Sony Purchases Columbia Pictures Summary

  • Last updated on November 10, 2022

Fears of a Japanese takeover of American business were stimulated when Sony, a Japanese corporation, purchased Columbia Pictures, a major American film studio.

Summary of Event

The purchase of Columbia Pictures in September, 1989, was one part of a business strategy intended to make Sony Corporation of Japan a multimedia entertainment empire. Sony had purchased another American company, CBS Records, in 1988 and went on to acquire several software publishing companies in 1990 and 1991. The Sony Software Corporation was created in 1991 to oversee the record business (renamed Sony Music Entertainment), Columbia Pictures, Digital Audio Disc Corporation (a manufacturer of compact discs), Sony Electronic Publishing, and SVS, a video distribution operation. The other branch of Sony USA was the Sony Corporation of America, a producer of electronic equipment, videotape, audiotape, semiconductors, and in-flight entertainment. Sony Corporation;Columbia Pictures Columbia Pictures [kw]Sony Purchases Columbia Pictures (Sept., 1989) [kw]Columbia Pictures, Sony Purchases (Sept., 1989) Motion-picture studios[Motion picture studios] Sony Corporation;Columbia Pictures Columbia Pictures [g]North America;Sept., 1989: Sony Purchases Columbia Pictures[07370] [g]United States;Sept., 1989: Sony Purchases Columbia Pictures[07370] [c]Business and labor;Sept., 1989: Sony Purchases Columbia Pictures[07370] [c]Motion pictures and video;Sept., 1989: Sony Purchases Columbia Pictures[07370] Morita, Akio Schulhof, Michael Ohga, Norio Peters, Jon Guber, Peter

Sony Corporation began life as the Tokyo Telecommunications Company in post-World War II Japan. It made electrical and electronic equipment for industrial, business, and home use. Its first great successes were in the field of home entertainment, where its transistor radios and magnetic tape recorders quickly established a reputation as affordable yet high-quality equipment incorporating the latest technology. In 1957, the company changed its name to Sony to reflect the importance of its Soni brand of audiotape to the company.

The American market became enormously profitable for Sony, and the company’s audio equipment, radios, and televisions quickly established dominant positions in the home entertainment field. Sony remained committed to producing hardware, leaving the software—records, prerecorded tapes, and television shows—to other entities. A damaging and humiliating defeat over the format for videocassette recorders Videocassette recorders changed this strategy, however. Sony developed its U-matic magnetic video recorder in the 1960’s and sold it to institutional and business users in the early 1970’s. The company followed this innovation with a videocassette player for home use, called the Betamax, which was introduced in 1976. Sony’s great rival in Japan, the Matsushita Electric Industrial Company, Matsushita Electric Industrial Company introduced a competing videocassette system called VHS.

Although Sony had taken the lead in magnetic video recording and considered its Betamax technology superior to VHS, Matsushita convinced more videocassette manufacturers to adopt the VHS format. By the 1980’s, many film producers were releasing their products on VHS cassettes only. VHS beat Betamax in the marketplace because the majority of software producers released their programs in this format. Sony finally had to retreat from the Betamax format, at great cost, but in the process the company learned a valuable lesson in the home entertainment field. Superior hardware alone is not sufficient to succeed in this market: It needs to be supported by software.

One of the indications that the Sony Corporation was planning to expand in this direction was the appointment of Norio Ohga as president and chief executive. Ohga was neither a factory manager nor an engineer; rather, he was a musician and conductor of international repute. In a company founded by two engineers—Akio Morita, the chairman of Sony Corporation, and Masaru Ibuka—and dominated by scientists, the choice of Ohga marked a significant break with past corporate culture.

In the early 1980’s, Sony introduced a major innovation in audio technology, the compact disc, which brought about a revolution in sound recording. In 1967, Sony had entered into a joint venture with CBS Records, one of the major record companies in the United States, to produce records. In 1988, Sony purchased CBS Records for $2 billion in the largest Japanese acquisition of an American company up to that time. As a leading producer of compact discs, Sony now had the manufacturing and artistic resources to provide music for its digital recordings. Sony was also a major producer of television sets and had invested heavily in new video technologies such as high-definition television (HDTV) and 8-millimeter video recording. It soon began to look for a film and television studio to complement its well-established position in video technology.

