Sony Corp., struggling to handle the widespread media speculation about its showbiz future, tried on Dec. 8 to make clear its plans to stick around Hollywood – and surprise, it came in the form of another memo.
Sony prexy and chief operating officer Nobuyuki Idei, the heir apparent to chairman Norio Ohga, issued a terse letter to the press about the company’s structure in the wake of the Dec. 5 departure of Sony Corp. of America prexy and COO Michael P. Schulhof. It was the third Sony memo in the past few days looking to quell rumors and promote what appeared to be sorely lacking stability. It also curiously omitted Ohga’s name.
The latest letter assured Sony’s West Coast operations that SCA exec VP Jeff Sagansky will have nothing to do with music or pictures divisions, which are being set up to run autonomously while reporting to Tokyo.
As the second-in-command under Schulhof and the current highest-ranking American in the company, Sagansky had been considered the chief contender to replace the former physicist, whose wide domain included music, pictures and electronics. Insiders fear a Sagansky inheritance will bode ill for Sony Pictures president and chief operating officer Alan J. Levine, with whom relations are chilly.
“Jeff Sagansky, under my direction, will continue to coordinate Sony Corp. of America’s overall strategic efforts and oversee Sony Retail Entertainment, Sony New Technologies and SW Networks, an entity that has made great progress since its inception one year Idei said in the memo.
“Carl Yankowski, Alan Levine and Thomas Mottola (prexys of the Electronics, Pictures and Music divisions, respectively) also will participate in the formulation and execution of SCA’s overall strategy.”
As reported earlier in a memo from Idei and Ohga on Dec. 6 to Sony employees, Levine and Mottola each will report directly to Tokyo-based Ohga, who chairs Sony Pictures and Sony Music.
After several days of meetings with Levine, Mottola and Yankowski in New York, Idei also named them to join the Sony Corp. of America Executive Committee; he tagged himself as chairman of that committee.
But the new memo indicated that SCA no longer would have any jurisdiction over music or pictures, both of which would report to chairman Ohga. Electronics meanwhile, would be handled by Idei.
“Each of our businesses runs its day-to-day operations independently, but our aim is to have them work as a single cohesive unit,” Idei’s letter said. “A large number of products from our businesses are interrelated, and there is a definite linkage of hardware and software.”
Industry sources have argued all week that micromanaging the entertainment divisions from Tokyo would be a recipe for disaster and would lead to Sony’s abandoning the business. But insiders claim Ohga and Idei are not looking to read scripts, they just want to know about the bottom line.
Insiders observe that a roughly similar structure at Matsushita and MCA ultimately failed because the Japanese, while watching the numbers, were unresponsive to the American managers’ desire to make strategic alliances. Eventually communications broke down completely.
“This is not about running a creative enterprise from Japan,” one studio source says. “It’s about picking the right management to run it. Idei and Levine get along very well. He looks in Alan’s eyes and sees a businessman who understands revenues, understands margins, understands capital mix, and by the way, grew up in Hollywood.”
Schulhof’s abrupt ouster or resignation – depending upon whom tells the story – took the industry by surprise only in its abruptness. The move was expected for over a year.
The 53-year-old exec long has been credited with orchestrating Sony’s entry into the entertainment world, spurring the $2 billion purchase of CBS Records and the $3.4 billion acquisition of Columbia Pictures Entertainment (which turned into SPE). But his fortunes turned after the Sony Pictures unit declared a $3.2 billion quarterly loss in 1994, including a $2.7 billion writeoff. The move implied that former chairman Peter Guber had driven the company into serious debt.
Schulhof’s exit was prompted by a power struggle with Idei, who as vice chairman of Sony Electronics will control Sony’s hardware operations. Schulhof worked closely with Ohga and considered him a mentor.
Idei, who only recently was named to his second-in-command spot in the overall Sony Corp., is being groomed to replace Ohga. With the prospect of an Ohga-less Sony, Schulhof was stuck without support from Tokyo.
“This is not about performance,” Schulhof disclosed to Variety. “This is about differences in operating philosophies and differences in the styles of Mr. Idei and myself. I like Mr. Idei and I respect him. He should be able to operate this thing in his own style. He deserves to have his own freedom and his own running room and his own future. Our styles are different. I don’t feel I can comment beyond that.”
In Tokyo, Japanese analysts said Schulhof’s biggest mistake in Sony’s eyes was his persistent push for an equity sale of a portion of Sony Pictures Entertainment, which Idei was against. However, some sources theorized last week that the Sony toppers in Tokyo may still be priming SPE for an outright sale at some point.
One source said News Corp. chairman Rupert Murdoch had offered to buy a 45% interest in Sony’s entertainment arm, but Idei refused the offer.
At a Nov. 20 press conference in New York, Idei confirmed an initial public offering was “a possibility,” but said it was “premature” to talk about it. Idei also ruled out bringing in a partner for Sony Pictures.
On Wall Street, one investment banker says the “whole issue of the layers of management and the overhead in New York” is under review following Schulhof s departure.
“You have got a parent company in Tokyo and a sub-holding company in the United States. Do they need it?” the banker asks, adding that the overhead – given the cost of the New York building – was huge.
Other banking sources say Schulhof may have annoyed his Japanese bosses by pushing for the IPO. Or the Japanese may have decided he was not the best person to run Sony if it went public, one banker says.
They add that Schulhof s departure doesn’t necessarily bode anything for Sony’s continued ownership of the studio. One analyst, who didn’t want to be quoted, says Schulhof would be the logical person to sell the studio, so it wouldn’t make sense to remove him if that was the plan.
One major problem for Schulhof was his failure to rally studios around Sony’s new digital videodisc technology. It showed Sony execs that he was not as well plugged into Hollywood as expected. He aggravated his troubles by establishing Guber’s lucrative Mandalay Entertainment deal.
But the writing was on the wall much earlier. The promotion of Idei in early 1995 took many by surprise in Japan. He was the most junior of the directors being considered and did not have the engineering experience the company so highly valued in its executives in the past. The promotion was seen as a result of a shift in top management’s thinking, especially on the part of Ohga.
“It had to do with a number of things, including the writeoff,” one investment banker says. “I think the Japanese really knew they made a wrong decision in management a long time ago. It was time to correct that.”
Schulhof s exit was not unexpected from executives on either coasts. “No one here is surprised with anything except the timing,” one studio exec says. “We all thought it was going to happen last year.”
Schulhof, a protege of Sony founder Akio Morita, maintained in a statement that he was leaving to pursue entrepreneurial endeavors. His reign began with the widely praised acquisition of CBS Records.
“I think my time at Sony is done,” Schulhof said. “I’ve accomplished everything that I could accomplish. It’s time for me to do other things.”