When Sony’s Blu-Ray DVD format overtook Toshiba’s HD DVD last winter, it seemed like an act of God: Warner Bros. chose Blu-Ray, Wal-Mart stopped carrying HD DVD, and Toshiba was toast.
But Sony, panicked by Toshiba’s deal with Paramount, was prepared for a long fight. Forbes details the behind-the-scenes dealmaking and scheming Sony engaged in to try to kill the HD DVD.
Forbes: Paramount announced last August that it was choosing the Toshiba technology over Blu-ray…[and] Toshiba began selling HD-DVD players for $99, hoping to outsell Blu-ray players and lock in its advantage. The news triggered “sheer and utter panic” at Sony, says its U.S. chief financial officer, Robert S. Wiesenthal…
In Tokyo the night the Paramount news broke, Stringer set up a global conference call to brainstorm ideas for stopping Toshiba. He called on every division to play a part, seizing on the crisis to force the company to work together…
One suggestion was quickly implemented. Sony had wanted gamers to use PlayStation as a videodisc player more often. So if they found a Hollywood movie in the box when they bought the machine, they’d likely test-drive the film, not just play the car-racing games. “Howard rang me up and told me, ‘I really need you to pack half a million units of Spider-Man with PlayStation 3,'” says Michael Lynton, chief executive of Sony Pictures Entertainment…
For the studios and retailers, Sony’s big argument was that even though Blu-ray and HD-DVD were neck and neck in player sales, Blu-ray was really ahead by 1.8 million. That’s if you count the video game fans who own PlayStation 3 players, because they play Blu-ray discs. So Sony executives went to work persuading Hollywood studios that Blu-ray wasn’t the next Betamax. It fell to Wiesenthal, Stringer’s U.S. finance man, to lobby one studio, Lionsgate, to make sure it didn’t agree to payments from Toshiba (which doesn’t own a studio). “The relationship between Sony and Lionsgate was going to continue a lot longer than the relationship between Toshiba and Lionsgate,” he argued, making cell phone calls from a boat while on vacation off Long Island, N.Y. “Toshiba was not going to cofinance one of their movies.
Peter Dille, a marketing official at Sony’s U.S. games unit, suggested wooing rival Hollywood studios–Lynton’s competitors–by including snippets of their movies in PlayStation 3 ads. The free advertising would get the industry’s attention. Message to Hollywood: “This does more than play games,” Dille says.
With Toshiba cutting its price, Sony needed to sell more players. Its headstrong gaming division agreed to cut PlayStation 3’s price by $100, then began selling an even cheaper version with half the memory, even though it would crimp the division’s profits. Sony executives from Los Angeles, San Diego, New York and Tokyo converged on Best Buy headquarters in Minneapolis to spend a half-day in meetings. Sony offered to help pay for Best Buy ads in Sunday newspapers nationwide, to pay for Blu-ray store displays and to offer discounted Blu-ray packages–a Bravia TV sold with a Blu-ray player and five free discs, for instance. Sony execs also made pilgrimages to Wal-Mart, Target (nyse: TGT – news – people ), Circuit City (nyse: CC – news – people ) and other chains.
Despite rumours to the contrary, Sony executives say they did not pay movie studios to side with Blu-ray in the format war. But Sony did spend more than $60 million advertising PlayStation 3 from November to January in the U.S., according to tns Media Intelligence, bringing free attention to Hollywood movies and retailers alike.
And now that Sony has finally discovered the benefits of synergy, the multi-division unity will continue:
Sony’s Bravia flat-screen TVs will allow viewers to connect to the Internet and stream Hollywood hits without a set-top box or cable subscription; already the TVs can do this with YouTube and other free Internet channels. Sony will send the new Will Smith movie, Hancock, to Internet-ready Bravia TV sets in November, before it can be seen on DVD or on cable. In Stringer’s vision of the future, consumers will pay Sony first for televisions and other hardware, then pay Sony again to download movies, music and TV shows. “The battle for me is the networking of these devices,” he says. “I have to succeed at that.”
Let’s hope the also-ran Hancock is enough to push people to buy Sony’s flat screens.
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