SONY
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We keep biting off a lot in these episodes.

I mean, you're telling the history of modern japan.

We need to do I like two year old company. We need another fx soon.

We're like literally enough days haven't passed for us to make the .

episode long. yeah.

Easy, you see you, you see me down, say state welcome to sees and episode three of acquired .

the podcast great technology companies and the stories and playbooks behind them. I'm then gilbert and I am the cofounder and managing director of seattle based pioneer square labs and our venture fund, psl ventures.

And i'm David drusen doll, and I am an angle investor based in separate sco.

And we are your hosts listeners today we are telling the story of the company that Steve jobs iodized and modeled apple computer after the tony CoOperation .

erly model himself after, know the story right to the black turtle nex .

and the SONY connection .

enlightment. Well, so the story goes that Steve, I dice SONY whenever to visit and saw that there was a beautiful m that SONY employees had. And he was like, that's a great idea.

I want apple to have a uniform. Where did you get that you do for you? Like made a proposal to apple and before, like N, F, W.

And didn't the SONY employees have uniforms? Because, like, clothing was scarce after world war two. Yeah.

I think that was part of the Steve decided, okay, if apple can't have a uniform, i'm gonna have a uniform. And so he went to essay maci, the famous japanese designer who had made the SONY uniform, and got him to make a hundred black .

turtle next. amazing. There's so much about our generation that we remember from SONY growing up, the trinitron tvs, disk minds with advanced C, D, skip protection, thirty seconds worth you. Even more recently, the excEllent professional line of cameras that SONY makes. And actually, David, I are both recording on right .

now as well as so many headphones right now, right?

That's right now. But SONY goes so much deeper than that and also so much more broad than that today, expanding ing into A A very special type of conglomerate. David, did you know that they own a division that exclusively makes a tiny dog robot?

I did know that. Do they still make that thing? Yeah, they do. You might say it's the tesla bott of old, the precursor.

You might say that, yes, they are the second largest japanese companies market cap, behind only toyota. There are the largest video game console company and the largest video game publisher in the world. They're the largest music publisher and the second largest record label, which for those of you who listen to the tea swift episode, you now know the difference.

And they have the third largest hollywood film studio on top of all of that. So we have a wild story going all the way from world war two to spider man to tell you here today. Okay, listeners, now is a great time to tell you about long time friend of the show service now.

Yes, as you know, service now is the A I platform for business transformation, and they have some new news to share. Service now is introducing A I agents. So only the service now. Platform puts A I agents to work across every corner of .

your business yeah. And as you know from listening to us all year, service now is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this.

So what are A I agents? A I agents can think, learn, solve problems and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control with service.

Now, AI agents proactively solve chAllenges from I, T, H, R, customer service software development. You name IT. These agents collaborate, they learn from each other, and they continuously improve handling the busy work across your business so that your teams can actually focus on what truly matters ultimately.

service. Now, an agenda I is the way to deploy A I across every corner of your enterprise. They boost productivity for employees and rich customer experiences and make work Better for everyone.

Yep, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service now document slash A I dash agents. We also want to tell you if you are knew around here in these acquired parts, which many of you are after, H A nice little grow spirt. Thanks, Taylor.

You should make an official and join the eleven thousand other smart folks at acquire data. M slash. Slack will be discussing this episode, the black buster acquisition used the day, uh, and you can meet other awesome people in there.

You also can get access to our second show, the acquired L P show, by searching acquired L P show in the podcast player of your choice. Well, David, without further, I do take us and and listeners please know this is not investment advice. Do your own research day. And I mayor may not have investments in any other things that we discuss. And this is for informational entertainment purposes.

Good to discuss. Just felt like every industry date. H right? Well, first we start back in the summer of nineteen forty four in the suki shima neighbor od of tokyo in japan, right next to tokyo bay. I think this is right near where the fish market is, if you can. There I have.

I have never been .

in japan way. You quired track .

Jenny nine .

with their honeymoon. IT was so, so awesome. Yoo IT, tokyo.

onerous. Oh, nice.

So there in the summer of one thousand and forty four, obviously most people are uh, realizing right now there's quite a big world by thing happening in the summer of one thousand and forty four that japan is intimately involved in, that would be world war two.

There two engineers are assigned to a military task force to create a heat seeking missile, which is one of the desperate things that japan is trying to do at this point to turn the tide of the war against the allies, which they are losing at that moment. Now, both of these two engineers are involved in the war effort pretty reluctantly, not only because they're not, you know, these are not like military nationalist people. I think both of them probably believed that the world was a terrible thing for everybody, and IT certainly was. But they also, particularly not into the war, because they're pretty certain that when the perl harbor happened in japan, decided to pick a fight with america, that that was a really, really, really bad idea because they are technologies and they know that amErica has the best technology in the world at this point time.

Yeah, listeners David night both read a couple books to prefer this, but one of them is the excEllent made in japan could written by aeo merita himself, who are about to introduce here. And he talks about this a lot where he's really ideal lizer the technology and the innovation coming out of the U. S.

And sort of knows from reading everything that he possibly can get his hands on. And I know this is a very U. S.

Centric view and a very U. S. Centric thing for me to be proud of for a lack of a Better term. But IT really is like, oh, we should not get in a fight with people that are that good and that far ahead in their technology revolution.

I went and I looked up population statistics from the world war two era. And japan had about seventy million. Thousands before what we're two.

The U. S. Only had about one hundred and thirty million. So like, yes, amErica was bigger, but not like way bigger. IT wasn't like, oh, we should not pick a fight with amErica because they just have so many more people. I mean, they pick the fight with china who has a lot more people.

But no, I was specifically that the technology was just so much further advanced in amErica than any anywhere else in the world, especially japan at the time. Yeah, so you referenced oko era. He is one of the two engineers, but he is the junior engineer working on this project.

The senior engineer, a man whose thirteen years older than him as a man named masu ebook a. And he is a prototypical engineers engineer like this guy all love technology. I can't member if IT was marto or somebody else in one of the books I was reading lovingly, ly referred to him as a dreamer.

yeah. So right that marina. Well, he does have a physics background, and he's definitely a engineer. IT is right to say that a book, a is the engineers, engineer and oo has much more of a sort of marketing sensibility. And well, he invents a lot of these technologies and sort of understands that he's the business side.

You might say that a buca is like the wars, and I M readers like the jobs as .

a great comparison. yes.

So might A A loves technology, particularly. He is fascinated at this points time by radio and all of the applications of radio. This was like one of, if not, the major technological paradigm of the twenty thirties, forties.

And due to his proficiency in radio, when the war started, the military in the japanese government made short way of radios illegal in japan. Now this is also paradoxically learned. Did you know that um short wave radios are actually long distance transmission?

I did when I was a kid at my dad, and I used to try and pick up short wave coming over the ocean. And you can only do that, I think, at night, because there was less electro magnetic interference from the sun or something like that. Yeah, but isn't the spirit here of doing this so that consumers can listen in on I didn't know if I was the allies signals or the japanese is military plan exactly?

I think a lot of governments did this during what were two, but certainly the japan ane's government, they didn't want their citizens listening to propaganda from dallies or other countries, which course the americans and others we're broadcasting. H in the world.

if you're going to stay in.

propaganda has to be r propaganda. a. They literally made IT illegal to sell by any shark wave capable radios that consumer had. They had to take out components that received short waves.

I think a lot of IT was the government officials who are coming around to modify the radio. We're just clipping wires like some of IT was modifying components, moving about other ones. They go going to be like.

I yeah there is a book. Go though, just like I, sir, whatever you can clip as many my wire as you are, i'm just going to keep making my own short wave radio. So he knows to that he can listen to transmissions from the allies. Now those, he knows that despite what the government is saying in one thousand and forty four, the world is not going welfare to pay in.

When we say radios, I think the picture listener's is like reasonably large, high power, not portable radios that use vacuum tubes isn't appliance to have a radio at this point in history.

So OK, so that's a good come. The other engineer, of course, is ohio oria. It's pretty amazing that he finds himself here in this place in this moment, because he is the eldest son of the fifteen th generation of the mora family of nagoya.

Which is the family that controls one of the largest sackey emps in japan. And literally for four hundred years, his family has been running this business and is one of the most prominent families in japan in the province going like it's not just that they run this business. They like kind of run like the area.

I mean, there are old companies and then there are japanese old companies. Yes, I don't think there is a family business in the us. That is as old as this company, either in terms of generation or years.

The U. S. Is in four hundred years old.

Yes, exactly. And have in part of IT is like, you know, there are umbrella shops in london older than our country. But yes, the japanese and particular japanese sort of family businesses, think on a ten x timely to the way that we sort of think about U.

S. And the way works is that the oldest of each generation, they literally have to change their name to on when they take over the business, and then theyve become like the head of the family and the head of the business. And so I O is he's destined like though he's born into this, that he's going na take over the socket business.

And of course, it's always a little bit of a point of tension with the family where okie is taking apart radio and like building stuff and everyone sort of looking at him like, but you share our interested in physics for someone who is one hundred percent going to take over our socky and soy paste business at some point.

yep. But at age six, he starts going to business meetings with his father. And then at age ten, he starts attending all board meetings of the business.

So he gets on real business education alongside his interest in engineering and electronics. And tinker, but unlike his father, you know, is grown up in twenty and thirties. They are wealthy.

Family are getting all this american technology into the house. They're getting american radio for america. The big moment was when they got in american photograph and records. And he, just like, fell in love with listening to the music and understanding how this worked.

And so when IT comes time, when he reaches high school age, this is before the world, he asks his father to sort of ceremoniously release him from his duty. IT is doesn't need to take over the business, which his father does, and by only councils, very like understanding about this, shockingly so. And maria goes off to study physics and engineering instead of going right into the family business.

So there is no way, I think, he or anybody else could have foreseen this. But I have to imagine that like that very likely saved his life. Yeah, because when perl harper happens in one thousand forty one, oko is twenty years old. So that if he hadn't gone into engineering and studied physics, what what he is able to do is he is able to join the navy as an engineering research cher and get assigned to work on technology weapons, research projects like he ultimately does from the land, from the lab. If he hadn't done that, he probably would have gotten stuck on a boat and very, very high chance that he would have been killed.

I think they even say, either in the SONY book by john Nathan, or in archivarius book, that his Younger brothers were actively sort of training to become a azi pilots like that. We've been his future.

Yes, there is still quite a high Price, though, that maria has to pay for landing in this relatively plum safe assignment. He has to sign up for a lifetime employment with the navy as an engineering researcher in order to do this. But a he feels like he has no choice. And b, he loves engineering and business research. So.

yes, okay, yeah.

So what I want to do now we fast forward to August fifteen th. Thousand and forty five, the U. S.

In the week prior, has just dropped two atomic bombs on hashmi and magazine. The reaction that maria has, he writes this. This is a little of the opening paragraphs, the book to mate in japan.

But I was having lunch with my David colleagues when the incredible news of the atomic bombing of horsham a arrived. The information was sketchy. We were not even told what kind of bomb had been dropped.

But as a technical officer just out of college with a degree in physics, I understood what the bomb was and what he meant to japan. To me, the future had never been more uncertain. IT never lost a war, and only a Young man could be optimistic. Yet I had confidence in myself, in my future, even then.

Wow, wow. There is also this fascinating thing where he sort of knows a secret the next day after the bomb has been dropped, when he hears about, and here's first party account of IT, he knows exactly what IT is. And I think if I remembering right, he thought the U.

S. Was working on an atomic bomb, but was sort of like years behind where they were. And once he hears this report, he sort of knows a thing that the rest of the japanese public doesn't. And so he sort of get to decide, okay, ay, how am I going to spend my next few days knowing what I know, even though the government isn't sharing IT widely yet?

Yeah, and there's a whole story that I didn't put in the no tear, but is in the book. Everybody should go read the book. It's it's really.

really great. It's the shoe dog of the eighties. Truly.

IT is in many ways, but he goes home to his family at that point in time and he's worried that the military is going to order all officers to, uh, commit suicide rather than surrender .

in a part of the surrender.

Yeah, yeah. And so he tells all his colleagues, when he goes home, he like, look what this means, this bomb. Like, don't don't do that. Like it's over. It's.

oh and he says, depending on what the orders are, I may not come back and rejoin you. Yeah, you can see what a cowboy he is already. I mean, the classic imperial japanese response there would be as my duty to come back and perform whatever rural we are, all performing as ordered by the emperor together. And what he's doing is looking around and saying, guys, I don't think there's a regime here anymore like I think it's everybody figured that out and go care for your families and you know the allies are gona be here soon and let's hope they're an evil ent us. yeah.

So that August fifteen, that that's not when the bombs are dropped. What happens on August fifteen? That is when the ampera goes on the radio in japan and announced that japan is surrendering and less, you know, everybody to surrender.

And this is amazing, the emperor going on the radio. The vast, vast, vast majority of japanese, throughout all of history had never heard the emperors voice. So the aftermath is awful.

There, two and a half to three million people dead in the war, both solter and civilians. By contrast, less than five hundred thousand americans died in the war. So it's prety bad.

And outside of just heroes, a and nazi, which you just so awful, I mean, the darkest mobile ne human history would happen there, or among the darkest anyways, even in tokyo and all these other cities they are destroyed. I mean, they ve got fire bombed over and over and over again. I think it's something like half of all japanese urban citizens, even in tokyo.

are homeless. Yes, forty seven percent of tokyo citizen are homeless at this point. The per capital income in the country the next year, in one thousand nine hundred and forty six, the first year after the war, is seventeen dollars.

You can inflation adjust all you want. You are not going to make .

that a meaningful number. It's unreal. And the country is transforming. The japan is banned from having a military ever again. There's occupation forces that are running the government.

The imperial dynamic is at a minimum, not what I was before. So maria goes back home in agua a boga goes right back to tokyo. The research project had been evacuated out of tokyo before the end of the war, as the bombing's really started in tokyo.

S but he goes right back to tokyo. Omid stall, this. And what does he do? He founded a company. He's like anio. I think part of his visit, mario a, would contribute to this too.

But I think a book, I really saw a huge opportunity after the war in that all this technology that had been focused on military and industrial use, but primarily military use, know around the world in in japan, japan doesn't have a military anymore. Like you can't focus technology development on the military. The only thing you can do with technology, the only market you can serve is the consumer market.

This is the moment where we realized that evoke is truly an irrational optimist. The national tender couldn't be more bleak. And yet abukar is like, let's start a company.

Yeah, let's start a here in this completely wet n bombed out old building. sure. Let's do IT. And let's serve a market of people that have no disposed income.

Half of them do you have homes?

unbelievable.

So he creates a founding perspective for the company, which starts out that the purpose is to quote, establish a stable workplace where engineers could work to their hearts content in full consciousness of their joy in technology. And their social application is much, what is he going to name? The company here, of course, comes up with brilliant names. So, you know, he named IT, the tokyo o telemundo ation research institute. The fitting of his goals.

yes. Sounds like something founded by a former military academic.

yes. So he's founded this company. He's assembled a few engineers. He wanted to be having to work on their joy and technology. And social obligation is just one question, which is what products so they get to make.

which is not a part of the founding perspectives. That's the best, is like we don't have an idea, nothing. A lot of engineers.

