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Michael P. Schulhof.

Can a powerhouse manufacturer of consumer electronics transform itself into an integrated entertainment company on a par with such global players as Matsushita, Time Warner, Disney, and Germany's Bertelsmann?

Having already made substantial strides toward that goal, Sony is betting heavily the answer is "yes." One reason for optimism is its faith in Michael P. Schulhof, the head of Sony's entertainment subsidiary, the organization's point man in the U.S., and its highest ranking non-Japanese executive.

The jury's still out of Schulhof, 50. One thing he has demonstrated as vice chairman of Sony Software--a U.S. umbrella for the parent's film, music, and electronic publishing operations--is his ability to tap Sony's deep pockets.

Spending more than $5 billion to pick up CBS Records and Columbia Pictures Entertainment several years ago, Schulhof took on heavy debt and drew snickers from some analysts, who insisted he had overpaid. In signing hot producers Peter Guber and Jon Peters to run Columbia, now Sony Pictures Entertainment, the executive incurred a $1 billion lawsuit from Warner Brothers--with whom Guber and Peters had previously signed. Schulhof is shelling out $100 million to retool Sony's Culver City motion picture lot. On the recording side, he paid Michael Jackson a reported $5 million for his next album, though with equity participation in the project, Jackson could earn much more.

But perhaps what's most important is that in a high-stakes business, Schulhof isn't afraid to ante up. Star talent is what the public wants, he says, and proven executives burnish the product. "My only rule of thumb is that I want our outlays to be competitive," Schulhof says. "I don't want us to overbuy the market, but I also don't want us to lose out on creative manpower."

The bold approach is beginning to pay off. No one can match Sony's potent mix of digital hardware and entertainment software--except perhaps rival Matsushita Electric Industrial--a competitive edge for which Schulhof deserves much of the credit. Overall, Sony Software's performance has been respectable. For the fiscal year ended March 31, 1992, sales jumped 5 percent to $5.8 billion, and in 1993, growth remained steady. Operating income at Sony Pictures has tripled since Schulhof bought it. In worldwide video--motion pictures, prerecorded video, and television programming--Sony has a 20 percent market share.

Entertainment comprises roughly 20 percent of Sony's revenues, but gets "90 percent of the press coverage," Schulhof quips. That's because these segments bring Sony head to head with other multimedia titans. Among the biggest hits for Sony Pictures last year, thriller "Basic Instinct" made $118 million, while baseball film "A League of Their Own" raked in more than $100 million. "A Few Good Men," an Oscar nominee for Best Picture, is expected to eclipse these figures.

But predicting the next hit is more a crap shoot than an exact science. Having come to Sony with little experience in Hollywood, Schulhof leans heavily on executive talent.

"I think it is very important that executives on the creative side be given a great deal of freedom," he says. "Ultimately, it's their judgment, their point of view, and their taste that determines, not only the viability of the enterprise, but the vitality of the enterprise."

As a manager, Schulhof says he makes a clear distinction between administrative control, where he "exercises a good deal of authority," and creative control, where he "defines a set of boundaries" and rarely crosses them. Administration in the entertainment business, he says, must be transparent.

Schulhof shifts from subject to subject with a polish that is reflected in his impeccable appearance. A friend ribs: "I wonder if ever he is rushing around in the morning getting ready for a meeting, if he can find his tie and can't find the matching handkerchief. It must cause quite a commotion."

But outside the office, "Mickey," as he prefers to be known, chucks the buttoned-down persona. He is a ham radio buff and a licensed jet pilot--passions he shares with Norio Ohga, Sony Corp.'s president and CEO, and chairman of Sony Software. Schulhof received his Ph.D. in physics from Brandeis University. As a postdoctoral fellow, he worked at Brookhaven National Laboratory on a project involving magnetic-phase transitions. He signed on with CBS Records in 1972 and moved to Sony USA two years later.

"I've always used science as a training school for problem solving," Schulhof says. "Nobody is surprised when a lawyer goes from law school to business. And yet everybody is surprised when a physicist or a chemist or a mathematician gets into business."

Everyone, that is, except perhaps senior executives at Sony, most of whom also have a background in science or engineering. Indeed, half of Sony's board members--and Chairman Akio Morita himself--studied physics. Acknowledging his debt to Morita and Ohga, Schulhof adds, "I am a product of their training. For whatever reason, they saw something in me 20 years ago. They took the time and the care to teach me their philosophy. They spent time making sure I understood why they made certain decisions."

