Sony's Stringer
Faces Havoc
At Two Units
By KATE KELLY and ETHAN SMITH
Staff Reporters of THE WALL STREET JOURNAL
December 5, 2005; Page B1

Just six months after being promoted to chairman and chief executive
officer of Sony Corp., Howard Stringer is facing a plethora of troubles
at the entertainment divisions that helped vault him to the top spot.

In recent months, Sony's music and movie units have been beset by
political and financial struggles, harming the parent company's overall
performance and creating a climate of uncertainty. The problems add to
a long list of headaches for Mr. Stringer at Sony, where he is also
trying to reverse a slide in the Tokyo-based company's important
electronics divisions.
[Stringer]

In the entertainment units, the most explosive problem involves a
standoff between Sony and Bertelsmann AG over the leadership of the
Sony BMG music joint venture they struck just last year. Bertelsmann
officials have made it clear that they want the entity's CEO, Andrew
Lack, replaced -- a move that several people with knowledge of the
matter say that Mr. Stringer is now reluctantly prepared to make. If
Mr. Lack is ousted as CEO, it remains possible that he will remain with
Sony BMG in some other capacity, these people say.

At the same time, the company's movie unit, Sony Pictures
Entertainment, has had one of its worst runs at the box office in
recent years. Of the two dozen movies Sony has released this year,
several have cost more than $100 million to make, but only one, the
romantic comedy "Hitch," has sold more than $100 million of tickets
domestically. The situation has prompted Mr. Stringer and the
division's heads, Michael Lynton and Amy Pascal, to re-examine the way
in which they set budgets, approve pictures for production, and decide
how many movies to release each year, according to people familiar with
the matter. While these people say that neither executive presently is
in danger of being replaced, prolonged dismal results could put added
pressure on them in the new year.

Such management and financial troubles come at a time when Mr. Stringer
can ill afford them. The task of fixing the electronics units has kept
Mr. Stringer circling the globe almost nonstop. Now the entertainment
units' failures have added a painful irony, given that it was Mr.
Stringer's solid track record as head of the Sony Corp. of America,
where he had overseen the music and pictures divisions since the late
1990s, that helped him clinch the top Sony job earlier this year. After
his promotion, Mr. Stringer chose not to replace himself in his old job
-- leaving him on the hook for the growing mess in the entertainment
units.

The merger of Sony Music with Bertelsmann's BMG division has devolved
into a case study in the pitfalls of joint ventures. In August, just a
year after the deal was finalized, Bertelsmann executives began calling
for the dismissal of Mr. Lack, a longtime friend and associate of Mr.
Stringer who had been head of Sony Music. Negotiations between
representatives of Mr. Stringer and Bertelsmann Chairman and CEO Gunter
Thielen to resolve the conflict have progressed slowly, allowing the
situation to escalate into a nasty battle that boiled over into public
view nearly two months ago.

According to people with knowledge of the matter, it is now nearly
certain that Mr. Lack will lose the CEO title -- and almost certainly
before his employment contract expires in March. Sony officials have
proposed allowing Mr. Lack to move into a less-hands-on senior role in
the joint venture. Taking over Mr. Lack's day-to-day responsibilities
as CEO could be Rolf Schmidt-Holtz, who currently is the joint
venture's non-executive chairman. But Bertelsmann officials have so far
resisted any arrangement that would let Mr. Lack remain with Sony BMG
in any capacity.

The source of the disagreement remains unclear. People close to
Bertelsmann have said the chief reasons are the joint venture's
performance and Mr. Lack's management style, which they describe as
brusque and often unilateral. People close to Sony have said the joint
venture is performing well, and that the real problem is Bertelsmann
executives' desire for more control of the joint venture. In any event,
things appear to have come to a head when Mr. Lack made a talent deal
with Bruce Springsteen worth at least $100 million. Such a large
investment required the approval of Sony BMG's board, but Mr. Lack
angered Bertelsmann by letting the singer sign his half of the deal
before seeking the board's approval.

At the same time, trouble has been brewing at the Sony Pictures studios
in Culver City, Calif. Long headed by Ms. Pascal, a mercurial but savvy
motion-picture group chairwoman, the studio has in recent years
experienced tremendously robust results at the box office, buoyed in
large part by the "Spider-Man" franchise.

Despite "Hitch," a Will Smith movie that made $179 million in U.S.
theaters, most of Sony's other films seemed to miss the mark. A handful
of action movies, including "Stealth" and "XXX: State of the Union,"
each cost in the neighborhood of $100 million. But none came close to
making up production costs in ticket sales.

Two years ago, Mr. Lynton, a publishing-industry veteran, was hired by
Mr. Stringer to work as chairman and CEO of the studio and complement
Ms. Pascal's creativity with some hard-nosed business skills. Mr.
Stringer got in the habit of visiting Los Angeles regularly and talking
often -- even every few days -- with Ms. Pascal, Mr. Lynton, and Jeff
Blake, head of world-wide marketing. But with Mr. Stringer so often on
the road this year and Mr. Blake sidelined nearly all summer while
recovering from heart surgery, people familiar with the matter say that
dialogue came apart.

Mr. Lynton and Ms. Pascal plan to hunker down on margins, people close
to the studio say. And with Mr. Stringer refocusing on the pictures
business and a revamp of the theatrical-marketing department under way,
these people say that operations are running more smoothly. "We had a
difficult summer," Mr. Lynton said in an interview. But with this
month's release of "Memoirs of a Geisha" and "Fun with Dick and Jane"
and movies like "The Da Vinci Code" on tap for 2006, "I think we'll
finish the year well, and the slate for next year looks really good."

Still, reducing the cost of movies is a challenge. A case in point:
"Spider-Man 3," scheduled for release in 2007. Already, the budget for
the film is said to be between $250 million and $300 million, people
close to the studio say -- a gigantic price tag, even for an immensely
successful franchise.

Write to Kate Kelly at kate.kelly@wsj.com and Ethan Smith at
ethan.smith@wsj.com

Haha, that's what you get for making shitty movies, shitty services, shitty electronics, and shitty trojans.

Well, Sony imploding would be good for MANY reasons...

Eh, go implosion, go! SOAD can just sign with a different label.

interesting... I read another interesting article about Sony just after the first iPods came out. The article stated that the iPod really should have been a Sony product, following in the success of the Walkmans. But Sony's entertainment division was busy suing a company owned by Sony's electronics division (the company was suing itself!!!) over copy-protection. While Sony was chasing its tail, Apple unveiled the iPod and the rest is history.