We just want to like have a place where engineers can be engineers, yes. So the first thing they try is a rice cooker and electric rice cooker. They can get IT to work.

The next thing they try is uh electric kitting blanket that also doesn't work for various reasons. And then finally, they get the brilliant ideas obvious. They've been listened to our episode here. We've been looting to IT all the long that they should just fix the damn radios that everybody has in japan.

It's like sure that maybe a service as business, but if you can just open up for business and let people bring in their radios and you can modify to make a unclip, at the very least for the easy low hing fruit that seems like a business people want.

not only news that people are desperate for this moment in time, but they also want entertainment, you know, bad things that people want something to. You remind them of a Better time and and a Better future. So they start doing this. And things go well, go well enough. They actually get little right up in a national newspaper at the time about the service that they're offering and how high quality their work is.

I double down on service there. I think eventually, they do come out with products to that people can sort of like modify their radios by attaching this product and IT turns into a short wave, uh, and ten or something like that. Yes.

who reads this article? But argument a who's back home in nagoya? He reads IT is like a buker. He's created a company, is created this habit for inez. I would kill the work with him again.

So he writes a book and says he wants to come to tokyo and quote, b of service to him in the company. What does? What does he say? B of service well, one who sort of figure that you know money was take them and the the new company might not have enough money to employ.

But the bigger problem was it's pretty unclear what the status of uh, meters of obligations are at this point in time. Remember, he signed a lifetime employment agreement with the imperial navy, which may or may not exist anymore. Probably not.

It's unclear not to mention. So there are like twenty engineers at the company already, even though they really can't make much money doing much of anything. So the companies like kind of established.

So even though ou s like, hey, remember when I was sort of you and I working on the thing together, i'm ready between the lines little bit, but I think he's a little bit like searching for signal on this a book. Want me like you assemble the team of twenty and revenue bond that we had? Yeah so IT sort of never comes up again there. Thick as theeves, you know, forever after this. But is sort of interesting to me that okamura was not one of the first fifteen, twenty people at the company.

Yeah, you're right. Nobody really like knows why the speculation in some of the books and things I read, or just that a booker a really is just kind of a dreamer. And like you, despite not a thought about maria. But once marita write him, he's like, go, yes, I definitely want you here.

Yep, the company, by the way, if you go to sonny's website, they have meticulously maintained corporate archives. And if you go and request them, they will like, I don't know if there is anyone who is just journalism, sir, whoever special gas, but like, they have this stuff preserved and can sort of like bring IT out to you with clubs on and let you read the founding perspectives. They've maintained the stuff firm.

you know, so many plus years. Yeah, we could do that someday. Yeah O, K, so what is ready to do? He fenced an assignment in the military, quote, quote, to get a teaching assignment at the university in tokyo, still sort of through his original contract employment agreement. But he knows what's about happen, which is that occupation government is about to decree that everybody who was previously in the military needs to be urged out of government, but also out of education.

which is totally fascinating. right? This idea were a few the occupation government that helping the country heal. You know, here they are to make sure that that doesn't break into war again. And that, you know, after you drop atomic bombs on this country, that you sort of like helping them rebuild, you sort of make this decision, which is fascinating, that, hey, we don't want soldiers educating the next generation. We want the next generation to grow in a completely detached, away from the mindset of those who waged war.

It's just so hard to imagine, like, what life was like through those events.

We have been very fortunate in the place or and time that we have grown up.

for sure. totally. So anyway, IT works, the strategy works from reader. He gets perdon quote quote uh from his davin is a uh free agent again or sort of A I just have Taylor swift t on my mind and her story because of our reason episode. But literally what happens next is like a big machine moment marana ba, they want to join up. He wants to go work at the company. But now that he has been released from his lifetime contract with the navy, it's unclear if he actually needs to go back to the family business or not, like he had been released from the family business to go to the navy, but now he feels like he needs to go back to his father and get his father's permission once again to leave the family. They also need some money, some capital in this, a new company that they are sort of restarting together.

You can tell that this is very important to a booker because a booker goes to the family dinner with oo yes.

so they broke in on the train, they go to the go, they go have fairly dinner. They ask for accuse fathers blessing for him to become partners with a buca in this new venture. They get the blessing and one hundred and ninety thousand yen investment in the new start up company. And over the next couple years, the mary a family would put a little more money in over time and eventually own seventeen percent of the company. I don't have the exactly here, but even by like the you know, early two thousands, the number of family still, I believe, owned about ten percent of SONY.

Yes, as of one thousand nine hundred ninety nine, the family controls a ten percent share, which at the time was worth roughly five billion dollars.

Question is what's worth more? The mora saki empire or the ten percent stake in SONY.

the ten percent stake in SONY?

But depends what years you talk in about here.

That's true. That's a very good point. Ah SONY had some dark years in the future.

okay. So they're now in business together, poised for the races but still not doing this radio repair and add on and modifying business. You know that's great, but that's not like um it's a service business.

It's a ad on business at best. So they're look in the real product to make in one thousand nine forty nine, shortly after this, a buca gets a chance to see an american taper quarter machine, and he's enraptured by this. This is new technology by the leading manufacturer.

I don't know if they actually manufactured this machine that a book I got to see is the company epix in the U. S. They make the machines and the way the industry structure works, as they obviously have a group business, but they not make the tape. Three m is the leading manufacturer of tape for tape recorders.

which is the many soda mining and manufacturing corporation.

Yes, both of these companies are making huge amounts profit on this new technology. So a booker comes back like aco, what i've seen the future, we got to make this. And marina understands a little bit about these business and and make like, yes, we should do this. We should make these tape quarters for japan and we should also make the tape yeah .

for doing that, we Better be doing both. The other thing to say is when you're picturing this, so again, i'm going to keep resetting us because everything is gotten so minished and componentized over the years when we say tape recorded picture something about the size of like a small table. And this is not a cutt tape record.

This is real to real. And IT is again, a ha half ty piece of machinery, primarily for recording, also for playback. But a huge piece of value is the recording company.

ent. Yep.

and it's all audio at this point. Dio.

you so through some of the family connections, both from amErica and a book, his father and law had been a minister in the government before the war. They start making these taper courters, and there are all sorts of stories about how they do up because, like, metals are hard to come by to pay in, and plastics are hard to come by entire. And at this point time, just after the war, the legend has that literally the first tape that they were making, they were like frying medals in a frying pan and factory.

And that was to make the, like magnetic coding that would go over them that you would then actually record on. I think they were trying to use what was the material, like a serene rap tight material for the tape, because I was hard to come by plastic. And so IT obviously would like stretch out. And so the audio would get all distorted and sound terrible on the second playback.

Once they get the product right, they're able to get first into the court system in jp, they sort of to start replacing dino graphs, which were in short labor supply after the war. At this point time, the companies known as the tokyo tele communication engineering corporation, T T, E C, with their difficult ters. So pretty sizeable business in the japanese market making these.

And again, this starts so counter to the lean start up methodology. There is no jo B2Be don e whe n the y sta rt thi s. They kind of get lucky in finding their way to the turnover pers and the court reporters as a market they initially to go out to sell the thing.

And people are like, wow, why would I pay so much money for that thing? No one has any money. And it's like A A little bit of an accident of history. They actually found a .

use case for IT totally. yeah. I believe the first product cost one hundred and sixty thousand and per record basically got to be selling to the government at that point time, right?

I don't know. I think about that in terms of the dollars than dollars now, but it's thousands and thousands of dollars.

Well, the marina family's the initial investment in tony was one hundred and ninety thousand yen, and now they're selling their first product for one hundred .

and sixty thousand yen. okay. So that at least gives you some context.

Yeah okay. This goes long for a couple years. They're building up the company.

And then the big, big brick in one thousand nine hundred and fifty two, a buca hears that the world famous, pronounced institution that everybody respects is especially nobody more then eba, ema in japan, bell labs, that the then parent company of bell ABS, which is company called west electric. I went through a whole bunch eh owners. There's all related to A T N T.

In the various entities. As part of that, the day were going to open up the transistor for international licensing. Of course, they had created the transition. And bell lives. They are gone to license the technology internationally.

And we talked with the N Z S. Guys about this. But you know, the invention of transistors and semi conduct like this stuff is so divergent, I mean, especially once we get to the integrated circuit, it's so wildly different.

Then the path that technology was already on that IT was kind of unlikely that like anybody else toiling in a lab was gonna dependently find their way to IT. At the same time. So once this thing gets invented and all these brand new use cases sort of emerge, the opportunity to license that technology and use IT to commercially make products in your country, that's huge.

Keep in mind of what we are saying for the last few minutes here about the size of these various to technology concrete products that we're being used to do, the radios that we're the size of council tables and taper quarters, the size of nights ands.

So the transistor is available for license and break is like, this is IT you just like when he saw the tape record, just like when he got obsess with radios? Before you like this, we got to do this. And read is like, okay, so reit goes off to new york.

This is, I believe, in one thousand fifty three, and negotiates a deal, ends up taking about a year to finalize this, but negotiates a license from western and electric bell labs to use the transistor. And bell lab is like, well, what you going to do with that? And a book really like, we're gonna many ata radios with the transistor and they're like guys, you kid, do they have like really like this stuff still done with germania. At this point, you can get enough power in this to really power a radio that would actually work like we think the market application that makes sense here is hearing is oh yeah .

hearing aides that's right. And if you can and reader like, uh, well, no, the hearing aid market in japan will not be available on for us, in fact, that there's a cultural issue where it's perceived as like weakness to be hard of hearing.

They knew for a lot reasons that there was no chance that they could build a big company, A A big product making hearing kids.

So they're sort of like betting the farm here. And we are going to be able to figure out how to dope these transistors or, you know, use a different material or something in order to make IT viable to create a radio.

There are nothing, if not confident. And so bell is like, well, good, like us. IT takes two years, but two years later, in August of one thousand nine hundred and fifty five, T, T, E C releases their first transit radio product, the T, R.

Fifty five portable radio. Now, this was actually not the first transition radio in the world. A american company called regency had worked with T.

I. To me, a transition radio in the U. S. O like the loves. T, I like the rivalry.

So T, I, and regency had actually come out with a portable transistor radio slightly earlier in the U. S. For whatever reason, they didn't invest a lot in the product.

And I never like, became a big thing SONY. The soon to be Sunny is all in on this idea, like if we can shrink this down, people can take IT with them. I can be portable.

Speak great. So leading up to the release, they know, felix, this is going to be a big consumer product. Tokyo otel communications engineering corp.

Doesn't really dislike roll off the tongue anywhere and especially not in english or you know other markets around the world. world. Ultimately, we want to be selling products all around the world.

So like we need a new name. They literally start going through the dictionary looking for new names, and eventually they come across the latin word sonus. And I like, well, that's interesting. That sounds .

interesting. That means sound.

That sounds cool. Yeah, what do we do? We make technology focused on sound. I mean, we could do something with that. And at the same time, this is like such a funny cultural cork. I think that this is because, like after the occupation, after the war, you know, there are lots of american. G yeah.

was a Sunny boy, was being used a lot. And IT could sort of hear a lot of Young people that out in the streets, neighborhoods, ying, Sunny boy, and he sort of wanted something that would represent a product for Young people. And so the idea of naming at something that kind of sounds like Sunny is Sunny boy was out of appeal. And so I wanted to merge this powerful sonus with Sunny boy.

It's such a great name. And the other thing they do is that I think from the beginning, it's stylized as all capital letters.

There's one logo before that they very quickly dump, but there's then four, five iterations. IT looks very much like when you know you should change your logo to update IT, but you also think it's pretty much perfect, like that is exactly what the SONY logo evolution over time represents.

I love IT. It's so good, such a brilliant that I get works in every language, every culture around the world. And IT really becomes cynon yma with innovation for decades.

So they release the T. R. Fifty five. IT goes well, but it's the first generation product that cells well in japan. They keep working on that. They keeping finding that. They keep wanting to get a smaller buca has this vision of he wants truly pocketable radio or radio that you can fit in your shirt pocket and take with you, walk around, have with you all the time. Very, very personal device.

by the way, we should say i'm pretty sure they don't have had phones at this point. The was getting smaller but sold radio with speakers.

Yes, exactly. I think a lot of people do this. Just walk around with like their phones playing music on speaker.

Oh yes, people do do that.

This is where IT starts.

especially on hikes in the woods.

So two years later, they come out with the next version of the product, the T. R. Sixty three. And and this thing is a monster. So I do. Yes, this vision of fitting in the short pocket is just slightly larger than a standard like man's poked. So he married, I really want this to be the narrative. So they outfit their sales for as they have the SONY sales force that sells the products, the distributors of the retailers, they get special custom shirts made for all them with a slightly larger, the start pockets that they can demonstrate. Putting the radio in the pocket is amazing.

Again, the Steve jobs perl, like the show manship of that. It's like the macbook care in the envelope totally.

So consumers go nuts for this first in japan, where they launch at first. Ultimately, the T, R, sixty three ends up selling one point five million units, twenty five dollars each, which is I don't actually don't have any financial data, unlike the scale of the certainly not the radio repair business, but the tape order business, but the face to save that this is oris of magnitude larger than the take orter business.

right? They've got a real CoOperation on their hands.

Now the company grows to twelve hundred employees. The newly named Sunny corporation, and of course, like the big thing that they wanted, do for many reasons, not the least of which that amErica is the largest consumer market in the world. At this point, they want to bring the product to america.

So amErica comes back over to the U. S. And starts talking with distributor is about, hey, we've got this amazing transit or radio like we know consumers love IT were pretty sure americans we're going to love IT to and he a connects with the belova watch company, which I had heard of, that the brand still exists today.

Ironically, the belova watch brand is owned, I believe, by citizen, what is, which I believe is a japanese company. But at the time, I was an american watch brand, and they are like, yeah, this is pretty great. We want a place in order for a hundred thousand units that were done, bring over to amErica and self to our channels. I am that's like .

huge read is like, am I sorry? What how how many we are? Uh how on earth are we going to make that money?

Yeah that is a huge, huge order. And believe is like, well, yes, we want that many, but they just the thing is like, naturally, we're going to be this big business partner for we we wanted to be the belova two sixty thirty who want to put our brand name on them. And I think maria would later say that this was the single, like, biggest and best business decision of his career. He turns them down and says, nope, you can sell the SONY t are sixty three, or you can sell nothing.

IT is really brilliant. I mean, IT is a mark of what was to come, and also something that truly define the company, because company culture and company values don't mean anything until they tested. And when I do, he used the phrase direct consumer, but when they sort of decided they wanted to be a direct consumer company, that's cute all until someone offers you a big piles of money to be a White label O E M product. But I think when you really tested and when IT comes out as when he says, nope, we refuse this order, i'm going to keep making apple parallels. By the way, as much as we like to hold up Steve jobs, he did come out with the .

hp ipod or that, right? Oh my god, I forgot about that.

There was that like itunes phone that was actually a motor, a phone that was a piece rocker. Yeah, the motor rocker. That's right.

But the H P. Ipod truly was just an ipod with an H P. O.

