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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 a like two year old company. We need another FTX soon. We're like literally enough days haven't passed for us to make the episode long. Yeah, exactly. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?

Welcome to Season 10, Episode 3 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I'm an angel investor based in San Francisco.

And we are your hosts. Listeners, today we are telling the story of the company that Steve Jobs idolized and modeled Apple Computer after, the Sony Corporation. Literally modeled himself after. You know the story, right? Of the black turtlenecks and the Sony connection. Enlighten us. Well, so the story goes that Steve idolized Sony, went over to visit, and...

saw that there was a uniform 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 uniform? And so he brought it back. He made a proposal to Apple and people were like, NFW. And didn't the Sony employees have uniforms because like,

Clothing was scarce after World War II. Yeah, I think that was part of the origin. So Steve decided, okay, if Apple can't have a uniform, I'm going to have a uniform. And so he went to Issei Miyake, the famous Japanese designer who had made the Sony uniform for

and got him to make him 100 black turtlenecks. Amazing. There's so much about our generation that we remember from Sony growing up, the Trinitron TVs, Discmans with advanced CD skip protection, 30 seconds worth, even more recently, the excellent professional line of cameras that Sony makes. And actually, David and I are both recording on right now. As well as Sony headphones right now, right? That's right. Yeah. But

Sony goes so much deeper than that and also so much more broad than that today, expanding into 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 bot of old, the precursor. You might say that, yes. They are the

second largest Japanese company by market cap behind only Toyota. They're 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 T-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 II to Spider-Man to tell you here today.

And

And just like them, ServiceNow has AI baked in everywhere in their platform. They're also a major partner of both Microsoft and NVIDIA. I was at NVIDIA's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

So why is ServiceNow so important to both NVIDIA and Microsoft, companies we've explored deeply in the last year on the show? Well, AI in the real world is only as good as the bedrock platform it's built into. So whether you're looking for AI to supercharge developers in IT, empower and streamline customer service, or enable HR to deliver better employee experiences, ServiceNow is the platform that can make it possible.

Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately. For example, smarter self-service for changing 401k contributions directly through AI-powered chat, or developers building apps faster with AI-powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

With ServiceNow's platform, your business can put AI to work today. It's pretty incredible that ServiceNow built AI directly into their platform. So all the integration work to prepare for it that otherwise would have taken you years is already done. So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow.com slash acquired. And when you get in touch, just tell them Ben and David sent you. Thanks, ServiceNow.

We also want to tell you, if you are new around here in these acquired parts, which many of you are after a nice little growth spurt, thanks, Taylor, you should make it official and join the 11,000 other smart folks at acquired.fm slash slack. We'll be discussing this episode, the blockbuster acquisition news of the day, and you can meet other awesome people in there.

You also can get access to our second show, the Acquired LP Show, by searching Acquired LP Show in the podcast player of your choice. Well, David, without further ado, take us in. And listeners, please know this is not investment advice. Do your own research. David and I may or may not have investments in any of the things that we discuss. And this is for informational and entertainment purposes only. We're going to discuss just about like every industry under the sun today. Right.

Oh, my. Well, first, we start back in the summer of 1944.

in the Tsukishima neighborhood of Tokyo in Japan, right next to Tokyo Bay. I think this is right near where the fish market is, if you've ever been there. I haven't. I've never been to Japan. No way. Oh, you got to go. We should do an acquired trek. Totally should. Jenny and I went there on our honeymoon. It was so, so awesome. We did Kyoto, we did Tokyo. Oh, it's wonderful. Oh, nice. So there, in the summer of 1944, obviously...

Most people are realizing right now there's quite a big worldwide thing happening in the summer of 1944 that Japan is intimately involved in. That would be World War II. 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. They, I think both of them probably believed that the war was a terrible thing for everybody. And it certainly was, but they also were particularly not into the war because they're pretty certain that when, uh, you know,

Pearl Harbor happened and Japan decided to pick a fight with America, that that was a really, really, really bad idea because they're technologists and they know that America has the best technology in the world at this point in time.

Yeah, listeners, David and I both read a couple books to prep for this, but one of them is the excellent Made in Japan, co-written by Akio Morita himself, who we're about to introduce here. And he talks about this a lot, where he's really idolizing the technology and the innovation coming out of the US and sort of knows from reading everything that he possibly can get his hands on. And I know this is a very US-centric view and a very US-centric thing for me to be

proud of, for 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. Yeah. I went in and looked up population statistics from the World War II era and

And Japan had about 70 million citizens before World War II. The US only had about 130 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, heck, they picked a fight with China who has a lot more people. But no, it was specifically that the technology was just so much farther advanced in America than anywhere else in the world, especially Japan at the time. Yep. So...

You referenced Akio Morita. He is one of the two engineers, but he's the junior engineer working on this project. The senior engineer, a man who's 13 years older than him, is a man named Masaru Ibuka.

And he is a prototypical engineer's engineer. Like this guy loves technology. I can't remember if it was Morita or somebody else in one of the books I was reading lovingly referred to him as a dreamer. Yeah, it's so right that Morita, while he does have a physics background and he's definitely a...

engineer. It is right to say that Ibuka is the engineer's engineer. And Akio has much more of a sort of marketing sensibility. And while he invents a lot of these technologies and sort of understands it, he's the business side. You might say that Ibuka is like the Waz and...

Accio and Morita is like the jobs. That's a great comparison. Yes. So Ibuka loves technology and particularly he is fascinated at this point in time by radio and all of the applications of radio. This was like one of, if not the major technological paradigm of the 20s, 30s, 40s. And

And due to his proficiency in radio, when the war started, the military and the Japanese government made shortwave radios illegal in Japan. Now, this is also paradoxical. I've learned all this. Did you know that shortwave radios are actually long distance transmission? I

I did. When I was a kid, my dad and I used to try and pick up shortwave coming over the ocean, and you could only do it, I think, at night because there was less electromagnetic interference from the sun or something like that. Yeah. But...

Isn't the spirit here of doing this so that consumers can't listen in on... I don't know if it was the Allies' signals or the Japanese's military plan. Exactly. I think a lot of governments did this during World War II, but certainly the Japanese government, they didn't want their citizens listening to propaganda from...

the allies or other countries, which of course, you know, the Americans and others were broadcasting all around the world. If you're going to listen to propaganda, it has to be our propaganda. So they literally made it illegal to sell, buy any shortwave capable radios that consumers had. They had to take out components that received shortwaves.

I think a lot of it was the government officials who were coming around to modify the radios were just clipping wires. Like some of it was modifying components, removing it, but other ones, they just go in and be like, oh yeah, there it is.

Ibuka, though, he's just like, all right, sure, whatever. You can clip as many of my wires as you want. I'm just going to keep making my own shortwave radio. So he knows through that he can listen to transmissions from the Allies and others. And he knows that despite what the government is saying in 1944, the war is not going well for Japan. When we say radios, the thing to picture listeners is like reasonably large

high power, not portable radios that use vacuum tubes is an appliance to have a radio at this point in history. So, okay. So that's Ibuka. The other engineer, of course, is Akio Morita. It's pretty amazing that he finds himself here in this place in this moment because Ibuka

He is the eldest son of the 15th generation of the Morita family of Nagoya, which is the family that controls one of the largest Saki empires in Japan. And literally for 400 years, his family has been running this business and is one of the most prominent families in Japan in the province of Nagoya. 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 US isn't 400 years old. Yes, exactly. And I mean, part of it is like, you know, there are umbrella shops in London older than our country.

But yes, the Japanese, in particular, Japanese sort of family businesses think on a 10x timeline to the way that we sort of think about them in the US. And the way it works is that the oldest son of each generation, they literally have to change their name to... Kayu Zemon. When they take over the business, and then they become like the head of the family and the head of the business. And so Akio, he's destined, like he's born into this, that he's...

going to take over the sake business. And of course, it's always a little bit of a point of tension with the family where Akio is taking apart radios and like building stuff and everyone's sort of looking at him like, boy, you sure are interested in physics for someone who is 100% going to take over our sake 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 10, he starts attending all board meetings of the business. So he gets a real business education alongside his interest in engineering and electronics and tinkering. But unlike his father, you know, Akio's growing up in the 20s and 30s.

They're a wealthy family. They're getting all this American technology into the house. They're getting American radios. For Merida, the big moment was when they got an American phonograph and records. And he just fell in love with this and 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 war, he asks his father,

to sort of ceremoniously release him from his duty at his destiny to take over the business, which his father does. And by all accounts is very like understanding about this, shockingly so. And Merida goes off to study physics and engineering instead of going right into the family business. So there's no way I think he or anybody else could have foreseen this, but

I have to imagine that that very likely saved his life. Yeah. Because when Pearl Harbor happens in 1941, Akio is 20 years old. So if he hadn't gone into...

engineering and studied physics. What he is able to do is he's able to join the Navy as an engineering researcher and get assigned to work on technology weapons research projects like he ultimately does here in 1944 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 Akio Morita's book that his younger brothers were actively sort of training to be kamikaze pilots like that would have been his future. Yes, there is still quite a high price, though, that Morita has to pay for landing in this relatively plum and safe assignment. He has to sign up for 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 loves research. So, okay. Yep. That's what I want to do. Now we fast forward to August 15th, 1945. The U.S. in the week prior has just dropped two atomic bombs on Hiroshima and Nagasaki. Yep.

The reaction that Morita has, he writes this, this is literally the opening paragraph to the book to Made in Japan. Quote, I was having lunch with my Navy colleagues when the incredible news of the atomic bombing of Hiroshima 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 it meant to Japan and to me. The future had never been more uncertain. Japan had never lost a war.

And only a young man could be optimistic. Yet I had confidence in myself and my future, even then. Wow. There's also this fascinating thing where he sort of knows a secret. The next day after the bomb has been dropped, when he hears about it and hears first party accounts of it, he knows exactly what it is. And I think if I'm remembering right, he thought the US 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 gets to decide, well, okay, 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 notes here, but it's in the book. Everybody should go read the book. It's really, really great. It's the shoe dog of the 80s, truly. It is. 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 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's like, look...

what this means, this bomb, like, don't, don't do that. Like it's over. It's over. 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, it is my duty to come back and perform whatever ritual we are all performing as ordered by the emperor together. And what he's doing is looking around and saying, I'm

Guys, I don't think there's a regime here anymore. I think it's everybody figure it out and go care for your families and...

you know, the allies are going to be here soon and let's hope they're benevolent to us. Yep. So I said August 15th, that that's not when the bombs are dropped. What happens on August 15th? That is when the emperor goes on the radio in Japan and announces that Japan is surrendering and that's, you know, everybody to surrender. And this is amazing. The emperor going on the radio, the vast, vast, vast majority of Japanese people,

throughout all of history had never heard the emperor's voice.

So the aftermath is awful. There are two and a half to three million people dead in the war, both soldiers and civilians. By contrast, less than 500,000 Americans died in the war. So it's pretty bad. And outside of just Hiroshima and Nagasaki, which, you know, it's just so awful. I mean, the darkest moment in human history, what happened there, or among the darkest anyways, even in Tokyo and all these other cities, they're destroyed. I mean, they got firebombed

over and over and over again. I think it's something like half of all Japanese urban citizens, even in Tokyo, are homeless. Yes, 47% of Tokyo citizens are homeless at this point. The per capita income in the country the next year in 1946, the first year after the war, is $17. You can inflation adjust all you want. You are not going to make that a meaningful number.

It's unreal. And the country is transformed. Japan is banned from having a military ever again. There's occupation forces that are running the government. The imperial dynasty is at a minimum not what it was before. So Morita goes back home to Nagoya.

Ibuka goes right back to Tokyo. The research project had been evacuated out of Tokyo before the end of the war as the bombings really started in Tokyo. But he goes right back to Tokyo amidst all this. And what does he do? He founds a company. He's like, and you know, I think part of his vision, Morita would contribute to this too. But I think Ibuka really saw

huge opportunity after the war in that all this technology that had been focused on military and industrial use, but primarily military use around the world and in Japan. Japan doesn't have a military anymore. 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 realize that Ibuka is truly an irrational optimist.

The national tenor couldn't be more bleak. And yet Ibuka is like, let's start a company. Yeah, let's start it here in this completely war-torn, bombed out old building. Sure, let's do it. And let's serve a market of people that have no disposable income. And half of them don't even have homes. Unbelievable. So he creates a founding prospectus for the company.

which starts out that the purpose is to, quote, establish a stable workplace where engineers could work to their heart's content in full consciousness of their joy in technology and their social obligation. This question, what is he going to name the company? He, of course, comes up with a brilliant name. Sony, no. He names it the Tokyo Telecommunications Research Institute.

befitting of his goals. Yep. Sounds like something founded by a former military academic. Yes. So he's founded this company. He's assembled a few engineers. He wants it to be a haven to work on their joy and technology and social obligation.

There's just one question, which is what products are they going to make? Which is not a part of the founding prospectus. That's the best thing. It's like, oh no, we don't have an idea. There's nothing in it. We have a lot of engineers. We just want to have a place where engineers can be engineers. Yes. So the first thing they try is a rice cooker, an electric rice cooker. They can't get it to work. The next thing they try is a electric heating blanket. That also doesn't work for

various reasons. And then finally, they get the brilliant idea. It was obvious. If only they'd been listening to our episode here. We've been alluding to it all along that they should just fix the damn radios that everybody has in Japan. It's like, sure, it may be a services business, but if you can just open up for business and let people bring in their radios and you can modify them to make them...

