Mid-Sized Sony Says It’s Big Enough To Compete, Plans To Shop For ‘Communities Of Interest’

Noting that “entertainment is in Sony’s DNA,” CEO Kenichiro Yoshida revealed plans to acquire “communities of interest” in the media sector in remarks released during CES. 

Key, Yoshida said, is tapping into a Japanese concept he called the “Kando spirit,” which basically means making products that bring joy. It’s also important to bring joy to investors, which has been trickier in recent years for Sony and all the companies it works with.

While Yoshida didn’t rule out making a deal for an established studio or library (ViacomCBS? Lionsgate?), he didn’t really embrace the idea either.

“I am interested in any opportunity to enhance our IP capability as well as our DTC capability. I don’t know if a current or incumbent studio is the right target. That is (SPE Chairman and CEO) Tony (Vinciquerra)’s call. But I really want to enhance our IP power as well as DTC power in the area of communities of interest.”

One example is anime, the Japanese animation style and sensibility that has built an ardent global following worth an estimated $20 billion. Sony doubled down on its anime holdings when it picked up WarnerMedia cast-off Crunchy Roll for nearly $1.2 billion a year ago to fill out its own large Funimation streaming service.  

The company has profitably pursued a “Switzerland” strategy of creating or co-producing content for many of the bigger media companies, even as it has moved out of potentially competing ventures such as its AVOD service Crackle, sold to Chicken Soup for the Soul in 2019. 

That strategy paid off famously the past month, as Spider-Man: No Way Home snared more than $1.5 billion in worldwide box office since its Dec. 17 release, one of the biggest film releases ever, and tops in the pandemic era by a very wide margin.  

But remaining “Switzerland” in its dealmaking, while trying to pick off some strategic niche players won’t be easy as Sony tries to remain more than subscale in a crucial period of the streaming wars. 

For one thing, it’s going to be another expensive year for all the big media companies, as they try to sustain legacy film, broadcast and pay-TV operations while financing increasing investments in their direct-to-consumer operations. 

Wells Fargo projects that the nine biggest media and entertainment companies will spend more than $140 billion this year on content, up 10 percent from even 2021’s elevated levels. 

That spending is driven in part by rapidly escalating sports broadcasting rights, but also by the need for more original and distinctive content for all the big streaming services. With spending levels of $15 billion to $30 billion each for operators such as Netflix, Disney, a combined Warner Bros./Discovery operation, and others, there should be lots of business for Sony with all of the Bigs. 

But it will put a premium on another area where Sony hopes to succeed this year: acquisitions.  It’s likely to be another year of deal-making throughout the sector, as companies continue to beef up their libraries while taking competition off the table, according to LightShed Partners’ 2022 predictions. 

Last year was a record setter for M&A in entertainment (among other sectors), paced by that $45 billion AT&T spinoff of WarnerMedia into a merger with Discovery. That deal and several others, such as Amazon’s $8.5 billion acquisition of MGM, remain under review by increasingly hawkish antitrust regulators, but would further reshape Hollywood (and Sony’s output partnerships) if approved. 

“As always, we expect continued M&A, especially in traditional media, albeit nothing as earth-shattering as last year’s surprise Warner Bros. Discovery deal,” the analysts said in a note this week. Expect more deals particularly in areas such as direct-to-consumer streaming, TV operating systems and broadband distribution.

The real question may be how Sony better integrates its existing media interfaces to take advantage of the emerging power that delivery platforms have in controlling what services people see. Roku for instance has profitably flexed its growing power in negotiations with HBO Max and Peacock. 

It’s possible Sony has a similar long-term opportunity, though it lacks the market reach of Roku’s 55 million US households. 

At CES, Sony debuted a raft of new high-end TV sets that featured not only the Google TV streaming interface but Sony’s own Bravia Core, which gives free access to hundreds of catalog movies and episodic shows, and gated access (through a set of credits) to higher-end and more recent movies. Bravia Core is intriguing in its possibilities, but remains mostly a bonus to Sony’s TV buyers, rather than a fully developed streaming service with actual payment structures and the rest. 

The company’s biggest opportunity might be with its vast installed base of PlayStations, including more than 100 million last-generation PlayStation 4 models. 

The company still can’t make enough PlayStation 5s to satisfy demand (or shopping bots). It officially passed the 13 million sales mark in September, 10 months after the next-gen game console debuted. 

The PS5 certainly has the technical chops – 4K 120Hz, HDMI 2.1, 8K compatible – and base of pretty much all the major apps to be a vibrant competitor against the Rokus and Amazon Fire TVs of the world. It just costs a lot more than a Roku box and about as much as a Fire TV, and it’s a lot harder to find.  

Sony also signalled another big new entertainment opportunity at CES, when it unveiled its first electric car and announced a new division called Sony Mobility. Cars like Sony’s concept vehicle can be the next new entertainment center once they’ve mastered the autonomous-driving  functions that free people from actually having to drive while traveling. If everyone’s a passenger in the cars of the future, many will want those Sony movies and games to pass the commute time (if people still have a commute by then). 

The company has plenty of challenges ahead, though tapping that Kando spirit might solve one of them: three in five streaming subscribers don’t like their viewing experiences, according to a new Accenture study. 

The study interviewed people who subscribe to more than one streaming service, i.e., the most valuable customers in streaming. Nearly half said they spend at least 6 minutes looking for something to watch, which doesn’t sound very Kando at all. 

The proliferation of profiles and preferences across all those services is another problem, according to Accenture: More than half those surveyed wish their profile could be shared across multiple services. That sounds like exactly the kind of headache that a Switzerland company could solve, especially one with the installed base of high-end platforms Sony already has. 

All of which makes Sony CEO Kenichiro Yoshida’s comments about the company’s future even more interesting as the mid-sized conglomerate tries to remain both independent and relevant in a rapidly evolving market. Maybe it should be spelled “can-do spirit” as much as “Kando spirit.”