Saturday, May 31, 2008

Sony Says It's an IPod Killer, Not Just Another Walkman

The Walkman's maker,sony , is betting that it can. But before it challenges Apple's global dominance, Sony must first prove it can beat its American rival in a market much closer to home: Japan.

Last week, hours after Apple Computer rolled out its newest iPod model, the Nano, in California, Sony unveiled what it hopes will be an iPod-killer in Tokyo.

Issei Kato/Reuters

Sony introduced its answer to the iPod last week in Tokyo.

The line of sleek new digital music devices bear the venerable Walkman name, but sport such iPod-like features as tiny display screens, disk-controlled menus and internal memory able to store up to 13,000 songs in the high-end model.

Sony makes no secret of its desire to reclaim eventually the global dominance of portable music players, a market it created in 1979 with the first Walkman cassette players. But it has its work cut out, analysts say, because it has let Apple get such a formidable head start.

Sony has set an ambitious goal of selling 4.5 million of the new Walkmans worldwide in the fiscal year ending next March. That is more than five times the number of older versions of the Walkman it sold last fiscal year, but still a far cry from the 6.2 million iPods that Apple sold in the three months through June.

"It's just the first step" in Sony's counterattack, Koichiro Tsujino, the co-president of the unit making the Walkman, told reporters last week.

They will go on sale in Japan on Nov. 19, and later in the United States and elsewhere.

Sony says it is committed to selling them in all major world markets. But analysts say the staggered timing of the rollouts appears to reflect a strategy by Sony to use its home-court advantage in Japan, one of the world's largest and most competitive markets, to hone its products and strategies before taking the fight to other countries.

"They want to make sure they capture Japan first," said John Yang, an electronics company analyst at the Tokyo office of Standard & Poor's. "Sony is not in such a hurry to market this overseas."

Analysts say Sony, like many big electronics companies, was late in seeing the potential of digital formats like MP3. Apple got out front early, releasing its first iPod four years ago. It was not until last year that Sony produced similar players.

While Apple's lead makes it hard to catch, analysts point out that Sony brings deep pockets, excellent research and development, and one of the best names in consumer electronics. In a sign of early success, a flash-memory version of the Walkman released in April briefly outsold its cheaper iPod counterpart.

According to BCN, a Japanese market data company, Apple still held a commanding 39.4 percent share of the Japanese market for portable music players in August. That is down from a peak of 48.5 percent in March, before Sony's April rollout. In August, Sony remained a distant second with a 16.5 percent share, but was up from 6.1 percent in March, according to BCN.

While estimates vary, analysts say that Japan is either the second- or third-largest market in the world for portable music players, accounting for about 5 percent to 10 percent of the global market. Gartner, a research company based in the United States, says 40 million players were sold worldwide last year.

Japan has long been a nearly impenetrable market for foreigners, especially in industries like consumer electronics, where Japanese companies have been globally dominant. Partly, this reflects Japan's finicky consumers, who insist on products that are higher quality and more complex than those most Americans would find at local stores.

The demanding nature of the Japanese consumer, though, makes this an important test market. Many in the industry say that if a product can sell in Japan, it can sell anywhere.

"Japan is an extremely important market," said Michael McGuire, a Gartner analyst. "You are in the epicenter of the whole digital device industry, and the backyard of the companies that invented the industry."

Since it went on sale here in November 2001, the iPod has been a runaway success, analysts say. The machines have struck a chord among the nation's youth, who seem enamored with things small and cute. The iPod name also appeals to this brand-crazy country.

Apple does not give out Japan sales data. But iPods are ubiquitous in Tokyo's coffee shops and famously crowded trains. When Nihon Keizai Shimbun, Japan's largest business daily, ran twin articles on the front page about last Thursday's release of the iPod Nano and the Walkman A-Series, it played the iPod article more prominently.

Hoping to capitalize on this beachhead, Apple introduced its iTunes online music service in Japan on Aug. 4. The company said that it sold more than a million songs in the first four days, more than all other online music sites in Japan combined sell in a month. That includes Sony's Connect online music site, which offers fewer songs than iTunes. Apple also has four retail stores in Japan.

Analysts say Sony took its first real stab at Apple in July of last year, when it introduced Walkmans featuring hard-disk drives like those already on iPods. But Sony's models did not easily play MP3 files, the most common format for digital music, favoring Sony's own Atrac format instead. They also did not support popular software like Microsoft's Windows Media formats.

Sony has fixed those problems. The new line of Walkmans will work smoothly with MP3 and Atrac, Sony says, and a software upgrade scheduled to be available in December will allow the machines to support Windows Media.

They also offer unique software features. The Walkman will track which songs are most frequently played to build a list of the owner's 100 favorites, which it constantly updates. It also has an Artist Link function that can make "recommendations" of bands and songs similar to those stored on the player.

The new Walkmans will offer comparable storage and performance to iPods, Sony says. Their prices, however, will be higher. The two-gigabyte flash-memory version will sell in Japan for about 32,000 yen, or $290, compared with 21,800 yen for a similar iPod.

But analysts say Sony's biggest challenge will be overcoming iPod's head start.

"Sony has a chance to catch iPod, but the hurdles are high," said Hiroshi Takada, an electronics analyst in Tokyo for J. P. Morgan.

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