Sony hasn’t been this hot since it made the Walkman

(CNN) — The last time Sony was worth this much on the stock market, Bill Clinton was president and the PlayStation 2 was about to debut on American store shelves.

It’s been a rough past two and a half decades for Sony, the 78-year-old company that invented the Walkman and the PlayStation and had long been an icon of consumer electronics. It largely missed the boat on the mobile phone revolution, and while the PlayStation has been profitable, production costs for other electronics have risen while demand has softened.

But as opportunities arise in streaming, Sony is trying to transition from being a legacy consumer electronics company to an original content and entertainment company.

The strategy is working: In the past three years, Sony’s stock (SONY) has started to break out of a decades-long slump. Sony’s stock price in Japan recently closed at the first record high since March 2000, signifying confidence in the company’s ability to evolve its game offerings and steer itself toward entertainment, Damian Thong, a research equity analyst at Macquarie, told CNN.

“If you went back 30 years ago, it was an electronics company, so best known as a seller of hardware,” Thong said. “But today, the company is primarily generating profits off of entertainment, which is games, music and (TV and movies).”

Less hardware, more content

Sony Group, Japan’s third largest company by market value, has turned itself around by innovating its games business beyond consoles and making acquisitions to expand its IP, Joost van Dreunen, an adjunct assistant professor at NYU Stern who teaches the business of video games, told CNN.

Sony acquired Anime powerhouse Crunchyroll in 2021, and it acquired American video game company Bungie in 2022 for $3.6 billion.

In addition to Sony Interactive Entertainment, which makes the PlayStation, the behemoth Sony Group also includes Sony Pictures, which produces films like the Spider-Man series, and Sony Music, which includes Columbia Records.

Sony is trying to unlock synergy across its subsidiary companies to produce original entertainment content for consumers, van Dreunen said.

That strategy of leveraging its intellectual property across its brands became apparent at the 75th Emmy Awards in January, when the TV series “The Last of Us” won eight primetime awards. It was the first time a TV show adapted from a videogame earned major consideration at a Hollywood awards ceremony.

It was a momentous occasion for Sony, which first published “The Last of Us” as a videogame in 2013 before it was adapted to become a TV series released in 2023 on HBO and Max. (HBO and Max share ownership with CNN.)

Without a streaming network of its own, licensing its intellectual property and original content is part of Sony’s strategy to compete with streaming giants like Netflix, Disney and Amazon.

Robert Lawson, the chief communications officer for Sony Group, said in a statement that since 2018 when the company acquired EMI publishing, making Sony Music the world’s largest publisher of music, Sony has invested approximately 1.5 trillion yen into content IP across various entertainment businesses.

“Sony Group has shifted its corporate strategies towards strengthening its creation and entertainment assets,” Lawson said, noting the company is focusing on “new collaborations between Sony sister companies,” including leaning heavily into the anime genre.

In the last fiscal year ending March, Sony’s entertainment business, which includes music, movies and games, accounted for 60% of total revenue. That’s double from a decade ago, when the entertainment business accounted for just 30% of total revenue.

A long road to dominance

Doubling down on entertainment represents a departure from Sony’s origins.

Before there was Sony, there was Tokyo Telecommunications Engineering Corporation, founded in 1946 by Akio Morita and Masaru Ibuka. The company released Japan’s first-ever magnetic tape record in 1950. In 1958, the company changed its name to Sony Corporation.

In the 1960s, Sony established its business in the United States. For the next three decades, the Japanese company emerged as a household name in consumer electronics, producing iconic devices from the Trinitron color TV in 1968 to the Walkman cassette player in 1979 to the world’s first CD player in 1982, in addition to numerous cameras and video recorders.

Sony has also been involved with music since the 1960s through a joint venture with CBS that became Sony Music Entertainment in 1991. Yet it’s largely been known for its electronics.

The 1990s were a high point for Sony as it broke into the world of gaming consoles. With the release of the PlayStation in 1994, Sony disrupted the arcade and gaming industry.

Since the 1990s, Sony has been a dominant player in the videogame console business with iterations of the PlayStation. In 2020, the company released the PlayStation 5, which has consistently outsold its main competitors like Microsoft’s Xbox Series X and Nintendo’s Switch, according to data from Ampere Analysis, an analytics firm for the games business.

Van Dreunen said that Sony is also looking to evolve in gaming beyond its console business, looking for new audiences and methods of distribution.

“We’re currently going through a softer period in gaming, and so it really raises the stakes for companies like, what’s next?” he said. “How do you as the dominant console maker continue to innovate and continue to grow your business?”

Thong said that Sony has been successful in becoming a profitable channel for third-party publishers to sell videogames.

Sony has tried to diversify its strategy toward gaming, including publishing a videogame called Helldivers 2 across PlayStation5 and also PC. Helldivers 2 was a hit for Sony and sold over 12 million copies within three months of its release, according to Anna Kerr, a research manager for games at Ampere Analytics.

“The games business is spreading out its IP,” NYU Stern’s van Dreunen said. “It’s looking for new ways to reach customers, to expand that customer reach.”

In November, Sony announced a 69% percent jump in net quarterly profit, driven in part by its game segment. The company has had consistently strong quarters this year, driven by profitability in its games.

The company is now in talks to acquire Kadokawa, a Japanese videogame powerhouse that produces the popular videogame “Elden Ring,” according to people familiar with the matter.

There have been some headwinds: Sony’s rollout of the “Concord” vieogame and Sony Pictures’ latest installment of the Spider-Man universe were largely flops among fans this year. However, they are trial and error runs, van Dreunen said, and manageable expenditures for a company that has denoted 1.8 trillion yen ($11 billion) for acquisitions and stock buybacks through March 2027.

In May, at Sony’s annual investor conference, Chief Executive Kenichiro Yoshida said that the company was embracing a “creative entertainment vision.”

Sony’s emergence as an entertainment company was not always certain, Thong said.

“Sony had some years of quite substantial pain, I would say,” Thong said. “And I think to their credit, they managed to weather and see through it.”

Bringing Sony IP to the big screen

Van Dreunen said in the past, there wasn’t as much demand for videogame adaptations for movie and TV. Yet “The Last of Us” showed that Sony had an opportunity to bring more Sony IP to the big screen.

Before “The Last of Us,” Sony also tried its hand at videogame adaptation with “Uncharted,” a 2022 movie featuring actor Tom Holland that was based on a video game franchise first published by Sony in 2007.

Additionally, Sony is planning to adapt videogame franchise “God of War,” which it first published in 2005, to the big screen next year, Kerr said.

Sony is still in the electronics business, Thong said, noting its image sensors business works with companies like Apple and it produces high-end cameras. However, it has shed its identity as a mass consumer electronics company.

In 2025, Sony intends to spin off its online banking and insurance units, further doubling down on its entertainment offerings.

Sony’s stock is up almost 18% in the past month, outpacing entertainment heavyweights like Disney and Netflix, and boosted from investors piling into the Nasdaq, which crossed 20,000 for the first time this week.

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