Perhaps the Asian economic flu has had consequences in Japan. But the flu is seasonal, so to appreciate the consequences in the long term one needs to look at how technology is introduced and accepted by the consumer — especially in Japan.

In its quiver of new products, the electronics industry has a number of sharp arrows: digital consumer products with great potential, ranging from digital televisions to portable wireless data systems. Getting those arrows to hit the marketplace bull's-eye is another story. Judging by Sony Corp.'s experience with theMiniDisc (MD) audio system over the past decade, a combination of vision, aggressive technical goals and big marketing bucks are required to bring a consumer product to volume sales levels.

Shizuo Takashino, president of the personal audio-video products company at Sony, recalled the scene at Sony headquarters in the late 1980s. Japan's retailers were screaming for a new product, a cry that intensified in 1990, the first of seven straight years of declining revenues for Japan's A-V retail industry. Norio Ohga, then the president of Sony, was asking the product development staff for a recordable-disk-based audio system as a follow-on to the Compact Disk. The audio cassette market was saturated worldwide and Walkman prices were approaching bottom-feeding levels. Digital audio cassette had failed, partly on copyright grounds. Philips and Matsushita Electric were pushing the digital compact cassette (DCC) format, a failure. (Philips is now promoting CD Recordable).

Sony management gambled that the MD's random-access capability, combined with its smaller size, would make a recordable disk format more attractive than the Philip-Matsushita-backed DCC.

Some engineers had their doubts. Takashi Fukushima, general manager of the MD department at Sony, said, "Magneto-optical [MO] technology was a difficult technology at that time. It was very convenient for recording large amounts of computer data, but the recording technology was difficult and — for a portable product — the power consumption was very high."

Launched on Dec. 1, 1992, the first MiniDisc was recordable, but not very portable. Even though the MD disk itself is only 64 mm (2.56 inches) in diameter, compared with the 120 mm of a CD, the first portable MD player was the size of a hardbound book and the 1992 model consumed 4 W.

Comparing the late 1992 system with the recordable unit of early 1998, the size reduction is striking. "Part of the size and power-consumption improvement came from shrinking the number of components, the normal process technology progression," said Fukushima, pointing to a 1.5-V flat motor that bears little resemblance to the spindle motor of the first MD. But beyond reducing the number of ASICs (Motorola was a supplier) the engineers cut off unneeded functionality. The big change came when Sony developed ultra-compact playback-only models, which resulted in the total market's doubling in 1996 and again in 1997, Fukushima said.

Several years ago, Takashino engaged in what has become a ritual in the industry. He carved a block of wood, wrote his name in Chinese characters on the block and gave it to Fukushima, then the engineering manager charged with creating a playback-only unit MD of that size in time for Sony's 50th corporate anniversary. The block was the same size as an MD disk and its plastic case, roughly the size of a pack of playing cards.

A decade earlier, the project manager for the first Sony portable CD player had carved a block of wood 130 x 130 x 40 mm and wrote on it his name, Ohsone, in black ink. That wood block model was the target size for a megahit, the first Discman.

And the chief designer of the PalmPilot kept a block in his coat pocket for months, insisting that achieving that size was more important than extra functions.

In the case of the MD, Fukushima actually exceeded the goal defined by Takashino, creating a playback-only unit that is just 13.5-mm thick, with a power-consumption of 280 mW. These playback-only units have claimed roughly half of the MD market in Japan.

Recordable units, which are roughly 50 percent larger, are popular among people who do not have an MD deck as part of their home stereo system — in Japan about 60 percent of the deck-type stereo systems sold include an MD deck. The editing controls on a deck make it easier to copy songs from a CD to an MD and create a custom medley. Also, the deck makes it easier to key in the track titles, which can be viewed on the LCD screen of the playback units. "More than in any other country of the world," Takashino said, "Japan is a country where features such as size and power consumption are more important than price. Japan's portable audio market is a size-driven market, not a price-driven one. After all, at $199, an MD playback unit is 10 times more expensive than the cheapest Walkman."

While Sony, Sharp Corp. (Osaka) and other MD manufacturers were reducing the size and power consumption of the recordable and playback-only units, the media manufacturers were doing their part as well. A single 74-minute disk that cost about $5.50 two years ago (at 130 yen=$1) now costs about $2.25. Also, convenience stores throughout Japan offered packs of the disks, with five disks costing about $13 dollars.

Takashino acknowledges that price is important. He projects a $99 price point for the playback-only units after the normal learning and volume curves take hold.

Regional differences
There are interesting differences in priorities among the major markets of the world. Young Japanese commuters, crowded onto trains, value the smaller size. But Europeans prize audio quality, and most Americans look carefully at the price tag.

Ryuji Tsutsui, a Sony marketing manager, said that Europeans by and large rejected the first MD systems because the sound quality of the smaller disks was — according to the European consumer magazines — not as good as that available from a portable CD player.

After Sony introduced its third-generation Antrak compression technology, it sent a marketing staffer to Europe for two months to meet with editors of the European music magazines and demonstrate the improved audio quality. Those articles and intensive advertising created the first wave of acceptance in Europe. A million MiniDisc units from all manufacturers were sold in Europe in 1997, a target achieved in Japan in 1994. This year, according to Sony estimates, industry-wide shipments in Japan will hit 5.5 million units, increasing to 6.5 million next year and 8 million in 2000. In Europe, projections are for sales to more than double this year, to 2.5 million units, doubling again in 1999 and increasing to 8 million in 2000.

With the European situation seemingly in hand, Sony's problem is the United States, where consumers have largely shunned MD. Tsutsui said previous management at Sony America had argued that relatively few Americans would take the time to record their favorite songs from several CDs to a single MD. Sony's most recent $20 million advertising campaign in the United States promotes this ability to "express individuality." Though Sony wants to increase the amount of prerecorded software, largely because many people are too busy to cut their own MDs, marketing staffer Mikuya Kubota said, "Unless people realize how interesting it is to make your own MDs, the market will not take off."

Sony appears to be caught in a crossfire when it comes to sharp price reductions. Dealers in Japan resist the idea of cutting prices on the MD systems, asking instead that improved functionality be offered. "Keeping the revenue per customer at a profitable level is a major issue for the retailers in Japan," Tsutsui said. For the past two years, MD prices have dropped by only $50 per year or less, still above the $180-per-unit level for the playback systems from Sony and about $250 for the recordable units. Other manufacturers, notably Sharp, have been more price aggressive and may be the price leaders in the United States as well. However, everyone at Sony concedes that major price cuts are needed to get the huge American market moving.

Last year, Sony got good results from a five-city campaign in the United States of ads and store promotions, targeting well-heeled consumers. This year, Best Buy Corp. president Brad Anderson set aside 24-foot-long sections in most of the 275 Best Buy stores, dedicated to displays of MiniDisc players. A laser disk-based demonstration explained what MD is all about. Sales shot up fivefold after the promotion, compared with other stores, according to Tsutsui. For 1998, Sony expects total MD sales to hit half a million units, increasing to 1 million in 1999.

Sony also is looking at how digital radio stations and digital music available on the Internet might boost MD sales, particularly in the United States. According to a recent survey by the Consumer Electronics Manufacturers of America (CEMA), of 500 U.S. households with multimedia PCs, 25 percent had listened to an Internet radio station and 58 percent had listened to music downloaded from a Web site. Though Sony is wary of copyright issues, Tsutsui noted that some people already have figured out how to record music from the Internet to the digital MD discs. "If a reasonable agreement could be reached to legalize that, then there is a huge potential to replace the Walkman with the MD," he said.