Behind the demotion of Sony's electronics wizard

TOKYO -- Ken Kutaragi, whose name is often paired with "geek" and "genius," seemed to many a logical choice to take Sony Corp.'s helm as it struggles to turn around its stumbling electronics business.

He is, after all, known as "Father of the PlayStation" for siring the industry's most popular video game console.

And Kutaragi's latest creation, the handheld PlayStation Portable, is hot. An estimated 3 million been sold since it was released in Japan in December and the United States last month.

But instead of ascending in the dramatic management reshuffle last month that put Howard Stringer in the chief executive's chair, Kutaragi was demoted.

Not only was Kutaragi passed over for the Welshman who had overseen Sony's music and movie businesses. He also lost his seat on Sony's board, though he still runs Sony Computer Entertainment, Inc., the company's game subsidiary.

It appears the 54-year-old Kutaragi's outspoken nature, in a corporate culture that's oiled by consensus, may be to blame. Independent and shockingly frank by Japanese standards, Kutaragi hasn't held back from criticizing company decisions.

Outspoken executive

In January, he told the Foreign Correspondents' Club in Tokyo that fellow executives had been overly restrictive in controlling Sony content in a world where consumers of digital movies and music want hassle-free access.

Asked what he would do if he were running Sony, Kutaragi said the company must revive its original innovative spirit, when it boasted engineering finesse with the transistor radio, Walkman and Trinitron TV.

Sony also has been hurt by its insistence on making its content proprietary, Kutaragi said.

Some employees, he said, have been frustrated for years with management's reluctance to introduce products similar to Apple Computer Inc.'s iPod portable music player, mainly because Sony's music and movie units were worried about content rights.

Indeed, Kutaragi's comments came about the same time that Sony decided to finally agree to support the open and widely used MP3 digital audio standard on its portable music players.

It's unclear whether Kutaragi, who declined to be interviewed for this story, was punished for speaking out. But it is clear that consensus-builders -- though he doesn't speak Japanese, Stringer is known for diplomacy -- were chosen over potentially divisive critics.

Kutaragi's blunt manner may have been seen as problematic when the sprawling company, whose core electronics business has suffered amid its expansion into entertainment, desperately needs cohesion and revitalization. Sony's stock has fallen about 70 percent over the last five years.

Ryoji Chubachi, a production and electronics expert who became president in the March 7 reshuffle -- making him No. 2 behind Stringer -- later publicly praised Kutaragi as a talented engineer but hinted that top Sony executives didn't believe he was suitable for managerial leadership.

Still a key person

Stringer said he still views Kutaragi as a key person at Sony, instrumental in the next-generation video game console dubbed the PlayStation3, or PS3, which is expected to be released next year.

"Obviously PS3 is a vital device for the company going forward. So I am under no illusions about the value and importance of Kutaragi-san," Stringer said, using the Japanese honorific "san."

Kutaragi, who joined Sony in 1975, broke away from Sony's mainstream thinkers in the 1990s to work on the PlayStation. At the time, the company was filled with skeptics about the potential of video gaming, but Kutaragi proved them wrong, turning the business into a cash cow.

Another widely held view about Kutaragi's demotion is that he had to share in the responsibility for Sony's failures.

Battered by competition from cheaper Asian rivals, seen in the dramatic rise of South Korea's Samsung Electronics Co. Ltd., Sony has been in deep trouble in recent years. It fell behind in flat-panel TV sets and got beaten up by the iPod and Apple's iTunes online music store.

The PSX, which combined the PlayStation2 console with a DVD recorder and player, has bombed since going on sale less than two years ago. It was never sold outside Japan and Sony won't disclose PSX sales figures.

Kutaragi also drew criticism from even devoted Japanese game players over reported glitches in the PlayStation Portable, or PSP, after its initial release in Japan.

Some PSP machines in the initial shipment had a button that tended to get stuck, according to Sony. About 3,000 PSP machines are estimated to have required repairs, which were given for free, although Sony isn't giving exact figures. The glitch was fixed for later shipments.

Like many other Japanese, 47-year-old Kenichiro Usui has recently been disappointed by Sony's problems.

Usui, who works for an engineering company, said he stopped shopping for the Sony brand and just picks whatever he likes, having switching recently to what he thinks is a sturdier IBM computer from Sony's Vaio.

He still owns a Walkman but he also switched from a Sony model to a TV made by Victor Co. of Japan Ltd., a manufacturer allied with Sony's biggest Japanese rival, Matsushita Electric Industrial Co. Ltd., which makes Panasonic brand products.

"It was so great for Japan to have a shining star like Sony," said Usui. "It's sad we may be witnessing its decline."