The vice chairman of Sony USA, Michael Schulhof, led the search. Schulhof had begun his business career at CBS Records and then moved to Sony and served on the CBS/Sony board. Schulhof had played the leading role in Sony’s acquisition of CBS Records. In his search for a film and television complement to acquire for Sony, he first courted MCA (Music Corporation of America), Music Corporation of America an entertainment conglomerate that included Universal Pictures, the highly successful Universal Television, and record, music, and home video operations. Rebuffed by MCA’s chairman, Lew Wasserman, Sony next turned to Columbia.

Columbia Pictures was created in the image of Harry Cohn, who cofounded the organization in 1920 and perfectly fit the image of a mogul of the Golden Age of Hollywood in the 1930’s and 1940’s. By the 1980’s, Columbia Pictures had important production units in both film and television. In 1982, the Coca-Cola Company Coca-Cola Company[Coca Cola Company] bought Columbia Pictures for $750 million, beginning an uneasy union that ended in 1987 when Coca-Cola retreated from film production and Columbia Pictures Entertainment (CPE) was born. CPE had two major film studios (Columbia and Tri-Star), the Loew’s theater chain, a library of three thousand films, and some very successful television programs, including The Young and the Restless, Designing Women, and Married . . . with Children. This made it an attractive target for Sony, which offered to purchase the company for $3.4 billion in September, 1989.

Significance

The news that Sony had bought a large film studio with a long history and strong image brought an immediate outcry in the American press. The American public interpreted the event not as a logical business strategy but as a glaring reminder of the power and ambition of Japanese companies. A survey carried out by Newsweek magazine and published in October, 1989, found that 43 percent of respondents believed that the acquisition was “a bad thing” for the United States. CBS Records Motion-picture studios[Motion picture studios]

This was not the first Japanese incursion into American business; Sony and numerous other Japanese companies had been purchasing American companies for decades. Several Japanese electrical manufacturers had set up their own plants in the United States in the 1970’s and 1980’s. Some of the leading Japanese car manufacturers, such as Honda Motor Company, Honda Motor Company had bought out American suppliers and built factories in the United States. None of these moves, however, had generated the publicity and the criticism that followed Sony’s purchase of Columbia.

Unlike an automobile factory or a software publishing company, a film studio has a highly visible public profile and a strong association with an industry that could be considered to be quintessentially American. By buying Columbia Pictures, the Japanese were buying a piece of an industry that had been founded on American technology and nurtured by American business—a part of the American Dream. The corporate symbol of Columbia Pictures Entertainment, Columbia standing with the torch of liberty in her hand, had meaning as a symbol of the United States itself. Many newspaper articles posed the question of Japanese censorship of films dealing with sensitive issues such as the attack on Pearl Harbor and Japanese war crimes. Several American films had been censored or banned in Japan because they dealt with these issues. Discussions of the acquisition in the U.S. Congress revealed that if Sony had been an American company, an antitrust suit might have been brought to challenge the takeover.

Sony Corporation not only bought CPE in this transaction but also hired two well-known film producers to run the organization. Peter Guber and Jon Peters had achieved great successes with films such as Batman (1989) and Rain Man (1988) and were considered to be the leading film producers in Hollywood at the time. Warner Communications Warner Communications had Guber and Peters under contract, and an acrimonious lawsuit followed their departure to Columbia. Sony paid a cash settlement to end the suit.

The furor over the sale of Columbia had hardly settled down before Sony’s greatest rival made its move. Matsushita paid $6.6 billion for MCA in 1990 in a much bigger takeover than Sony’s buyout of CPE. In this transaction Matsushita acquired Universal Pictures, Universal Television, MCA Home Video, MCA Records, a large number of film theaters, and numerous other holdings, making it the largest entertainment conglomerate in the world. Another outcry from the American public followed this purchase. Matsushita diplomatically agreed that some parts of MCA, especially the food and lodging concessions at Yosemite National Park, should be sold to American buyers.

The American business and entertainment press maintained continuous scrutiny of the affairs of Columbia and MCA after the acquisitions to determine whether Sony and Matsushita were keeping their promises not to impose Japanese management style and Japanese decisions on the creative process of making films and television programs. Many analysts of the entertainment business believed that the Japanese companies had paid too high a price for the film studios and for the services of film producers and leading entertainers. Both Sony and Matsushita followed the policy of engaging well-known (and highly paid) talent for their entertainment divisions, banking on established stars of screen and recording rather than taking chances on new talent.

The short-term financial results of the acquisitions were very poor and gave substance to the viewpoint that the Japanese companies had made expensive forays into businesses in which they were unprepared to compete. Several Columbia films that were put into production at the time of the takeover were expensive failures, despite the big names associated with them. These included the 1991 releases Hook, directed by Steven Spielberg and starring Robin Williams; Hudson Hawk, starring Bruce Willis; and Bugsy, starring Warren Beatty. On the other hand, Sony Music Entertainment scored some hits with artists such as Mariah Carey, New Kids on the Block, and Michael Bolton.

