Digital Cables Are Now The Profit Connection

By Jeff Malester -- TWICE, 8/9/2004

Sidebars: For HDMI Cable, The Future Is Here Coming To Terms With Cables

In this dawn of the age of consumer electronics convergence and home theater, the relatively low-profile cable is playing a major role, both in enhancing the quality level of television viewing and listening, and swelling the pocketbooks of retailers looking to increase slimming hardware margins.

No longer a connection designed just to carry a minimal-quality picture, cables have become a sophisticated part of the video team — taking the newest in television hardware and video components to sensory levels not imagined by the general public some scant 10 years ago.

No home theater system is complete without the cabling that connects everything, and retailers can assume users will spend between 5 percent and 10 percent of the cost of a home system to purchase products that can make a critical difference in what they see and how they hear.

“As we move into the digital arena, the sight and sound experience becomes paramount,” said Mark Schaffner, VP/general manager at the Plymouth, Minn.-based Power Sentry division of Fiskars Brands. “The ability of retailers, regardless of channel, to showcase HDTV (high-definition television, both audio and video) will become a key driver in terms of revenue.

“The opportunity for retailers to 'hook' into the after-sales accessory market is now,” continued Schaffner. “As we move closer to 2006 (when HDTV becomes the standard), retailers will need to have a strategic plan for what we call the widget market. Although not a high-profile sale, the audio/video category can generate a significant margin opportunity.”

Rapid growth of digital HDTV sources and components is driving the potential in 2004 for consumers to further embrace digital video cables and components. Sales of DVI (digital video interface) cables continue to increase, but this has been limited by lack of DVI-equipped components.

“With digital television (DTV) cabling and component market growth accelerating — driven by lower component street prices and more widely available digital content — the opportunity exists for increasing both consumer satisfaction and retail profit dollars,” said Gavin Downey, business unit manager at Compton, Calif.-based Belkin.

“The promise of DTV is predicated on understanding component connection options, educating consumers on differentiating factors, and aligning accessory feature sets and price points with those of the components.

“DTV, as an application, provides significant retail profit potential. Converting that potential into satisfied consumers and real profit dollars is predicated on education. The phase shift from early to mass adopter is in full swing, [while] the assumption of fully informed consumers is not valid.

“'It comes in the box. Why do I need to spend more money,' ask consumers? With DTV and today's home theaters, there are many valid answers,” said Downey. “Delivering them to consumers in language they understand and quickly requires strategic manufacturer/retailer partnerships.

“This is a pivotal time for our industry. DTV content and displays, 5-channel, 6-channel, or 7-channel surround sound, and home theater hold tremendous allure and are driving consumers into stores. Their expectations are high, and often the difference between failure and exceeding those expectations lies with the accessories they leave the store with.

“Educating consumers to the benefits of digital accessories not only provides increased profit, but also generates loyal satisfied consumers. Profit potential lies in the ability to shift from legacy analog connectivity to digital, such as DVI and HDMI.”

Sales levels of digital televisions are booming, whether projection or flat-screen LCD and plasma. But there is an upside to the television sales themselves — the creation of new sales potential, driven by the consumer's desire to improve the rest of the system to complement the improvement in video, said Joseph Perfito, president of Orlando, Fla.-based Tributaries.

“The downside is that the profit margin on video is so small that if the dealer doesn't sell accessories with the DTV, the overall margin is below that necessary to keep the business healthy,” said Perfito. “There's the opportunity. Premium cable sale along with a DTV can dramatically improve margins, especially when analog audio cables are added to the mix. Of course, today the hottest cables are the digital DVI and IEEE 1394, among others, and [these] add incrementally to the overall profit,” Perfito said.

State-of-the-art video technologies, such as HDMI and DVI, plus burgeoning audio connections like Super Audio Compact Disc (SACD) and DVD-audio, provide a wealth of attachment sales opportunities. The retailers who are putting these new technologies to most profitable use are those who are training their salespeople to understand and communicate high-performance home theater hookup to their customers, said Peter Radsliff, product development/marketing director at Brisbane, Calif.-based Monster Cable Products. “Regardless of this potential for improved video and audio quality, the biggest complaints still heard from buyers of high-definition video equipment are that the picture and sound aren't as good at home as it looked when purchased in the store,” said Radsliff.

“Although this problem should be lessened as HD content becomes more available, the reality of proper home theater hookup continues to be a big failure point for after-the-sale customer satisfaction. Today, the successful retailer institutes storewide educational programs aimed at lowering returned products, eliminating dissatisfied customers and maximizing attachment sales opportunities.

“The net effect of this golden age of technology is that it is creating as many problems as opportunities. CE retailers who position themselves to help consumers get the most from their home theater investment will beat the box-movers in profitability and customer loyalty.”

Despite the slow pace from TV networks to provide HD programming, picture quality and higher price points for new plasma and LCD offerings will force the issue of interconnect cable quality and performance, even at the mass market level. “Nothing can destroy the expectations of a qualified HD-ready consumer quicker than a cheap collection of mismatched audio/video cables,” said Brian Casagrande, product manager at Wixom, Mich.-based Path-Group, which makes Ixos-brand cables.