Unclipped, at the very least, for the easy, low-hanging fruit. That seems like a business. People want not only news that people are desperate for at this moment in time, but they also want entertainment. As bad as things are, people want something to remind them of a better time and a better future. So...

they start doing this and things go well, go well enough that they actually get a little write-up in a national newspaper at the time about the service that they're offering and how high quality their work is. I doubled down on service there. I think eventually they do come out with products too, that people can sort of like modify their radios by attaching this product and it turns into a shortwave antenna or something like that. Yes.

who reads this article, but Akio Morita, who's back home in Nagoya, he reads it and he's like, Ibuka, he's created a company. He's created this haven for engineers. I would kill to work with him again. So he writes Ibuka and says that he wants to come to Tokyo and quote, be of service to him and the company. What does he mean? Why does he say be of service? Well, Ibuka,

One, he sort of figured that money was tight then and the new company might not have enough money to employ him. But the bigger problem was it's pretty unclear what the status of Merida's obligations are at this point in time. Remember, he signed a lifetime employment agreement with the Imperial Navy, which

Which may or may not exist anymore. Probably not. It's unclear. Not to mention, so there are like 20 engineers at the company already, even though they really can't make much money doing much of anything. So the company is like kind of established. So even though Akio is like, hey, remember when it was sort of you and I working on this thing together? I'm reading between the lines a little bit, but I think he's a little bit like searching for signal on does...

Ibuka want me like you assembled a team of 20 and you didn't reach out to me bond that we had. Yeah. So it sort of never comes up again. They're thick as thieves, you know, forever after this, but it is sort of interesting to me that Akio Morita was not one of the first 1520 people at the company.

Yeah, you're right. Nobody really knows why. The speculation in some of the books and things I read are just that Ibuka really is just kind of a dreamer and he just might not have thought about Morita. But once Morita writes him, he's like, oh, yes, I definitely want you here. Yep. The company, by the way, if you go to Sony's website, they have meticulously maintained corporate archives. And if you go and request them, they will like...

I don't know if it is anyone or if it's just journalists or whoever special guests, but like they have this stuff preserved and can sort of like bring it out to you with gloves on and let you read the founding prospectus. They've maintained this stuff for, you know, 70 plus years. Yeah. Ah, we should go do that someday. Yeah. Okay. So what does Marina do? He finagles an assignment in the military quote unquote to get a teaching assignment at a university in Tokyo still sort of through his original, uh,

contract employment agreement. But he knows what's about to happen, which is that the occupation government is about to decree that everybody who was previously in the military needs to be purged out of government, but also out of education. Which is totally fascinating, right? This idea where if you're the occupation government, that's sort of like,

helping the country heal. You're there to make sure that it doesn't break into war again, and that after you drop atomic bombs on this country, that you're sort of 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 up in a completely detached way 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 and time that we have grown up, for sure. Totally. So anyway, it works. The strategy works for Merida. He gets purged, quote unquote, from his job and he's a free agent again. Or sort of a free agent. I just have Taylor Swift on my mind and her story because of our recent episode. But literally what happens next is like a big machine moment. Merida and Ibuka, they want to join up.

He wants to go work at the company. But now that he's 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 new company that they're sort of restarting together. You can tell that this is very important to Ibuka because Ibuka goes to the family dinner with Akio. Yes. So they both get on the train. They go to Nagoya. They go have, you know, family dinner. They ask for...

father's blessing for him to become partners with abuka in this new venture they get the blessing and 190 000 yen investment in the new startup company and over the next couple years the marita family would put a little more money in over time and eventually own 17 of the company

I don't have the exact dates here, but even by like the early 2000s, the Morita family still, I believe, owned about 10% of Sony.

Yes. As of 1999, the family controls a 10% share, which at the time was worth roughly $5 billion. The question is, what's worth more, the Morita Saki empire or the 10% stake in Sony? The 10% stake in Sony. Well, it depends what years you're talking about here. That's true. That's a very good point. Yeah, Sony had some dark years in the future. Okay. Okay.

So they're now in business together, poised for the races, but they're still doing this radio repair and add on and modifying business. You know, that's great, but that's not like it's a service business. It's a add on business at best. So they're looking for a real product to make.

In 1949, shortly after this, Ibuka gets a chance to see an American tape recorder 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 Ibuka got to see is the company Ampex in the US. They make the machines. And the way the industry structure works is they obviously have a great business, but they don't make the tape. So they're not going to be able to make the tape.

3M is the leading manufacturer of tape for tape recorders. Which is the Minnesota Mining and Manufacturing Corporation. Yes. Both of these companies are making huge amounts of profit on this new technology. So Ibuka comes back and is like,

Well, I've seen the future. We got to make this. And Morita understands a little bit about these business dynamics. And he's like, yes, we should do this. We should make these tape recorders for Japan. And we should also make the tape. Yeah, if we're doing it, we better be doing both. The other thing to say is when you're picturing this again, I'm going to keep resetting us because everything's gotten so miniaturized and componentized over the years.

When we say tape recorder, picture something about the size of like a small table. And this is not a cassette tape recorder. This is reel-to-reel. And it is, again, a hefty, hefty piece of machinery, primarily for recording, also for playback, but a huge piece of the value is the recording component. Yep. And it's all audio at this point. All audio. Yep. So...

Through some of the family connections, both from Merida and Ibuka's father-in-law had been a minister in the government before the war.

They start making these tape recorders, and there are all sorts of stories about how they do it because metals are hard to come by in Japan and plastics are hard to come by in Japan at this point in time, just after the war. The legend has that literally the first tape that they were making, they were frying metals in a frying pan in the factory. And that was to make the magnetic coating 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 saran wrap type material for the tape because it 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 Japan. They sort of start replacing stenographers, which were in short labor supply after the war. At this point in time, the company is known as the Tokyo Telecommunications Engineering Corporation.

T-T-E-C with their tape recorders. So they build a pretty sizable business in the Japanese market making these. And again, this starts so counter to the lean startup methodology. There is no job to be done when they start this. They kind of get lucky in finding their way to the stenographers and the court reporters as a market. They initially go out to sell this thing and people are like,

whoa, why would I pay so much money for that thing? No one has any money. And it's like a little bit of an accident of history. They actually found a use case for it. Totally. Yeah. I believe the first product cost 160,000 yen per recorder. You basically got to be selling to the government at that point in time. Right. I don't know how to think about that in terms of the dollars then or dollars now, but it's thousands and thousands of dollars.

Yep. Well, the Morita family's initial investment in Sony was 190,000 yen. And now they're selling their first product for 160,000 yen. Okay. So that at least gives you some context. Yeah. Okay. So this goes along for a couple of years. They're building up the company. And then the big, big break. In 1952, Ibuka hears that the...

world famous renowned institution that everybody respects and especially nobody more than Ibuka and Morita in Japan Bell Labs that the then parent company of Bell Labs which is a company called Western Electric yeah it went through a whole bunch of owners and it was all related to AT&T and the various entities as part of that

that they were going to open up the transistor for international licensing. And of course they had created the transistors

transistor in Bell Labs that they were going to license the technology internationally. And we talked with the NZS guys about this, but the invention of transistors and semiconductors, this stuff is so divergent. I mean, especially once we get to the integrated circuit, it's so wildly different than the path that technology was already on that it was kind of unlikely that anybody else toiling in a lab was going to independently find their way to it at the same time. So once this thing gets invented and you

all these brand new use cases sort of emerged, the opportunity to license that technology and use it to commercially make products in your country, that's huge. Keep in mind what we were saying for the last few minutes here about the size of these various, you know, technology, quote unquote, products that were being used, you know, the radios that were the size of console tables and tape recorders, the size of nightstands. So the transistor is available for license and Abuka is like,

this is it. You're just like when he saw the tape recorder, just like when he got obsessed with radios before he's like this, this, this, this, we got to do this. And Marita's like, okay. So Marita goes off to New York. This is, I believe in 1953 and negotiates a deal. It ends up taking about a year to finalize this, but negotiates a license from Western electric bell labs to use the transistor and

And the Bell Labs guys are like, well, what are you going to do with it? And Ibuka and Morita are like, we're going to make miniature radios with the transistor. And they're like, guys, you can't do that. This stuff's still done with germanium at this point. You can't get enough power in this to really power a radio that would actually work. We think the market application that makes sense here is hearing aids. Oh, yeah. Hearing aids. That's right. And...

Ibuka and Morita are like, well, no, the hearing aid market in Japan will not be a viable one for us. In fact, I think there's a cultural issue where it's perceived as like weakness to be hard of hearing. They knew for lots of reasons that there was no chance that they could build a big company, a big product making hearing aids. So they're sort of like...

betting the farm here on 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. They're nothing if not confident. And so Bell Labs is like, all right, well, good luck, guys. It takes two years. But two years later, in August of 1955,

TTC releases their first transistic radio product, the TR 55.

Now, this was actually not the first transistor radio in the world. An American company called Regency had worked with TI to make a transistor radio in the US. So like the Bell Labs, TI, like the rivalry. So TI and Regency had actually come out with a portable transistor radio slightly earlier in the US. But for whatever reason, they didn't invest a lot in the product and it never became a big deal.

thing for them. Sony, soon to be Sony, is all in on this idea of like, if we can shrink this down, people can take it with them. It can be portable. This would be great. So leading up to the release, they know they're like, this is going to be our big consumer product. Tokyo Telecommunications Engineering Corp doesn't really just like roll off the tongue.

anywhere and especially not in English or, you know, other markets around the world where ultimately we want to be selling products all around the world. So like we need 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 they're like, well, that's interesting. That sounds interesting. It means sound. It sounds cool. Yep. What do we do? We make technology focused on sound. Well, maybe we could do something with that. And at the same time, this is like such a funny cultural quirk. I think that this is because like after...

the occupation after the war. You know, there are lots of American GIs. Yeah, it was a Sunny Boy was being used a lot. And you could sort of hear a lot of young people out in the streets in the neighborhood saying Sunny Boy. And, uh,

He sort of wanted something that would represent a product for young people. And so the idea of naming it something that kind of sounds like Sonny or Sonny Boy would sort of appeal. And so wanted to merge this powerful Sonus with Sonny Boy. It's such a great name. And the other thing they do is, 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 or five iterations. It's...

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. It's such a brilliant nail. Like it works in every language, every culture around the world. And it really becomes, you know, synonymous with innovation for decades. Yeah.

So they release the TR-55. It goes well, but it's a first generation product. It sells well in Japan. They keep working on it. They keep refining it. They keep wanting to get it smaller. Ibuka has this vision of he wants...

a truly pocketable radio, a 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 headphones at this point. The radio is getting smaller, but still a 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

So two years later, they come out with the next version of the product, the TR-63.

this thing is a monster. So Ibuka, you know, he has this vision of fitting in the shirt pocket. It's just slightly larger than a standard like man's, you know, dress shirt pocket. So he and Morita really want this to be the narrative. So they outfit their sales force. They have, they have the Sony sales force that sells the products to, you know, the distributors and the retailers. They get special custom shirts made for all of them with a slightly larger than standard pocket so that they can demonstrate that

putting the radio in the pocket. It's amazing. Again, the Steve Jobs peril, like the showmanship of that, you know, it's like the MacBook Air in the envelope. Totally. So consumers go nuts for this. First in Japan where they launch it first.

Ultimately, the TR-63 ends up selling 1.5 million units at $25 each, which is... I actually don't have any financial data on the scale of the... Certainly not the radio repair business, but the tape recorder business. But suffice to say, this is...

orders of magnitude larger than the tape recorder business. Right. They've got a real corporation on their hands now. Yep. The company grows to 1,200 employees, the newly named Sony Corporation.

And of course, like the big thing that they want to 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 Merida comes back over to the US and starts talking with distributors about, hey, we've got this amazing transistor radio. Like we know consumers love it. We're pretty sure Americans are going to love it too.

And he connects with the Belova Watch Company, which I hadn't heard of it. The brand still exists today. Ironically, the Belova Watch brand is owned, I believe, by Citizen Watches, which I believe is a Japanese company. But at the time, it was an American watch brand.

And they're like, yeah, this is pretty great. We want to place an order for 100,000 units that we're going to bring over to America and sell through our channels. I mean, that's like huge. Marita's like, am I? Sorry, what? How many? How on earth are we going to make that many? Yeah, that is a huge, huge order. And Belova's like, well,

Yes, we want that many. But there's just, you know, the thing is like naturally we're going to be this big business partner for you. We we want it to be the Belova TR 63. We want to put our brand name on it. And I think Marita would later say that this was the single like biggest and best business decision of his career ever.

He turns them down and says, nope, you can sell the Sony TR-63 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 defined the company because company culture and company values are

don't mean anything until they're tested. And when I don't think he used the phrase direct to consumer, but when they sort of decided they wanted to be a direct to consumer company, that's cute and all until someone offers you a big pile of money to, you know, be a white label OEM product.

But I think when you're really tested and when it comes out is 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.

