Sony Finally Gets In Tune with MP3s

By Alex Salkever Ah, remember the '80s. Ronald Reagan, TV sitcoms like Family Ties, the Back to the Future movies -- and Sony (SNE). Back then, the consumer-electronics and entertainment giant ruled the music roost with its wildly popular Walkman portable cassette player. But where digital music is concerned, Sony has had a tin ear -- until now, that is.

The first signs of a Sony awakening may have come on Sept. 23 when the Japanese giant announced it would support the popular MP3 digital music format on its hard-drive music players. The move could presage a more serious Sony run at category leader Apple (AAPL).

IN MP3 DENIAL. Jobs & Co.'s iPod music players have over 50% of the U.S. music-player market, and its iTunes music store has about 70% of the global market for paid music downloads. Sony has barely budged the needle in either of those categories. Blame clunky offerings, high prices, and insistence on use of its own proprietary ATRAC digital music format.

The announcement that Sony's sleek but pricey hard-drive disk players will now support MP3s could signal that the Japanese giant finally understands its dreams of an Apple-style vertically integrated and tightly controlled digital-music business might not be realistic. The move is clearly an about-face from Sony's past approach. The MP3 format isn't owned by any of the large players. But over time it has become the most popular way of storing and playing digital music.

Most consumer-electronics makers acknowledge this by building MP3 compatibility into their products. Sony, however, chose not to support MP3 on its hard-drive music players.

DISSENT AND WAFFLING. Led by Apple's iPod, this type of device, which uses a small hard drive to store and retrieve tunes, has become the most popular form of music player over the past four years. In deference to MP3s' popularity, most hard-drive music players, including the iPod, support playback of recordings on the format.

That's in sharp contrast with Sony. Paralyzed by internal struggles between its consumer-electronics and entertainment divisions, Sony has waffled on whether to create music players that allowed customers format freedom or players that strongly enforced entertainment copyrights.

By accommodating MP3s on hard-drive players, Sony has taken the first real step toward becoming a viable digital-music competitor. As a result, Sony hard-drive player owners can now listen to songs ripped from their own CDs or downloaded from the Internet in the MP3 format. That's something iPod owners have long taken for granted.

INCREASING PRESSURE. Beyond an accession to customer wishes, the move could have other implications. Music pundits have long speculated that in an effort to limit Microsoft's (MSFT) influence in the sector, Sony would strike a deal to license Apple's FairPlay digital-rights management system. That would grant Sony device owners the right to play songs downloaded from iTunes Music Store and also deal a blow to Microsoft's own Windows Media music format.

No doubt, competitive pressure weighed heavily in Sony's decision. Microsoft launched its own online music store earlier in September. Around the same time, portal giant Yahoo! (YHOO) purchased leading digital-music software and service company MusicMatch for $160 million. Yahoo also announced it's building its own player software. Perhaps the Japanese behemoth saw a future of digital music where Sony was absent and decided that it wanted its MP3s after all. Salkever is Technology editor for BusinessWeek Online

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