On the back. Did have any special colors or anything. I remember I had the youtube ipod that was black and red. That was awesome.

That was cool. I had to yeah, because that was, I think I was predated product red, but was to become product red.

Yep, I got right. So ultimately, what that leads to is a couple years later, maria and tony decide we need to establish our own corporation in amErica so that we don't have to work with distributors. We can just directly have a SONY Operation in america.

So they start this SONY corporation of amErica in one thousand and sixty m, actually moves to new york city. Originally, the intent was seeing his family were going to be there for two years and set up Sunny corporation of america. IT ultimately ends up being think about one year because his father passes away. He has to go back to, ultimately, his Younger brother would take over the family in the business.

IT is interesting how I think his U. S. License plate, when he moved here was A K, M, which is the sort of hint that he did always think about himself as the ku is on of the family.

He was A K M .

fifteen genera .

ation.

This also, by the way, the move to the U. S. Is a thing that sets him apart versus his peers.

Other japanese cee s were not really willing to move to the U. S. And he was a very unjaded ese thing to do, to say I want to do business in the us. So about that I will move my family ah I can become a part of this culture to do that that this wasn't done.

But IT really sets up the business relations between SONY and U. S. corporations. and.

Overall, like the business environment in japan and america, I don't think there was any other company maybe has never been any other company except off blank that like bridges the two, like there are american executives in SONY. At one point, one of them becomes the C. E. O of sone. How is going? I don't think that happens in any other japanese corporations.

Both the american japanese bridge and the sort of pure focus on the japanese economy. If you think about what SONY did for japan as a ation, were unprecedented. I think the most telling quote of all is when oculus passes away many, many years later, in nineteen ninety nine.

I believe somewhere around there, the prime minister of japan referred to him as the engine that pulled the japanese economy. That is an astonishing quote. I mean, can you imagine a sitting U.

S. President referring to A U. S. Space founder, C. E, O, as the engine that pulled the U. S. Economy is just you can't make that pic of an impact.

You would even say that .

about Steve jobs. No, the state that japan was in when they started SONY, and how massive and impressive and successful they grew IT to over the course of accused whole life. The quote is not hyperbolic.

No, no, not at all. One thing I just realized, I should correct myself, how IT stringer IT was not an american is not an american. Of course, welsh is british, not japanese, non japanese. But yes, like you can say that about anybody. Like you can say that body on is .

the engine that pulled the motion economy.

exactly. okay. So it's fast for D A little bit. So we got this stony corporation of amErica set up, fast forward to one thousand nine hundred and sixty six. This, I I thought this was gonna be just like a total side note in the history, but actually become super interesting and important.

So, you know, sonny, what's IT all about IT? This, its audio, it's music, you know its first horse radio like that's music and sound that was literally so that's japan has become a huge music market at this point time. And you know as we talked about on the tea weft episodes, is lots of aspects to the music market.

There's obviously the devices and the consumption that SONY is in this point with their radios, but there's also the recording industry. So before the war, C, B S had negotiated a merger with a record company in japan to create an organization called nippon columbia, which was using the columbia records sort of label in doing distribution for columbia records, artists and music in japan. And I know, do you know why he was called columbia?

Because the c in C, B S. Stands for columbia?

Yes, yes. Second sight to pull forward from later in the episode. Did you know that columbia pictures is not the same? columba? I did.

I looked this up because I wanted to bust this out for you and be like, did you know that SONY music and SONY pictures were reuniting the original colombia? And then as I was sticking into that, I was like a minute, these companies, columbia pictures and C, B, S, where the city stands from columbia, shows the word columbia completely independently. And not true, they did not stand from the same company.

They are really different. And yeah, so he ended up buying both of them in their future. Unable, able.

they didn't reunite the columbia as they united the me. yes. okay. So back to one thousand nine and sixty six, C, B, S, newly reintegrated in japan.

They're looking for a partner to set up A J, V to access the japanese recorded music market. Mara, here's about this, and here's that. A C, B, S, executive named harvey shine is over to handle this matter for C, P, S.

He meet with him and he says, I mean, we, I will do everything in my power to make this happen. We wanted do a fifty fifty J V between cbs and SONY will be super flexible on whatever terms you want. And we will make this happen as fast as humanly possible.

And shine is really okay. And they do mera trudeau s weird. Within a year, cbs SONY records is created to fifty, fifty jv between the two companies.

And IT goes pretty well. In fact, IT goes so well. Like blue, my mind, I had detect this in a bunch of different places to make sure that this is accurate.

But multiple sources of this C, B, S, SONY records, which is the japanese distribution ARM of C B S, is recorded. Music in japan become such a cash cow that within just a few years, IT is the most profitable division for both SONY and cbs. What IT is just a guise of cash.

This is because of the painted up demand for the japanese publi C2Buy ame rican rec orded rec ord.

I would assume part of IT is what you said then that there's just enormous demand of her music in for american music in japan. I think the other part of IT is there probably aren't really much costs associated with this business. Cbs records around the world is signing all these artists and producing the music, and this is just distributing IT in japan.

So it's all the stinker. Mental revenue. Anyway, this is blue, my mind. Now the other smart thing he does, which probably has a lot to do with cbs SONY record success, is marina put his Young protest in charge of running in japan, the Young protege with a strong musical background.

Do you know who that is? I have no idea. No.

noo yoga, who was A A A C O of SONY, so ogan. He was not a founder of sone, but a book of maria and OK, a really the trimble. A long time yoga was a classically trained musician. He was an upper singer and a conductor. Even after he was CEO chain of psili, he would still like conduct the tokyo philharmonic orchestra.

Oh my god.

That's why unreal. Uh, he was like a legitimate musician. And in the early days of SONY, when I I was still a student, they would bring him into the factory to help test the products and get the musicians input on the quality of the products.

LED to maria saying, like this guy is like incredibly talented of business and engineering and products. In addition to being a musician, we want to bring him into the company. And the first major role he gets is running C, B, S.

SONY records. And then turns IT into this guys of cash flow like literally the stories about this are ridiculous. They work because it's A J V.

They both have to agree to do distributions, but SONY and cbs to get the cash back to the parent companies. And they weren't always on the same page. So they had just tons of cash sitting at this subsidiary. They start buying up like crust grooves in california to buy land like anything to just park the money coming out at the subsidy.

okay. So they're going in the music .

in a big way right around this time to we're now in the late sixties, early seventies. Of course, television is becoming a huge televisions been around forever, but color television is starting to be a thing.

When we started doing this research, David, I had no appreciation for how much harder IT was to do color television, then black and White.

I just assumed that, like, oh, when color television came out, everybody started buying color T V. And black and White T V, you know, went the way of A V H S. We all get to.

And IT when D, V D came out? No, not the case. For many years, color tvs were on the market, but people kept buying black and White tvs because the color tvs, the picture quality was so crappy.

right? While getting too far into the details, because we will get away over our skies most of the time, the way that the color TV were happening was either by having three electron guns, and basically there was this miracle that had to happen where they all had to be aimed properly. And you had to have, you know, the three primary colors, and all of them had to show up in the right place on the screen at the same time.

And when you used to IT just has to be one White light electron gun, well, that a much easier thing to solve. The pictures is going to be crisp. Now, suddenly you're trying to line up this miracle.

It's gonna be really expensive. It's going to be really temper mental. It's going to be blurry in most cases.

So yeah, David, you're right. The invention of the color T, V happened. And most consumers, one on buying black and way.

yeah. So SONY goes to work for years trying to make a really, really great color TV like a color T V. That could live up to the SONY airman engineering culture. And the result of that is the SONY trinitron, which is their electron gun system for creating A A color picture on a screen.

which this was like a book, a thing. Yes, he sort of like parachutes t IT in and said, I know i'm effectively the city of all. So we ve got to these product lines.

It's kind of like Steve jobs and the mac. He's like, okay, i'm hand picking a bunch engineers. We're gonna start a brand new research project eventually we call the trinity on.

They put up the pate flag.

Yeah, we will figure out how to make a color T. V, that is mind blowing to consumers. And you know, something that people want to rush out and buy.

Now of course, the first run of those that that actually did make IT cost SONY way more to manufacturer than IT actually was Priced at at retail because their yields were so terrible. IT was like one that have a hundred or something actually work to specification, and so the company lost a lot of money on that. But I was totally like, okay, a books has jump ing back in and rolling up his sleeves and hyperon the team.

yes. So the of this one IT comes out. I actually don't have the full numbers, but for some ungodly amount of time, like decades from when the in tron, T, V comes out, SONY is the number one by market chair T, V manufacturer in the world. Well, later the episode will come back to how that kind of became at how to ask for them.

Yeah but I mean, I ever growing up in the nineties, IT was like .

there were SONY tvs and there was everything else exactly and I had no idea what .

traditions like a some random on brand the same way that bravia is today. IT was recently, it's like marketing.

but no, IT actually was the technology of the electron gas that they created. So the Turner train was a huge success and a book go was very much behind IT marina. And a book I get together and they're like, you know okay, we've now got this tohoku, uh, in video with with a display that we've created the best on the market.

We've got number one market. What if we sort of run the reverse playbook that we did with audio or go back to our you know our D N A is take courter business. What if we created a tape recording device that would work with our treatment on tvs and would allow consumers to record video? That would be pretty awesome.

I bet there be demand for that. So they work super hard, tony engineering teams to do for several years. And in eighteen seventy five, they introduce .

the greatest technology in its class by far.

to come out of this company in its illustrious, now almost three decades of existence, the beta max video recording technology. This is so great. The story behind this is not at all what I thought. So IT was really great technology. Now on a feature basis, you could only record Better hour on data x.

We might actually have some Young listeners that don't know that is so a quick anyone who grow up with A V C R, that's the thing that the beta x lost to yes.

V H S is that was the competing form that they lost to, which will get two minute. But beta max, yeah for many listeners listed like it's like the bud of a joke.

You don't want to be the next data max?

exactly. So they introduced to the one thousand nine seventy five and the killer feature that the market for this is the first product to market of a video, of a video cassette recorder that consumers can use to record, tell vision programs. So the market, the killer feature as time shifting.

It's kind of amazing that the first killer feature isn't you can take movies that you used to only be able to watch in theres and watch them at home. And that will be a distribution channel for movies. No, it's taste of your T V.

No, it's it's yeah literally you do the recording, not you buy a movie that's prerecorded.

So they run these great ads first big, successful and is they have a bell lugosi who uh with the famous actor who played dracula, uh his in character is dracula in the ad and he says in translating anian accent but I want to here but he says when you work nights as I do, you miss a lot of great TV programs and now with the soi beta max and try to, uh, it's so good as these commercial stuck go and well, they stuck in a bunch of sales IT, uh, especially in the U. S. Bt all around the world of Better max.

Consumers love this. They got a hit product. So they want to keep going with this marketing theme. They reach out to M, C. A universal, to do a similar ad would have been .

a washen running IT.

Well, yes, he was luu washen said at that point time. Universal, I forget which shows they were, but they had two of the top T. V shows that they they created the show.

They were studios behind the shows, but they were erring on different channels at the same time. And so SONY wanted to create an add that, like, hey, with the beat, max, you can watch both of these shows that you Normally have to pack. They start talking to see Cherry about this and sides.

Like you you said, as we talked about with Michael levs, they are smart cookies. And they were behind aggregating all the power in hollywood before of its came along. So they are like, huh, recording this time, shifting this beat max thing that's actually kind of a threat till like our right power to how you like this could be a new you know sort of aggregation point in the point of power in the ecosystem.

We're not going to play ball with that. We're going to go full on scorch earth. So who's trying to take our power? Hh, so they respond the the request to reaching out to do a commercial with them with like, hey guys, we think this is copyright infringement and we're going to hit you with a lawsuit because you're .

stealing our content for there will be A F I warning at the front of every .

video about buying movies from the video story that the studio are putting out. This is like you recording at home. And so this is the beginning of this propaganda campaign, at least in america, of, like, oh, recording content, dido is bad and you could get sued and you could lose all your money.

And like, you know, napster, everything else down there at all stems from this. wow. So november in in one thousand nine hundred seventy six, M.

C. A. Files a lawsuit against SONY for enabling popular infringement. They are not even actually .

doing in the instance, and they're just making the machine that enables anybody other own to allegedly.

And this is a major news story, harvey, and said, shine berg, they go on water, cronkite, to debate this issue of, like, you know, is IT OK for the lawsuit and is IT OK for consumers .

to time shift. Uh, the lawyers would never .

let this happen in public. Now, can you .

imagine if tim si and tim cook when on the national television show together, and just going to have IT out and figure out.

yeah, that would be amazing. So the irony of all this is that is great for data max sales. Data max sales go through the roof because it's a, it's free publicity and market education. N. B, at least american consumers are like, well, shoot, i'd Better buy this before IT goes off the market.

Oh, right. I mean that I went downloaded fortnight on all my I O S devices when I thought they were all gonna removed.

exactly. And so much does. He's pumped about this.

He actually orders harvey, the c of thirty america, to start the twenty million dollar advertising campaign immediately in the U. S. For ba.

Harvey declines a, uh, doesn't go there that that creates a big rift between them. Unfortunately though, this was ultimately also the death of bet max because I actually don't know what happened with the last suit. I imagine that was probably settled.

I mean, at the end of the day, I in the nineties grew up recording television on my V H S. I think I SONY V H S cott player video. V C R.

Of course. What's they made? Yeah well, how does this all happen? So other electronic manufacturer, even other electronic manufacturer in japan have been working on their own formats, and lin cited MC air.

So pissed SONY the other you soon to be arriving on the market, competing formats come to them and they're like, we will work with you guys. What do you want? Do you want to work together to build the, you know, movie at home industry? You will sell the H.

S. Tapes with theo, prerecorded star wars or whatever on there. great. So M, C, A starts working with the V H S format, which was made by .

ah oh oh, which .

of course, yes, panasonic N G V C there a few brands. But then remember .

from R C A .

who ends M A mezza. It's amazing .

that after building this relationship, that IT then got so adversarial. Yes, I didn't know this when we interviewed Michael through this relationship about developing the V H S format and then offering their content exclusively in V H S, that M C, A universal had a preexisting relationship of collaboration with metisse.

Yeah, a super deep relationship.

But surface to say, I mean, this was enough to kill data. Max.

yeah. Well, leu and M C A had such cloud in hollywood at that point time. I wonder if then essentially annointed V H S N meuser as the winners was enough to drag the whole industry.

okay. So SONY lost data max vers V H S. That seems very clear. That story is very well told at this point. Interestingly, the seventies had a lot going on for SONY, the first of which was in nineteen nineteen seventy, they became the first japanese company to be listed on the new ork stock exchange. And so americans actually could become shareholders of the ony CoOperation.

That's right, they did A A R. listing.

So stones now trade in tokyo, in the stock exchange there, on the new york's exchange in the U. S. Think, go so well with the beta max, but they've got a few other pretty awesome tricks up their sleeve.

Yeah, they've got essentially three bangers in the harper here. The first one is the compact desk. So I did not realize that work on what would become the C.