That's right. Oh my goodness. I forgot about that. There was that like iTunes phone that was actually a Motorola phone. That was a piece of rocker. Yeah. The moto rocker. That's right. But the HP iPod truly was just an iPod with an HP logo on the back. Did it have any special colors or anything? I remember I had the U2 iPod that was black and red. That thing was awesome. That was cool. I had that too. Yeah. Cause that was, I think that was predated product red, but would sort of become product red. Yep. I think that's right.

So, ultimately, what that leads to is a couple years later, Merida and Sony 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 company.

operation in America. So they start the Sony Corporation of America in 1960, and Morita actually moves to New York City. Originally, the intent was he and his family were going to be there for two years and set up Sony Corporation of America. It ultimately ends up being, I think, about one year because his father passes away and he has to go back.

to Nagoya. Ultimately, his younger brother would take over the family and the business. It is interesting how I think his U.S. license plate when he moved here was AKM, which is the sort of hint that he did always think about himself as the Kayu Zeman of the family. It was AKM 15. Oh, right, because he's 15th generation. The 15th generation. Yep, yep.

This also, by the way, the move to the U.S. is a thing that sets him apart versus his peers. Other Japanese CEOs were not

really willing to move to the US. And it was a very un-Japanese thing to do to say, I want to do business in the US so bad that I will move my family and become a part of this culture to do that. That just wasn't done. But it really sets up the business relations between Sony and US corporations and overall the business environment in Japan and America. I don't think there was any other company, maybe has never been any other company except SoftBank that bridges the two. There are...

American executives in Sony. At one point, one of them becomes the CEO of Sony, Howard Stringer. 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 nation, were unprecedented. I think the most telling quote of all is when Akio Morita passes away many, many years later in 1999, 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.-based founder CEO as the engine that pulled the U.S. economy? It's just, you can't make that big of an impact. You wouldn't 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 Akio's whole life, the quote is not hyperbolic.

No, no, not at all. One thing I just realized, I should correct myself. Howard Stringer was not an American. He's not an American. Of course, he was Welsh. He's British. Not Japanese. Yes. A non-Japanese business person. But yeah, you couldn't say that about anybody. You can't say that about Elon Musk in America. He's the engine that pulled the Martian economy. Yeah, right. Exactly. Okay. So let's fast forward a little bit. So we got this Sony Corporation of America set up.

Fast forward to 1966. I thought this was going to be just like a total side note in the history, but it actually becomes super interesting and important. So, you know, Sony, what's it all about at this point? It's audio, it's music, you know, it's first tape recorders, radio, like that's music and sound. That is literally Sonos. That's what it's all about. Japan has become a huge music market at this point in time.

And, you know, as we talked about on the T Swift episode, there's lots of aspects to the music market. There's obviously the devices and the consumption that Sony is in at this point with their radios, but there's also the recording industry. So before the war.

CBS 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 and doing distribution for Columbia Records artists and music in Japan. Side note, do you know why it was called Columbia? Yeah.

Because the C in CBS stands for Columbia? Yes. Yes. Second side note to pull forward from later in the episode. Did you know that Columbia Pictures is not the same Columbia? 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 Columbia? And then as I was digging into it, I was like, wait a minute.

These companies, Columbia Pictures and CBS, where the C stands from Columbia, chose the word Columbia completely independently. Completely independently. And that is not true. They did not stem from the same company. No. They are completely different. And yet Sony ended up buying both of them in their future. Unbelievable. They didn't reunite the Columbias. They united the Columbias for the first time. Okay. So back to 1966. Yeah.

CBS, newly re-interested in Japan, they're looking for a partner to set up a JV to access the Japanese recorded music market. Morita hears about this and hears that a CBS executive named Harvey Schein is over to handle this matter for CBS. He meets him and he says, I'm in. I will do everything in my power to make this happen. We want to do a 50-50 JV between CBS and Sony.

We'll be super flexible on whatever terms you want, and we will make this happen as fast as humanly possible. And Cheyenne is like, okay. And they do. Morita is true to his word. Within a year, CBS Sony Records is created. It's a 50-50 JV between the two companies, and it goes pretty well.

In fact, it goes so well, like blew my mind. I had to check this in a bunch of different places to make sure that this is accurate, but multiple sources have this. CBS Sony Records, which is the Japanese distribution arm of CBS's 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

and CBS. What? It is just a geyser of cash. This is because of the pent-up demand for the Japanese public to buy American recorded records? I would assume part of it is what you said, Ben, that there's just enormous demand for music and 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 is

around the world is signing all these artists and producing the music. And this is just distributing it in Japan. So it's all just incremental revenue. Anyway, this just blew my mind. Now, the other smart thing he does, which probably has a lot to do with CBS Sony Records success, is Morita puts his young protege in charge of running it in Japan. The young protege with a strong musical background.

Do you know who that is? Oh, I have no idea. Nope. Norio Oga, who would succeed Morita as CEO of Sony. So...

Oga, he was not a founder of Sony, but Ibuka, Morita and Oga were really the triumvirate for a long time. Oga was a classically trained musician. He was an opera singer and a conductor. Even after he was CEO and chairman of Sony, he would still like conduct the Tokyo Philharmonic Orchestra. Oh my God, that's wild. Unreal. He was like a legitimate musician. Yeah.

And in the early days of Sony, when he 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. And that led to Morita saying like, hey, this guy is like...

incredibly talented at business and engineering and products. In addition to being a musician, we want to bring him into the company. Oh, wow. And the first major role he gets is running CBS, Sony records, and then turns it into this geyser of cashflow. Like literally the stories about this are ridiculous. They were, cause it's a JV.

They both had to agree to do distributions, both 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 citrus groves in California to buy land, like anything to just park the money coming out of this subsidiary. Okay, so they're getting into music in a big way. Right around this time too, we're now in the late 60s, early 70s.

Of course, television is becoming a huge thing. Television's 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 than black and white.

I just assumed that like, oh, when color television came out, everybody started buying color TVs and black and white TV, you know, went the way of VHS, which we'll get to in a minute when DVDs 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. Without getting too far into the details, because we'll get way over our skis. Most of the time, the way that the color TVs 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're used to, it just has to be one white light electron gun. Well,

That's a much easier thing to solve. The picture is going to be crisp. Now, suddenly you're trying to line up this miracle. It's going to be really expensive. It's going to be really temperamental. It's going to be blurry in most cases. So yeah, David, you're right. The invention of the color TV happened and most consumers went on buying black and white. Yeah.

So Sony goes to work for years trying to make a really, really great color TV, like a color TV that could live up to the Sony name and engineering culture.

And the result of that is the Sony Trinitron, which is their electron gun system for creating a color picture on a screen. Which this was like a Bucca thing. Yes. He sort of like parachuted in and said, I know I'm effectively the CTO of all of Sony and we've got all these product lines. It's kind of like Steve Jobs and the Mac. He's like, I

okay, I'm handpicking a bunch of engineers. We're going to go start a brand new research project. It'll eventually be called the Trinitron. They put up the pirate flag. Yeah, we will figure out how to make a color TV 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 actually did make it cost Sony way more to manufacture than it actually was priced at at retail because their yields were so terrible. It was like one out of a hundred or something actually worked to specification. And so the company lost a lot of money on that, but it was totally like, okay, Ibuka's jumping back in and rolling up his sleeves and handpicking a team. Yeah. So the net of this, when it comes out, I actually don't have the full numbers, but for

some ungodly amount of time, like decades from when the Trinitron TV comes out. Sony is the number one by market share TV manufacturer in

in the world. Well, later in the episode, we'll come back to how that kind of became an albatross for them. Yeah. But I mean, I remember growing up in the 90s. It was like there were Sony TVs and there was everything else. Exactly. And I had no idea what Trinitron was like. Oh, Trinitron. It says Trinitron on there. I don't know what that means. Right. That was just some random Sony brand the same way that Bravia is today or was recently. It's like, oh, marketing. But no, it actually was the technology of the electron guns that they created.

So the Trinitron was a huge success and Ibuka was very much behind it. Merida and Ibuka get together and they're like, you know, okay, we've now got this toehold in, uh, in video with, with a display that we've created the best on the market. We've got number one market share. What if we sort of run the reverse playbook that we did with audio or go back to our, you know, our, our DNA as a tape recorder business? What if we created a,

a tape recording device that would work with our Trinitron TVs and would allow consumers to record video. That would be pretty awesome. I bet there'd be demand for that. So,

They work super hard. Sony engineering teams do for several years. And in 1975, 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 Betamax 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 about an hour on Bandcamp.

Betamax. We might actually have some young listeners that don't know that word, David. So let me just real quick say... Set the context. Anyone who grew up with a VCR, that's the thing that the Betamax lost to. Yes. VHS was the competing format that they lost to, which we'll get to in a minute. But Betamax, yeah, for many listeners, it's like the butt of a joke. You don't want to be the next Betamax. Exactly. So they introduced it in 1975.

And the killer feature that they market for this, it's the first product to market of a video cassette recorder that consumers can use to record television programs. So they 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 theaters and watch them at home, and that will be a distribution channel for movies. No, it's tape stuff off your TV. No, it's yeah, literally you do the recording, not you buy a movie that's pre-recorded.

And so they run these great ads. First big successful one is they have Bella Lugosi, who was the famous actor who played Dracula. And he's in character as Dracula in the ad. And he says, in a Transylvanian accent, which I won't do here, but he says, when you work nights, as I do, you miss a lot of great TV programs. And now with the Sony Betamax and Trinitron, you know.

It's so good. And so these commercials start going well. They start getting a bunch of sales, especially in the US, but all around the world of Betamax. Consumers are loving this. They got a hip product. So they want to keep going with this marketing theme. They reach out to MCAUniversal.com.

to do a similar ad. Would have been Lou Wasserman running it? Well, yes, it was Lou Wasserman and Sid Sheinberg. At that point in time, Universal, I forget which shows they were, but they had two of the top TV shows that they created the shows. They were studio behind the shows, but they were airing on different channels at the same time. And so Sony wanted to create an ad that like, hey, with the Betamax, you can watch both of these shows that you normally have to pick. They started talking to Sid Sheinberg.

about this and Sid's like you know Lou and Sid as we talked about with Michael Ovitz they are smart cookies and they were behind aggregating all the power in Hollywood before Ovitz came along so they're like huh this recording this time shifting this Betamax thing that's actually kind of a threat to like our right power to Hollywood like this could be a new you know sort of aggregation point in the point of power in the ecosystem and

We're not going to play ball with that. We're going to go full on scorched earth on Sony, who's trying to take our power here. So they respond to the request reaching out to do a commercial with them with like, hey guys, we think this is copyright infringement. And

And we're going to hit you with a lawsuit because you're stealing our content. Henceforth, there will be an FBI warning at the front of every video cassette. This isn't even about buying movies from the video store that the studios 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, you know, is bad and you could get sued and you could lose all your money and like, you know, Napster, everything else down the road all stems from this. Wow. So November in 1976, MCA files a lawsuit against Sony for enabling copyright infringement. That's right. They're not even actually doing any infringement. They're just making a machine that enables anybody on their own to allegedly infringe. And this is a major news story.

Harvey and Sid Sheinberg, they go on Walter Cronkite to debate this issue of like, you know, is it okay for both the lawsuit and is it okay for consumers to time shift? The lawyers would never let this happen in public now. I know. I know. It's so, so great. Can you imagine if Tim Sweeney and Tim Cook went on a national television show together to just kind of have it out and figure out? Yeah, that would be amazing.

Amazing. So the irony of all this is that it's great for Betamax sales. Betamax sales go through the roof because it's A, it's free publicity and market education. And B, at least American consumers are like, well, shoot, I better buy this before it goes off the market. Oh, right.

I mean, I went and downloaded Fortnite on all my iOS devices when I thought they were all going to be removed. Exactly. And so Morita, he's pumped about this. He actually orders Harvey, the CEO of Sony America, to start a $20 million advertising campaign immediately in the US for Betamax. And Harvey declines and doesn't go through with it. That creates a big rift between them. Unfortunately, though...

This was ultimately also the death of Betamax because I actually don't know what happened with the lawsuit. I imagine it was probably settled. I mean, at the end of the day, I, in the 90s, grew up recording television on my VHS. I think my Sony VHS cassette player video, you know, VCR. Of course, which they made. Yeah. Well, how does this all happen?

So other electronic manufacturers, even other electronic manufacturers in Japan have been working on their own formats and Lou and Sid at MCA are so pissed at Sony. The other, you know, soon to be arriving on the market competing formats come to them and they're like, we'll work with you guys. What do you want? Do you want to work together to build the, you know, movie at home industry? You know, we'll sell VHS tapes with, you know,

pre-recorded star wars or whatever on there great so mca starts working with the vhs format which was made by uh oh oh it has to be matsushita yes matsushita matsushita electric which of course is panasonic yes panasonic and jvc they had a few brands

But then remember from our CA episode... Wow, who ends up buying MCA Universal. Who buys MCA? Matsushita. 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...

VHS format and then offering their content exclusively in VHS that MCA Universal had a pre-existing relationship of collaboration with Matsushita. Yeah, a super deep relationship. But suffice to say, I mean, this was enough to kill Betamax. Yeah. Well, Lou and MCA had such clout in Hollywood at that point in time. I wonder if

them essentially anointing VHS and Matsusta as the winners was enough to drag the whole industry. Okay, so Sony lost Betamax versus VHS. That seems very clear. That story is very well told at this point. Interestingly, the 70s had a lot going on for Sony, the first of which was in 1970, they became the first Japanese company to be listed on the New York Stock Exchange. And so Americans actually could become shareholders of the Sony Corporation.