One of which was handing Schulhof the reins at Sony Software--the largest Japanese employer in the U.S. with a staff of 20,000--and assigning him to beef up software operations.

Schulhof is quick to stress the interaction between Sony's hardware and software business. "We have the ability to support our software companies if they come with innovative software ideas for which there is no hardware," Schulhof says. And he aims to keep the product pipeline filled: "Having technology is not enough to have a business."

True enough. Even in its core electronics components businesses, parent Sony has encountered rough going of late. Sales in the quarter ended December 31 dipped 2.8 percent to $6.8 billion, and the export picture has been further clouded by a yen that has remained stubbornly strong against the dollar and other Western currencies.

Have tough times prompted orders from Tokyo to tighten the purse strings? Apparently not; more acquisitions may be in the offing. "Probably the next step for us will be to solidify all of our entertainment businesses," Schulhof says. "There are a few pieces that are still missing from my perspective."

Also on the horizon may be projects to deliver entertainment services through existing telecommunications systems. Commenting on the FCC's recent decision to let phone companies carry video signals, Schulhof says: "Many services can be provided electronically through other people's infrastructure, even films and music. I want to be one of the providers. I don't necessarily need to own the pathways."

Schulhof's willingness to embrace new technology--and make it easy to use--wins praise from film stars and musicians. Director and actor Danny DeVito is known to be particularly fond of working at Sony's Culver City site. On the recording side, kudos come from Billy Joel, who has had a long relationship with Columbia Pictures.

"Sony under Mickey Schulhof is definitely user-friendly," Joel says. "Not only is he an effective businessman, but he understands the relationship of art to technology. When I began working on my new album, I wanted to have access to specialized recording equipment in a rather remote location. Mickey's curiosity and interest in the artistic process, together with his knowledge of Sony's state-of-the-art recording equipment, made this possible for me."

Schulhof walks the cutting edge, particularly in his stewardship of one of the fastest start-ups in Sony's history, Sony Electronic Publishing, which produces a range of software items, including CD-ROM compact disks. The disks, which store books, manuals, and encyclopedias with full-color illustrations, can be read via stationary personal computers or portable players. Schulhof estimates Sony will turn out 15 million CD-ROMs this year in the U.S. alone. Supporting them on the hardware side are machines to read the silvery slivers, including hand-held Data Discman.

The publishing division has been slow to catch fire. But Schulhof is more concerned about the broader multimedia industry. With alternative technologies on the market, he fears, there is insufficient movement toward standardization. Particularly in consumer electronics, a lack of standards breeds winners and losers--and generally nothing in between. Witness Sony's failed experiment with the "Beta" format in video cassette recording: The medium won praise for its crisp picture quality but failed to gain mass acceptance as consumers embraced VHS.

Meanwhile, Sony seems headed for another product battle--this time over the successor to the audio cassette. Sony recently introduced the Mini-Disc and Mini-Disc players, which Schulhof hopes will be as popular as Sony's Walkman line of portable cassette decks. Mini-disks, like compact disks, store music in digital code. But unlike CDs, mini-disks also can record music. Sony has poured more than $100 million into development of the new system and plant refurbishing. Players cost between $650 and $800.

But across the table sits Sony's rival, Philips Electronics, which has rolled out an alternative called Digital Compact Cassette, developed jointly with Matsushita.

Victory in the battle likely will depend on enlisting other companies to support each product. Sanyo, Denon, and Aiwa will make Mini-Disc players, while Matsushita, Denon, and Sanyo will produce hardware for DCC. Schulhof says of format wars: "When we think we have a core technology, we try very hard to promote it as a standard." But working in favor of digital cassettes: Consumers can play their old analog cassettes on DCC machines.

Some industry observes argue that mini-disks, while smaller than compact disks, are a redundant format. But Schulhof counters that the recording industry has always liked having a choice, and he likens the introduction of the new product to the birth of CDs.

"With the compact disk, no record company--and I mean none--wanted to introduce the CD. Together with Philips, we pushed the product overseas; the U.S. came last. The only reason it was introduced here was because it was so successful overseas. Artists started to see their music on CDs in Europe and Japan and began to put pressure on their own record companies.

"Now every record company earns more from CD than any other format. Had it simply been a question of a sit-down discussion with record company executives, CD would never have made it."
COPYRIGHT 1993 Chief Executive Publishing
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:N.B.; head of Sony Corp.'s entertainment subsidiary
Author:Helou, Paul
Publication:Chief Executive (U.S.)
Date:May 1, 1993
Words:1688
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