The losses from film production, combined with poor sales of consumer electronics products, depressed Sony’s economic position in the first half of 1992. The company had incurred $1.2 billion in debt to buy Columbia, and it experienced difficulties in generating enough revenue to maintain operations. The departure of Jon Peters in 1991 was another blow to the company. Guber remained to direct the renamed Sony Pictures Entertainment operation. By the end of 1992, the entertainment part of Sony USA returned a profit, and the entire company’s sales and profits posted an increase over the figures for 1991.

Although the wisdom of the Japanese incursion into the American entertainment industry remained in doubt, Sony and Matsushita maintained their strategy of acquiring software companies. Both moved into video production and computer software. Sony acquired the Carolco Pictures independent studios and a large interest in RCA-Columbia Pictures Home Video in 1991. It continued to make long-term contracts with high-profile media stars such as Michael Jackson.

Sony had always been innovative in terms of developing new technology for its hardware, but in the software area it tended to be conservative and averse to risk. It introduced many dramatic new technologies in video and audio but did not produce innovative new music, films, or television shows in the first few years following the Columbia acquisition. In an industry in which financial success is usually the result of a small number of “blockbuster” films or record albums, creative decisions count for a great deal. Sony Software Corporation had yet to demonstrate that it was capable of identifying and exploiting new trends.

Several large Japanese and European electronics manufacturers realized the benefits of creating fully integrated media empires and continued to acquire American companies involved in entertainment. The Dutch Phillips company, the French Pathé organization, and the Australian News Corporation all acquired significant holdings in the American entertainment and communications businesses. Motion-picture studios[Motion picture studios] Sony Corporation;Columbia Pictures Columbia Pictures

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Dick, Bernard F., ed. Columbia Pictures: Portrait of a Studio. Lexington: University Press of Kentucky, 1992. Collection of scholarly papers focuses on the inner workings of the film studio and assesses some of its most famous motion pictures. Includes a concise business history of the company from its founding to 1991.
  • citation-type="booksimple"

    xlink:type="simple">Klein, Edward. “A Yen for Hollywood.” Vanity Fair, September, 1991, 200-209. Account of Sony’s purchase of Columbia Pictures shows how the purchase related to Akio Morita’s management strategy. The author is highly critical of Sony’s strategy and gleefully relates the financial difficulties following the takeover.
  • citation-type="booksimple"

    xlink:type="simple">Luh, Shu Shin. Business the Sony Way: Secrets of the World’s Most Innovative Electronics Giant. New York: John Wiley & Sons, 2003. Presents the history of Sony and discusses the corporation’s role in the advancement of electronics technology. Includes index.
  • citation-type="booksimple"

    xlink:type="simple">Mahar, Maggie. “Adventures in Wonderland.” Barron’s 71 (October, 1991): 8-12. Describes the management style of Michael Schulhof and the purchase of Columbia. Discusses the operation of the film studio under Sony management and analyzes the financial returns.
  • citation-type="booksimple"

    xlink:type="simple">Morita, Akio, with Edwin Reingold and Mitsuko Shimomura. Made in Japan: Akio Morita and Sony. New York: E. P. Dutton, 1986. Personal account of the rise of Sony from the 1940’s to the 1980’s. Does not include discussion of the purchase of Columbia Pictures, but clearly outlines Morita’s philosophy of business and gives insights into Sony’s overall strategy. Informative, although at times biased toward promotion of the company and Japanese culture.
  • citation-type="booksimple"

    xlink:type="simple">Nathan, John. Sony: The Private Life. Boston: Houghton Mifflin, 1999. Presents a comprehensive examination of the inner workings of the giant corporation. Includes index.
  • citation-type="booksimple"

    xlink:type="simple">Rothman, Andrea, and Ronald Grover. “Media Colossus.” BusinessWeek, March 25, 1991, 64-68. Gives an overview of Sony’s entertainment acquisitions in the United States along with a profile of Michael Schulhof. Presents a concise description of Sony’s American operations, including a useful diagram of the corporate structure.
  • citation-type="booksimple"

    xlink:type="simple">Schlender, Brenton R. “How Sony Keeps the Magic Going.” Fortune, February 24, 1992, 76-82. Profile of Sony describes the corporation’s product lines and operations.

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