Howard Stringer Remarks
Chairman and Chief Executive Officer, Sony Corporation of America
President, Sony Broadband Entertainment

This has been an important year for Sony Broadband Entertainment. By implementing a broad restructuring program and aggressively pursuing new growth opportunities, we were able to achieve a strong overall financial performance in 2001. In the years to come, we will continue to operate our entertainment assets in a profitable manner while prudently investing in the development and deployment of digital services. As my colleagues have already pointed out to you today, digital services are an integral part of Sony's strategy. Entertainment content, whether music, television, film or games will be the "proving grounds" for deployment of digital services to the consumer across Sony devices.

Let’s get started. Rob and I will provide you with a broad overview of our entertainment assets and our corporate strategies and then Tommy (Mottola, Chairman and CEO, Sony Music Entertainment) and John (Calley, Chairman and CEO, Sony Pictures Entertainment) will go into further detail describing each of their respective operations.

The ballast of any successful entertainment company is its content library. Sony Pictures has over 4,400 films with over 25% of that number produced since the 1980's. Our television library has over 80,000 hours, giving us enough content to program a network 24 hours a day, for almost ten years without a single commercial interruption. Yes, and that's also without repeating a single show.

Our motion picture strategy is about building brands, nurturing our studio talent, and leveraging existing franchises. This strategy is demonstrated through our current release slate, which we feel is one of the strongest in our company's history. With long anticipated films such as Spider-Man, MIB2, Stuart Little2 released or on deck, and other forthcoming releases such as I Spy, Charlie's Angels 2 and Bad Boys 2, we are playing not only to win but to sustain consistent financial performance. A strong slate of movies not only provides a solid revenue stream from the box office, but also provides the horsepower to drive video/DVD sales, international distribution, worldwide syndication and other channels for repurposed content. Panic Room gave us a record-breaking Easter week-end opening of over $30 million and it is on its way to the $100 million mark in the domestic market alone. We had another film that opened last week…what was it called…John, didn’t you open a movie last week? What was it called? That’s right, Spider-Man. It had a record-shattering $114 million opening weekend, the largest opening weekend in the history of the film business.

Over the past year, we executed a broad structural reform project at SPE with a focus on three key areas:

- Redefined Television Group Poised to Succeed in Today's Environment: First, we proactively dealt with industry challenges by redefining our strategy, structure and management team. We now have a business truly focused on R-O-I and not on a meaningless race for market share in Variety magazine’s annual pilot count.

- Reduced Corporate Overhead: Second, we reduced corporate overhead.

- I/T and Library Digitization Enhancement: And finally, we built out our international IT infrastructure to serve our increasingly globalized business portfolio and we launched a program to accelerate our re-mastering and digitization efforts of our content library. The goal of this effort is to fulfill increasing demand for high quality digital content from existing cable and satellite networks as well as preparing for broadband services. I am confident that this will be money well spent.

Another area that is unique to Sony Pictures is its global Pay-TV operations. With over 150 million subscribers across 22 networks operating in 64 countries, these assets provide not only a global presence for Sony Pictures, but also another mechanism to harvest our library.

An area of great pride for me is the work being done by Sony Pictures Digital Entertainment (SPDE). SPDE is our holding company for our online games, SPE-based digital services, and our Computer Graphics Imaging operations. Almost all of our competition has either exited or drastically downsized their digital businesses. With patience and prudence I believe that SPDE will provide benefits to Sony that can be enjoyed across each of our operating divisions. You'll see examples of this later today. Already, Imageworks, our in-house CGI facility, and Sony Online's Everquest multiplayer game were profitable this year.

As with our Pictures operations, Sony Music is about building brands, nurturing talent, and preparing for the digital age.

With operations in more than 50 countries, Sony Music has established itself as a truly global music company.  Our team led by Tommy Mottolla, with Mel Ilberman, Bob Bowlin, Michele Anthony, and Kevin Kelleher at Sony Music, Donny Ienner at Columbia, and Dave Glew and Polly Anthony at Epic has the longest average tenure in the business.

SME gives new meaning to the "think globally, act locally strategy". A significant portion of our current top artists in the U.S. were first nurtured by a Sony Music overseas operation.

One of the distinguishing characteristics of Sony Music versus our competition is our global revenue mix. We continue to have one of the most balanced market share distributions in the industry and have leading positions in the top territories. These rankings you see here speak for themselves  (#2 in North America, #1 in Japan, and #1 in Latin America).

Over a year ago Sony Music began a significant rationalization program streamlining its U.S. manufacturing operations and its worldwide label structure to optimize efficiencies and to maintain solid margins.

No other music company in the industry has a sister company affiliation with a leading, branded, consumer electronics company but Sony Music. As a content producer and technology provider, Sony is best suited to provide digital solutions that are simple to use for the consumer and also protect artists' rights. Our customers are frustrated with the speed of deployment of these solutions and we must, and we will, fix that. We have made this Sony Music's number one priority, and we are making progress. You will hear more about that from Tommy (Mottola) and Bob (Bowlin, Chairman, Sony Music International) in a bit.

History will continue to prove that technology innovations, larger capacity data storage mediums and higher speed distribution networks will only boost the value of Sony's digital content libraries. Whether we distribute our content via CD, DVD, cable and satellite today, or repurpose it for high definition displays or wireless distribution tomorrow, our networks, distribution, and devices enable us to financially mine our high-quality digital libraries for many years to come. In turn, our libraries make those new networks and devices more compelling to watch or listen to.