D. Actually started like back in the sixties, unbelievable. And the origin of this was that yoga who've talked about who would become C O of SONY he in one thousand nine hundred and sixty six.

And negotiated across licensing deal with phillips, the dutch company, where the companies could share their attack and share their patterns and then collaborate on new technologies together. And so they start working on a digital audio format. I believe I was there really seventies when they started working on this.

How crazy is that? We're telling the C. D story, the origin of the C. D format, before the walk.

before the walkman. I know crazy IT takes many years for this technology to get to a point where it's product tizer. I mean, it's crazier when you think about with all the tech that goes into CD.

totally. I mean, the first of which being precision lasers. And David, what else span out of phillips that involves .

precision laser?

Yeah so that it's funny thinking about all the incredible innovation that we have today with small semi ductor made possible by something that traces its roots back to the same sort of laser innovations. But late sixties research on a laser readable readable disk yeah .

and IT truly is phillipps and SONY working together to create the C D. Format and lasers, all the technology going into IT. It's not until one thousand nine hundred eighty that is ready to be produced.

So they announced the format in one thousand nine hundred eighty, the C D format. They sign up tons of partners in all industries all over the world to license IT. In one thousand and eighty two, SONY brings the first C D player to market. And then lots of other manufacturers follow suit. And the great thing is so in phillips to getting royalty ties on all the hardware and all the .

dean sold out there yeah and let me say when you say C D player, I think everyone's probably picture to me that looks like a desk man right now. Picture A V, C, R, like it's a big box that, yes, you put A C, D in a place. But IT is a sizable machine.

So in just a few short years, by one thousand and eighty six, cds become the dominant recording format by sales passing records.

Yeah, i'm actually looking right now at the R A data on this that I conveniently had from the Taylor swift episode. If you look at U. S.

Recorded music sales by format, the C. D. Grew really fast. And I think there might have been like a handful years and there in the middle dates where cassettes were bigger than records, but cds hadn't yet caught up yet. But the cassette ve was kind of reasonably sure the as the dominant platform between records and cds.

interesting. Well, of course, SONY also does pretty well in the concept industry with what you are referring to, the walkman. Um and doesn't nothing they getting realized that the walk man came out like pretty concurrently with the rise of cds. But as you're saying, it's not like you could take a big hug in dido home. C D player on the road.

No cars were not portable for a long time. Yeah so on the E A episode interview trip or kins r talk to about how famously madam was trips fly. And of course he was vindicated and proving very right, even though a cost lot of money and took a lot of time and being enormously powerful franchise.

That is the story with the walkman. This is very is falling. Yes, he single handily thought that, hey, we've got this cassette player, but really at a cassette recorder and IT doesn't have speakers. It's a little chunky, but people can can take you out in the world and record stuff and listen to IT on the speakers.

I think there's a market for people who want a sort of slimmer, sexier version of that where we throw away the recording capabilities, we get that right out and stop taking up space with IT, stop taking up space with the speaker and attach headphones. And all of the marketing people at SONY are like, no, no, there's there's no market for that. No one wants to walk around outside in their own little world listening to music in headphones.

And you can currently have the engineering, but we need lots of power to produce all the sound. And so it's not really technically viable because, you know, we need to produce all this audio so that IT sort IT goes out into the world and you have married or going, no, it's going to be low power because we're going to make these amazing low power headphones. We only need to press a little bit.

Sounds is going to be right next to people ears. This was a consumer behavior that did not exist in the world that oca just said, everybody, trust me, let's invest in this. And like, completely changed human history forever in the way that humans walk around out in the world.

Totally and amazing that IT was maria who did like this is the kind of stuff that a buca usually does. Yeah the sentiment on the board and in the company against marmara this point is the C. E. O of something was so strong that he had to make a promise that if the initial thirty thousand unit production run didn't sell by the end of the year, that he would resign from SONY.

Wow, I didn't realize that.

Yeah, yeah. He had to start of, like, literally lay his cards on the table.

IT is one of these things. The way married a phrases in the book is this quote that is Steve jobs before Steve jobs. And I think I want to make that point eleven times in this episode because it's not that Steve jobs is a rip off of a mora, is that he's so badly wanted to be accumulated and he was such a Better marketer in his time of a lot of the concepts that a lot of us grasped to Steve version of them, even though a lot of the concepts are actually oculus version of them.

And there's this one court in particular, which is I do not believe any amount of market research could have told us that the Sunny walkmen would be successful, not to say a sensational hit that would burn many imitators. And yet the SONY walkman has literally changed the habits of millions of people around the world. He said, this is in one thousand nine hundred eighty six, Steve jobs was for to say things like this.

Apple doesn't do focus groups. You have to invent something. People can't tell you what they want to. These are all maris's.

I know, I know. It's so amazing. Everybody really should go read the book made in japan. It's, it's very, very, very good.

So john coli between Stephen and Steve, C. E, O at apple, who are he? Famously, Steve convinced him that took him over from pepsi, so he had enough to sell sugar water for the rest of his life.

His quote about still he was a freak, about SONY, and that IT was nearly fetishistic. In fact, he even had a collection of SONY letter head and marketing materials. And he talks a lot about how the mac factory was designed to emulate the SONY factory that sort of super crisp, pristine look.

The idea that the factories were spotless, that john coli says this made a huge impression on him. And while apple didn't have coloured uniforms, IT was every bit as elegant as the early SONY factories that we saw, he goes to say, which I thought was really interesting. Steve didn't want to be microsoft.

He didn't want to be IBM. He wanted to be SONY. And I think sculley even met right around this time, skull.

And Steve with okamura says, I remember mara gave Steve and me one of the first SONY walkman. None of us had ever seen anything like that before, because there had never been a product like that. This is twenty five years ago, and Steve was fascinated by IT. The first thing he did was take IT apart and look at every single part how the fit and finish was well done, how IT was built. And this whole thing comes totally full circle when marda eventually passes away. Steve jobs in ninety nine is giving the macro keynote, and he starts the keynote e by putting up a picture of otium era, who they used in the think different campaign and says, and this is a quote from Steve on stage, while he was leading SONY, they invented the whole consumer electronics marketplace, transistor radio tracers on television first consumer V C R walkmen audio city.

No, he doesn't say the name of the first consumer.

right?

You send me the video, it's i'll put IT in the share notes. It's it's fun to watch. I didn't realize they used maria in the think different campaign yeah which is interesting because they are quais I competitors.

I had so many come out with the vio yet at .

that point no probably .

yeah I think Steve had this thing where he could have reference for the history of a company in a way that made their current competition .

not matter .

yeah but the companies that he viewed having sort of no taste and no history like going thermo nuclear on google or like, uh, his relationship with samsung. Then i'll that .

were off microsoft too. Yeah, yeah, yeah. So the first walkman comes out in japan in july nineteen seventy nine. IT sells through the thirty thousand initial production run in one month, and then the next month IT doubles, and then the next month the triples. And he continues tripling for a month after, month after month after that.

Jack sapper on the L. P. Shows that he looked for triple, triple, double, double in the the first four years of a story.

Year is not months, yeah, right?

This is double, triple, triple, triple, triple.

triple months and row. yeah. So this day was fascinating to me, both for how big IT is and how smaller is. All in SONY cells, a quarter billion walkmans in the life of the product.

Wo which is what nineteen seventy nine until two thousand is all IT that.

So twenty years, years, I mean, that's both incredible. Like I don't I don't know, but I I don't think there are any other for like single products that sold quarter billion units.

I mean, the iphone has you know at .

that point time look at that point yeah at that point time. So like yes, it's so impressive on that end. But then I don't know today a quarter billion units that's like like a year for apple or something.

Yeah, it's crazy. I mean, there's just been so much consolidation to the point where like if you go buy the best phone, which is the topical and iphone from apple, that is the best one that humans can buy. And yet there are millions and millions and millions of people buying that device.

yep. So the walkman, of course, eventually leads to the, this man also becomes hugely popular. I had so many those growing up, and walkmans too. Did you have walkman?

I had one walkmen and one discman en. And both of them were that sort of like light SONY gray color that like, that was like that plastic that was designed to look like metal. That was classic.

I had the collected versions.

like the yellow dismay that was like, meant for running, had the extra, get protection on extra.

skip for extra. Yes, yes. Uh, unfortunately, after the desk and .

then they do the mini disk A. Oh yeah.

And then fortunate I didn't by this. Did you buy the the memory stick? Did oddie players the magic gate memory stick?

Fortunately not. I did have products that used that SONY thing that was a competitor to sd. The memory memory stick. They also had a thing that was a competitor on their camera's compact flash.

Oh, that's right. That's right.

And so I think the thing that I had that used the memory stick duo was my P S P. My playstation portable had A P S P. I had A P, S, P and that used to defunct SONY media types that never got adopted by anyone. But then the memory is steck do o for the basically S D card and the game cartage, where U. M D has called a universal .

media desk. And they were going to sell movies on IT.

In addition 的， yeah, I remember watching mr. And mr. Smith on my PSP.

I don't know if I bought the U. M. D. Or how I got on there.

but that's a basic. I actually did a .

little exercise to write out all of the stuff that I had that was SONY, because we were an apple family. So other than the, you know, macintosh, eighty five hundred that I had at my desk in the g my parents had on their desk, we have those two apple products. And I think my dad had the first ipod which plugged into our pony steria, but everything else was SONY.

I had the SONY tape walkman, the desk man, the mini displayed A P S two and the P S P, uh, many, many sets of sunni headphones. Our family T, V was a trinitron, multiple family camp quarters of going from the V H S version of IT down to a. They had some other tape, some kind of D V digital video format tape. Yep.

yep, we had one of those.

Then, of course, A V C R, A D V D player, several USB flash drives, my C R T computer monitor, the living room receiver for our stereo, the radio that plugged into the syria, everything was SONY. IT was just like, what if you were going to go buy a piece of homework electronics and IT was going to be good?

You go by SONY, by the SONY. Yeah you didn't even really look at like the features or anything. You're just like, oh, if I want the best, I get the SONY version totally.

And is just amazing since then how apple has combined a lot of that functionality into very few of their devices. And then the low end came in and you know aid up a lot of market share and other things like tvs and I know on flash and foregone will get to that. It's just incredible the breadth of products that they used to sell that we're just the best on the market.

incredible. So the eighties were good for Sunny, but exercise for three reasons. One, cds to the walkman. Three, life insurance.

So crazy. I remember what I started reading and IT was like looking into their financial and like what is this large SONY financial services group? What is SONY life, David? What is SONY life?

SONY life is a life insurance company. They originally start in nineteen seventy nine as A J, V. With potential the dentist eleven company in the U.

S. Supposed the reason this comes about is that in one of mars trips pretty earlier, I think trips through the U. S, he goes to chicago.

H, and he notices the potential building and the potential building, very, very impressive building, and the skyline in chicago into, he asks somebody, oh, what what building is that? And they say, h, that's the potential life and turns building. And mary are supposedly thinks to himself, okay, life insurance is a business I want to be in. Ah and so they create this J V.

So the conglomeration of SONY begins like it's one thing to say, oh, they do japanese distribution of music, which largely gets played on there you know players anyway. Now they are selling life insurance .

so they do in jan and becomes a pretty big life. And her in japan, they eventually add the Philippines, taiwan and china and its active all those places today that becomes a decent size business like in some years in in recent years, as other SONY business business have stumbled, the life insurance business is contributor ly fifty percent plus of their Operating gash. Foto.

I have a start here. So as I grew, I think in two thousand, one IT was like five percent of sonedex revenue. By twenty fourteen, it's financial ARM, which includes SONY life and SONY bank and a handful of other things. They've like a direct consumer bank.

but I believe life is the big .

business yeah. In twenty fourteen, sixty three percent of sony's total Operating profit was SONY financial group.

amazing. It's this thing that we don't hear about IT. And actually, I wasn't able to learn too much about how the business works. No.

because you go to the websites in their own. Japanese SONY bank came out in two thousand and one as a web only consumer bank in japan. So kind of the first neo bic.

Yeah, that's right. Oh, there's this like alternate universe where SONY is apple and disney and like all in one, it's not even been ultimate IT happened .

yeah but of course, time to get a little tougher h between them. And now.

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well, there's a big up and then there's a down， probably down to neutral in the long term. The big up is that irony of irony is in nineteen eighty six, C B S gets a corporate rador who comes in and assumes a large stick in the company, one Larry tish, by a large stake in C B. S.

And there's this cat cow in the J V. With SONY. And the records business as a whole is a nice business. Tish wants to offload IT and sell IT. You don't modified IT.

And so he's talking to hold bunch up in a private equity in the lake about selling and the folks who are running cbs records, columbia records, they're not too happy about this. So they go to SONY and sAiling. Hey, tish wants to sell this thing.

We think the bids are probably gonna come in somewhere around one in a quarter billion for the whole business. Would you be interested in actually buying all of cbs records? And to this state.

there are still like a japanese distribution part via this J. V. And they're saying, come by the whole free record label.

yep. Now at this point in the eighties, the two things going on. One, Sonia, is massively ascendant. The city is already really big at this point. SONY is a worldwide, large global brand, so it's not unreasonable to think SONY could buy all of cbs records. The other thing happening in the eighties is that japan's currency has massively, massively appreciated vers a dollar, and IT is much easier for japanese companies to go make acquisitions abroad than I would have been otherwise.

which is, of course, feeding many americans fears of japan taking over all of american business. I mean, there's this incredibles in the for back, even through the nineties, very entire japanese business mentality among americans. You know, they're gonna come by all of our staples. And it's honestly a little chilling to go back and watch some of these interviews that look like there in reasonably modern times. And the validation of the japanese is a very I know I just feels is very inhumane.

Did you actually you send me one that was like a DDL d trump in interview from this time were, yes, bashing japanning. Yes, I live so much changes and .

yet so much says the same.

So there's a unch of back. And for drama with tish others, tish postpones the sale for a while, comes back basically marine. We're good for any Price.

We absolutely want to own this asset. We know it's a great asset. It's great for us here in japan.

We want to be a hundred percent others of this J V, so we can control the cash flow at corporate. We also think the overall record business is pretty good. They end up buying IT for two billion dollars.

And at the time, this is crazy, like headlines all over the place SONY by cbs records. That's news in and of itself for all the reasons you said. People also think the Price is nuts, uh, two billion dollars for a record company. Now I believe I wasn't actually able to find the full numbers, but based on what I read, I think he was only about five x earnings that they paid for this. So that says a lot about the business environment of the eighties when people thought that five x earnings was a crazy Price today.

Meanwhile, you and I were just texting the other day about the company that was four x earnings and uh, how excited we were to be doing a value .

investment in IT, right. Tech value investing. This ends up being a pretty goodbye for Sally.

So as of recent years, SONY music, the core of which is the cbs records business, does over two billion dollars in Operating cash flow every single year. And they own IT for thirty years. So there was pretty.

pretty good pick up. I mean, and SONY has a bunch of business lines now. So you know, this stat almost isn't going to sound as impressive as IT should just because of the sheer breadth of stuff that they own. But the music segment, SONY music, which comes from cbs records, did I think eleven, twelve percent of revenue of the whole company?