That's right. They did an ADR listing. So Sony's now tradable in Tokyo in the stock exchange there, on the New York Stock Exchange in the US. Didn't go so well with the Betamax, but they've got a few other pretty awesome tricks up their sleeve. Yeah. They've got essentially three bangers in the hopper here. The first one is the compact disc. So I did not realize that work on...

what would become the CD actually started like back in the sixties. Unbelievable. And the origin of this was that Oga, who we've talked about, who would become CEO of Sony, he in 1966 had negotiated a cross licensing deal with Phillips, the Dutch company where the companies could share their tech and share their patents and then collaborate on new technologies together. And so they start working on a digital, uh,

audio format. I believe it was the early 70s when they started working on this. How crazy is it that we're telling the CD story, the origin of the CD format before the Walkman? Before the Walkman. I know. Crazy. It takes many years for this technology to get to a point where it's productizable. I mean, it's crazy when you think about

with all the tech that goes into CDs. Totally. I mean, the first of which being precision lasers. And David, what else spun out of Philips that involves precision lasers? Ah, that would be ASML, right? Yep. So it's funny thinking about all the incredible innovation that we have today with small semiconductors made possible by

something that traces its roots back to the same sort of laser innovations, but late 60s research on a laser readable, writable disc. Yeah. And it truly is Philips and Sony working together.

to create the CD format and lasers and all the technology going into it. It's not until 1980 that it's ready to be productized. So they announced the format in 1980, the CD format, they signed up tons of partners in all industries all over the world to license it. In 1982, Sony brings the first CD player to market and then lots of other manufacturers follow suit. And the great thing is Sony and Phillips are getting royalties on all

all the hardware and all the discs being sold out there. Yeah. And let me say, when you say CD player, I think everyone's probably picturing something that looks like a Discman right now. Picture a VCR. It's a big box that, yes, you put a CD in it and it plays, but it is a sizable machine. So in just a few short years, by 1986, CDs become the dominant recording format by sales, passing recorders.

Yeah, I'm actually looking right now at the RAA data on this that I conveniently had from the Taylor Swift episode. If you look at US recorded music sales by format, the CD grew really fast. And I think there might have been like...

a handful of years in there in the mid to late 80s where cassettes were bigger than records but cds hadn't yet caught up yet but the cassette wave was kind of reasonably short-lived as the dominant platform between records and cds interesting well of course sony also does pretty well in the cassette industry with what you were referring to the walkman uh i

And this is another thing I didn't realize that the Walkman came out like pretty concurrently with the rise of CDs. But as you were saying, it's not like you could take a big honking, you know, home CD player on the road. No, CDs were not portable for a long time. Yeah.

So on the EA episode where we interviewed Trip Hawkins, sort of talked about how famously Madden was Trip's folly. And of course, he was vindicated and proven very right, even though it cost a lot of money and took a lot of time and ended up being an enormously powerful franchise. That is the story with the Walkman. This is Morita's folly. Yes. He single-handedly thought that, hey, we've got this cassette player.

But really, it's a cassette recorder, and it doesn't have speakers. It's a little chunky, but people kind of can take it 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 no market for that. No one wants to walk around outside in their own little world listening to music and headphones. And you can currently have the engineers saying, 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 of goes out into the world. And you have Morita going, no, it's going to be low power because we're going to make these amazing low power headphones. We only need to produce a little bit of sound because it's going to be right next to people's ears. This was a consumer behavior that did not exist in the world that Akio Morita just said, everybody, trust me, let's invest in this. And

like completely changed human history forever and the way that humans walk around out in the world. Totally. And...

amazing that it was marita who did like this is the kind of stuff that abuka usually does yeah the sentiment on the board and in the company against marita marita at this point is the ceo of sony was so strong that he had to make a promise that if the initial 30 000 unit production run didn't sell by the end of the year that he would resign

from Sony. Whoa, I didn't realize that. Yeah, yeah. He had to sort of like literally lay his cards on the table. But it is one of these things, the way Morita phrases it in the book is this quote that is Steve Jobs before Steve Jobs. And I think I'm going to make that point 11 times in this episode because it's not that Steve Jobs is a ripoff of Akio Morita. It's that he so badly wanted to be Akio Morita. And he was such a

better marketer in his time of a lot of the concepts that a lot of us grasp on to Steve's version of them, even though a lot of the concepts are actually Akio's version of them. And there's this one quote in particular, which is, I do not believe any amount of market research could have told us that the Sony Walkman would be successful. Not to say a sensational hit that would spawn a

many imitators. And yet, the Sony Walkman has literally changed the habits of millions of people around the world. He said this in 1986. Steve Jobs would sort of say things like this, Apple doesn't do focus groups, you have to invent something, people can't tell you what they want, blah, blah, blah. These are all Merida-isms.

I know. I know. It's so amazing. Everybody really should go read the book Made in Japan. It's very, very, very good. So John Sculley, between Steve and Steve, CEO at Apple, who famously Steve convinced him to come over from Pepsi so he didn't have to sell sugar water for the rest of his life. His quote about Steve is that he was a freak about Sony and that it was nearly fetishistic. In fact, he even had a collection of Sony letterhead 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 Sculley says this made a huge impression on him. And while Apple didn't have colored uniforms, it was every bit as elegant as the early Sony factories that we saw.

He goes on 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 Scully even met right around this time, Scully and Steve with Accio Morita. And he says, I remember Morita gave Steve and me one of the first Sony Walkmans. None of us had ever seen anything like it before because there had never been a product like that. This is 25 years ago, and Steve was fascinated by it.

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 Morita eventually passes away. Steve Jobs in 99 is giving the Macworld keynote, and he starts the keynote by putting up a picture of Akio Morita, 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, Trinitron television, first consumer VCR, Walkman audio CD. Notice he doesn't say the name of the first consumer VCR there. Right. You sent me that video. We'll put it in the show notes. It's fun to watch. I didn't realize they used Merida in the Think Different campaign. Yep.

Which is interesting because they were quasi-competitors. Had Sony come out with the VAIO yet at that point? No, probably not. Yeah. I think Steve had this thing where he could have reverence 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 thermonuclear on Google or like his relationship with Samsung, then all bets were off. Microsoft too. Yeah. Yeah. Yeah. So the first Walkman comes out in Japan in July of 1979. It sells through the 30,000 initial production run in one month.

And then the next month it doubles. And then the next month it triples. And it continues tripling for month after month after month after that. Jake Saper on the LP show said he looked for triple, triple, double, double in the first four years of a startup. Those were years, not months. Right. This is double, triple, triple, triple, triple, triple months in a row. Yeah. So this stat was fascinating to me, both for how big it is and how small it is. All in, Sony sells...

a quarter billion Walkmans in the life of the product. Wow. Which is what? 1979 until 2000-ish? Call it that. So 20-ish years. I mean, that's both incredible. Like, I don't know, but I don't think there were any other like single products that sold quarter billion units. I mean, the iPhone has. No, no, at that point in time. Oh, at that point, yeah. At that point in time. So like...

Yes, it's so impressive on that front. But then, I don't know, today, a quarter billion units, that's like a year for Apple or something. Yeah, it's crazy. I mean, there's just been so much consolidation to the point where if you go buy the best phone, which is the top of the line 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 Discman. Also becomes hugely popular. I had so many of those growing up and Walkmans too. Did you have Walkmans? I had one Walkman and one Discman and both of them were that sort of like light Sony gray color that like they, it was like that plastic that was designed to look like metal. That was classic. Yeah. I had the colored versions. Like the yellow Discman that was like meant for running that like had the extra skip protection on it.

it extra skip protection yes yes uh unfortunately after the disc man then they do the mini disc and which i bought like a fool me too me too i loved sony how could you not love sony oh yeah and then fortunately i didn't buy this did you buy the um

The memory stick, digital audio players, the MagicGate memory stick. Fortunately not. I did have products that used that Sony thing that was a competitor to SD, the memory stick. They also had a thing that was a competitor on their cameras, CompactFlash. Oh, that's right. That's right. And so I think the thing that I had that used the memory stick duo was my...

PSP, my PlayStation Portable. Oh, you had a PSP? I had a PSP and that used two defunct Sony media types that never got adopted by anyone but them. The memory stick duo for the basically SD card and the game cartridges were UMDs. It was called a Universal Media Disc. Oh, and they were going to sell movies on it too, right? In addition to games. Yeah. I remember watching Mr. and Mrs. Smith on my PSP.

I don't know if I bought the UMD or how it got on there, but... That's amazing. I actually did a little exercise to write out all the stuff that I had that was Sony because we were an Apple family. So other than the, you know, Macintosh 8500 that I had at my desk and the G3 that my parents had on their desk, we had those two Apple products. And I think my dad had the first iPod, which plugged into our Sony stereo, but everything else was Sony.

I had the Sony tape Walkman, the Discman, the mini disc player, a PS2 and the PSP, many, many sets of Sony headphones. Our family TV was a Trinitron, multiple family camcorders going from the VHS version of it down to a... They had some other tape, some kind of DV, digital video format tape. Yeah. Yeah. We had one of those. Yeah.

Then, of course, a VCR, a DVD player, several USB flash drives, my CRT computer monitor, the living room receiver for our stereo, the radio that plugged into the stereo, everything was Sony. It was just like, well, if you were going to go buy a piece of home electronics and it was going to be good, you go buy Sony. You go buy the Sony. Yeah. You didn't even really look at the features or anything. You're just like, oh, if I want the best...

I get the Sony version. Totally. And it's 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 ate up a lot of market share and other things like TVs. And I know I'm flashing forward and we'll get to that, but it's just incredible the breadth of products that they used to sell that were just the best on the market. Incredible. So the 80s were good for Sony. Big max aside. Yeah.

For three reasons. One, CDs. Two, the Walkman. Three, life insurance. So crazy. I remember when I started reading and was looking into their financials, I'm 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 1979 as a JV with Prudential, the Prudential life insurance company in the US. Supposedly, the reason this comes about

is that in one of Morita's trips pretty early, I think trips through the U S he goes to Chicago and he notices the prudential building and the prudential building is very, very impressive building on the skyline in Chicago. And so he asks somebody, Oh, what, what building is that? And they say, Oh, that's the prudential life insurance building. And Morita supposedly thinks to himself, okay, life insurance is a business I want to be in.

And so they create this JV. 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 their, you know, players anyway. Now they're selling life insurance.

So they do in Japan, it becomes a pretty big life insurer in Japan. They eventually add the Philippines, Taiwan and China, and it's active in all of those places today. And it becomes a decent sized business like in some years in recent years as other Sony businesses have stumbled around.

The life insurance business is contributing like 50% plus of their operating cash flow. I have a stat here. So as it grew, I think in 2001, it was like 5% of Sony's revenue. By 2014, its financial arm, which includes Sony Life and Sony Bank and a handful of other things, like a direct-to-consumer bank. But I believe life is the big thing.

business. Yeah. In 2014, 63% 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 and they're all in Japanese. Sony Bank came out in 2001 as a web-only consumer bank in Japan. So it was kind of the first neobank. Yeah, that's right.

Oh, man, there's this like alternate universe where Sony is Apple and Disney and like Berkshire Hathaway all in one. It's not even alternate. It happened. Yeah. But of course, times got a little tougher between then and now.

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good business for a long time, enduringly good even through some ups and downs. What are some ups and downs that are coming up for Sony? 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 ironies, in 1986, Sony,

CBS gets a corporate raider who comes in and assumes a large stake in the company. One Larry Tisch buys a large stake in CBS. And there's this cash cow in the JV with Sony and the records business as a whole is a nice business. Tisch wants to offload it and sell it, you know, monetize it.

it. And so he's talking to a whole bunch of private equity and the like 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 say like, hey, Tish wants to sell this thing. We think the bids are probably going to come in somewhere around one and a quarter billion for the whole business. Would you be interested in actually buying all of CBS records?

And to this date, there's still like a Japanese distribution partner via this JV. And they're saying, come buy the whole freaking record label. Yep. Now, at this point in the 80s, there are two things going on. One, Sony is massively ascendant. The CD is already really big at this point. Like 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 80s is that

Japan's currency has massively, massively appreciated versus the dollar. And it is much easier for Japanese companies to go make acquisitions abroad than it 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 incredible xenophobic, even through the 90s, very anti-Japanese business mentality among Americans that

You know, they're going to come buy all of our staples. And it's honestly a little chilling to go back and watch some of these interviews that look like they're in reasonably modern times. And the vilification of the Japanese is a very, I don't know, it just feels, it's very inhumane. Didn't you actually, you sent me one that was like a Donald Trump interview from this time. I did, yes. Where he's bashing Japan, yeah. Yes, yep.

The world we live in. So much changes and yet so much stays the same. So there's a bunch of back and forth and drama with Tish and others. Tish postpones the sale for a while, comes back.

basically marita is like we're good for any price we 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 100 owners of this jv 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

And at the time, this is crazy. Like headlines all over the place. Sony buys CBS records. That's news in and of itself for all the reasons you said. People also think the price is nuts. $2 billion 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 it was only about 5x earnings that they paid for this. So that says a lot about the business environment of the 80s when people thought that 5x earnings was a crazy price to pay. Meanwhile, you and I were just texting the other day about a company that was 4x earnings and how excited we were to be doing a value investment in it. Right. Tech value investing. This ends up being a pretty good buy for Sony. So...

