Turning Sony around puts Stringer through the ringer

When Howard Stringer took over as chairman-CEO of Sony a year ago, he anticipated static from Japan. He didn’t think he’d also catch fire from Germany. Nor did he expect that the first Japanese tentpole from Sony Pictures would fail to make a splash in Tokyo.

For Stringer — who spends much of life on planes between Tokyo, Los Angeles, New York and the U.K. where his family lives — there are battlefields in every hemisphere, ferocious debates over content and technology and the need to cut thousands of jobs. Even Stringer’s mother was said to be ticked off at him when he closed a manufacturing plant in his native Wales.

Stringer often looks weary these days, and he’s the first to admit that the whole media landscape is changing.

“The industry forces of fragmentation and competition are all around you,” Stringer says. “You can’t relax.”

He was named chairman-CEO one year ago and formally took the reins last June, replacing former topper Nobuyuki Idei. Idei and a handful of board members were ousted after years of a seemingly inexorable slide at Sony Electronics, a business that makes up 70% of Sony’s $67 billion annual revenue.

When Stringer got the top job, Sony Pictures was mired in one of its worst slumps in years. Sony and a group of financial partners had just inked a complex deal to buy MGM for $5 billion. And tensions were boiling over between the Yanks and the Germans at the recently merged music company Sony BMG Music Entertainment.

“I thought it was a little unfortunate that it wasn’t a more tranquil time for the two entertainment companies,” says the understated Stringer, 64.

In September, Stringer unveiled a massive corporate restructuring, including $2 billion in cost cuts, 10,000 job cuts and a promise to move the needle at the company’s struggling flagship electronics division.

“You get these jobs in tough times, because the times demand some kind of change. So you know you’re going to have tough early years,” Stringer says.

Right off the bat, Stringer wasn’t just running a conglomerate: He’d become a cultural diplomat, morale builder, cheerleader and referee. Japanese managers couldn’t believe they were being fired, studio brass were terrified they’d be out on the street, the music guys wanted to pick each other off.

“You try to say, ‘Stay cool, just hold on,’ ” he says. “You get a big announcement … then you deal with the personnel fallout. For that period, you are very vulnerable.”

At a time when Time Warner and Viacom are dismantling their assets, Stringer must also contend with the question of whether it’s justifiable to preserve Sony as a single corporate entity, given its far-flung business interests. Stringer believes Sony should remain one company, arguing that the conglom’s entertainment brand actually buttresses its hardware brand.

Despite his global travels, Stringer pays regular visits to his Culver City studio, where his presence goes far beyond that of the Sony suit. He is very much the lord of the manor, yet his keen knowledge of film is respected by his executives and by studio filmmakers (he remains board chairman of the American Film Institute).

Beyond being the boss, his cutting wit is relished by studio executives who know he is good for a laugh as well as an insight, or an occasional reprimand. But despite his contagious humor, no one at the studio doubts his strength of will — he can chop heads as readily as he can pass out compliments.

After a contentious 12 months, there are some real signs of progress:

Stringer now says “peace reigns” at Sony BMG Music after a management shuffle that put embattled CEO Andrew Lack in a less prominent role.

In two months, Sony will release the first wave of DVDs in Blu-ray, a format Sony spent years and many millions developing in the hope that it will become the industry standard for the next generation of DVDs.

Even Sony Pictures, which was shell-shocked after a disastrous 2005, is moving into what appears to be a more fecund period, thanks to “The Pink Panther,” “Underworld: Evolution” and “When A Stranger Calls.” “The Da Vinci Code” bows in May and the next James Bond extravaganza, “Casino Royale,” unspools in November.

After a confusing start, the “new” MGM is starting to emerge. The Lion lost 800 jobs after it was sold and was rudderless for months, until billionaire media entrepreneur Harry Sloan was named its chairman-CEO last fall. Rumors were rife of conflict between Sony, which invested $300 million for 20% of the company, and its partners. The largest shareholder is Providence Equity, with 29%.

“You have to figure out how to work out the relationship with private equity companies, a cable company and two studios. And people seem surprised that this isn’t easy,” marvels Stringer. He said Sony never considered buying MGM outright. With the huge electronics biz to turn around, “The company’s priorities would have looked skewed.”

“The MGM deal was done from the top down … and it wouldn’t surprise me, if, two levels down, folks that may not have participated in the construction of the deal probably don’t like it,” explains one person involved in it. “The relationships among the principals are good. Down in the trenches, I doubt it.”

MGM plans to develop its own distribution biz under newly hired chief operating officer Rick Sands and find partners — like the Weinstein Co. and Lakeshore Entertainment — to make movies. The Lion will declare its strategy March 8, when Sloan hosts a press conference in Los Angeles called “The Lion Roars Again.”

Stringer also found his diplomatic skills sorely tested by his own music division as the BMG half, led by Sony-BMG chairman Rolf Schmidt-Holtz, mutinied, directing their wrath at Lack.

Stringer attributes the problems to a culture clash that plagues many mergers. It was “a highly centralized management (Sony) vs. a highly decentralized management (BMG). We probably should have anticipated it.”

