TOKYO, (AFP) - Sony`s acquisition of Metro-Goldwyn-Mayer will give the electronics giant more clout in Hollywood as it battles to establish the dominant format for the next generation of DVDs, analysts said.
The nearly five-billion-dollar investment with consortium partners is unlikely immediately to boost Sony`s sluggish core consumer electronics business but is part of a long-term strategy, they said.
Yoshimasa Maruyama, senior economist at Mizuho Research Institute, said Sony`s Hollywood expansion underlined its push to establish the Blu-ray disc as the DVD of choice for future releases.
After Sony`s Betamax lost out in the fight for video supremacy in the 1980s, the Japanese giant will now have a significant voice in Hollywood, where format decisions are made.
"Hardware-makers have no influence at all in setting the DVD standard," said Kenichiro Hiroto, a senior analyst at the Nomura Research Institute.
"Decision-making authority is vested in movie studios and that is why electronics makers are frequently giving presentations to Hollywood executives."
At stake for the Blu-ray camp, which includes 12 leading electronics manufacturers, is the lion`s share of the 50 million users worldwide expected to dump their VHS players for the new DVD hardware.
The MGM deal, which follows the 1989 acquisition of Columbia Tri-Star Pictures, also doubles Sony`s film library to nearly 8,000 titles including summer blockbuster "Spider-Man 2," the James Bond spy series and "Gone With the Wind."
"The purchase of MGM will allow Sony to own nearly 40 percent of Hollywood`s film titles and Sony`s influence will surely increase in the film industry," said Kazuya Yamamoto, senior tech-sector analyst at UFJ Tsubasa Securities.
Columbia Pictures, now renamed Sony Pictures Entertainment, has a library of 3,500 film titles and Sony plans to release some of them on Blu-ray discs in 2006.
However, experts said it was far too early to predict how the DVD cards will fall with the Blu-ray camp facing stiff competition from Toshiba and NEC`s HD DVD, which has been officially approved by the global DVD Forum of 220 electronics, entertainment and software companies.
"Blu-ray discs and HD DVDs are for high-definition television," a senior official from the DVD Forum said, referring to the super high-quality digital television with more than five times the image sharpness of current sets.
Japan is the only country where high-definition television is well established, and even here only two percent of households have them.
"It is not clear at this point when high-definition television will become commonly available worldwide," the forum official said.
Meanwhile, UFJ Tsubasa analyst Yamamoto said the MGM acquisition was unlikely to bring a quick boost to the Sony`s flagging electronics business.
"Just because Sony has more movie titles, consumers are not suddenly starting to buy Sony television sets. Investors judge Sony`s performance not based on its contents division but its main, core electronics business, which is doing so poorly," he said.
Sales from electronics products account for 60 percent of Sony`s total while those from movies, including DVD sales, take up some 10 percent.
In the April-June quarter, Sony`s operating profit from electronics plunged 49.9 percent year-on-year to 6.9 billion yen while its operating profit from movie business was 4.1 billion yen, reversing an operating loss of 2.4 billion yen a year earlier.
In the booming global liquid crystal display (LCD) television market, Sony lags far behind Sharp, which enjoys a 50-percent market share, and Matsushita Electronics.
"Without the vision for a recovery in the electronics business, Sony`s stock price cannot go up," Yamamoto said.
Despite the MGM deal, Sony`s shares fell 70 yen or 1.82-percent to close the week at 3,780 yen on the Tokyo Stock Exchange.