Yeah, this is a great deal. On the back of this. They are in taste to do another media content deal.

And let me say this is a great deal from a financial perspective. If you're bircher half way and you're just onna come in and owe something great, like this ends up being a great financial purchase from a strategic perspective. Big open question mark.

Like are they able to effectively manage a growing electronics business and a life insurance company and now a music label that's wholly owned while they again, caster I, where you're alluding to in buying a movie studio like IT starts to open this big question of not only focus, but are there synergies here? Because I think maria and yoga are pretty convinced that to continue being a successful growing electronics company, they need to own the content that ends up on those devices or at least have some leverage. Inability to design more custom experience is using holy on content. And like I don't know that, that ever actually .

became true. Yeah, I think IT certainly did not. So here's what's interesting in my perspective on is going back to the C B S. Record deal. A, as you point out, that was just a great financial deal and a great asset to own at the Price that they paid for IT.

Yeah, I think you could argue to the extent any of these synergies, you know thing obviously, that I think in large part, synergies became a bad word because of what companies like SONY did doing this time. I think if any of that were valid, IT would be valid in the music business just given SONY history, given their ownership of the CD format. It's almost definitely not true in the movie business.

Now of course, we're talking about SONY buying coomb pictures in one thousand and eighty nine for three point two billion dollars, but that was the equity purchase Price. Ultimately, when they assumed debt and a few other things, they spent about six billion dollars to buy colombia pictures. Everybody at the time, I think, knew that that truly was way more than the company was worth, supposedly the real driving factor behind IT was beta max, that mora felt like that was such a defeat for the company and like a point where they realized they had no leveraged in this industry. And they felt that if they own the studio, they could at least be at the table against the lee wasserman s in the like when they were negotiating format s and licensing fees and all the strategic stuff. So I think that was like the real driving factor.

IT sounds good on paper, but I think what ended up at happening is that there was a lot of infighting between the hardware teams and the movie teams. And so you had like missile and senate, where we've talked about this a lot on previous episodes. But it's the vertical versus horse zonal strategy issue where the devices people wanted to make IT so that they could play the widest amount of content possible, by the way, including pirated content.

If you are trying to move electronic devices, you want to be super duper switzerland by this thing and have as much fun and get as much value as you want out of IT. Meanwhile, the music label folks and the film studio want to leverage the channel that they have with these devices to find a way to increase sales of music and movies. And unless you can figure out some way to a line incentives, you have a huge problem there. You totally.

totally agree. I think one other thing that is probably a bigger issue for SONY that crops up out of this is, you know, you mentioned hardware there. I had to do adventure double takes, reading SONY history stuff.

They referred to hardware, of course, says the consumer devices that they were making. But then they talk a lot about software. And IT was weird to me reading this is a reading about their software.

And like that doesn't sound like software as I think about IT internally. And at tony, at this time, they think of content as software, at least what I was reading. And maybe this was different in japan ane's, but they literally thought about, you know, the music business, the movie business and eventually the gaming business has software that would go on their hardware.

which in some ways that I mean, gaming is definitely the most credible.

the closest yeah, to my mind, this is where SONY the sizer zone for SONY demise in the coming decades after this was. They just totally didn't get software. They didn't get computing.

Like in their view, consumer devices was computing and like computers were the separate thing. And consumer devices would take over people's lives. And they didn't see that computers we're onna take over people's lives.

If you're watching the video of version of this will put up a stock chart. But if you're not, try and look at SONY stock Price over time and zoom all the way out. The company had an incredible run up through the nineties, got hit hard in the dot bubble crush or at least around that same time, and then is basically been a turnaround story since then.

And it's fascinating that even though from an enterprise value perspective, the company really has turned IT around these seeds that you're talking about, David, of being very good at hardware and still not really getting software still show up like these cameras that were recording on. I'm pretty convinced that the SONY alpha 0 ca will produce the most beautiful pictures of any camera in its class。 You have to do so a little bit of color stuff and what not like from a raw image of the center perspective. amazing.

These cameras are incredible.

but they are not fund to shoot with. No, it's not like shooting with a fuji and the menu system on these zones, like when you need to interact with the software on the devices.

IT is like, oh my god.

IT is truly torture. So frustrating. I think you really nail that words like they can make these fantastic devices. They're like the opposite of apple. They don't know how to build fantastics software and services that differently tie their hardwork.

They just make great hardware. Yeah and I think this point, you know in the late eight twenty nine, this is where they said their strategy and and these were the last years of the, you know, the original triumph of h so mara has a stroke in one hundred and ninety three. That leaves him pretty incapacity.

A book is in one thousand nine hundred ninety seven, organ starts facing towards s retirement in the late nineties. But yeah, during this time, they set their strategy as hardware, meaning consumer devices and content, which they think of a software in the marrying of those two things. And you know, look like that's not wrong. Look at the tech companies today. I content and tech is a big thing that they all do, but zones just missing that true software element yeah.

I think that's right. IT is interesting. One thing that they have smartly done is in recent years, I know flash away forward, they have played the arms dealer strategy in the stamping wars like we.

Fortunately, we have not seen SONY plus. We are seeing SONY decide. I think that they've basically done a first look deal with netflix.

So anything that comes out from SONY pictures, netflix, you know, has the first opportunity for. But they also have signed a licensing deal with disney, for disney plus in hulu too. So they are basically saying, like, look, we can not care who wins here.

We know the contents going to be valuable. And we're deciding our strategy is not to vertically integrated. The rest of you you you look over the mash of mass, that is H B O max producing movies with D C I P that is produced by Warner media, that is owned by, whose wandered media owned by.

at this point. A T.

N, T, that sounds right.

I can keep a mall street.

Yeah, like SONY is not playing that game. I interesting.

Yeah and they also are where I thought you were going with this. They're playing the arms dealer all well with image sensors.

Oh yeah.

But we have one more big story that we got to tell on history in facts before we move towards the present day here. And this i'm so excited for this is, of course, is the police station story.

I kind of forgot that there's another big story.

something that's like, jesus, you're not done yet. I assume that, like everybody knew the playstation story.

now you are blowing my mind with every text that you sent me a boy, and I had A P, S, two and A P, S. P. And I did not know these things. All right, how did the police station come to be?

So in one thousand and eighty nine, at the end of the first golden decade for Sunny, there is a senior engineer working at the company named can kuai. And he's done great work on stuff like a the early digital camera is the mavick, which was sony's first camera, and on L, C, D displays, which are onna.

Be to start part of the next generation of televisions and consumer devices or ga yoga loves pita think sees a rising star in the company and cans daughter around this time they get her a, of course, the japanese name for the nintendo entertainment system, the N. S. And SHE loves that that he just observes her playing with this.

And everybody at the time thinks video games and nintendo systems are toys and can can not see is like, I think this could be really big. I think video games could be more than just toys for a little kids like I watch how my daughter is so consumed with this thing. And I think that could be big.

And I think tony should get involved in this industry now. He's just an engineer at the company. He's not further the management team somehow.

And I don't know how there's not a lot of first hand history and kind about this. Somehow he connects with nan tando personally, and he hears the from nintendo that they are working on the successor system to the N S. The nintendo entertainment system, the super nintendo entertainment system, the S N S. Classic of court .

around the corners makes me purple buttons.

Uh, so great kids really excited about this. And he says, well, can I help? Can I work on IT? Uh, can. So any help? And intendo says, yeah, actually we're looking for a really great sound chip for the device, not your processor.

because all sounds in video games for four were just know beams boos 也 yeah.

the superintendent had super great audio like really good stuff here and can and SONY designed their chip IT possible. Now he doesn't tell anybody is so one that he's working on IT and when he comes time to like actually you don't do the agreement and the superintendent gonna management, tony is pissed.

Wow can totally went around the protocol here and essentially did this component engineering work for nintendo, this toy company making this soundcheck cuter ragging nearly gets fired. But yoga steps in and is like, not. And I like, I like this guy.

He's great. And who knows, maybe this video games thing could become interesting. Let's work.

He allows CEO steps and allows the projector continue. They ship the chip. The perinatal becomes a huge success.

IT sells just under fifty million units worldwide, which is enormous for that. I mean, third, today, that is a very successful video game console. A great new relationship for SONY. Things go along now. The superintendent o as most folks listening will know, probably even Younger folks was a cartage base system, little game cartage is that you stuck into the system.

Carriages had some advantages like there, you know, fast read times, instant load times, you didn't have any of this stuff you would later have with the play station, with loading times. But the downside carcasses is you can't fit much data on them. And so game developers, especially developers who work with PC and no P, C based systems, their lobbying intendo that they want to be able to develop the C, D format for intendo as well.

Nintendo is like, okay, well, we've got this relationship with SONY. Let's work on a system together is amazing. They call up, can cancel, great.

We can build an ad on for the superintendent o of a SONY C D drive that developers can then make C D based games for the superintendent with our ad on. And also why not we also make a SONY branded council that combines the two things like to add on and the superintendent. So it's just one piece of hardware made by SONY that is a superintended but also has the disservice on IT.

We will put this up on the video for those you on spotify and youtube. David said me this thing. I was like, what is this photo? IT is a device that looks like an intendo, a super intendo kind of, but IT says SONY playstation on IT.

the SONY play station that plays superintendent al games. Oh my god, so this is all done. They made this freak product.

Do they ship IT? I don't believe .

they actually shipped IT. I think they only had like final prototype made. So the two companies, they're so excited about this.

This is so big partnership in one thousand nine hundred ninety one at C. S. This is before e. three. So C, E S was still the major video game industry conference. SONY announced the partnership and they announce the nintendo play station they showed off the next day at the intendo keynote.

Nintendo talks about how they've partnering with one of the original developers of the C D format, this great technology company with amazing history and legacy, to bring C D gaming to intendo for the first time the secret partnership they've been working on, they have not announced to anybody until today. Phillips, no way. Yes.

what and they just cat on any in the dark the whole time.

This is a huge thing. And I think both gaming business history and uh like japanese business culture like this is the ultimate betray. This is like literally ninth ando like showing like i'm a shady in the back of SONY. wow. And going with their original partner, phillips, a totally secretive.

So there was A C, D. Add on for the superintendent that phillips made.

No, this never actually comes to fruition as intended. There is no ad on for the superintendent that phillips makes. Oh, what does happen is phillips makes a their own game console called the C.

D. I. That comes out to remember this. This is like a super did .

this to SONY the day after their announcement, only to not actually shift the thing with.

They don't just the thing do does make some games for the CD. I so they have like this partnership and I never goes anywhere intendo o is great as they are notoriously make questionable business decisions like sticking with cartage for the and sixty four. And also it's a stuff.

Now in the intense defense, the reason that they do this is that SONY was gonna retain licensing rates too, the superintendent u disk based games. And that's where all the money is in the council games industry, silly notoriously. And as we get into council manufacturer, almost always sell the hardware at a loss. And then they make all the money from .

the games licenses to the games.

And you can make money from games either, like for an nintendo do, when they sell mario and legends ela and me, they own develop, they keep a hundred percent of money, hundred. But then if you're the system owner and the format owner, you get money as a license. When third parties like E A, your activision or but here who never so games on your system SONY e was going to get that money, or most of that money for the intendo disk. So that's why intendo did this.

I see. So they were the license holder. There are the the person who can issue licenses and make money on people using .

the game dev cat. And i'm sure IT was some split between SONY and nando, but SONY was getting enough for that economics that nintendo was unhappy.

So maybe intendo looked at this and said, this is gonna bad, but if we actually proceed with this plan is such a bad deal for us anyway that there's really no reason to continue IT.

But the way they did IT and so intendo, I think thought they like are well, so is not going get into the games industry themselves. They can do that like they have no first party studios intendo can go make a new council will put mario brothers on IT in Zelda like we make that stuff ourselves like SONY does know any of that and they don't have any relationships with developers ah it's set up. So SONY has three options at this point.

As an nintendo o expects they can completely give up too. They could go to segar and try and partner with saga, the nando competitor at the time. They actually try to do that saga in another Brown headed movies like I are not that interested.

They were just like a much smaller company at that point. And then the third option is to try, you know, they have done all this engineering work on making a console was like, well, we could just try to this ourselves. So the SONY board and the management team, you can tell, just like love this totally.

you're Green ear to ear. It's like we finally get to dive in the some video game history for the first time in a while.

It's a while the board in the management team, they vote to just abandon the gaming project. So yeah like basically really it's just like the walk man and like everybody y's against doing this. But cuter argue is like lobbying, yeah, questing within SONY to make this happen.

And yoga is like R I I. I see that like you, anna, do this. This could be big. It's not gonna work. Within SONY parent company, he transfers kuda gi and the whole project to SONY musi C2Cbs rec ords.

And so was IT within electronics before yeah who .

was within like the core wow electronics business. And he moves the whole you know division .

of music over in .

to the music just till they kind of protect IT so that like politically, they could actually do this within the company.

And let me just like for listeners where like does this end up being worth A A while? And not only the video game industry this year, a one hundred and eighty billion dollar industry compared to hollywood, which is fifty billion dollars. So yes, and I end up being much, much more than a toy. If you actually look at SONY predictions or projections for this year for twenty twenty one, they think that they will do, let's see, two point nine trillion yen in their gaming segment out of nine point nine total. So they think that like close to thirty percent of their revenue for all of SONY is going to .

come from gaming. I mean, it's I think unquestionably the most valuable part of SONY these days.

And from a profit perspective, i'm pretty sure it's close to fifty percent, at least last quarter.

Well, this is the thing about the games s business and the council business. As I was saying, you make all the money from selling games. And so the way the business works is you want to get the largest installed base possible on the councils, on the hardware that you can sell as many games as possible. And this is where nintendo o and saka, to alex a degree, just made such a huge tactical error in blooding SONY into the market. SONY had so much more financial resources than either of them so they could afford to take much larger losses on council sales to play for the longer term game of getting as much software sales as possible.

I mean, it's it's the ultimate venture capital bet, right? It's how much can we throw into a business. We think we'll have really high Operating leverage where we can cover all the fix costs and then sort of to pull up the road behind us and then have amazing low marginal cost, high gross margin futures ahead of us, where we sort of elbow out .

all the incomes. So the superintendent, lic, I was this amazing success hugging successful council, sells fifty million units in its life worldwide, the original playstation cells, over one hundred million units. And they win over all the major, their party developers, to come over.

How do they do that? The couple ways IT takes them a while. The early pitch is a few things.

One, we're going to use cds as the medium so you can like actually make the games that you want to instead of being limited to the carriage format. Two, we've talked about this sort of few other episodes in the past. You don't intend do they have this relationship with silken graphics?

Like you needed industrial to develop games for nintendo. You couldn't just use pcs. You had to have a really invest in a big like chunk, a hardware build nintendo games for the playstation IT was based on P.

C. So you could develop, play station games on P, C, that like massively opened the market. And then also they were just like, look, we need you. Developers like to do trip talked about this, I think a bunch on on our episode him intendo o terrible.

The third party dead. We have mario. We have yelled a like, we are the biggest, best studio on the intendo o platform, so we can don't need you.

Where SONY came, all these, their pretty developers, and and they were like, we need you. We're going to do everything. We kend to make you happy.

