April 2006 - Sony Success

Dr. Kenji Kitatani shares his experiences as the former executive vice president of business planning for Sony Corp. as well as his thoughts about the changing media landscape.

By Vitisia Paynich

Since 1946, the Sony brand has been synonymous with innovation of media entertainment and information technology-such as the introduction of the tape player/recorder in 1950, a high quality color television named Trinitron® in 1967, the portable Walkman® in 1981, the PlayStation® game console in 1995 and the VAIO® Slimtopâ„¢ Pen Tablet PC in 2001.

Masaru Ibuka and Akio Morita founded Sony 60 years ago in Japan by joining together their expertise in product engineering and marketing. However, at the time, the company operated as Tokyo Tsushin Kogyo-a name too difficult to pronounce and even harder to remember. The name Sony is a combination of two words: sonus, which is the Latin root for sound and sonic, and the word sonny meaning little son. Mr. Ibuka and Mr. Morita chose the name to show their company represented a group of young people who have the energy and passion toward unlimited creation.

Today, that same passion and drive for bringing product innovation to consumers have transformed Sony into a $67 billion corporation-with $18.4 billion of the company’s total revenue generated from U.S. sales alone. Much of the success can also be attributed to brand building and business expansion.

Dr. Kenji Kitatani, a leading expert in the U.S. and Japanese entertainment/media business, helped enhance Sony’s profile and status on an international level as the former executive vice president, business planning at Sony Corp. of America (SCA).

Electronic Retailer spoke with Dr. Kitatani a month prior to his departure from the company to discuss his term as a key Sony executive, the rapidly changing media landscape and his current position as the Lester Smith distinguished professor of media management at Washington State University.

Kitatani earned his MA and Ph.D. in communications policy, management and law from the University of Wisconsin-Madison. Prior to joining Sony Corp., he worked for Tokyo Broadcasting System as counsel on international affairs and then as president of the Media Research Institute. He was responsible for negotiating contracts and coordinating coverage for several high-profile sporting events, including the Super Bowl, Indianapolis 500, World Figure Skating Championships and U.S. Open Tennis.

From 1991 to 2003, he served on the board of directors of Tokyo Dome Corp., Japan’s leisure and entertainment conglomerate. Dr. Kitatani was also named as president of Tokyo Dome Enterprises Corp. During that period, he was responsible for promoting major sporting events such as the NFL preseason game series, as well as concerts featuring top acts like the Rolling Stones, David Bowie, Michael Jackson and Madonna. “So, for a while, [Tokyo Dome] became the biggest live entertainment promoter in the world,” he says.

In 1999, Sony recruited Dr. Kitatani as executive strategist, media content, broadcasting and communications. “This was a job that basically [had me working] both in New York and Tokyo,” says Kitatani. In this role, he handled the company’s Japanese media business development.

“In May 2001, I was named executive vice president of business planning at Sony Corp. of America reporting to Sir Howard Stringer, chairman and CEO,” says Dr. Kitatani. But he would soon realize that his involvement with the Tokyo Dome would prove to be a conflict of interest. “I had to step down from the board of the Tokyo Dome when I took the group executive officer and EVP positions for Sony Corp. of America.” However, Dr. Kitatani remained as a Tokyo Dome advisor-a role he maintains to this day.

As EVP, Dr. Kitatani developed, expanded and spearheaded the business relationships for SCA’s operating units that included Sony Electronics, Sony Music Entertainment, Sony Picture Entertainment and Sony Corp. This included corporate marketing and promotion for events such as the Sony Open in Hawaii. In addition, his duties required him “to coordinate all of the marketing strategies for [four] companies and also to consolidate media buying, which was at the time, about $650 million a year [handled by] a single media buying agency,” he says.

Although Dr. Kitatani didn’t oversee all of the day-to-day operations associated with media buying, he maintained the overall relationship with Sony’s media buying agency, Universal McCann, while monitoring the effectiveness of the consolidated media buying, as opposed to individual group companies buying media through separate media buying agencies.

“In 2004, my parents unfortunately had become seriously ill back in Japan,” explains Dr. Kitatani. It was then that he made the decision to step down from his EVP and group executive posts to return to Japan after residing in the U.S. for 32 years. “So, I came back to Japan and became executive advisor for Sony Corp. I had a two-year assignment and then my former boss Mr. Nobuyuki Idei [former Sony chairman and CEO], who originally brought me into the company, stepped down. So, it’s natural that I would leave the position at the end of March [2006].”

During his tenure at the company, Dr. Kitatani witnessed significant growth among the other business units. “Sony in Japan is rather unique, because they are not only a consumer electronics manufacturer and seller but also an ISP provider,” he points out. “And Sony Music of Japan, which operates separately from Sony Music [Entertainment], is very strong in the music download business and it’s also a forerunner in providing ring tones to cellular phones, which is not a very popular money-making business in Europe or North America. However, it’s quite popular in Japan.”

He adds that Sony makes a healthy profit from its ring-tone download business as well as from its music-download business.

