Sony Failing to Connect in Online Music Market

June 1, 2006

Sony Corp. marked the launch of its online music store two years ago by hiring Sheryl Crow to belt out songs in the aisle of a jet at 30,000 feet.

The store, called Connect, has lost altitude ever since and the Sony executive who was at the controls, Phil Wiser, is bailing out as Connect limps along with less than 3% of the digital music market.

Wiser's planned departure Friday underscores the challenges facing the company that invented the Walkman as it struggles to regain its former prestige and prominence in a digital world.

"The challenge isn't so much [Wiser's] departure, but it underscores the fact that Sony Connect has really failed to take the world by storm or even a little drizzle," said Michael Gartenberg, an analyst with Jupiter Research.

"There's just not a lot happening with the Connect service and with Sony devices, especially in the U.S. where, to an entirely new generation, the word that defines portable music player isn't Walkman, it's iPod."

When it debuted in May 2004, Connect was positioned as the consumer electronics giant's answer to Apple Computer Inc.'s iPod and the companion iTunes Music Store for downloading and managing music.

Connect was intended to elevate Sony's MiniDisc music player from an isolated product to an Internet-connected device capable of storing songs purchased and downloaded off the Web.

Wiser, chief technology officer of Sony Corp. of America, headed the project after joining the company in 2001. Previously, he co-founded Liquid Audio Inc., an online music service, and had spent years trying to persuade Sony and other entertainment companies to embrace Internet distribution.

Connect was beset by a series of problems, starting with its pairing with the MiniDisc player, which, although popular in Asia and Europe, never caught on with American consumers.

The service was further hamstrung because it supported Sony's proprietary music format, and its anti-piracy software. Those earlier devices couldn't play unprotected music files known as MP3s. Newer devices support unprotected music and play songs in Microsoft's Windows Media format.

In a sense, Sony's problems are rooted in its heritage in the transistor world.

"Apple is a computer company. They specialize in things having to do with computers and digital. Sony is a hardware company, they specialize in hardware. The problem is they don't have software and they don't understand software," said Ted Schadler, an analyst with Forrester Research in Cambridge, Mass. "It's completely not in their DNA to build products for this digitally connected era."

Sony executives privately acknowledge that Connect is, in the words of one, "broken." But Sony's chief executive, Howard Stringer, has put it behind other corporate priorities, such as fixing Sony's troubled television division.

New 'X-Men' Sets
Weekend Record
For Memorial Day

In one of the biggest movie openings ever, News Corp.'s Twentieth Century Fox studio took in an estimated $120.1 million at domestic theaters over the holiday weekend with "X-Men: The Last Stand," the third installment of its popular superhero franchise.

Despite the spotty domestic performance of other recent mass-market action flicks, "X-Men," helped by an elaborate marketing campaign across News Corp. media properties from television's "American Idol" to the Web site MySpace.com, set a record for Memorial Day openings. It also was the fourth-biggest three-day-weekend debut in history, with about $107 million in U.S. ticket sales between its opening Friday and the end of Sunday.

By nominating artful, provocative pictures, the Oscars are simply doing what innumerable award organizations do all year long: offering their stamp of approval to the films that deserve it. The difference is that an Oscar endorsement is worth millions, which is why film distributors splash full-page ads in the trades every day, hoping to earn a raft of nominations. "Million Dollar Baby," last year's best picture winner, was a dark, troubling film that had barely grossed $10 million when the Oscar nominations were announced. It went on to take in $100 million in the U.S., much of that fueled by the attention and prestige an Oscar nomination brings.

Far from being marginalized, the Oscars are simply another example of our new "long tail" culture, in which the era of hit-driven mainstream events is being quietly pushed aside by niche-oriented films, music and TV shows. The success of this year's crop of socially relevant nominated films simply shows that big is not better. Made for $75 million, "Munich" will struggle to break even. The Other Hollywood best picture nominees, all made for $6.5 million to $14 million, are already profitable, with the prospect of even more success to come.

Pixar Stock Surges on Deal Rumor

Movies May Hit DVD,
Cable Simultaneously

Cable companies and major studios are discussing strategies to release movies through video-on-demand cable services the same day they come out on DVD.