And then once the police station started getting such a large installed base, then I was just a no brainer as like, of course, i'm gonna either go exclusive on playstation or at least multiply platform on them. Otherwise i'm leaving the massive part of the market. See a place station, huge success. I could go through all the .

games on IT.

but I will like we all everybody knows that great hmo blaw by the end of the system live IT gets eight thousand unique games compared to the n sixty four, which came out later, only gets four hundred unique games on the platforms. That's a sense of scale here. All told, over one billion games are sold for the original playstation.

wow. So this is a massive. And then the playstation two becomes the most successful console of all time. Over one hundred and fifty million units sold worldwide. I mean.

it's the only game council i've ever bought.

Wow, yeah, I was. I'm surprised that you had one .

IT hit the concentric circle. That was me. Well, I wasn't allowed to have a game system before my barmaid, fa, and so that was my reward, was that I got to, I got to get A P. S. two.

And the P. S. two. That was like, that was the peak of SONY strategy. Like that was that moment where was actually working? Like the D, V D player being bundled in part A?

I mean, that was a selling point. D, V, D players were kind of expensive. So we had one for, like the main T, V, for the little T V in the basement where I was gonna log in my playstation. My argument to my parents was what I, we don't need A D, V D player now because this one comes with that. If we got what was the next competitor that I guess that no.

say a dream cast, I think there's the.

and we were never gna get a dream cast. I guess that would have been the original x box.

but not sure that would have been out. Yeah yeah.

That didn't come out for another year to one.

This been like IT was two thousand. Two thousand was when P. S.

Two came out. Okay, so I I guess x box would have been the other one that I could have gotten. But yeah, the P S two was like, I think a sufficient number of my friends had play stations where I was like used to the the controller and then they all got playstation tools. Then I became a no brainer for me to get a to.

And the other thing that the P S two had was backwards compatibility. P one. And that was a totally new concept and industry.

So like day one, the P S two, you had eight thousand games from the P. S, one that you could play. And they did like a little bit of upscaling on them, unfortunately, the P S.

three. So I got a little Carried away. IT took a while .

to get going, but ultimately did become a pretty successful system.

I did. But they really, really screed up. So like after the p2， i mean, SONY was the video came industry like nintendo was relegated to enrich player.

Basically microsoft come in with the x box, but the first x box, sone, the P S two, just translate. The P S three should just run away with the market. But this is where SONY is not understanding.

Computers really comes in. The P. S. three. The'd made this whole thing, had a, the sell processor was like they said, IT had blue, red and the cell processor and a blue.

I made the Price tag kind of expensive.

Both of them did. Blue was expensive, and they wanted to do same thing they did with the PS two uses as the children horse to get blue ray in the living room, win the format war with H, D, D, V. D.

And then this cell processor they developed with, I think, to shiba and IBM. And IT was like its own unique architecture and a total beast in a bad way. And the idea was, SONY was gonna use the cell processor across all of their products.

And IT was going to become this like convergence thing. And they were going to put IT in T, V. And refrigerators. And game developers hated this.

And so IT actually .

like open the door for x box in three sixty to bring a lot of developers in. And then over time, SONY did fix a lot of the issues with IT and made IT more developer friendly. But they barely want, uh, generation war became the P S three and the x 3 sixty。 But like they should have just totally walked away with IT.

Microsoft has always struggled here because they sort of want to use every time somebody wants to use something as a trojan horse, it's like it's kind of like when you're in the division series and you looking at the lcs and you can forget that you stole a game to play. Yes, microsoft has always seen this as the path to the living room.

And so until very recently, when I think their strategy has shifted pretty meaningfully, the thinking was always we're not going to go for the hard core gamers. We're onna go for the band gilbert when he thirteen years old idea of, well, we need A D V D player anyway and this thing can play game so great. And then they can use that to have a computer in the living room. And so IT seems like they always sort of underestimate the prevent hard core council gamer market. And then SONY runs away with that market, and microsoft ends up not selling enough devices and not having a ling enough story, like the x box one, for example, of like how this thing is really going to make your life that much Better by being the computing thing in the living room.

Yes, I think that is totally a fair character zone of microsoft for many years. The army is is also SONY, right? Yeah, at least with the P.

S. Three, like they completely messed up. SONY loses five billion dollars on the P. S. Three in the first three years. bad. And again, this is like coming off of the best selling council of all time, like they had IT one.

They lose a bunch of money on this. They also at the same time, and I know we're onna talk about blue way, but it's worth pulling IT into this story. Lost a ton of money because blue ise lifespan was just not as long as they thought I was gona be.

So they invested all this money and R N D the same way in previous format wars they had and spinning up this, you know, big industry wide group that's gna figure out at all licensing. And we're going to sell licenses to the the ability decode the format and you know big investment and shifting the industry towards new format. And then streaming took off. And so I don't think they ever really recoup their investment in blue.

I don't think sorry there. I think that became A A big albatross for them .

so that really two thousands are do you can beat up left and right?

Yeah, in two thousand and six, they lose the number one market chair lead and televisions for the first time they .

got so expensive. I mean, that's when like samsung started making pretty good tvs and came in like today is totally different. You have like the T C S that look unbelievable for like three hundred four box whatever.

IT isn't A T T.

I pay crazy, but I used to be like, you know, you'd go get the SONY bravia, or you'd go get a lesser T V, and then samsung will that away. And then that just felt like a rock after that.

And that SONY bravia was, I think those things for like five thousand thousand crazy in two thousand two. So for eight, three years, in the mid two thousands, the television division, which, just once, you know, one of the main crowd rules of SONY, ends up losing money, like bleeding cash for eight years.

Didn't I spin IT out who was like, so bad that they were like, we just got to get .

this off our books? Yes, they end up restructuring IT. And based out of like I, you can still buy SONY TV, but there's a bunch of J V.

It's owned by private equity or something.

It's not a court part of the business anymore. The blue a fight was totally a pieri c Victory, like they did, ultimately went against hd DVD, which was a toshiba format, but not worth IT. Yeah.

by the way, just to put some numbers around how royalties work. This, like blue, I disassociation earns about seven dollars for every blue e player sold. And then I think there's maybe two dollars that they make from selling the software that goes on IT to be able to read the the and then it's something like seven cents per disk and so that it's cut up a bunch ways depending on, you know, contributed R N D efforts originally, you know.

So this conversion gets paid the, you know nine dollars total per player plus seven cents a desk. IT takes a long, long time to be what a really recruit the cost. And I guess the point of this is even if blue went well, the point of this isn't to have a big new revenue stream for SONY.

The point is so they don't have to pay someone else a big revenue stream who develops a format, and now they have meaningful cogs as a part of selling each one. The other sort of reason they do IT is sony's whole reason for being is create brand new cool engineering things that make IT so the public will have something new to buy and love and by creating a new standard that enables a brand new consumer experience in a higher resolution. So it's sort of this like opportunity to create a brand due generation of device. But I don't think that they ever look at the media licensing thing as the format licensing as a meaningful evidence.

Well, whether they did or didn't, they fail on both fronts with like there's no way that the blue ray can or some got their money back in terms of R, N, D. And marketing efforts. no. And blue way players do not become a major consumer electrical stable.

IT is worth calling out before we move on fully from playstation here, not being in gaming and paying a lot of attention. I know the guy understood stone's dominance here relative to to microsoft. I always thought like the two of them come out with devices and they sell well.

But if you look at the top game councils ever sold, play station has three of the top three, with the P, S, two is the best on of all time and the P. S. Four than the original play station. They also have four of the top six, because in the number six lot is the P, S, three, and the four and five slots are the intendo wee and the intendo switch. So microsoft, by a you know, counsel's ld measurement, doesn't hold a candle to Sunny success in the council market.

But that so far right, will be interesting to see what happens go on forward. Yes, I don't know if he took the pandemic or just this current generation of consoles with the series x and S X boxes in the P S. Five, but I feel like these companies have finally woken up. The leg guys, video behaves is the largest media by revenue out there, and they shouldn't be strategy devices to achieve other mes, like you should just focus on the business itself.

Yeah, if you sum up all of music and all of hollywood and then multiply by two, two and a half, then you get the video games market. It's enormous. That wouldn't have been obvious even ten years ago, is now a sprint.

And the question is who has the Better strategy? And because we haven't explicit said IT, SONY strategy is more of the same. Make the best console, try like hell to get the supply in, in order to be able to actually fully them.

It's going to be a reasonably expensive console. But that things gonna awesome. Microsoft is ha, well, I bet we can make this a services revenue line. That's a very tim cook way of looking at IT. If you look at what microsoft done with game pass, which is brilliant, they're making IT sort of financially irresponsible to buy one of their devices out, right?

It's like a prime membership. yes. It's financially irresponsible as a gamer not to subscribe the game pass right .

ends like what I go by one of these multi hundred dollar devices and then have to buy games for IT. Or would I rather pay? I don't know how. What is IT per month game?

Pass itself as fifteen bugs a month. And then if you get a console with that, you add on certain amount whatever IT is .

the way that sort of hits U. S. A consumer is like, oh, complete no brain or to subscribe.

And so when you look at IT, microsoft is now up to eighteen million subscribers to game pass, which to your point, I think there's like a cheap version at ten and a more expensive version 1。 So every year, as an annuity is generating two to three billion dollars on game pass. And it's just such a completely different strategy than what's on one is doing.

Reminds me point IT out on the tailor swept episode about spotify. There are gamers out there who will buy ten, twenty games a year. It'll go pay sixty box for either a desk or download to buy the game. I am not one of those gammons, and I think there are a lot of gamers out there like me that in an ordinary year, I would maybe buy a couple games. But it's a no brainer for me to subscribed the game pass for fifteen bux a month, in which case I end up spending a lot more money on games and microsoft makes more revenue than if I were off of me, than if I were just buying games. And I feel happier because I get access to so much more .

than I would otherwise, right at such a good point.

You know, SONY is interesting. So as of yet, SONY has not released a subscription service for games. Oh yeah, but isn't .

there something like something supposed to come out like lake you to this year? Have you read about this?

I've not read anything specifically, but most people assume that there working on one. But the interesting thing is that SONY is really double down on exclusivity on games.

So they have both in house studios and then exclusive agreements with third parties of, like, if you want to play, I don't know, gotto war or a the latest dark old game, something like that, like you're gonna have to do that on playstation thing, which is different than microsoft. You know, people are worried about with the activision deal about whether microsoft would make activision ons games exclusive on x box. I don't think they will.

No way the incentives are so genius for what microsoft has. Set up with that because, yes, they want you to subscribe and they want to have the most number of subscribers at the lowest turn rate because it's the best business model ever. And also, will they take your revenue if, let's say, this activation blaser then goes through? Do they want your revenue if you go play that game elsewhere?

Totally like their incentives are totally aligned to say, hey, we we love IT either way, where as zone isn't a little bit of a tougher place up because they have to sell you the game up. Its projects are to cuss, by the way, is the rumor game pass alternative, which is kind of a mask because they already have the police station network. And then they have play state, like there's all these different names for .

the ways that classic. So I like the playstation is such an amazing story and entrepreneurship forney. And yet it's got all of the SONY unfortunate quirks all over IT, too. yes.

Well, what else haven't we discussed about SONY today? I think it's important to talk about the image sensor market.

yes. Well, a couple things we've briefly mentioned. The vio P C division that never works. They end up selling IT in twenty fourteen. Uh, and then mobile and smart phones are just a unmitigated disaster for SONY.

The whole experience thing was just a colossal failure. In fact, if you look back at the annual report in twenty eighteen, they decided for their electronic products and solutions segment to break down to sub segments in this annual report. So you can see that it's all mobile fault.

They could have shown, hey, we basically made zero in all of electronics products and solutions, which, by the way, is like the core SONY thing like originally SONY was and electronics products company that's recently been like a break even business for them. They they generate a lot of revenue from IT. They generate basically zero Operating income a little bit recently.

But in twenty eighteen in particular, they were showing like, yeah, there IT would be profitable. But we lost a ton of money on our mobile communication segment, as I think more about like why did SONY feel so bad at pcs? Why if IT SONY feel so bad at mobile, why do they eventually lose tvs? I think SONY doesn't know how to make computers. And as things become computers, they lose.

And one hundred percent .

that phones became computers. Computers matured to be the modern P. C. That we know today. You got ta worry about them against microsoft. If, yeah, microsoft s twenty year vision of the computer in your living room actually becomes a meaningful, useful computer in your living room, that you spend a lot of time with smart tvs would kind of tell us that that is coming true.

Oh yeah. But I think like we are just talking about with game pass, I think microsoft has uh, finally abandoned that computer in your living room vision for experts and realized like nana, this is good business did to .

make this good business. Yeah, that's true.

That's very true. But I think you're spot on that SONY didn't see him wasn't equipped for a world where a computer became your phone and a computer became your content consumption. Devote your T, V.

You know, your your phone became your TV. yeah. And I think instead they thought the world was gonna.

Be that your living room device became your computer, and that's what the P. S. Two, and then really the P.

S. Three was all about. And the cell processor is that. And I just never happened.

Yeah, one of the things that if you look at bear ball cases on on zoning out there, we're gonna do our own in a minute here. One thing that you know, they came out at C. S.

Last year, I think, with a SONY electric car, and I think that's something that people are very scared about. He never know. You are not gonna that as well as tesla.

It's a bad sign for the company that they announced. That is kind of like how when I saw wonder many 4， i wasn't just like h this is a terrible movie. I was like the fact that this thing got out the door makes me seriously doubt every decision that the creative leadership at Warners does. So it's kind of the same thing with SONY where i'm like, yx, yeah.

you should stop, be making a car right now if this is like a concept .

thing the way that like, hey, let's have a fun thing to do yes, that's one thing. But like if you're really putting energy behind this, a very scary science for the company.

which there hasn't been any indication since that they really are putting energy behind IT. But let's talk about image sensing because that I think is a really good story.

That's an amazing story. So continuing their arms deal or strategy, I think as they realized how bad they we're gonna be at making cell phones, there was a thing that was happening that started fifteen, twenty years before, which was innovating on sensors, in particular camera sensors. And this was really beneficial for their power shot line.

This was really beneficial for all of their pro and cameras. They kind of invented the mural segment. I mean, the SONY alpha.

I hate this word, but it's so applicable here. The presumed concept of like, hey, people want a reasonably compact thing with our changeable lenses. They can take out that isn't a big I C S L R.

And all of that work LED them to have like tons of breakthrough, tons of patterns on how to get the smallest, most effective image sensor. And they, I think, are now the sole supplier to the iphone for the little sense that enables all the cool computation of hotoke phy stuff that's going on. They have something like fifty percent market share in the image center market broadly.

They are able to put centres in lots and lots of other phones too. It's not just the iphone. And when you think back to I think the announcement was the iphone for but you know, when cell phone cameras turned from camera phones to like, wow, these are actually becoming pretty good. Cameras like that was SONY and there's a ton of engineering and often has been done on top of that now especially uh as you know, people like apple design their own silicon and have a uh really tight image processing pipeline. The initial breakthrough came from, I think, two thousand and nine. So when he was the first to create this commercially viable back illuminated semak sensor and that enabled things like low light photography, and there's a lot of rumors around the next generation that'll be in the iphone fourteen and fifteen that are like totally unbelievable with giant step function changes in the number of mega pixel and the image able to get per size of pixel. Uh and so there's like supposedly really, really great stuff to come over the next couple years purely on sony's innovations in the censors.

