Sony Ericsson unveils new strategy

BARCELONA--Sony Ericsson has been hit hard by the global recession, but the company says it has a new strategy focused on services and entertainment that it hopes will get it back on track.

Steve Walker, head of product marketing for Sony Ericsson, and Lennard Hoornik head of global marketing for Sony Ericsson show off the Idou phone at the company's press conference at Mobile World Congress.

(Credit: Marguerite Reardon CNET News/CBS Interactive)

On Sunday evening here on the eve of GSMA's Mobile World Congress, the cell phone maker, which is a joint venture between consumer electronics maker Sony and telecom equipment maker Ericsson, unveiled a new strategy that it says fuses "communication and entertainment."

At the core of its new strategy is something Sony Ericsson calls "Entertainment Unlimited." Executives were thin on details at the press conference here, but the company is planning a strategy that will bring together cell phones with PCs and the TV to share entertainment content.

As part of this strategy, the company announced MediaGo, which is an extension of its PlayNow Music service. MediaGo adds a service that lets users download movies onto their PC and then transfer them over to a Sony Ericsson device. The company announced the W995 Walkman phone, which will be able play the feature-length movies.

The service will also allow the transfer of other media, such as music, photos, and podcasts. The service will also allow users to sync their phone's music library automatically, subscribe to podcasts, and auto-convert files for the best quality playback.

The company also gave a sneak peek at a new high-end, touch-screen phone, called the Idou. This 12.1-megapixel camera phone is supposedly designed for all kinds of multimedia functionality. But details about the product are scarce until it launches in the second half of next year.

The Sony Ericsson Idou under lock and key at the press conference.

(Credit: Marguerite Reardon CNET News/CBS Interactive)

That said, executives alluded to the fact that these two new phones will play a much larger role in the company's "new" strategy to better integrate entertainment on mobile devices and other devices throughout the home.

What's interesting about this supposedly new strategy for the company is that it doesn't sound terribly new. Sony Ericsson was formed in 2001 as a joint venture between a media company and telecommunications equipment maker. And since 2005, it has been selling its Sony Walkman phones, which allow people to listen to digital music on the go.

But now the company claims that its "Entertainment Unlimited" strategy takes things to a new level, where consumers can share and access media across multiple products from cell phones to PCs to their TV screens.

"Everything that we have done to date has brought us to this point," said Lennard Hoornik, head of global marketing and a vice president at Sony Ericsson. "We created the music phone category in 2005 selling over 100 million Walkman phones, and we are now ready to unveil the next chapter in the evolution of the company."

The idea sounds like a good one, but it happens to be one that its competitors share. Nokia, the world's largest cell phone maker, has been developing an entire service platform called Ovi for more than a year that allows users to share files from the PC to the phone and vice versa. And one of the things that has made Apple's iPhone so successful has been its integration with the existing iTunes media store, where users get access to music, videos, and podcasts.

While Sony Ericsson's strategy may not be revolutionary, adding more value to its products is likely a necessary move. The entire cell phone market took a beating in the second half of the year, as consumers bought fewer cell phones due to economic concerns. And that trend is expected to continue until the market starts to pick up.

The recession hit Sony Ericsson particularly hard. For the fourth quarter of 2008, the company lost 187 million euros or about $248 million. This is compared with a profit of about 373 million euros in fourth quarter of 2007.

But it's difficult to say if this "new" strategy will help the company much. The one bright spot in the mobile phone landscape for the next couple years appears to be smartphones. Market research firm IDC recently reported that while overall cell phone sales declined by 12.6 percent worldwide in the fourth quarter, sales of smartphones were actually up 22.5 percent.

The problem that Sony Ericsson faces is that it's not competing very well in the smartphone category. Last year at Mobile World Congress, the company made a lot of buzz with its first Windows Mobile device, the Xperia X1. As of November, the phone has been available in North America.

But the problem is that it's not offered by any major carrier in the U.S. And the $800 price tag for an unlocked and unsubsidized phone is way too high for consumers who can get an iPhone 3G from AT&T, a BlackBerry Storm from Verizon Wireless, or a Google Android G1 from T-Mobile USA for the subsidized price of $200 with a two-year contract.

Given that the smartphone market is where all the action is expected to be over in the next couple of years, it's surprising that Sony Ericsson would choose high-end feature phones to anchor its new "Unlimited Entertainment" strategy.

The details are still too scarce to know exactly how this will shake out. But Sony Ericsson needs a compelling and affordable smartphone that can take advantage of these entertainment and communication features. And to effectively compete in this market, it's going to need to expand its distribution beyond Europe and Japan. Namely, it needs to bring an affordable and cool smartphone to North American consumers.