Although the talks have been in progress for several months without an agreement, people familiar with the matter say some studios could do a trial run of the strategy early this year.

Such a move would mark a major shift in the way Hollywood distributes movies -- and demonstrate how eager studios are to boost sales and cater to tech-savvy consumers. Historically, movie studios have staggered distribution points -- called "windows" in the industry -- to maximize revenue. A movie is generally released first to theaters, then several months later on DVD. Weeks or months after that, the movie is released through video-on-demand and on other platforms, with pay-per-view and regular television release coming last.

Now, declining box-office figures and slower growth in DVD sales, along with the emergence of new technology, have prompted talk of collapsing or eliminating the traditional windows. The idea raises many complex questions, from pricing to piracy prevention. And studios need to weigh whether releasing movies earlier to video-on-demand would cut into DVD sales. But on balance, studios and cable operators hope that they will make more money if they give consumers quicker access to movies they want, in the form they want them.

The studios most aggressively pursuing the idea are Walt Disney Co., General Electric Co.'s Universal Pictures, Time Warner Inc.'s Warner Bros. and News Corp.'s Twentieth Century Fox , said people familiar with the matter. Some have also been exploring ways of giving viewers the right to buy a movie on demand and watch it repeatedly. That plan wouldn't necessarily involve moving up the date to match DVD release dates though.

Proceeds from video-on-demand sales typically are split between studios and cable operators. If films are released to cable earlier, studios could demand a bigger share of the revenue. Cable companies, meanwhile, are eager to boost their video-on-demand business.

Video-on-demand titles typically cost around $4, compared with an average of about $20 for a new-release feature film on DVD. In a test, cable companies might experiment with raising the video-on-demand prices of movies that get released at the same time as DVDs. In separate tests, they might also explore allowing a consumer to keep the movie on a digital video recorder, or perhaps even to transfer it to a computer and burn it onto a disc.

Studios clearly feel a sense of urgency -- but they are also wary. Media companies generally are scrambling for ways to deliver entertainment more quickly, as evidenced by the recent deals by Disney and NBC Universal to make television shows available on Apple Computer Inc.'s video-capable iPod. Meanwhile, box-office revenue in North America fell 5.2% to $8.9 billion in 2005 and growth in sales of DVDs fell to single digits.

At the same time, DVD sales remain highly lucrative and the studios don't want to hasten the decline of that revenue stream. DVD sales and rentals in the U.S. totaled $23.4 billion last year, more than double box-offices sales, according to Adams Media Research.

Studios like the idea of saving money on packaging and transporting DVDs. But if studios give consumers earlier and easier access to video-on-demand, they could make it easier for people to pirate their product.

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Kong dissapoints at the box office.  Despite a reported $207 million budgets and an estimated $75 million spent to marke the ape worldwide, the box office of $50.1 million is a dissapointment for the studio.  Peter Jackson's LOTR grossed more than $70. million when it opened in 2003. 

 

Was the Ape too long at 3 hours, or is it that the audience just wasn't thrilled enough to cough up the bucks to see a story where the ending is already known?

 

Oscar watch:  Who will get the Oscar for best picture?  We will have more on this later this week.

Silver Screen Studios, Inc has finished their third  movie and should see some return on the movie production slate.

The 2006 slate is being finalized now.  Rumored to have the financing already lined up for the slate using the GA Tax Credits and Federal Tax Credits.

Should see exciting things from Silver Screen in 2006.

See www.silverscreenstudiogroup.com for more information.

 

 

Diary of a Mad Black Woman, the Tyler Perry stage play turned into a theatrical film release, surprised the box office during the summer scoring $50 million take in its theatrical run and another 3.0 million DVD sold.

Just goes to show that a good movie will sell regardless of what Hollywood thinks.  The movie was made with an estimated $5.0 million dollars.  Very low budget by Hollywood standards. 

However, the profitability of the movie has convinced Lions Gate Films, the distributor to begin production of another of Tyler's movies with a release date of summer 2006.