As of recent years,

Sony Music, the core of which is the CBS Records business, does over $2 billion in operating cash flow every single year. And they've owned it for 30 years. So it was a pretty good pickup. I mean, and Sony has a bunch of business lines now. So 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, 11%, 12% of revenue of the whole company. Yeah, this is a great deal. On the back of this, they are enticed to do another media content deal. And let me say, this is a great deal from a financial perspective. If you're Berkshire Hathaway and you're just going to come in and own something

great. This ends up being a great financial purchase. From a strategic perspective, big open question mark. 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, cast their eye where you're alluding to in buying a movie studio? It starts to open this big question of not only focus, but are there synergies here? Because I think...

Merida and Oga 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 and ability to design more custom experiences using wholly owned 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 these, going back to the CBS records 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 this synergies, you know, thing. And obviously that's a, I think in large part synergies became a bad word because of what companies like Sony did during this time.

I think if any of that were valid, it would be valid in the music business. Just given Sony's 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 Columbia Pictures in 1989 for $3.2 billion. But that was the equity purchase price. Ultimately, when they assume debt and a few other things, they spend about $6 billion to buy Columbia 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 Betamax. That Morita felt like that was such a defeat for the company and a point where they realized they had no leverage in this industry and they felt that if they owned a studio, they could at least be at the table against the Lew Wassermans and the like when they were negotiating formats 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 happening is that there was a lot of infighting between the hardware teams and the movie teams. And so you had like misaligned incentives where we've talked about this a lot on previous episodes, but it's the vertical versus horizontal 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're trying to move content

electronic devices, you want to be super duper Switzerland. Buy this thing and have as much fun and get as much value as you want out of it. Meanwhile, the music label folks in 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 align incentives, you have a huge problem there. Yeah, totally, totally agree. Yeah.

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 a bunch of double takes reading Sony history stuff. They refer to hardware, of course, as the consumer devices that they were making. But then they talk a lot about software. And it was weird to me reading this as I'm reading about their software. And I'm like, that doesn't sound like

as I think about it, internally at Sony at this time, they think of content as software. At least in what I was reading, and maybe this was different in Japanese, but they literally thought about the music business, the movie business, and eventually the gaming business as software.

software that would go on their hardware. Which in some ways, I mean, gaming is definitely the most credible. The closest. Yeah. To my mind, this is where Sony, the seeds are sown for Sony's demise in the coming decades after this was they just totally didn't get software. They didn't get computing. Like in their view, they're

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 were going to take over people's lives. If you're watching the video version of this, we'll 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 90s, got hit hard in the dot-com bubble crash, or at least around that same time, and then has 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 we're recording on, I'm pretty convinced that the Sony Alpha 7C will produce the most beautiful pictures of any camera in its class ever.

You have to do a little bit of color stuff and whatnot, but like from a raw image off the sensor perspective, amazing. These cameras are incredible. But they are not fun to shoot with. You know, it's not like shooting with a Fuji. And the menu system on these Sonys, 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 nailed it where it's like they can make these fantastic devices. They're like the opposite of Apple. They don't know how to build fantastic software and services that differentiate their hardware. They just make great hardware. Yeah. And I think this point, you know, in the late 80s, early 90s is where

They set their strategy. And these were the last years of the original triumvirate of... So Merida has a stroke in 1993 that leaves him pretty incapacitated. Ibuka dies in 1997. Oga starts phasing towards retirement in the late 90s. But yeah, during this time, they set their strategy as hardware, meaning consumer devices, and content, which they think of as software, and the marrying of those two things.

And, you know, look like that's not wrong. Look at the tech companies today, like content and tech is a big thing that they all do. But Sony's 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, and I know I'm flashing way forward.

They have played the arms dealer strategy in the streaming wars. Fortunately, we have not seen Sony+. 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 and Hulu too. So they're basically saying like, look, we kind of don't care who wins here. We know the content is going to be valuable and we're deciding our strategy is not to vertically integrate like the rest of you. You know, you look over at the morass of mess that is HBO Max production

producing movies with DC IP that is produced by Warner Media that is owned by... Who's Warner Media owned by at this point? AT&T? That sounds right. I can't keep them all straight. Yeah. Like Sony's not playing that game, which I think is interesting. Yep. And they also are, where I thought you were going with this, they're playing the arms dealer role well with image sensors. Oh, yeah. But...

We have one more big story that we got to tell on History and Facts before we move towards the present day here.

I'm so excited for this. This, of course, is the PlayStation story. I kind of forgot that there's another big story somehow. That's like, Jesus, you're not done yet? I assumed that everybody knew the PlayStation story. No, you were blowing my mind with every text that you sent me. Oh, boy. And I had a PS2 and a PSP, and I did not know these things. All right. How did the PlayStation come to be? So...

In 1989, at the end of the first golden decade for Sony, there is a senior engineer working at the company named Ken Kutaragi. And he's done great work on stuff like the early digital cameras, the Mavica, which was Sony's first digital camera, and on LCD displays, which are going to be sort of part of the next generation of

televisions and consumer devices. Oga, Norio Oga, loves him. He thinks he's a rising star in the company. And Ken's daughter around this time, they get her a Famicom, which of course is the Japanese name for the Nintendo Entertainment System, the NES. And

She loves it. And he just observes her playing with this. And everybody at the time thinks video games and Nintendo systems are toys. And Ken kind of sees this like, I think this could be really big. I think video games could be more than just toys for little kids. Like I watch how my daughter is so consumed with this thing and I think it could be big. And I think Sony should get involved in this industry. Now he's just an engineer at the company, but

He's not part of the management team somehow. And I don't know how there's not a lot of firsthand history from Ken about this. Somehow he connects with Nintendo personally, and he hears that from Nintendo that they are working on the successor system to the NES, the Nintendo Entertainment System, the Super Nintendo Entertainment System, the SNES classic, of course, around the corners, make some purple buttons. Oh, so great.

Ken's really excited about this. And he says, well, can I help? Can I work on it? Can Sony help? And Nintendo says, yeah, actually, we're looking for a really great sound chip for the device. An audio processor. Because all sounds in video games before were just, you know, do do do do do do. Beeps and boops. Yeah. Yeah.

Yeah, the Super Nintendo had super great audio, like really good stuff. And Ken and Sony designed that chip that made it possible. Now, he doesn't tell anybody at Sony that he's working on it. And when it comes time to actually do the agreement and the Super Nintendo is going to ship, management at Sony is pissed. Whoa. Ken totally went around protocol here.

and essentially did this component engineering work for Nintendo, this toy company, making this sound chip. Kutaragi nearly gets fired, but Oga steps in and is like, no, no, no, I like this guy, he's great. And who knows, maybe this video games thing could become interesting. Let's see where it goes. He allows the CEO, steps in, allows the project to continue.

They ship the chip. The Super Nintendo becomes a huge success. It sells just under 50 million units worldwide, which is enormous, like enormous for it. I mean, for today, that is a very successful video game console. Great new relationship for Sony.

Things go along. Now, the Super Nintendo, as most folks listening will know, probably even younger folks, was a cartridge-based system. Literal game cartridges that you stuck into the system. Cartridges had some advantages, like there were fast read times, instant load times. You didn't have any of this stuff you would later have with the PlayStation with loading times. But the downside to cartridges is you can't fit much data on them. Hmm.

And so game developers, especially developers who work with PCs and PC-based systems, they're lobbying Nintendo that they want to be able to develop the CD format for Nintendo as well. Nintendo's like, oh, okay, well, we've got this relationship with Sony. Let's work on a system together.

This is amazing. They call up Ken. Ken's like, great. We can build an add-on for the Super Nintendo of a Sony CD drive that developers can then make CD-based games for the Super Nintendo with our add-on. And also, why don't we also make a Sony-branded

console that combines the two things, like the add-on and the Super Nintendo. So it's just one piece of hardware made by Sony that is a Super Nintendo, but also has the disk drive on it. We will put this up on the video for those of you on Spotify and YouTube. David sent me this thing and I was like, what is this photo? It is a device that looks like

a Nintendo or Super Nintendo, kind of, but it says Sony PlayStation on it. The Sony PlayStation that plays Super Nintendo games. Oh my gosh. So this is all done. They made this freaking product. Did they ship it? I don't believe they actually shipped it. I think they only had like final prototypes made. So the two companies, they're so excited about this. This is, you know, big partnership.

In 1991 at CES, this is before E3, so CES was still the major video game industry conference. Sony announces the partnership and they announce the Sony Nintendo PlayStation. They show it off the next day at the Nintendo keynote.

Nintendo talks about how they've partnered with one of the original developers of the CD format, this great technology company with amazing history and legacy to bring CD gaming to Nintendo for the first time. This secret partnership that they've been working on that they have not announced to anybody until today.

No way. Yes. What? And they just kept Sony in the dark the whole time? This is a huge thing in, I think, both gaming business history and Japanese business culture. This is the ultimate betrayal. This is literally Nintendo shoving a machete in the back of Sony. Yeah.

And going with their original partner, Philips. Totally secretive. So there was a CD add-on for the Super Nintendo that Philips made? No, this never actually comes to fruition as...

as intended. There is no add-on for the Super Nintendo that Philips makes. What does happen is Philips makes their own game console called the CDI that comes out. Do you remember this? This is like a super obscure... So Nintendo did this to Sony the day after their announcement only to not actually ship the thing with Philips? Yeah, they don't actually ship the thing. Nintendo does make some games for the CDI. So they have like this partnership and it never goes anywhere. And

Nintendo, as great as they are, notoriously make questionable business decisions like sticking with cartridge for the N64 and all sorts of stuff. Now, in Nintendo's defense, the reason that they do this is that Sony was going to retain N64.

licensing rights to the Super Nintendo disc based games. And that's where all the money is in the console games industry. So like notoriously, and as we'll get into,

console manufacturers 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 Nintendo when they sell Mario and Legend of Zelda and like games that they own and develop they keep 100% of the money they get 100% of the money

But then if you're the system owner and the format owner, you get money as a license when third parties like EA or Activision or, you know, Bungie or whomever sell games on your system. Sony was going to get that money or most of that money for the Nintendo disc stuff. So that's why Nintendo did this. I see. So they were the license holder that or the person who could issue licenses and make money on people using the game dev kit.

And I'm sure it was some split between Sony and Nintendo, but Sony was getting enough of that economics that Nintendo was unhappy. So maybe Nintendo looked at this and said, this is going to be bad. But if we actually proceed with this plan, it's such a bad deal for us anyway, that there's really no reason to continue it. But the way they did it, oh my gosh. And so Nintendo, I think, thought that like, all right, well, Sony's not going to get into...

the games industry themselves. They can't do that. Like they have no first party studios. Nintendo can go make a new console. We'll put Mario brothers on it and Zelda. And like, we make that stuff ourselves. Like Sony doesn't have any of that and they don't have any relationships with developers. Yeah.

So Sony has three options at this point. As Nintendo expects, they can completely give up. Two, they could go to Sega and try and partner with Sega, the Nintendo competitor at the time. They actually try to do that. Sega, in another boneheaded move, is like, yeah, no, we're 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've done all this engineering work on making a console. Well, yeah.

we could just try and do this ourselves. So the Sony board and the management team, you can tell I'm just like loving this. Totally. You're grinning ear to ear. It's like we finally get to dive into some video game history for the first time in a while. I know it's been a little while. The board and the management team, they vote to just abandon the gaming project. So yeah, like basically really, it's just like the Walkman, like everybody's against doing this.

But Kutaragi is like... Lobbying, yeah. ...questing within Sony to make this happen. And Oga is like, all right, I see that you want to do this. This could be big. It's not going to work within Sony, the parent company. He transfers Kutaragi and the whole project...

to Sony Music, to CBS Records. And so was it within electronics before? Yeah, it was within the core electronics business. And he moves the whole division essentially... Into music. Over into music just to kind of protect it so that politically they could actually do this within the company. And let me just... For listeners who are like, does this end up being worth their while? Not only...

is the video game industry this year a $180 billion industry compared to Hollywood, which is $50 billion. So yes, it ended up being much, much more than a toy. If you actually look at Sony's predictions or projections for this year for 2021, they think that they will do...

let's see, 2.9 trillion yen in their gaming segment out of 9.9 total. So they think that like close to 30% 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 profits perspective, I'm pretty sure it's close to 50%, at least last quarter. Well, and this is the thing about the games business and the console 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 install base possible on the consoles, on the hardware so that you can sell as many games as possible. And this is where Nintendo and Sega to a lesser degree just made such a huge tactical error in letting 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 consoles,

console sales to play for the longer term game of getting as much software sales as possible. I mean, it's the ultimate venture capital bet, right? It's how much can we throw into a business that we think will have really high operating leverage where we can cover all the fixed costs and then sort of pull up the rope behind us and then have amazing low marginal cost, high gross margin futures ahead of us where we sort of elbowed out all the incumbents.