“BMG was extremely successful when they came to the merger, and people say, ‘We were fine. Why did we have to do this?'”

With Lack’s contract expiring, BMG wanted him out. Many observers thought Stringer would cut the cord. But after months of negotiations, there came an odd resolution. Lack and Schmidt-Holtz would swap jobs, with the German exec taking the higher-octane post.

“I defended Andy because I felt that the anxiety was out of proportion,” Stringer says. “I think it would have been unfair to push Andy aside. He has something to contribute.” It’s not clear, however, what Lack’s new job will entail or, many think, how long he’ll stay.

Now, electronics and games can take center stage, although major questions loom at those divisions as well.

Sony’s new PlayStation 3 was widely expected to be introduced this spring, but will be delayed as the company fine-tunes the chips that are crucial to the success of the console’s Blu-ray function.

The PlayStation 3 — which is being called “the poor man’s Blue-ray” — is vital to Sony’s plans because it plays Blu-ray discs as well as videogames.

Sony will roll out the PS3 by year end, in time for the holidays. If PS3 “delivers what everyone thinks it will, the game is up,” Stringer boasts.

Blu-ray is the system developed by Sony to view next-generation high-definition DVDs. Rival format HD DVD is championed by Toshiba. Microsoft recently joined the HD DVD camp, a move that came as its Xbox 360 videogame console is trying to grab market share from PlayStation, the industry leader.

Software makers, electronics firms and Hollywood studios have lined up behind one or the other, or both.

For Sony, the stakes of the rivalry are colossal. The new discs are seen as a way to energize flattening DVD sales. Both the systems also make movies harder to pirate.

Some believe Stringer is betting the company on Blu-ray. The technology is more advanced than HD DVD and would allow the players to incorporate interactive features and others still to be developed. But HD DVD is easier to manufacture and the boxes will be cheaper.

Stringer, and just about every other media exec, studio chief and retailer, fears a Betamax-VHS redux — a format war that would irritate and confuse consumers. After all, if folks don’t know which player to buy, they might walk out empty-handed. “If that happens,” one top entertainment exec quips, “I think someone from Wal-Mart is going to take a gun and shoot one of them.”

“Once Microsoft picked sides it was clear we were going to be in a battle royale,” Stringer says, vowing to protect his turf. “We won’t be stampeded” by Microsoft into rushing decisions “that are there forever.”

One strange twist in the battle is that Toshiba is working with Sony and IMB to produce the cell chip that’s the foundation of Blu-ray — a topsy-turvy scenario that only serves to underscore the contortions Stringer finds himself performing these days. “One day my enemy is my enemy,” he says. “The next day the enemy is my friend.”

Meanwhile, Stringer continues to wrestle with consumer electronics, a hydra that produces some well over 2,000 devices, and that’s struggling to emerge from a decade-long decline.

He’s made some bold moves in electronics, eliminating product lines — like the cult favorite Aibo dog robot — and has focused on “champion” categories, like flat-screen LCD (liquid crystal display) TVs.

With its latest LCD model, the Bravia, Sony has clawed its way back from fourth place to first worldwide. Stringer changed management at the division and gave TV group chief Katsumi Ihara the go ahead to start ramping up branding and marketing.

Sony insiders point to the LCD turnaround as evidence of the residual power and strength of the Sony brand.

Stringer relies heavily on his deputy, Sony prexy Ryoji Chubachi, who oversees electronics. “My job would be impossible without someone with that kind of experience.”

After all, he’s no techie. Stringer doesn’t even carry a BlackBerry, preferring to send his lieutenants text messages via cell phone.

Stringer even waxes nostalgic about the shift from film to videotape. “I liked film. I liked holding it in my hand and looking at it frame by frame.”

But Stringer, who once worked as a network TV documentary producer, bridled when a Japanese reporter dismissed him as “a former journalist” in a story that cast doubt on his fitness to lead Sony. The last time he was a working journalist was 1983-84, he points out. He spent nine years at Sony Corp. of America before becoming chairman-CEO.

In Tokyo, Stringer is involved in a number of activities that don’t hit the radar Stateside. As part of cost cutting, he recently led an effort by senior management to eliminate “advisor” positions — former Sony brass who had enjoyed continuing salaries, offices and perks. The move, a radical one in Japan, effected 45 former execs. He has sold a makeup company, a retailer and a restaurant chain Sony owned, along with other non-strategic businesses.

He signed a three-year contract, renewable for two years, if he can take the monstrous travel schedule for that long.

Is his job impossible? Some think it may be.

“I don’t think anyone could do a better job,” says Jonathan Nelson, CEO of Providence Equity. “The Sony cadre around him are intensely loyal and would do anything they could to help him succeed. He is the unusual kind of person who engenders that feeling in his business.”

What if, back when he was making documentaries at CBS, someone had told him that one day he’d be running Sony Corp.?

Stringer doesn’t hesitate to answer. “I would have said I’m perfectly happy making documentaries.”

(Nicole LaPorte in Hollywood contributed to this story.)

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