Max Troubles for Betamax

Sony struggles as its videotape-recorder market slides away

Japan’s Sony Corp. has long boasted that it is “the one and only.” But that confident advertising slogan now is beginning to sound hollow. The company that gave the world the transistor radio in the ’50s, Trinitron color television in the ’60s, the Walkman portable cassette player in the ’70s and the Watchman micro-TV in the ’80s is in trouble. In 1983 Sony’s sales slipped for the first time in eight years, to $4.8 billion, while profits fell for the second consecutive year, to $119.3 million.

Sony’s troubles stem from a disastrous slump in sales of its Betamax videotape recorder, which in 1983 accounted for 41% of the company’s sales. Last week Zenith announced that it would no longer sell Sony’s machine under its brand name. Zenith thus joins companies such as Toshiba and NEC that have abandoned Sony’s videotape system in favor of the VHS method developed by archrival Matsushita (1982 sales: $15.7 billion), which sells products in the U.S. under the National, Quasar and Panasonic brand names. Says one industry watcher in Tokyo: “Zenith’s move means the demolition of the Sony-led Beta group.”

In 1975 Sony introduced the first videotape recorders, which let people make copies of their favorite television programs or play tapes of movies on their TV screens. Two years later Matsushita announced a cheaper recorder that worked on a rival technology, known as VHS, which used different-size tapes and made recordings for up to six hours, while the Betamax machine could play for only three hours. The longer tapes were particularly popular with sports fans who wanted to record football or baseball games. Matsushita then outmaneuvered Sony by adding extra features to its recorders, providing licenses to other companies that wanted to enter the business and concluding aggressive marketing pacts with such companies as RCA and General Electric. Sony later improved the Betamax so that it played longer tapes and had more features, but the company never regained its dominant position. Result: Betamax, which had 62% of the videotape-recorder market in 1977, now has just 25%.

Sony’s current troubles, though, go beyond Betamax. The company’s Mavica filmless camera, announced with much fanfare in August 1981, has yet to appear on store shelves. Sony and other firms are still dickering over standards for the camera’s reusable magnetic disc. In addition,

Sony’s personal computer, the SMC-70, has had disappointing sales, and companies like NEC have grabbed the market lead in Japan. Sony executives admit that it will be difficult to repeat past triumphs. Explains one executive: “The electronics industry has reached a stage of maturation, and investment no longer pays off as quickly as it used to.”

Sony has been taking measures to help slow the slide. Last year the company slashed winter bonuses for its top executives for the first time in its 38-year history. Sony’s two operating departments were split into seven divisions so that senior executives, including Co-Founder

Akio Morita, 62, could isolate trouble spots and improve efficiency.

Some Sony watchers are blaming the urbane, silver-haired Morita for the firm’s problems. Snipes one: “Morita’s perception of Sony as a high-tech, venture-capital firm is already dated.” Critics accuse Morita of continuing to believe that consumers will readily pay a premium for Sony products. Says one Tokyo observer:

“The trouble with Sony today is that company officials are overconfident about their own technology. Their competitors are now their equals technologically. Sony is heading toward the worst disaster ever unless it steers in a different direction.”

The course Sony is steering is to develop still more high-technology products. Despite falling profits, the firm spent 8% of last year’s sales on research and development, compared with the industry average of 5% to 6%. Some of the laboratory projects have already hit Main Street. One, the compact-digital-disc player, has been hailed as the likely replacement for today’s stereo systems. The players use beams of light, rather than needles, to play 4.7-in. silvery discs. Sony last year sold 150,000, or half, of all the CDs purchased in Japan, for prices starting at $495. Sony’s two new downsize Walkmans, only slightly bigger than a pack of cigarettes and priced at $99.95 and $129.95, are already hot sellers in the U.S. Another potential hit for Sony is its 3.5-in. micro-floppy-disc drive for personal computers, which can store a megabyte, or 1 million characters of information. Hewlett-Packard already includes the Sony device in its machines, Apple Computer will use it in its new Macintosh computer, and there are rumors that IBM is about to adopt it for future computers.

While Sony continues to churn out new products, it has not given up on Betamax. The company recently introduced a 5½-lb. hand-held camera and a stereo system that are compatible with Beta videotapes. Says Kenji Tamiya, president of Sony Corp. of America: “We have absolute confidence in the Beta format.” Others are skeptical. Says Reginald Duquesnoy, an industry analyst with Arnhold & S. Bleichroeder, a Wall Street investment firm: “The longer Sony sticks with Betamax, the more severely it’ll get beaten.”

Sony may eventually have to give up on today’s war and get on with fighting the new one developing for smaller video-tape recorders, which operate with narrow, 8-mm tape. Several companies, including such competitors as Hitachi, Toshiba and Sony’s old nemesis Matsushita, are planning to produce their own 8-mm machines. In the past week alone, RCA and General Electric both jumped into the 8-mm market. Sony must make certain that the upcoming 8-mm Shootout does not become a ruinous reprise of the Beta battle. —By Michael Moritz.

Reported by Dorothy Ferenbaugh/New York and Yukinori Ishikawa/ Tokyo