So the Super Nintendo, like I said, was this amazing success, hugely successful console, sells 50 million units in its life worldwide. The original PlayStation sells over 100 million units and they win over all the major third-party developers to come over. How do they do that? There are a couple of 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 actually make the games that you want to instead of being limited to the cartridge format. Two, we've talked about this on a few other episodes in the past. Nintendo, they had this relationship with Silicon Graphics. You needed...

workstations to develop games for Nintendo. Oh, you couldn't just use PCs. You had to have like really invest in a big like chunk of hardware to build Nintendo games for the PlayStation. It was all based on PC. So you could develop PlayStation games on PC that like massively opened the market. Absolutely.

And then also they were just like, look, we need you developers like Nintendo. Trip talked about this, I think a bunch on our episode with him. Nintendo was like terrible to third party devs. We have Mario, we have Zelda, like we're the biggest and best studio on the Nintendo platform. So we kind of don't need you.

Whereas Sony came to all these third party developers and they were like, we need you. We're going to do everything we can to make you happy. And then once the PlayStation started getting such a large install base, then it was just a no brainer. It's like, oh, of course, I'm going to either go exclusive on PlayStation or at least multi-platform on them because otherwise I'm leaving out a massive part of the market.

So yeah, PlayStation, huge success. I could go through all the games on it, but I won't. Like we all, everybody knows them. They're great. Crash Bandicoot, Final Fantasy VII, Resident Evil, Metal Gear Solid, Gran Turismo, blah, blah, blah, on and on and on. Amazing. Yep. By the end of the system life, it gets 8,000 unique games compared to the N64, which came out later, only gets 400 unique games on the platform. So that's like sense of scale here.

All told, over 1 billion games are sold for the original PlayStation. Wow. So this is a massive hit.

And then the PlayStation 2 becomes the most successful console of all time. Over 150 million units sold worldwide. I mean, it's the only game console I've ever bought. Wow, yeah. 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 bar mitzvah. And so that was my reward was that I got to get a PS2. Well, and the PS2, that was like...

That was the peak of Sony's strategy. Like that was that moment where it was actually working like the DVD player being bundled in as part of it. Oh,

I mean, that was a selling point. DVD players were kind of expensive. So we had one for like the main TV, but for the little TV in the basement where I was going to plug in my PlayStation, my argument to my parents was, well, we don't need a DVD player now because this one comes with it. Smart. Whereas if we got, what was the next competitor? I guess the N60, no. Sega Dreamcast, I think was the... And we were never going to get a Dreamcast. I guess it would have been the original Xbox, but I'm not sure that would have been out yet. Yeah.

Uh, yeah, that didn't come out for another year or two. When would this have been? Like it was 2000 year 2000 was when PS2 came out. Okay. So I guess Xbox would have been the other one that I could have gotten, but yeah, the, the PS2 was like, I think a sufficient number of my friends had PlayStations where I was like used to the controller and then they all got PlayStation twos and then it became a no brainer for me to get a two. Yeah.

And the other thing that the PS2 had was backwards compatibility with the PS1. And that was a totally new concept in the industry. So like day one, the PS2, you had 8,000 games from the PS1 that you could play. And they did like a little bit of upscaling on them. Unfortunately, the PS3...

Sony got a little carried away. It took a while to get going, but ultimately did become a pretty successful system. It did, but they really, really screwed it up. So like after the PS2, I mean, Sony was the video game industry. Like Nintendo was...

to a niche player basically microsoft to come in with the xbox but the first xbox sony the ps2 just trounced it the ps3 should have just run away with the market but this is where sony's not understanding computers really comes in huh the ps3 they'd made this whole thing they had a cell processor was like the key to it had blu-ray and

And the cell processor. And the Blu-ray made the price tag kind of expensive. Both of them did. Blu-ray was expensive and they wanted to do the same thing they did with the PS2, use it as the Trojan horse to get Blu-ray into living rooms, win the format war with HD DVD. And then this cell processor, they developed with, I think, Toshiba and IBM. And it was like its own unique architecture and a total beast in a bad way.

And the idea was Sony was going to 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 TVs and refrigerators and game developers hated this thing. And so it actually like opened the door for Xbox and 360 to bring a lot of developers in. And then over time, Sony did that.

fixed a lot of the issues with it and made it more developer friendly, but they barely won the generation war between the PS3 and the Xbox 360, but like they should have just totally walked away with it. And 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're looking at the ALCS and you kind of forget that you still have 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 hardcore gamers. We're going to go for the Ben Gilbert when he's 13 years old idea of, well, we need a DVD player anyway, and this thing can play games 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...

fervent hardcore console gamer market and then Sony runs away with that market and Microsoft ends up not selling enough devices and not having a compelling enough story like the Xbox 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. Yep. I think that is totally a

a fair characterization of Microsoft for many years. The irony is it's also Sony, right? Yeah. At least with the PS3, like they completely messed it up. Sony loses $5 billion on the PS3 in the first three years. Wow. It's bad. And again, this is like coming off

of the best-selling console of all time. They had it won. They lose a bunch of money on this. They also, at the same time, and I know we're going to talk about Blu-ray, but it's worth pulling it into this story, lost a ton of money because Blu-ray's lifespan was just not as long as they thought it was going to be. So they invested all this money into R&D the same way that in previous format wars they had and spinning up this big...

industry-wide group that's going to figure out all the licensing and we're going to sell licenses to the ability to decode the format and big investment in shifting the industry toward this new format. And then streaming took off. And so I don't think they ever really recouped their investment in Blu-ray.

I don't think so either. I think it became a big albatross for them. So the early 2000s are just getting beat up left and right. Yeah. In 2006, they lose the number one market share, Leeds.

lead in televisions for the first time. They got so expensive. I mean, that's when Samsung started making pretty good TVs and came in. Today, it's totally different. You have the TCLs that look unbelievable for like 300, 400 bucks, whatever it is, and they're gigantic. They basically pay you to take them. Yeah, it's crazy. But it used to be like, you'd go get the Sony Bravia or you'd go get a lesser TV. And then Samsung whittled that away. And then that just felt like a rock after that.

Yep. And that Sony Bravia was, I mean, those things were like $5,000. That was crazy. In 2002. So for eight straight years in the mid 2000s, the television division, which was once one of the main crown jewels of Sony, ends up losing money, like bleeding cash for eight years. Didn't they spin it out?

It was like so bad that they were like, we just got to get this off our books. Yeah. They end up restructuring it and basically get out of the business in 2011. Like, I think you can still buy Sony TVs, but there's a bunch of JVs. But it's like owned by private equity or something. It's not a core part of the business anymore. The Blu-ray fight was totally a Pyrrhic victory. Like they did ultimately win 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 Blu-ray disc association earns about $7 for every Blu-ray player sold.

And then I think there's maybe $2 that they make from selling the software that goes on it to be able to read the Blu-rays. And then it's something like $0.07 per disc. And so that gets cut up a bunch of ways, depending on who contributed R&D efforts originally to

you know, so this consortium gets paid the, you know, $9 total per player plus seven cents a disc. It takes a long, long time to be able to really recoup the costs. And I guess the point of this is even if Blu-ray 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, it enables a brand new consumer experience in a higher resolution. So it's sort of this like

opportunity to create a brand new generation of device, but I don't think that they ever look at the media licensing thing or the format licensing as a meaningful revenue stream. Well, whether they did or didn't, they fail on both fronts with Blu-ray. There's no way that the Blu-ray consortium got their money back in terms of R&D and marketing efforts. And Blu-ray players do not become a major consumer electronics staple. Yeah.

It is worth calling out, before we move on fully from PlayStation here, not being in gaming and paying a lot of attention, I don't think I understood Sony's dominance here relative to Microsoft. I always thought the two of them come out with devices and they both sell well, but

If you look at the top game consoles ever sold, PlayStation has three of the top three with the PS2 is the best selling of all time, then the PS4, then the original PlayStation. They also have four of the top six because in the number six slot is the PS3 and the four and five slots are the Nintendo Wii and the Nintendo Switch. So Microsoft by, you know, consoles sold measurement,

doesn't hold a candle to Sony's success in the console market. But that's so far. Right. It'll be interesting to see what happens going forward. Yep. I don't know if it took the pandemic or just this current generation of consoles with the Series X and S, Xboxes and the PS5. But I feel like these companies have finally woken up that like,

Guys, video games is the largest medium by revenue out there, and they shouldn't be strategy devices to achieve other aims. Like, you should just focus on the business itself. Yeah, if you sum up all of music and all of Hollywood and then multiply it by two, two and a half, then you get the video games market. It's ginormous. Yeah. That wouldn't have been obvious even 10 years ago. It's ginormous.

now a sprint. And the question is, who has the better strategy? And because we haven't explicitly said it, Sony's strategy is more of the same. Make the best console, try like hell to get the supply chain in order to be able to actually fulfill them. It's going to be a reasonably expensive console, but that thing's going to be awesome. Microsoft's is, huh,

Well, I bet we can make this a services revenue line. It's a very Tim Cook way of looking at it. If you look at what Microsoft's done with Game Pass, which is brilliant, they're making it sort of financially irresponsible to buy one of their devices outright. It's like a Prime membership. Yes. It's financially irresponsible as a gamer not to...

subscribe to Game Pass. Right. And it's like, would I go buy one of these multi-hundred dollar devices and then have to buy games for it? Or would I rather pay... I don't know. What is it per month? Game Pass itself is 15 bucks a month. And then if you...

get a console with it you add on a certain amount. Whatever it is, the way it sort of hits you as a consumer is like, oh, complete no-brainer to subscribe. And so when you look at it, Microsoft is now up to 18 million subscribers to Game Pass, which to your point, I think there's like a cheap version at 10 and then a more expensive version at 15. 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 Sony's doing.

It reminds me of what you pointed out on the Taylor Swift episode about Spotify. There are gamers out there who will buy...

10, 20 games a year. They'll go pay 60 bucks for either a disc or download to buy the game. I am not one of those gamers. And I think there are a lot of gamers out there like me that in an ordinary year, I would maybe buy a couple of games, but it's a no brainer for me to subscribe to Game Pass for 15 bucks a month and

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. That's 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 some thing that's supposed to come out in like late Q2 this year?

Have you read about this? I've not read anything specifically, but most people assume that they're working on one. But the interesting thing is that Sony has really doubled 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...

God of War or the latest Dark Souls game or something like that. You're going to have to do that on PlayStation. Oh, interesting. Which is different than Microsoft. People are worried about with the Activision deal about whether Microsoft would make Activision's games exclusive on Xbox. 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 churn rate because it's the best business model ever. And also, will they take your revenue if like, let's say this Activation Blizzard thing 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 love it either way. Whereas Sony is in a little bit of a tougher place. Yep.

Because they have to sell you the game. Yep. It's Project Spartacus, by the way, is the rumored Game Pass alternative, which is kind of a mess because they already have the PlayStation Network and then they have PlayStation. Like there's all these different names for the ways that you can. It's just classic Sony. Like the PlayStation is such an amazing story and entrepreneurial journey. 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 of things. We've briefly mentioned the VAIO PC division. That never works. They end up selling it in 2014. And then mobile and smartphones are just an unmitigated disaster for Sony. The whole Xperia thing was just a colossal failure. In fact...

If you look back at the annual report in 2018, 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's fault.

They could have shown, hey, we basically made zero profit in all of electronic products and solutions, which, by the way, is like the core Sony thing. Like originally, Sony was an electronics products company. That's recently been like a break even business for them. They generate a lot of revenue from it. They generate basically zero operating income a little bit recently.

But in 2018 in particular, they were showing like, yeah, it would be profitable, but we lost a ton of money on our mobile communications segment. As I think more about like, why did Sony fail so bad at PCs? Why did Sony fail so bad at mobile? Why did they eventually lose TVs? I think Sony doesn't know how to make computers. And as things become computers, they lose.

I 100% agree with that. Phones became computers. Computers matured to be the modern PC that we know today. You got to worry about them against Microsoft if Microsoft's 20-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. Yeah.

Oh, yeah. But I think like we were just talking about with Game Pass, I think Microsoft has finally abandoned that computer in your living room vision for Xbox and realize like, no, no, no, this is a good business. We're just gonna make this a good business. Yeah, that's true. That's very true. But I think you're spot on that Sony...

Didn't see and wasn't equipped for a world where a computer became your phone and a computer became your content consumption device, your TV, you know, your, your phone became your TV. Yeah. And, um,

I think instead they thought the world was going to be that your living room device became your computer. And that's what the PS2 and then really the PS3 was all about. And the cell processor, etc. And that just never happened. Yeah. One of the things that if you...

look at bear and bull cases on Sony out there, and we're going to do our own in a minute here. One thing that they came out at CES last year, I think with a Sony electric car. And I think that's something that people are very scared about. They're like, no, no, no, you are not going to do that as well as Tesla. It's a bad sign for the company that they announced that. It's kind of like how when I saw Wonder Woman 84, I wasn't just like, oh, 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 Warner's does.

So it's kind of the same thing with Sony where I'm like, yikes. Yeah. You should not 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 at CES. That's one thing. But like, if you're really putting energy behind this, it's a very scary sign for the company. Which there hasn't been any indication since that they really are putting energy behind it. But.

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 dealer strategy, I think as they realize how bad they were going to be at making cell phones...

