Sony used to dominate the personal music space with the Walkman. The arrival of the iPod changed all that.

It has been said that if Apple had opened up its operating system in the 1980s, Microsoft never would have dominated the world of computer software and Apple would have been beyond where Microsoft is today.

Well guess what? Sony seems to have taken a leaf out of Apple’s book, despite their fanatical rivalry. Sony diversified into music and movies, but their determination to copy-protect and restrict usage of all their content backfired big-time. Music sales, even digital album downloads for a fee, is yesterday’s business model.

Movies followed suit, and only the major studios’ support for Blu-ray saved Sony from another Betamax-style humiliation. The Sony stock price plummeted by almost 30% yesterday, turning a negative trend into a collapse. Even Handycams and home theaters are in decline.

Ironically, the PlayStation 3 is proving a more popular home computer than the Apple Mac ever was, but even Sony’s schizophrenic foray into mobile phones was a disaster.

It was Sony’s obsession with proprietary formats and digital music rights that decimated the growth and popularity of its CD and DVD sales. A new high definition standard could not reverse the trend.

Consumers now have forced music and movie makers to abandon encryption. More than 90% of all downloads are from iTunes and MySpace Music, and it looks unlikely that Sony’s once-sexy entertainment business will be able to recover from this body blow.

As Apple celebrates the sale of the 20 millionth iPhone, Sony is desperately scrambling to stem the losses from its music and movie labels. But they would never turn to Apple as a channel – there’s too much face at stake.

ANALYSIS >> SYNTHESIS: How this scenario came to be

In the 1980s, the triumph of VHS over Betamax helped develop the lucrative home entertainment market. DVDs, introduced in the 1990s, turned into an even bigger gold mine, accounting for roughly 60 percent of studio profits in recent years, analysts say. The entertainment giants have positioned high-definition DVDs as yet another blockbuster business.

But DVD sales have shown steady declines from their heady peak of US$ 17 billion in 2006. After three years of dropping by almost 5% per annum, the writing is on the wall. The victory of Sony’s relatively new Blu-ray high-definition disc over a rival format, Toshiba’s HD DVD, has done nothing to stem the tide.

Sony, long regarded as the most innovative company in the field of consumer electronics, has come under increasing fire as it battles to maintain its brand and market position. Prime competitors have emerged from the computer and software manufacturers in the form of Apple and Microsoft.

It has been said that Sony had the iPod (or something like it) five years before Apple, but were fearful of losing their Walkman market. In the end iPod killed the Walkman and Sony never regained their dominance in that space. Even when trying to counter the iPod’s success with their own versions, styled the ‘New Walkman’, Sony opted for a proprietary digital music format, and didn’t support the standard established by Napster – MP3.

Napster was successfully shut down by the recording industry, but its successors like KaZaa and AllofMP3.com put paid to the old model of CD sales. Apple was quick to see the gap, and launched iTunes for legal digital music downloads. Yet even as the studios insisted that Apple protect iTunes tracks from rampant copying, internet pirates were already sharing full length movies and TV shows on networks like BitTorrent and Limewire.

Sony had by now acquired BMG and Sony Pictures. Sony BMG made a monumentally disastrous error by trying to copy-protect music CDs with what amounted to a computer virus, and had to back-track rapidly as they were sued by their customers. Sony Pictures were less public in their efforts, but maintained some of the most difficult-to-crack protection mechanisms on their DVDs.

Meanwhile ‘DVD Jon’ had already cracked Apple’s iTunes protection system. Steve Jobs even pleaded publicly with the studios to allow him to sell unprotected content – he knew he could quadruple sales that way!

Sony’s woes weren’t all on the content and music front. The PlayStation games console came under fierce attack from Microsoft’s XBox 360 and Nintendo’s Wii. In smart phones, Sony teamed with Ericsson and made some innovative Symbian based models, even a number of Walkman phones. But they could not seriously compete with Nokia and the host of Windows Mobile offerings. The iPhone finally put an iPod and a phone together, in a sleek and stylish package that sold by the million.

Sony Ericsson’s desperate attempt to compete with the iPhone saw it dumping Symbian in favor of Windows Mobile – too little too late. Despite Apple’s ‘locked-in’ policy for the iPhone (soon cracked by hackers) it became the device of choice for tens of millions.

Now Sony is a mature corporation in a rapidly maturing market. It seems unable to re-invent itself. The Blu-ray Disc was a brief bounce on the way to a long tail. One benefactor is the PlayStation 3 – it comes with a Blu-ray player. But will Sony capitalize on that advantage and open it to Linux, iTunes and MySpace? Probably not.