The explosion of niche-oriented digital cable networks has increased the industry's thirst for content. Whether it is science fiction channels or westerns, we are reaching ever deeper into our content vaults. Cowboy stars from the 1940’s are now back on their ancient saddles and riding onto a digital cable channel near you.

The first services you are going to see massively deployed across those devices are ones based on our entertainment content. Here are some examples of compelling services and product combinations that will be available later this year.

The first example lies in our hugely popular and profitable PC-based Everquest multi-player online game franchise. Translating a globally known brand in the PC environment to the networked PS2 platform will boost not only the Everquest subscriber base, but also support PlayStation's new online subscriber business operations.

With the recent introduction of our next-generation mobile phones, both Sony Pictures and Sony Music now have the ability to wirelessly deliver media content directly to consumer’s mobile devices. This service has already been deployed with downloadable ringtones and very soon, users will be able to download upcoming film trailers.

Currently, consumers are given little direction on how to successfully and legally procure music off the Internet and distribute it to a portable device. Later this year the NetMD will be the first digital music device to be fully integrated and bundled with pressplay’s music download service offering. A combination that allows consumers to enjoy portable and secure music content moments out of the box.

Finally, we expect our pre-installation of VAIOs with Everquest and Screenblast will create recurring content billing relationships between Sony and the owners of the 2 million VAIO computers we sell every year. We are also looking forward to bundling our video download service, Movielink, with VAIOs. A wireless adapter will enable you to beam the content from your PC to your television monitor, the device on which these films should be enjoyed in the first place.

These examples set forth a common goal that is shared among all our operating companies: To develop and maintain a direct and interactive relationship with our customers via digital services.

Over the past year we have made great strides in unifying our marketing efforts to create value and increase brand exposure across the operating divisions. Leveraging the success of one brand to promote the exposure of another company asset is something that Sony is well-positioned to do and which few companies can replicate successfully.

Since Sony's inception, the power of brands has always been understood and nurtured. Sony's unsurpassed ability to market and build brands began with our electronics business with globally-recognized trademarks such as “Trinitron,” “Walkman,” “Wega,” and “Playstation.” Now this skill has been extended across all of our operating companies.

For example, each of you have probably been exposed to hundreds of Spider-Man images over the last several weeks with our broad range of licensing agreements and promotional tie-ins, including Dr. Pepper, Carl's Jr., Cingular Wireless, Target, Wal-Mart, Kellogg, and Hershey’s chocolate.

 A specific instance of our work here is with Cingular Wireless which uses Spider-Man to promote its wireless services. The Spider-Man accessory bundle features a Sony-Ericsson phone, a unique Spider-Man faceplate and a holster. Cingular’s ads feature this bundle and even proclaim that the film is in theaters now. And just last month, The Wall Street Journal called SPE’s film, “Panic Room,” a “virtual showcase of Sony products.” I’m not sure whether they were applauding or complaining.

Another concrete instance of cross-fertilization is exemplified by our success in nurturing key talent relationships. Over the past few years we have leveraged our breadth of assets to keep talent happy and to help ensure they remain within the Sony Family.

Since her 1995 film debut for Columbia Pictures in “Money Train” Sony has helped foster Jennifer Lopez’s acting and later music talent into one of the most popular talents of the early 2000's. Her recent album “J to Tha L-O” has been on the “Billboard R&B/Hip-Hop” charts for 10 weeks straight. Her next film for Sony, “Enough” opens May 24th.

Overall, by the end of this fiscal year, Jennifer Lopez vehicles will have generated nearly $600 million dollars in revenue across our music and picture companies.

Another example is Will Smith. Since his relationship with Sony started in 1995 with his Sony Pictures debut of “Bad Boys” and then his 1997 Sony Music debut album, “Big Willie Style,” Will Smith has quickly become a key talent relationship that Sony will continue to nurture. He played a lead role in “Men in Black,” Sony Picture's highest grossing film of all time, at least until Spider-Man surpasses it this weekend. As you will see for yourself in a few minutes, we are confident in his ability to repeat his performance with MIB2 and the accompanying soundtrack.

Overall, by the end of this fiscal year, Will Smith vehicles will have generated over $1 billion dollars in revenue across our music and picture companies.

A final example of inter-company cooperation is “Charlie's Angels.” Supporting the release of that film was a timed release of Destiny's Child movie soundtrack single “Independent Women” which features direct lyrical connections to the movie. John believes that the Drew Barrymore / Cameron Diaz hit launched Destiny's Child, and Tommy believes it was the other way around. I don’t care and I am not going to get involved. They both were profitable hits for Sony and they are going to do it again next year with Charlie's Angels 2. We are also planning an animated series to be broadcast on MTV.

Cross-fertilization efforts are not only a marketing phenomenon but also occur on an operational level as well. An example is supply chain management. In the case of our disc manufacturing operations, Sony has undergone considerable transformation to consolidate our disc manufacturing operations so that we can increase plant utilization and share distribution facilities and transportation services. Several of our music disc pressing plants are also producing DVD's for Pictures and PS1 and PS2 discs for PlayStation. By next year Music, Pictures, Computer Entertainment and Electronics will begin sharing a common warehousing and distribution system as well.

To lead you through some of the details of the operational and structural reform initiatives we have done here at Sony Corporation of America, and to provide you with a financial overview of our entertainment operations, I would like to introduce Rob Wiesenthal, Executive Vice President and Chief Financial Officer of Sony Corporation of America.