There was a thing that was happening that started 15, 20 years before, which was innovating on sensors, in particular camera sensors. And this was really beneficial for their PowerShot line. This was really beneficial for all of their pro-end cameras. They kind of invented the mirrorless segment. I mean, the Sony Alpha, I hate this word, but it's so applicable here, the prosumer concept of like, hey, people want a reasonably compact thing with interchangeable lenses that they can take out that isn't a big, gigantic SLR.

And all of that work led them to have tons of breakthroughs, tons of patents 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 sensor that enables all the cool computational photography stuff that's going on. They have something like 50% market share in the image sensor market broadly, and

They are able to put sensors 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 4, but you know when cell phone cameras...

turned from camera phones to like, whoa, these are actually becoming pretty good cameras. Like that was Sony. And there's a ton of engineering and software that's been done on top of that now, especially as, you know, people like Apple designed their own silicon and have a really tight image processing pipeline. The initial breakthroughs

came from, I think, 2009. Sony was the first to create this commercially viable back-illuminated CMOS 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 14 and 15 that are like,

totally unbelievable, like gigantic step function changes in the number of megapixels and the image you're able to get per size of pixel. And so there's like supposedly really, really great stuff to come over the next couple of years, purely on Sony's innovations in the sensors.

That's such a good success story, right? Of like making kind of back to the original Sony, like here's something that people want that is like, this is going to 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're taking with Sony pictures of being this like Switzerland arms dealer type thing where like, we're not going to be effective at marketing or creating and marketing our own phones and operating system and all that. But like,

damned if we're not going to make the absolute best sensors in the world for this thing. And similar to the way that they're thinking about, you know, we're not going to compete with Netflix, but we'll sell them content. Sony's just kind of like, it's this collection of all these vignettes, you know, that's stitched together into Sony. It's not quite a linear narrative in the same way as a lot of other companies we cover. That's actually a huge playbook theme of mine is it's actually a

a diversified business. Every business we cover is kind of one hit product that then they were able to really lean into, had perfect product market fit and a gigantic market and ruthless execution. And this one's kind of like

There's a lot of stuff going on here and they're pretty good at managing it usually, sometimes not, sometimes not, but there's definitely a lot of stuff. Definitely a lot of stuff. Okay, so all the stuff, where does this leave us? Yes, today. What's the picture of Sony today? Well, it's interesting. When you look at it from a revenue perspective, they're a gaming and electronics company. There's like 30% of revenue that's coming from games and 23% that's coming from electronics. Electronics are considered

consumer electronic devices. Yeah, that includes cameras and, you know, the classic stuff Sony makes. I don't know, Walkman? It's not totally clear what else is necessarily a part of that. But when you look over at their operating income, games also 30%-ish, they make a little bit more. Electronics has gotten a lot more profitable recently. They

They actually think that that is going to be a material part of the business. It's like 18% of profits this year are coming from electronics. That in the past was zero. Or negative, right? Or negative. Yeah. For many, many years, that was basically nothing. So there's been a pretty successful turnaround inside of electronics. The emergent story, which is really interesting, is this imaging and sensors, which is now 11% of revenue and 14% of profits. Right.

Again, none of these numbers are that big because it's super diversified, but that's a pretty big market. You know, they have half of it. So I think that's sort of the big story. If you would ask me 2011 to 2014, then the answer would have been everything's failing and the financial services is enormously profitable and is like half of their profits. And that's just like not real.

really the case anymore. Maybe that's actually the best way to have business insurance. Besides vouch, you should definitely do that to start. But the next thing you should do is start your own insurance company within the company to keep you afloat even when everything else fails. Yep. 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. What a collection of stuff. Yeah. That to me is like, I was like, I should compute these things. So I'm not just looking at them in yen. And as I computed the percentages, I was like, huh, it is very, very diversified. Yeah. Yeah.

There used to be all these great blog posts that you could do about how it's really an insurance business under the hood or how the core business that used to be consumer electronics totally died. And that's just not the case anymore.

An interesting thing to point out is within gaming, most of the sales are actually coming from digital software and add-ons, which is related to the PlayStation Network. Only like 10-ish percent is selling hardware. And in the same way that Microsoft has reoriented their business model around, we got to keep selling people who like Xbox's digital stuff. Sony's realized that too. They just haven't changed their business model yet.

Okay, so here's an interesting little aside that I want to take you down. So this year, Sony will do about $86 billion in revenue. Okay. Remember that number, $86 billion, writing it down here. Okay.

Over the last, let's see, 22 years, Sony has had an asset that has generated about $7.5 billion in revenue that we have not talked about on this episode yet. Do you know what that is? I don't.

that $7.5 billion would be the box office gross receipts for the Spider-Man franchise. Ah, yes. Not even including home video, not even including other licensing things around that. There is an insane story about why we're talking about Spider-Man and Sony when we've done so much wonderful discussion on this show on...

Marvel and the Marvel Cinematic Universe and Disney. And I mean, there's been close to 10 episodes dedicated to that world. And so while we were doing the Sony story, I thought we got to link it in somehow. Yes. All right. What's going on? Why does Sony have Spider-Man? Okay. So first of all, there's a great Planet Money on this linked in the show notes. 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 2000, Sony approaches Marvel and says, we'd like to pay you $10 million for the film rights to Spider-Man. Now, Marvel had never done... The MCU wasn't a thing. Marvel Studios wasn't a thing. They didn't do the deal with Merrill Lynch to go take on a bunch of debt to start Marvel Studios. You know, nothing of that. So, they look at this and they're like...

Free money. Okay, free money. We'll get $10 million. That's great. I think they also were going to get 5% of the movie revenue. So Marvel's like, we get a licensing fee, we get some ongoing revenue. And I think Sony said, and we'll split the money that comes from Spider-Man toys that are sold specifically to the movie. And they look at that and they're like, that's probably all incremental. So great, let's do it. In some ways, that was a really boneheaded decision. In other ways...

Maybe they wouldn't have known to start Marvel Studios absent the gigantic success of the Tobey Maguire Spider-Man. But David, $10 million and 5% 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 this deal. Yeah.

Sony has the right to produce Spider-Man movies forever. Forever? Yes, in perpetuity, as long as they release one every five years and nine months. So we can guarantee that there is going to be one Spider-Man movie at least every five years and nine months. Forever. Yes.

forever. And so this is why we got those weird Andrew Garfield movies right after the three Tobey Maguire ones where they told the same story again. And you were like, I'd like, I never even bothered with those. It's like, why is 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 it work now? Because we've got a new Spider-Man who, you know, is the same in the Spider-Man movies. And, um,

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 Avengers. And they also decide that, well, can we make it so that the Spider-Man movies that are coming out are good and kind of tie in, like it's maybe the same actor? It really should be kind of cohesive. And the people over at Marvel, you know, they're artists. This isn't some we're producing a movie just to keep a deal alive. They're not like Sony Pictures. They cut a second...

kind of bad deal. This is really interesting to pay attention to where the leverage is. They are saying, we will make the movies. We will make the independent Spider-Man movies, mostly. It's going to be technically Sony's creative control, but we're basically doing the whole production. Let's keep the same deal where we only make 5%, 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 Spider-Man. So all these recent Spider-Mans, No Way Home, and it's actually this weird joint ownership where Sony's making the money, but Marvel's making the movie, and they're just doing it in order to get...

to use Spider-Man in the MCU. And on top of all of this, you might say like, wait, how does this work? Because some of them Spider-Man movies are Spider-Man movies. Other ones are Marvel movies.

If Spider-Man is the main character, it's a Sony movie with the 95-5 split, and it doesn't go on Disney+. 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 No Way Home, the one that just came out that already grossed worldwide $1.7 billion in revenue. Remember, Sony is keeping 95% of that. The costs are high. These movies cost hundreds of millions to make now. But Sony Pictures itself only made $10.2 billion this year. So 1.2

one, two, I don't know what the, and there's a big marketing budget, but like whatever their cut of the $1.7 billion grossing movie is, the bottom line of that is pretty impactful to this $10 billion 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 don't, I assume there's a lot more caveats in that deal. Yeah.

But it is, I think, like the first time in history that a big piece of IP like this, and they point this out on the Planet Money episode. There's a lot more drama to it, by the way, involving the Sony hack and executives who are, you know, at war with each other. But the long and the short of it is, I think it's the first time that two studios that are rivals like this have, I mean, because this is two of the big five, shared IPs.

really important IP and actually created successful product out of it. That is so cool. And the movies have been incredibly successful, right? Totally. And really good. That's the thing. Sony almost tried to do an MCU type thing with all the IP that they owned, but it was like Spider-Man and Ghostbusters and a bunch of very odd things that didn't belong together. Again, this is all in the Sony hack

emails. But then they started bringing Spider-Man into PlayStation marketing in kind of a weird way. Do you remember the PlayStation 3 font was the same that was printed on the outside as the Spider-Man Tobey Maguire series? Now it makes sense why the Spider-Man games are PlayStation exclusives. I always wondered that. I was like, what? Why is this not on Xbox? Pretty crazy. There's even something more nutty for another 10 million. I think...

Sony could have licensed all the Marvel characters, but somebody was like, eh, they're all kind of bad except Spider-Man. No one cares about any of the others, which was kind of true at the time. No one really cared about Iron Man. They sort of invented the MCU out of second-tier characters. And so Sony was like, eh, no, let's just go get Spider-Man. Let's do that. This is

This is like a confederacy of dunces here. Like who is more stupid than the other? Totally. But it just goes to show you can't forecast these things. You don't know. You don't know. All right, let's do bear and bull and we'll do some powers. Give me your bull case on Sony. All right, bull case. The console wars continue as they've been.

No massive strategic or business model shift. Sony continues to execute really well. They actually get the supply chain in order so that I can get a PS5 if I want one. There's way more demand than supply right now. That's my bull case on gaming. Based on what I'm seeing, that's like rumors about one and two years out. I think they're going to continue to have unbelievable gains above anyone else in the mobile imaging space. And I think that's going to only get more and more important. Yep.

There's something interesting about music labels, which is that they have wholesale transfer pricing. 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 operating profit is growing at like 50% a year. And if a lot more people start streaming, then all of the benefit of all those people starting to stream and pay Spotify and Apple Music accrues to Sony Music and UMG. It's a pretty predictable, defensible business. I think even after doing the Taylor Swift episode, it kind of made 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 going to go direct. And I kind of came out of it saying, unless you're Taylor Swift, it seems like record labels are going to continue making a lot of money. Yep. And so I think the fact that they own that and that's growing and seems to be run pretty well is impressive. And yeah,

I think their diversity is a play to their strength thing here. If you're going to play the conglomerate game, go play it well, and they're playing it well. It really is a turnaround story. And I haven't looked... I think the stock price is near where it was at their all-time high 20-plus years ago. So the turnaround of undoing all the damage in the late 90s and early 2000s is almost complete. The irony of it all is that

The dot-com bust was when Sony went bust, but they were like the opposite of a dot-com. Right. Yeah. It's interesting that it was in the dot-com era, but it was a completely different set of mismanagement activities. Yeah. Okay. So that's the bull case. What's the bear case? My bear is that Microsoft's 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 Xbox, they have finally segmented the market right where they can sell an expensive beastly console to the people that want that and sell a pretty good console to everyone else and make a ton of money on, you know, two to three billion a year right now on the subscription revenue. Yeah, I think that's the bear case is that

30% 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 that Apple in particular in-houses this at some point?

Maybe, but I think the 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 component suppliers. And so I think unless Apple feels like there's a 20-year bet to make, they're happy to continue letting it play out as is. Sourcing. Yeah. Yeah.

And maybe they do. Maybe all the work they're doing in the image processing pipeline, they're like, nope, we need to own the sensor too. But I haven't seen anything to that effect so far. Cool. The other bear case is like...

Sony is fully out of the business that they used to be in, where you go buy a bunch of Sony gadgets and put them around your house. Now they're like, we sell you a gaming system, and then we sell specialized stuff, or we're an OEM. And the OEM is either on the content side or on the components side, selling the image sensors to Apple and others. But it is...

a little sad to watch the original Sony kind of 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 Sony right now. Obviously the PlayStation has been this incredible success and I don't think Microsoft is going to like completely take the market from them now or possibly ever. But yeah, the imaging sensing business is,

Also incredibly impressive, but they're a component now. What would Ibuka and Morita be thinking about the current state of the company? I bet Ibuka would be excited about the PSVR 2. Yeah. I think right now, this current generation, the Oculus Quest 2, it's much newer than the PSVR, but I think it's massively outselling it. And so if you were going to get excited about something, I think it would be, dare I say, a metaverse bet on them producing a good...

VR system. And I suspect what that means is that you would have to believe the long-term future of VR is actually in gaming, not in lifestyle, which if Apple comes out with something, it's going to be for all over the place, at least all over your house. That's a good point. And with, you know, sentiment about Meta and Oculus and

Yeah, there's a real opportunity for Sony there. Yeah. That said, I think Meta is investing just gobs and gobs of money and talent and everything into the next five versions of the MetaQuest 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 deep enough to challenge all the investment they're putting in, other than Apple's. It'll be interesting to watch that play out. Like I...

