainment. The Wall Street Journal.
• Murgia, M. (2016). Kazuo Hirai, Sony – modernising a venerable brand. Financial Times.
• Okudaira, K. (2022). Sony looks to generate subscription revenue from EV business. Nikkei Asia.
• Siklos, R., Fackler, M. (2006). Howard Stringer, Sony’s Road Warrior. The New York Times.
• Stone, P., Marcus, E. Besold, T. (2024) Sights on AI: Yuki Mitsufuji Shares Inspiration for AI Research in Music and
• Sound. Sony AI.
• Stone, P., Marcus, E. Besold, T. (2024) Sights on AI: Lorenzo Servadei Discusses Impact of AI on Chip Design and
• Semiconductors and How AI Will Aid the Industry’s Future Development. Sony AI.
• Tabuchi, H. (2012). How the Tech parade Passed Sony By. The New York Times.
• TSMC. (2024). JASM Set to Expand in Kumamoto Japan. TSMC News.
• Vossoughi, S. (2012). Strategy, Context, and the Decline of Sony. Harvard Business Review.
• Zhou, C. (2024). All about chips. Nikkei Asia.