Sony May Spin Off Next Year

SAN FRANCISCO (05/12/2000) - Sony Computer Entertainment Inc. is considering spinning off the Internet arm of its video-game company,, in the U.S., Japan and Europe as early as next year, Sony Computer Entertainment CEO Ken Kutaragi told The Standard on Thursday. The motive behind such an undertaking - be it an initial public offering or a tracking stock - remains unclear even to the executives involved, Kutaragi warns.

" Japan will be a public company," Kutaragi says.

" U.S. and Europe are expected to be public." The revelation comes on the heels of Sony's official U.S. unveiling of the PlayStation2, its next-generation video-game console, at the Electronic Entertainment Expo on Wednesday in Los Angeles. PlayStation2 is Sony's most ambitious gambit to create an all-in-one entertainment set-top box. It is widely recognized as the company's "Trojan horse" device, which initially will enter consumer's homes as a pure gaming box but eventually will evolve to include the ability to download music, movies and other forms of digital entertainment.

"We will be taking a leadership role in the broadband revolution," says Kazuo Hirai, president of Sony Computer Entertainment. The PlayStation2 will debut in North America and Europe on Oct. 26 and will cost $299 - the same initial price as the unit it replaces. Although it will not be bundled with a modem or a hard drive, as industry watchers speculated, it will be built with an expansion bay to accommodate storage and connectivity features.

The possibility of spin-offs among Sony's myriad divisions has been the topic of much speculation. In the mid-1990s, Sony flirted with the idea of a potential spin-off of its pictures division, to no avail, despite going as far as retaining the services of investment firms Credit Suisse First Boston and the Blackstone Group.

Most recently, Sony insiders say the dot-com divisions of Sony's entertainment assets - including pictures, music and online entertainment - have been the focus IPO speculation. Perhaps as a result, Sony created its Sony Broadband Entertainment unit, which in recent months has attempted to bring together the digital assets of the parent company's entertainment companies. Such a move would make it easier to break out these divisions for a pubic offering.

That scenario, however, remains just one of many possibilities. "Sony has a half-dozen services-based systems that could be spun off or open for select external investment," says Richard Doherty, an analyst at the Envisioneering Group, which tracks the high-tech industry. "Our understanding is there are many, many financial entities that would like to have even a minority stake in what would essentially be a wholly owned Sony subsidiary." Kutaragi's most recent admission that Sony is thinking about tapping the public markets might shape up to be the company's most serious attempts to date to adopt the business practices of dot-com ventures.

The internal discussions "reflect Sony Computer Entertainment's recognition of the importance of the Internet," says Andrew House, senior VP of marketing at Sony Computer Entertainment America. "It should be viewed as much more of a cooperative venture leading toward how we can work on our plans for broadband, rather than purely as a public spin-off as an end to itself." Sony Computer Entertainment executives cautioned, however, that these discussions are still nascent, and they point out that Sony Computer Entertainment America and Europe have not yet launched a counterpart to in Japan. "We're looking at our options," House says.