The company is attempting to stage a comeback in digital entertainment distribution.
Will the third time be the charm for Sony Corp.?
The entertainment and electronics giant is preparing to launch an online video service through its game console PlayStation 3 as early as this summer, studio executives familiar with the plan say.
The company has been in licensing talks with studios in recent weeks, according to these executives, who asked to remain anonymous because of the sensitivity of continuing negotiations.
The initial version of the service would include movies and television shows flowing from the Internet to the PlayStation 3.
It would follow two other disappointing online ventures backed by Sony in recent years: Movielink, which attempted to become the online equivalent of the video store for mainstream Hollywood movies before being sold last year to Blockbuster Inc.; and Sony Connect, the company's response to Apple Inc.'s iTunes download service. It shut down in March.
The latest service, provided through the online PlayStation Network, is Sony's attempt to stage a comeback in digital entertainment distribution. The maker of the once-dominant Walkman portable music player is still smarting from its defeat by Apple in the online music revolution.
"They've got to get a win in the digital, and I'd say on the electronic delivery side of the business," said Kurt Scherf, an analyst with Parks Associates who studies technology in the home. "That's where the future is. They've got to establish a toehold in that space."
The latest initiative seeks to harness Sony's strengths as a maker of high-definition televisions and consumer products as well as a creator of films and TV shows.
Sony is trying to capitalize on its Trojan horse in the living room, the PlayStation 3. The console is already connected to the TV and the Internet, and has sold more than 4 million units in the U.S. and 9 million worldwide, according to Wedbush Morgan Securities in Los Angeles. The console gave Sony the decisive edge in the battle to establish its Blu-ray discs as the standard for high-definition video in the home, trumping the HD DVD format backed by Toshiba Corp., Microsoft Corp. and others.
The new service would position Sony to compete with the growing number of Internet-connected devices and services that deliver video to the TV, including AppleTV, Vudu and Microsoft's Xbox 360 console.
Its biggest competitor would be Microsoft's Xbox Live service, which boasts 10 million subscribers who can sample online more than 4,800 hours of video, a quarter of them in high-definition. That includes 350 movies and more than 5,000 episodes of TV shows such as "Desperate Housewives" and "Lost," most of which go on sale on Xbox Live the day after their initial broadcast airing. Unlike closed networks such as Apple's, Sony plans to embrace open standards that would make its offering compatible with a range of computers and hand-held devices, including its PlayStation Portable.
Patrick Seybold, a spokesman for the PlayStation unit, declined to comment.
However, a PlayStation marketing chief acknowledged the initiative and promised more details soon in a post Tuesday on the Inside PlayStation Network blog.
"Many of you have been hearing rumblings about a video service that will allow you to download full-length TV shows and movies via PlayStation Network for North America," wrote Peter Dille, senior vice president of marketing for Sony Computer Entertainment America Inc. "While I don't have any new announcements . . . it's already been confirmed that we'll be offering a video service for PS3 in a way that separates the service from others you've seen or used."
One of the service's greatest obstacles may be Sony's own culture. Sony Chairman and Chief Executive Howard Stringer has been battling a corporate silo mentality in which divisions within his company work in isolation, undermining new initiatives. The PlayStation group in Foster City, Calif., has been notoriously aloof. Once, a former executive said, it scuttled plans for a movie subscription service for the PlayStation Portable even though Sony Pictures had supported the initiative.
What is more, the company, looking to safeguard its film, television and music holdings, has been an aggressive champion of copyright protection, often, critics suggest, at the cost of technological innovation.
"Sony has this blessing and curse of [having] some of the world's smartest intellectual property lawyers, who've never built or marketed a product in their life, who are good at saying, 'no,' " said Richard Doherty, senior analyst at consultancy Envisioneering Group in Seaford, N.Y. "The sun never sets on the Sony lawyers, they're around the world, in Tokyo, London, New York."
Sony insiders say attitudes are evolving under Tim Schaaff, a former Apple executive who is spearheading the company's latest plunge into online video. Schaaff joined Sony in December 2005 in the newly created position of senior vice president of software development and is helping the company, whose heritage dates to the transistor radio, appreciate the importance of deft software design in the digital era.
Online movie sales are still a tiny business and will remain small over the next year as DVDs continue to be the dominant home video format, according to Convergence Consulting Group. U.S. consumers spent $95 million for movies online last year, compared with $23.4 billion to rent and buy DVDs.
Nonetheless, market researcher Parks Associates projects that Internet video will grow more lucrative, reaping about $6.4 billion in revenue by 2010 from advertising, as well as paid downloads or rentals.
In the market, however, Microsoft has a head start.
"It isn't easy to do this," said Ross Honey, senior director of Microsoft's media and entertainment group.
"There is a lot of work to be done in just making this work and getting that movie up in high quality. We've had over a year's experience on how to do this, so we can focus on innovating as opposed to working out the kinks."