I don't know. I'm sure we'll talk about that on the show a lot in years to come, but like the Facebook portal, right. Is by all accounts, a great device and using it as a webcam is awesome. But I just like,

I just have a hard time about having a Facebook device with a camera in my house all the time. Yeah, I don't think that's going to be an issue for a lot of people. I think they're going to do a good enough job distancing the MetaQuest 5 or whatever is going to be the real consumer hit from any ickiness that people feel about what was once called Facebook. Yeah.

Okay, let's talk about power. This one's hard to do because it's a conglomerate. So the question is, do we talk about each business having their own power or lack thereof? Or maybe let's first ask, does the conglomerate 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. That went across much of the conglomerate. Maybe not all of it. For sure. This is great. I actually thought you were going to take it there. And so I pulled this quote. In the New York Times in 1983, there was an article that said the technological leader, Sony, was able to command a premium for its wares in the marketplace and refrain from price cutting, allowing it to keep its profit margins up.

Hmm.

and the stock would go up a lot after 1983, but the spirit of what they were saying was right, because I think the very thing that was alluring to Steve Jobs, that this company makes stuff of the highest quality, always has this superior brand, and therefore can command higher prices, was kind of going away. David, for the rest of the seven powers...

Rather than going through each of their 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 gosh, 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 attractive it was to consumers. And just like going through those numbers and doing the research, like I anecdotally felt this as a consumer at the time, but like 8,000 games on the PlayStation versus 400 on the N64. And I had both systems and I loved 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, Sony had such a uphill battle to start in winning developers over to the platform. But then by even before the end of the life cycle of the first PlayStation, it was just like the gravity was so much with that platform that, you

like Squaresoft and Capcom and Konami and Activision. They had to come to the PlayStation. 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 versus competitors, I don't think so. I think there's an oligopoly in that business, and that's why they're able to be really profitable. Movies. Yeah.

They're one of the big five studios, but I should look at the numbers at the other studios to confirm this, but I don't think they're more profitable than the other ones or they have a real edge the way that Disney does with all their in-house IP. Except for the Spider-Man deal. That's a cornered resource. I think they're largely competing in the marketplace with pictures. With electronics products and solutions, I couldn't...

I kind of feel the same way. I know I'm over-indexing on cameras because it's what I know, and there's a lot of other stuff in here, headphones and lots of stuff I'm 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 enables them to price meaningfully higher. I think if the Sony camera was twice as expensive as a comparably good

you know, Canon, I definitely would get the Canon. I don't think there's anything, 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 it 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 there really isn't one. There's not a lot of players. It's a big investment to do business with them as a game developer. It's expensive as a consumer. It has meaningful switching costs as a consumer to switch from one ecosystem to the other and buy a new box and learn all the new controllers. It's interesting though, like with Game Pass and 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 and

network economies become a lot less powerful. Well, that doesn't leave us with a super rosy outlook for the company other than it seems well run right now. I would say it has operational efficiency. They're effective at identifying markets and going into them, but I don't think they have a particular power that we're excited about in the way where we analyze some other companies and think, oh, this is a 50-year defensible organization. No, the only one that jumps out from the story and the history is

previous incredible power of the brand. Yep. 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 heyday of the early 90s and today, what does made in Japan mean? Because famously, Akio Morita's goal with Sony was to transform made in Japan on a product from, oh, this is of low quality to, oh, this is of high quality. I'll tell you my, and you can pile onto this, my view of it is it absolutely worked in the 90s. And

I think when I was buying a lot of Japanese electronics in the 90s, to me, it's like buying a Japanese car today. I own a Honda because I'm certain that's very high quality and durable. And I felt that way about Sony a lot. So sort of mission accomplished for Merida and friends. Today, I don't think that it's...

any lower quality, but the totally dynamic nature of global supply chains and brands has changed things. Where I buy so much from American companies that work with design partners overseas, as we've learned from Jeremy Ditalik and the LP show, where the manufacturers are deeply involved in the design, that it feels like I buy more from American companies that are manufactured elsewhere than

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 is made in Japan is any lower than I would have thought in Sony's heyday, but it hasn't continued its ascendancy. It's interesting. That's what I was struggling with when you asked the question is, how do I feel today? I 100% agree when Sony was started,

Made in Japan for most people in the West probably meant low quality, signified low quality. And then by Sony's heyday, it signified high quality. The interesting thing about today, also on the same page with everything you said, is

It's also interesting that that same playbook has been run in so many places now. So successfully, like same thing in Korea, you know, after it came, you know, 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 and like an even bigger way. And so just as a consumer, having had that played out a bunch 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. It 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'm buying from any brand anywhere, I expect that it's actually made in a lower labor cost location. And so I guess I didn't even really 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 products. Like that era is kind of past us. It's kind of past. Yeah. Yeah.

Exactly. A lot of people don't want it to be when they're marketing made in America goods because they want that to be a big selling point. And I think there's a lot of people who do really care about that. But this notion of like where the sticker on the bottom says it was made is...

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 it just means a lot less now. That's a good point. Actually, yeah. So this answer is a two-axis thing where it's like, well, it went from meaning something was low quality to high quality, and then the magnitude of how much it mattered just went away.

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In 2004, there were two consumer electronics companies that both had a market cap of about $30 billion. So this is after that big Sony crash. They both had pretty thin net income margins of around 2% or 3%. So neither is really making a lot of money.

Sony's obviously one of them. Sony grew to an impressive market cap of $150 billion, and that's about where they sit today. And they grew that piddly net income margin to 13% today. So they're generating income. Now, unfortunately,

Unfortunately, for our comparison, the company that started right at that same starting line as them is Apple. I figured. Apple is now worth $2.8 trillion, or about 19 times what Sony is worth, and they generate twice the net income margin percentage at nearly 26%. And to add insult to injury, Apple is also growing their revenue twice as fast, even with the crazy high numbers that they have today. Absolutely.

at 30% per year versus Sony's 15% per year. So Sony's strategy coming out of that terrible era for them was good. Apple's was the greatest in history. Yes. Thank you, as always, to Berkshire Hathaway for keeping me invested in Apple.

So it's like, okay, well, you both kind of had the same opportunity. And Sony, you get an F. 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 MP3 players. They both had a line of computers. Sony didn't have an operating system. So they looked in many ways sort of like Apple in the 90s in their diversity of products, you know, cameras and headphones and all this stuff, PDAs, 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 pseudo-monopolistic distribution channels like the App Store, have just built the greatest business in history. And Sony sort of continued as a reasonably undifferentiated...

manufacturer of electronics and now other stuff. It is amazing. Put the Mac business aside for a second. All of Apple's businesses, MP3 players with the iPod, all their great successes, the iPhone, the iPad, the watch. I'm certain Sony at one point made a digital watch. They may have even had one. I don't know for sure. I'm sure they did or they certainly could have. A tablet PC, a PC like

This is all 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 big a business is AirPods? Enormous. Probably. Well, I haven't done the math.

But there are all these articles about how the AirPods business alone is like a Fortune 50 company. It's probably as big as Sony. That's a great point. Maybe that's a follow-up tweet for us at some point in the future, our listeners, if you want to help with the math. AirPods versus Sony, what's a bigger business? So why is it that these things happen? I mean, we've talked 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 N plus one if you had product N. And they all work together really well. And like, I have a lot of grapes. I wish my AirPods switched, you know, between my computer and my phone more cleanly. I have a lot of stuff like that. But like at the end of the day, there exists a true ecosystem. Getting iMessage on my computer and my phone, amazing. Game changing. I don't think I've ever owned a Sony product that worked with another Sony product in a

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 when I was younger. And when I was a kid, I know my family felt that way, that having everything Sony, well, A, it meant you were getting the best, but also having it all together. I was like, oh, it's all going to work together. But at the end of the day, you were just wiring up boxes with

you know, coaxial cables between them. Like there was nothing, there was no computing magic. There was no software magic there. So in some ways, this like recent era, and I think we should grade the other eras of Sony too, but this recent era where they grew their market cap from 30 billion to 150 million, it's like,

It's kind of a bummer 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 what the other opportunity looks like from a company that was modeled after Sony, it's a pure F. There's just no way you're net 2.8 trillion less of value. I mean, I guess an F would be like Nokia or something like that. Yeah, that's right. I guess that was positive. It didn't go to business. So sure. Maybe it's a D.

They're still alive, right? Yeah. Oh, they only 5x'd their really big business over... It's probably harsh to call it an F, but... All right, I'll say F is extreme. We don't do enough Cs and Ds. I'll go D. How do you think about other eras?

I'm hard pressed to think of anything except a, you know, a, maybe an a plus for the initial era through the heyday, 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, uh,

innovation for decades. Ibuka's founding prospectus to create a place for engineers to work in the joy of their pursuit of technology and benefit to society, that I think was probably Sony for decades. Yep. An incredible story. It's hard not to call it an A-plus coming out of World War II in Japan, the whole run all the way up to the mid-90s. Just astonishing execution. Yeah.

You know, this may have been a timing coincidence, but really, you know, the run was over when Oga finally stepped aside and he was the last link to the original days. Yeah. The original founders. It's weird, right? Because it's very un-Japanese, but...

It is not a multi-generational company. Yeah, it is unlikely to be a 15 generation, 400 year dynasty. And maybe it will, but it just won't be meaningful in those latter years.

really after the first generation of founders. It's a company in the world. I mean, frankly, it's the second largest company by market cap in Japan. So it's a big, it's an important company in the world. They're 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're the innovators of tomorrow. It's like somehow both of those can be true at once. Yeah. I feel strange coming to the end of this episode. We could just make it never end. Right. That's an acquired theme. But it's not often on this show where we get to the end of a story and we're like, that's mediocre at best in terms of where we are right now.

Yeah, well, we just don't tell the stories very often where the brightest days were behind them. Yeah. Well, who knows? Maybe folks at Sony will listen to this and there's plenty of other criticism in the marketplace on them too. Emotionally, I do feel like their best days are behind them.

they'll probably make more money in the last 10 than in any other 10 before it. But the way that we're sort of trained to analyze these companies is, are you going to continue growing at 300% a year for the, you know, or, or like, like even Apple only grows at what 30% a year, only 30%. Microsoft's only accelerating in their 50%,

45th or 50th year of business, whatever this is. Right. Amazon, any of 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. The way that we're talking about the Apple headset, we are not talking about the Sony headset that way. Yep, yep. All right. We've beat the horse. Should we do some quick carve-outs? Yes. Let's do carve-outs. All right. I read an awesome, awesome article

article called How All This Happened by Morgan Housel. And I cannot recommend it enough. It is a fascinating look. It is another story that starts in World War

and comes to today. And it's basically a look at the plight of the economics that consumers experience in America. And it talks about everything from housing booms to people's debt load over time to the rise in people buying stuff, like hardcore consumerism and the national tenor of people's feelings toward all these things throughout different decades and decades.

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 the acquired family's alley. Yes. And it's shorter than you think. It's a long piece, but it's shorter than you think based on the way I just described it. Ah, that's so great. And Morgan's just such a stellar, stellar writer. I mean, you can't go wrong reading any of his stuff. All right. I have...

Very apt carve out for this episode. I'm very excited about it. I've been waiting a long, long time for... You know what it's going to be, don't you? I don't. It feels gaming related. No, no, no, no. Well, maybe, tangentially. Finally took delivery of the Model 3 that I ordered months ago. It's awesome. It's so great. It's just like...

ah you know we test drove the um the pole star volvo's uh electric model 3 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 90s we haven't noticed any panel gaps or anything on on our model 3 it's you know seems to be all fine but like

The experience is so amazingly integrated, like from the buying process to the delivery process to like picking it up. I got a text on my phone with a notification to go in the Tesla app, finish up my paperwork,

And then they're not, for whatever reason in San Francisco, they're not doing driveway deliveries. So I went to the dealership in Marin and they're like, your car is in parking stall E. Go to it, you know, look around, see if it looks right to you and then click accept in the app. And then I just hit accept. I get in.

The car is basically a computer on wheels, which I know is trite. Everybody says that, but like experience it. I'm like, holy shit, it really is that. And then I just drive off, you know, and like the app is amazing. You get the live sentry cam view. I can pull up right now, live cameras on the car in the app. I can do everything from the app remotely in the car. It's pretty cool. I'm delighted. You're delighted. 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? Yeah.

All right, well, listeners, I think that about does it. If you're like, man, I wish more people would talk about this topic with me, I have a feeling at Acquired.fm slash Slack there will be plenty of people talking about this. So come join us, talk about the news of the day. We'll talk about acquisitions like...

Microsoft buying Activision Blizzard and Sony buying Bungie. We also have our limited partner show, and our latest episode is with repeat guests from NZS Capital talking about what on earth is going on in the markets right now and their view. If you are a paying LP, you have access to those episodes two weeks before they hit the public feed, which in market choppiness like this is helpful to the extent where you're learning things that you think of course aren't investment advice but may help the way that you think. You

You'll also, if you join the LP program, you'll get access to our LP-only Zoom calls. So if you want to access the public version of that feed or become an Acquired Limited Partner, both of those are linked in the show notes. Lastly, we've got a great job board. If you're looking for what's next, David and I personally have curated some jobs at acquired.fm slash jobs with some friends of the show. And, um,

If you like this, share it with a friend. We love one-on-one recommendations. So pick someone that you work with or a close friend. And if you would personally endorse it and say they should check it out, please do that. With that, listeners, we will see you next time. We'll see you next time.