For decades, Sony has been a household name, especially in the area of electronics. The manufacturer has always operated on the business-to-business side, with big-box retailers like Best Buy, Circuit City and Wal-Mart stocking their shelves with its electronics. However, Dr. Kitatani notes that Sony is venturing more into the direct-to-consumer arena by opening Sony retail stores in major shopping malls throughout the U.S. These stores have actually existed for years in Canada and only in recent years expanded to major cities like Las Vegas, Detroit and Los Angeles.

“I think you always need to weigh the decision to either remain as a content producer or distributor on the B2B side or to expand into the B2C side,” he warns. “If it’s a mass retailer-dominated market, it may not be a wise idea for a company like Sony-or any other company similar to Sony-to compete directly with itself.”

However, he says these Sony brand stores are targeted to consumers who are not looking for deep discounts on electronics but who want to simply check out all of the accessories that might not be widely available at the major retailers.

The company also has made an imprint on the media landscape in Japan. According to Kitatani, Sony is a 14-percent owner of SKY PerfecTV, which is the communications satellite platform provider of top-level global multichannel pay TV service. “So, it’s like owning the satellite operations company similar to BSkyB or DIRECTV in the States,” he explains.

Sony serves as a minority owner of local television stations including one in Tokyo and one in Osaka, which is the second largest market. Yet, Dr. Kitatani quickly points out that the media landscape in Japan is vastly different from the United States. “[Japan does] use the U.S. as a model but the penetration of DTH (direct to home) satellite and cable is lower in Japan compared to the States,” he says. For example, while revenue derived from pay per view may be significant in the U.S., pay TV or pay-per-view revenues in Japan are relatively small because DTH satellite accounts for only 16 percent of television households, with cable at about 17 percent.

“So, both combined are less than 40 percent, because 60 percent of the homes are viewing television through a terrestrial system,” Dr. Kitatani says, “and that’s completely different from the U.S., which is 70 percent cable and the other 17 percent is DTH.

“In Japan, the terrestrial television networks pretty much own and occupy the $20 billion media advertising [market].” He adds that five networks split that $20 billion media pie.

How does the cable and satellite market in Japan compare to other Asian markets? “Actually, in some parts of Asia, [DTH satellite] and cable television are far more penetrated than in Japan,” he says, “and the primary difference is that the Japanese government has been very strict about each television station operating a great number of relay stations of their own within their licensed territory.”

For example, a typical TV station in Japan may operate 40 to 120 relay stations of its own, which costs a lot of money for the local television broadcaster. However, in comparison, Dr. Kitatani says that in the U.S., the FCC might require a few terrestrial relay stations to be installed and operated by a local broadcaster in areas of rough terrain; however, that number may only be between 10 and 20. Furthermore, because there are so many relay stations in Japan, consumers are less likely to pay for cable or satellite subscriptions, especially if they can access the open air for free.

“A lot of the Asian countries because of their national terrestrial broadcasting system had been weak in the past. Many of them did not have a great number of relay stations and the number of channels were rather limited,” he explains. However, today many of these countries now have multiple channel service from satellite.

“In a country like Taiwan, cable has expanded quite rapidly with multichannel service,” he notes. “And in many parts of Asia, the developments are somewhat similar to the U.S., because they have strong pay satellite services and in some areas, dominant multichannel cable services. So, the landscape here in Japan is quite different from other parts of Southeast Asia.”

However, he believes that once analog terrestrial TV in Japan is completely converted to digital transmission by 2011, it could open the door to new opportunities. “Upon the completion of the transformation to digital, each channel could afford up to two standard definition television channels,” he says. Those that could benefit from this transition are live shopping networks that are currently part of the 17-percent penetration rate on the DTH side.

As a media expert, Dr. Kitatani has lectured on media law and management at Sony University in Tokyo, Indiana University and Washington State University. He is also an accomplished author. In fact, his 1991 book, entitled “American CATV,” is considered essential reading for media professionals in Japan. In 1999, he published another book in Japan called “The Entertainment Business.”

What does the future hold for Dr. Kitatani now that he has stepped down from his position at Sony? He can now devote more time to his position as the Lester Smith distinguished professor of media management at The Edward Murrow School of Communication at Washington State University (WSU), as well as a trustee of the WSU Foundation.

In fact, Dr. Kitatani teaches WSU courses long distance. “Until just a few years ago, it would have been very costly to do a weekly three-hour video conference and lecture to the United States from Tokyo,” he says. “But because of the advancements in broadband, there’s no cost to me to transmit video to [the university] and receive video to my home in Tokyo.” He even uses the latest Sony video conferencing equipment.

Those who take his classes are seniors and graduate students majoring in broadcasting, public relations and advertising.

“I think the challenge of being in the advertising industry is the constant learning process. There are so many new mathematical elements that have been used to measure the effectiveness and qualitative aspects of advertising,” says Dr. Kitatani. “So, today’s advertising professionals must constantly update their knowledge to reflect the changing media landscape, as well as the technology. That makes a huge difference.”

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