That's such a good success story, right? Of like making kind of back to the original sody lake. Here's something that people want that is like this is gonna work in the market and then you learn and grow from that.

Yes, absolutely. And it's also it's kind of the same approach that they are taking with SONY pictures of being this like switzerland arms dealer type thing where like we're not onna be effective at marketing, are creating and marketing our own phones and Operating system and all that. But like, damn, you're not going to make the absolute best sensors in the world for this thing and similar the way that they are thinking about, you know we're not going to compete with netflix, but will sam content .

SONY just kind of lake it's this collection of all these venues, you know that's just together into SONY. It's not quite a lennar narrative in the same way as a lot of other companies we cover.

That's actually a huge playbook. Theme of mind is it's actually a diversified business. Every business we cover is kind of one hit product that then they were able to really leaning to had perfect product market, fit in a dragana market and ruthless execution.

And this one's kinds like there's a lot of stuff going on here. And h they're pretty good at managing IT. Usually, sometimes not, sometimes not, but there's definitely lot of stuff ih.

a lot of, okay. So all the stuff, where does this leave us? yes.

What's the picture of SONY today?

What's interesting .

when you look at that from a revenue perspective, there are a gaming and electronics company. There is like thirty percent of revenue that coming from games in twenty three percent that's coming from electronics.

Electronics are consumer .

electronics devices. Yeah, that includes cameras. And you know the classic stuff, SONY makes a walkman, and it's not totally clear what what else is a necessarily part of that.

But when you look over at their Operating income, the games also thirty percent dish, they make a little bit more. Electronics has gotten a lot more profitable recently. They actually think that, that is going to be a material part of the business. It's like eighteen percent of profits this year are coming from electronics that in the past was .

a zero or negative .

or negative a for many, many years. That was basically nothing. So there has been a pretty successful turnaround inside of electronics.

The emergent story, which is really interesting, is this imaging and sensors, which is now eleven percent of revenue and fourteen percent of profits. Again, none of these numbers are that big because it's super diversified, but that's a pretty big market. You know the half half of them. So I think that sort of the big story, if you would ask me twenty eleven to twenty fourteen, then the answer would have been everything's fAiling in the financial services is enormously profitable and is like half of their profits. And that's just like not really the case anymore.

Maybe that's actually the best way to have business insurance besides value. I do that to start, but the next thing you should do is start your own insurance company within the company to keep you a float. Even when everything else fails.

It's quite the hedge. So here's a way to explain how diversified SONY is out of all of their segments, games, music, pictures, electronics, images or imaging and sensors and financial services. There are zero single digit percent business lines in revenue or profit.

嗯 what a collection of .

stuff yeah that to me is like， I was like, I should compute these things. I'm not just looking at them and an and as I computed the percentage.

I was like, huh? IT is very.

very the first .

fied yeah.

like that there used to be all these great blog post that you can do about how it's really an insurance business under the hood or you know how the core business that used to be consumer electronics totally died. And as is not the case anymore, an interesting thing two point out is within gaming, most of the sales are actually coming from digital software and atoms, which is related to the playstation network.

Only like ten ish percent is selling hardware are in the same way that microsoft has reoriented their business model around. We ve got to keep selling people who like x boxes, digital stuff zones, realized that, too, they just haven't changed their business model yet. okay.

So here's an interesting little aside that I wants to take you down. So this year, SONY will do about eighty six billion dollars in revenue of that number, eighty six billion turning IT down here over the last, let's see, twenty two years. SONY has had an asset that has generated about seven and a half billion in revenue that we have not talked about on this episode. Do you know .

what that is? I don't .

that seven and half billion would be the box office growth receipts for the spider man franchise.

Yes.

not even including home video, not even including no other other are licensing things around that. There is an insane story about why were talking about spiderman and SONY when we've done so much wonderful discussion on the show on marvel and marvel universe and disney. And I mean, either spent close to ten episodes dedicated to that world. And so well, we were doing the tony story. I thought we got a like IT in somehow.

Yes, I what's going on? Why does SONY have spent? okay. So uh.

first, while there's a great plan of money on this linked in the show knows you should go check that out if you want the real deep dive SONY, as you know, has done a mix of good deals and bad deals corporately in their history. Marvel, before their most recent stint, mostly did bad deals, as we talked about on the marvel episode. And this may have been the worst one that they ever did.

So starting around two thousand, SONY approaches marvel and says, we d like to pay you ten million dollars for the film rights to spider man now marvel had never done them. See you was in a thing. Marvel studios wasn't a thing they didn't do the with myo lynch to go take on a bunch of debt to start marvel studio, you know nothing.

So they look at this, their like free money OK. Free money will get ten million. That's great. I think they also, we're gonna get five percent of the movie revenue. So marvels like we get licensing fee, we gets an ongoing revenue.

And I think SONY said and will split the money that comes from spider man toys that are sold specifically to the movie in they'll look at that and like that's prio in er man also. great. Let's do IT in some ways that was a really bone head decision in other ways, you know, maybe they wouldn't have known to start marvel studios absent the giant tic success of the toby bug wire spiderman.

But David, ten million dollars and five percent of the revenue is what marvel gets out of this. So here's the insane thing. This is the deal that they signed that somebody like getting fired isn't enough for the criminality of the deal. SONY has the right to produce spiderman movies forever.

forever, yes, in .

perpetuity, as long as they released one every five years in nine months.

So we can guarantee that there is going to be once fighter man movie, least every five years in nine months.

forever. Yes, forever. And so this is why we got those weird Andrew Garfield movies right after the three toping, the ones they told the same story again. You i'd do like .

i'd never even bothered with those like wise this happening.

right? They had to produce and release them in order to retain the rights.

And so you might say.

like, okay, well, how does that work now? Because we've got a new spider man who you know is the same in the spider man movies and in the marvel movies, like somehow he's back in the marvel cinematic universe. So what happened there? Well, obviously, marvel really wants to have spider man included in the adventure. And they also decide that, well, can we make IT so that the spider man movies that they are coming out are good and like kind of tian, like that maybe the same actor IT really should be kind of cohesive. And the people over at marvel, you know, artists, this isn't some, we're producing a movie just .

to keep a deal alive. There are like .

a they cut a second kind of that deal. This is really interesting to pay attention where the averages they are saying we will make the movies like we will make the independent spider man movies mostly like it's gonna be technically stoney's creative control, but we're basically doing the whole production. Let's keep the same deal where we only make five percent, but we're going to basically make the movies. And in return you have to let us put that spider man into the mcu.

wow.

And so they cut that deal right before captain america's civil war, which is where they introduced spiderman. So all these recent spider man no way home. And it's actually this weird joint ownership where SONY making the money, but marvels making the movie.

And they're just doing that in order to, like, get to use spider man in the mcu. And on top of all of this, you might say, like why has this work? Because some of them spider man movies are spider man moves.

Other ones are marvel movies. If spiderman is the main character, it's a SONY movie with the ninety five five split. And IT doesn't go on disney plus SONY gets to license out the movie wherever they please. If spider man is not the main character, IT is a marvel movie, and it's just all the same Normal stuff that marvel always owns.

Wow, i'm so glad you researched that. That is so fun. It's wild. And if you .

look at the performance of spider man and no way home, the one that just came out that already gross worldwide one point seven billion in revenue, remember, SONY is keeping ninety five percent of that. The costs are high. You know, these movies cost hundreds, millions to make now, but SONY pictures itself only made ten point two billion this year. So one point one, two, I don't know what the end there is a big marking budget. But like whatever they are, cut of the one point seven billion dollar growing movie is the bottom line in that is pretty impact for to this ten billion dollar total revenue line.

So marvel now has an incentive to make the cost of the movies as high as possible, right?

It's a good question. I know I assume there .

a lot more coffee .

ots in that deal, but IT is, I think, like the first time in history that a big piece of IP like this, and this, they point this out on the planet, money, epo de. There is a lot more drama ude, by the way, involving the SONY hack and executives who are, you know, at work with each other. But the long in the short of IT is, I think it's the first time that two studios that arrivals like this have, and because this is two with the big five, shared really important I P, and actually created successful product, that of IT.

that is so cool and the movie is ve been incredibly successful.

totally and really good. That's the thing. So only almost tried to do like an mcu type thing with all the IP that they own.

But IT was like spider man and ghost busters and a lot of like very things that didn't belongs together. Again, this is all in the SONY hack emails. But then they started bringing spider man into playstation marketing. And kind of a weird way to remember, the playstation three front was the same, like on that was printed on the outside as the spider man to me mire series.

Now that makes sense. Why the spiderman games are playstation exclusives? I always wondered that. I was like, why is this not on x box?

Pretty crazy. There's even something more nutty. Like for another ten million. I think SONY could have licensed all the marble characters, but somebody was like, they're all all kind of bad, except spider man.

No one cares about any the others, which was like kind of true at the time. Like no one really cared about iron man. They sort of like invented the MC of the second tier characters. And the SONY was like, now let's just go get spider about, let's do that.

This is like a confederacy of dances here, really. Who is more stupid than the other?

totally. But that just goes to show, you can't forecast these things. You don't know.

don't know. All right.

let's do bear and bull, and i'll do some powers.

Give me, give me your ball case on song.

right? Book case. The council wars continue as they've been no massive strategic or business model shift.

SONY continues to execute really well. Uh, they actually get the supply chain on order so that I can get A P S. Five if I want one.

There's way more demand than supply right now. That's my book case on gaming based on what i'm seeing. That's like you know rumors about uh, one and two years out.

I think they're a continue to have unbelievable game above anyone else in the mobile imaging space. And I think that's gonna get more and more important. Yep, there's something interesting about music labels, which is that they have wholesale transfer pricing. Like if you like spotify, you should really like record labels in terms of their attraction as an investment. So I don't know SONY music, I think both revenue and offering profit is growing at like fifty percent a year.

And you know that if a lot more people start streaming, then all of the benefit of all those people starting to stream and pay spot tifany apple music, a cruise to SONY music and U M G, you know, it's a pretty predictable, defensible business. I think even after doing the Taylor swift episode economy, me think the labels are an even Better business than I thought. Like I was going into IT thinking Taylor swift is showing us that artists are onna go direct and I came out of IT saying, unless you're Taylor swift, IT seems like record label s are going to continue making a lot of money.

And so I think the fact that they own mad and that's growing and seems to be run pretty well is impressive. And I think their diversity is a play of their strength thing here. If you're going play the conglomerate, me go play well and they played a well.

IT really is a turnaround story. And I went looked the stock Prices near where IT was when that there are all time high twenty plus years ago. So the the turnaround of, uh, undoing all the damage in the late nineties and early two thousands is almost complete.

The irony of IT all is that the dot com bust was when SONY went bust, but they really liked the opposite of a dotcom.

right? Yeah, it's interesting that I was in the dotcom era, but was a completely different set of mismanagement. The activities.

yep. Okay, that's the board case.

What's the bear case? My bear, is that microsoft, right in their strategy with game pass and gaming, will move to the netflix of video game style thing and that it's not about having the most beastly console and keeping the business model the same. And maybe the experts, they have finally segmented the market right, where they can sell an expensive bessy console, the people that want that, and sell a pretty good council, everyone else, and make a tony money on, you know, two, three billion a year right now on the description revenue, yeah, I think that's the bare case, is that thirty percent of both revenue and profit right now come from gaming for SONY, and that's at risk.

Is there any risk to the image sensing business, the apple in particular, in houses? This at some .

point maybe, but I think they are like super specialized cmos sensing stuff is pretty different than all the in house silicon stuff apple is doing. I think apple beats SONY up on Price pretty hard as they do with all their components suppliers. And so I think unless apple feels like there's a twenty year bet to make, they're happy to keep continue letting IT play out as is sourcing.

Yeah and maybe they do maybe the all the works are doing in the image processing pipeline, they're like, no, we need the sensor too. But I haven't seen anything to that effect so far. Go the other bear cases like SONY is fully out of the business that they used to be in where you go buy a bunch of oni gadgets and put them around your house.

Now they are like we sell you a gaming system and then we sell specialized stuff or were no em. And the O E M is either on the content side or on the, you know, components side, selling the image centers to apple and others. But IT is a little sad to watch. The original tony can be done other than maybe their camera line is probably the closest thing to what they were originally.

It's just kind of hard to get like super excited about anything in the future for so on right now. Obviously, the police station has been this incredible success, and I don't think microsoft is gonna completely take the market from them now or possibly ever. But yeah, the imaging sensing business also incredibly impressive, but they are component now. Like what would a book, a mary, to be thinking about the current state of the company?

I bet a booker would be excited about the P S V R two. I think right now, this current generation, the oculus quest two, is like it's much newer than the P S V R, but I think it's like massively outselling IT. And so if you were going to a get excited about something, I think that would be, uh, there I say a metaverse bad and then producing a good V R system. And I suspect what that means is that he would have to believe the long term future of V R is actually in gaming, not in lifestyle, which if apple comes out with something, it's gonna be for all over the place, at least all over your house.

That's a good point. And with you know sentiment about a meter oculus yeah there's a there's a real opportunity for SONY there .

yeah that said, I think matter is investing just gobs and gobs of money and talent and everything into the next five versions of the you know that quest and everything that's going to come after that. And I don't know at this point, i'm not sure there's a baLance sheet ep enough to chAllenge the investment they are putting in other than apples.

Let me interesting watch that play out. Like I don't know. I'm sure we will talk about that on the show a lot in years to come. But like the facebook portal, right, is by all accounts of great device. And using that as a webcam is awesome, but I just link so my hard time about having a facebook device with a camera in my house all the time.

Yeah, I don't think that's gonna be an issue for a lot of people. I think they're gna do a good enough job distancing the many quest five or whatever is gonna the real consumer hit from an economy that people feel about what was once called facebook.

yeah.

Okay, let's talk about power. This was hard to do because it's a conglomerate. So the question is, do we talk about each business having their own power or lack the of? Or maybe let's first ask, does the conclave itself have an overarching power where IT actually effectively leverages the ownership of multiple business to help those businesses versus competitors?

I would say today, the answer is no. I do think in the past, there was a brand power. Oh yes, the went across much of the conclude. Maybe not all of IT for sure.

This is great. Actually thought you were going to take IT there until i've hold this quote in the new york times. In one thousand and eighty three, there was an article that said the technological leader, SONY, was able to command a premium for its weirs in the marketplace and refrain from Price cutting, allowing IT to keep its profit margins up.

Now the irony was that this piece was written right around the time that bata x was not catching on. And so they were starting to cut Prices, showing for the first time that they didn't have the brand cash a but it's actually the analyst writing that article says it's over for Sunny. The company's best days are behind IT and the stock would go up a lot after one thousand nine hundred eighty three. But the spirit of what they were saying was right, because I think, like the very thing that was a learn ing to Steve jobs, that this company makes stuff of the highest quality, always has the superior brand and therefore kan command higher Prices, was kind of going away.

Yeah.

David, for the rest of the seven powers, rather than going through each other individual businesses, is there one or two powers that apply to one or two businesses that jump out to you, in particular today, where you're like, oh my god, S H, this segment totally has this power.

Well, you say today, I do think the playstation story is an incredible story of network economies in the developers and the consumers of a two sided network economy where the more install base playstation got, the more attractive the platform came to developers. And the more developers on the platform making Better games, the more tractive IT was to consumers.

And just like g going to those numbers and doing the research, like I anio tally felt this as a consumer at the time. But like eight thousand games on the playstation versus four hundred on the end, sixty four. And I had both systems.

I love them both. But that's just like such a difference in the amount of quality content available to consumers. And likewise for developers. You know, tony had such a up hill battle to start in winning developers ever to the platform, but then by even before the end of the lifecycle of the first playstation, IT was just like the gravity was so much with that platform, that square, soft and cap com economy. And actually like they had to come to the police station.

I think that's a good point. It's funny as I look down because the question is why are each of these businesses able to have outsized profits versus competitors? And if I look at going down the list today, music first as competitors, I don't think so.

I think there's no logo poly in that business, and that's why they are able to be really profitable movies. There are one of the big five studios, but I don't I should look at the numbers at the other studios to confirm this. But I don't think they'll like more profitable than the other ones that they have a real edge the way that disney does with all there in house. I P about the .

spiderman deal. That's a great resource.

I think they are largely competing in the marketplace with pictures, uh, with electronics products and solutions. I kind of feel the same way. I know i'm over indexing on cameras because is what I know and there's a lot of other stuff and hair, head phones and at lots of stuff I missing.

But I feel like they have a superior product a lot of the time, but they're really not able to communicate that in a way that i'll enables them to Price meaningfully higher. Like I think if the SONY camera was twice as expensive as a comparably good, you know, cannon, I would definitely would get cannon. H, I don't think there's anything, any, any reason why they're able to be extra profitable there, and they historically haven't been.

Financial services are just generally good businesses, so no surprise that that's a profitable one for them. And then I just comes down to gaming, which is you know close to a third of the company in revenue and profit. And I don't know what their power is today there.

I think I worry that they're really isn't one. There's not a lot of players. The big investment to do business with them as a game developer is expensive as a consumer. IT has meaningful switching costs as a consumer to switch from one ecosystem the other and buy a new box and learn all the new controllers.

It's interesting though, like with game pass. And if though if the industry moves much more to subscription dynamics, I do think a lot of this power goes away. Switching costs become a lot lower, network economies become a lot less powerful. Well, that doesn't .

leave us with a super rosy outlook for the company other than that seems well run right now. I would say that has Operational efficiency. They are effective at identifying markets and going into them. But I don't think they have a particular power that were excited about in the way where we analyze some other companies and think, oh, this is a fifty year defensible organization.

Now the only one that jumps out, you know, from the story and the history is the previous incredible power.

the brand. yeah. Well, before we move toward grading here, and I think instead of value creation, value capture today, I want to pose one question to you. And this is something that I found myself thinking about a lot in reading made in japan. And of course, it's why it's titled made in japan, which is, let's pick three points in time, the day that SONY started, the hay day of the early nineties and today, what does made in japan mean?

Cause, famously .

accurate, his goal with SONY was to transform, meet in japan on a product from all this is of low quality to all this is of high quality. I tell you, mine, and you can pile under this. My view of IT is IT absolutely worked in the nineties.

And I think when I was buying a lot of japanese electronics in the nineties, to me, it's like buying a japanese car today, like I own a handle because i'm certain that's very high quality and durable. And I felt that way about SONY a lot. So a sort of mission accomplished for reader and friends today.

I don't think that it's any lower quality, but the totally dynamic nature of global supply chains and brains has changed things where I buy so much from american companies that work with design partners overseas, as we've learned from. Germy, itc and L P, O, where the manufacturers are deeply involved in the design that IT feels like I buy more from american companies that are manufactured elsewhere. And I don't feel like I buy as many things from japanese companies. And I don't think that I would say my brand perception of something that has made in japan as any lower than I would have thought in sony's heyday. But IT hasn't continued its ascendency.

It's interesting that that's what I was struggling with when you ask the question is how do I feel today? I one hundred percent. And gree, when SONY was started, main japan, for most people in the west, probably meant loquat signified equality.

And then by sonny's, he signified high quality. The interesting thing about today, also on the same page with everything you said, it's also interesting that that same playbook has been run in so many places now, so successfully. Like same thing in korea he do after he came right, right on the heels of the journey of made in japan, from low quality to high quality.

Same thing in korea. And then the same thing in china is like an even bigger way. And so this as a consumer, having had that played out of one of times.

Now i'm just much less like, oh, okay, like if something is low quality or high quality now like that means nothing to me. That means very little to me about whether IT might be that way in the future. And I just assume that any location that's coming up the learning curve of product production is going to get to a high quality place.

Yeah, I think that's right. I also just expect that everything is made outside the united states. And so if I am buying from any brand anywhere, I expect that it's actually made in a lower labor or cost location. And so I I guess I didn't think about anything where it's made nearly to the extent that people were when companies were headquartered and in the same place that they were designing and manufacturing and marketing problems like that .

era is kind of exactly a lot .

of people don't want IT to be, uh, when they're marketing made in amErica goods because they want that to be a excel point. And I think there's a lot of people who do really care about that. This notion of like where the sticker on the bottom says that was me as consumers just don't pay attention the way that they did, especially when we were recently at war with a lot of those countries.

Exactly what you said, IT used to mean a lot where something was made. And I think that just means a lot less.

Now at a good point, actually, yes. So this cancer is a two access thing where it's like, well, IT went from, meaning something was low quality to high quality. And then the magnus de, of how much IT matter, just one away. We want to to think our long time friend of the show, venter, the leading trust management platform, venta, of course, automates your security reviews and compliance efforts. So frameworks like soc two, I saw twenty seven o one, gdpr and hypo complaints and motoring then to takes care of these otherwise incredibly time and resort training efforts for your organization and makes them fast and simple.

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So grading you can choose to have another way to agree this one um but I wanted to draw on comparison. So in two thousand and four there were two consumer electronics companies that both had a market cap of about thirty billion dollars. So this is after that big oni crash, they both had pretty thin that income margins of around two or three percent.

So neither is really making a lot of money. SONY obviously wanted them. SONY grew to an impressive market cap of one hundred and fifty billion dollars and about where they sit today.

And they grew that pedi that income margin to thirteen percent today. So they're generating income. Now unfortunately for our comparison, the company has started right at the same starting line as them is apple. I figured the apple is now worth two point eight trillion dollars, or about nineteen times what SONY is worth. And they generate twice than an income margin percentage at nearly twenty six percent. And the ad insult injury, apple is also growing their revenue twice as fast, even with the crazy high numbers that they have today at thirty percent per year versus SONY fifteen percent per year. So SONY strategy coming out of that terrible era for them was good apples was the greatest in history.

yes. Thank you. As always to picture how the way for keeping me invested in apple.

So it's like, okay, well, you both kind of had the same opportunity. And sonny, you get enough. To the extent that this was the opportunity and IT was for both of them, I mean, you look at they were both starting to make M P.

Three players. They both had a line of computers, so didn't have an Operating system. So they looked in many ways, sort of like apple in the nineties in their diversity of products, cameras and headphones and other stuff. P, D, S, all that, but without good software. And apple by shifting down to just a few product lines and focusing on the integration of hardware, software and services, not to mention suda monopolistic c distribution channels like the APP store have just built like the greatest business in history. And SONY sort of continued as a reasonably undifferentiated manufacturer of electronics and now other stuff.

IT is amazing to put the mac business aside for a second. You know, all of apples businesses, M, P, three players with the ipad, other great successes, the iphone, the ipad.

the watch. I'm certain SONY at one point made a digital watch at the may, have even had one.

sure. I'm sure. I'm sure they did. They certainly .

could have a tablet. P, C, A, P, C, like this is all the.

the stuff they do. These were all markets for SONY, you know, to lose headphones, and they lost every single one of them. Headphones, right? headphones.

How bigger businesses? airports?

Enormous, probably. Well, I ve been done the math, but there are all these articles about how the airport's business alone is. Like, you know, fortune fifty company is probably the biggest SONY .

at a great point. Maybe that's to follow up tweet for us at some point in the future. Listeners, if you want to help with the math, airports verses SONY, what a bigger business.

So why is IT that these things happen? I mean, we talk about a lot of reasons. A big one is apple, every time they released a product, figured out Better reasons for you to get product and plus one if you had product.

And and they all work together really well. And like I have a lot of grapes. I wish my pod switched, you know, between my computer and my phone more cleanly.

But I ve lost stuff like that. Like at the end of the day, there exists our true ecosystem, getting a message on my computer, on my phone. Amazing game changing. I don't think i've ever owned a SONY product that worked with another SONY product in a meaningful way at all.

They for a long time wanted you to think that they did. And that was part of the brand halo. I think I certainly felt that way, you know, when I was Younger and when I was a kid, I know my family felt that way.

Having everything SONY well, I meant you are getting the best, but like also having IT all together as so it's all going to work together. But at the end of the day, you are just wiring up boxes with, you know, coache al cables between them, like there was nothing. There was no computing magic. There is no software magic there.

So in some ways, this like recent era, and I think we should grade the other errors of SONY too. But this recent era where they grew market cat from thirty billion to one hundred and fifty million, it's like it's kind of obama to call that an f. But given the opportunity that was in front of them and we kind of have the counterfactual with apple of like what the other Operator looks like from a company that was modeled after SONY, it's A P F. There is no way your net two point eight trillion less of value.

I mean, I guess an f would be like nokia, something like that.

Yeah, right. I guess that I was positive if I didn't got a business.

So sure maybe it's A D I did. They're still alive, right?

Ah oh, they only five x there are really big business over the harsh .

to cut enough, but we don't do engh no see isn't is i'll .

go d how do you think about other errors?

Am hard pressed to think of anything I accept. You know, a maybe in a plus for the initial era through the day day like coming out of world war two with every card in the deck stacked against the company and the country to then build one of the most respected brands for quality around the whole world and a true innovation for decades. A book is founding perspectives to create A A place for engineers to work in the joy of their pursuit of technology and, you know, benefit society that I think was probably selling for a decade. Yeah, an incredible story.

It's hard not to call IT an a plus. Coming out of world war two in japan, the whole run, all the way up to the midnight ties. Just astonied execution you .

know this may have been a timing coincident, but really you know the run was over when organ finally step aside and he was he was the last link to the original days yeah the original founders it's weird.

right because it's very unjaded ese. But IT is not a multi generational company .

yeah is unlikely to be a fifteen generation four hundred year dyna sty .

and baby well, but I just want to be meaningful in those letter really after the first generation of founder, said the company in the world and Frankly, the second largest company by market, cap t japan's. So it's a big it's an important company in the world. There are one of the three majors, like everything I said at the top of the show, their dominance across, or at least top three in many important categories is still true. And yet I don't think anyone's really looking at them and saying they are the innovators of tomorrow. No, it's like somehow both of those can be true at once.

Yeah, I feel strange coming to the end of this offer .

you we can just .

make IT never end that's that's a quiet team but it's not often I do on the show where we get to the end of the story and we're like, hm, that's mediocre at best you know in terms of where we are right now.

Yeah, well, we just don't tell the stories very often where the brain states were behind them yeah well.

who does maybe focus SONY? I'll listen to this the post plenty of other criticism in the marketplace .

on them too emotionally. I do feel like the best states are behind them rationally. We'll probably make more money in the last ten than in any other ten before IT. But the way that we're sort of trained to analyze these companies is are you going to a continue growing at three hundred percent a year for the or like like even apple only grows at what thirty percent a year, only thirty percent. Microsoft only accelerating in their forty, fifty or fifty years of business.

whatever this is, right? Zon any these companies.

But we do have faith that those companies are going to come out with the next innovative platforms. And you know, we're excited about those that the way that we're talking about the apple headset, we are not talking about the SONY heads set at that way.

Yeah, yeah.

alright, we have beat the horse, should do some quick. car. Vets.

yes. What's do great? Car vets, right?

I read an awesome, awesome article called how all this happened by Morgan housel. And I cannot recommend IT enough. IT is a fascinating look, is another story that starts in world, world two and comes to today. And it's basically a look at the plight of the economics that consumers experiences in america. And I talk about everything from, you know, the housing boom to the people's dead load over time, to, uh, the rise in a people buying stuff, get like a hard core consumerism and the national tenor of people's feelings toward all these things throughout different decades and IT winds this wonderful story, sort of explaining how we got to where we are today as a society economically.

That sounds like right up required families only.

yes, and it's shorter than you think. It's a long peace. But sure than you think based on the way I just described, uh, that's okay. And organs to such a Stellar, Stellar writer, I mean, you can go wrong .

reading and navy stuff are I have very act carve out for the episode i'm very excited about. I've been waiting a long, long time for, you know what .

it's gonna .

tell you .

I don't. I feels gaming related.

No, no, no, no. Well, maybe I finally took delivery of the model three that I ordered months ago. It's awesome.

It's so great. It's slake. Uh, you know, we test the the polestar of electric military competitor, and we looked at a few other things.

And at the end of the day that like gosh, it's just so good. I feel like the tesla brand and the experience and all about IT is just like SONY. Back in the nineties, we have a noticed any penel gaps or anything on on our model three.

It's no seems to be all fine, but like the experience is so amazingly integrated from the buying process to the delivery process like picking IT up. I got ta text on my phone with the notification to go in the tesla APP, finish up my paperwork and then they're not for whatever reason, in different as go. They're not doing driveway deliveries.

So I went to the dealership in marine and they're like, your car is in parking style, eat, go to IT, you know, look around, see if IT luxury to you, and then click except india. And then I just except I get in the car is basically a computer on wheels, which I know is tried. Everybody says that, but like experiencing and like he really is and then I just drive off. I'd like the APP is amazing. You get the live century camp you I can pull up right now live cameras on the car in the APP I can do everything from the APP promote in the car it's it's pretty cool.

I am deleted. You're related. You hear these things but it's nice to hear IT from like someone who is actually going like, you're glowing right now, you know.

all right. Well.

listeners think that about does IT if you're like, man, I I wish more people would talk about this topic with me. I have a feeling at a quired data m slash slack. There will be plenty of people talking about this, so come join us, talk about the news of the day, will talk about acquisitions like microsoft buying activision buzzard and SONY buying boundary. We also have our limited partner show in our latest episode is with repeat guests from N Z S capital talking about what on earth is going on in the markets right now.

In their view, if you were a paying lp, you have access to those episodes two weeks before they hit the public feed, which in market shopping is like this is helpful to the extent where here are learning things that you think, of course aren't n investment advice, but may help the way that you think you'll also if you join the L P, you'll get access to our L P. Only zoom calls. So if you want to access the public version of that feed or become an acquire limited partner, both of those are linked in the show notes.

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