Consumers mistakenly believe wire is wire, and so do many retailers, continued Casagrande, who believes a minimum investment of 10 percent of a total video sale should go to quality cables and interconnects in order to begin to achieve the performance capabilities of newer HD equipment.

“Whether its DVI video cable connecting a DVD player to a DTV set, or analog audio interconnects and component video cables used between DTV sets and HD set-top boxes for cable and satellites, most consumers are not aware of the various levels of performance that these provide. By simply qualifying a sale to include the cables, retailers can save customers from disappointment and double their net profit, Casagrande said.

Broad-based consumer electronics-giant Thomson reports tremendous potential for cable sales. The selling results will be directly proportional to hardware sales, manufacturer communications/training and retailer desire/diligence for driving a sales force to attachment selling by providing solutions to improve consumer entertainment experiences.

“The key for retailers is understanding the consumer's digital TV and components setup/system and how programming is received today — whether by terrestrial, satellite or cable,” said David Geise, VP/Worldwide Consumer Solutions at Indianapolis-based Thomson. “This can unlock the door for making solid recommendations.”

Thomson provides a comprehensive retailer program that aids in the sell-in and sell-through of cabling products, providing them with the opportunity to display, promote and sell-through Thomson's RCA and Acoustic Research hook-up products.

To simplify the cable selection process, Thomson provides consumers with packaging that clearly identifies product features/benefits and specifications. In addition, cables include a hook-up guide in the package to simplify the connection process.

A number of companies are rapidly expanding assortments of digital cabling accessories as the pace of demand for DTV quickens.

Oklahoma City-based Jasco Products, for one, offers a line of GE-brand home theater digital connectivity said to maximize the visual and audio performance of HDTV, DTV, digital converter and digital tuner boxes.

Jasco's new line of digital connectivity products offers a centralized categorical look because of special packaging with clear graphics for a high end, classy appearance. The packaging allows the retailer and consumer to concentrate on one shelf location for home theater needs.

The home theater digital assortment, with retails ranging from $9.99 to $29.99, includes HDMI, S-Video, component, digital audio coaxial and fiber optic cabling. These are designed for use with digital tuners, decoders, set-top boxes and other A/V equipment.

Excellent quality at fair value is the credo of Hudson, N.Y.-based River Cable Technologies. “Our focus on technical excellence and the individual testing and certification of each cable differentiates us from the pack,” said Katherine Hilliard, marketing director.

With home leisure and technology driving home theater growth, the company offers a full line of cables for home theater installation, including HDTV, LCD and plasma units. The company's lineup of Flexygy 6 speaker cable starts at $119.19 for a single, approximate 3-foot cable.

Two new component video cables from River Cable are designed for the serious home theater aficionados. VPX Pro 3 Plus is an 18-gauge, 3-channel RGB coax designed for serious performance applications. It starts at $119.99 suggested retail for about 3 feet. The VPX Pro 5 Plus is designed for both today's and tomorrow's next-generation HDTV home theater applications. It is a 5-channel component cable and is ideal for the long runs often required of home theater installations. It starts at a suggested $169.99 for about 3 feet and is available with connectors.

“In our all-new digital world, there is an imperative to keep the signal digital for transmission between these devices. Today's better audio/video stores and installers take as much care in fine-tuning the performance of a video display as the dealer once spent optimizing the performance of a state-of-the-art turntable,” said Joe Harkey, VP/product development at Irvine, Calif.-based AudioQuest.

New from AudioQuest for 2004 are three DVI-D cables, two 1394 types and two HDMI cables. In HDMI, the AQ/CQ HDMI-1, said to provide superior performance in lengths up to about 60 feet, has a suggested retail of $150 for about 3 feet. The AQ/CQ HDMI-3 has a suggested retail of $250 for about 3 feet.

“In the consumer electronics industry, where copy protection in most needed, resolution requirements are lower and the need to link audio is logical — HDMI and HDCP [high-density copy protection] are rapidly gaining ground over DVI,” said Hagai Gefen, president of Woodland Hills, Calif.-based Gefen. “Fortunately, HDMI is designed to be backward compatible with DVI, so low-cost adapter solutions are readily becoming available that convert signals for system integration.

“Essentially, we see that there is a demanding product chain, with high-quality program sources like satellite boxes and HD-DVD players, connecting across a distance to single or multiple high-resolution displays,” said Gefen. “We are dedicated to continually identifying and manufacturing just-in-time high-definition conversion, extension and connection solutions that are standards compatible (such as with HDCP) and ease the user experience when dealing with other manufacturers' products.

The latest product from Gefen is an HDTV Extender over Cat-5 that extends DTV up to 150 feet from the source using two Cat-5 cables. Suggested retail is $499.

DeCorp Americas, developer of FlatWire Ready connections, claims to have created an entirely new cabling category that offers revolutionary installation outside of walls, ceilings and floors. The Nashville, Tenn.-based company offers a do-it-yourself installation kit that allows consumers to hang and connect a flat-panel TV “easily and affordably.”

The FlatWire Ready wiring solution includes ultra-thin surface-mounted wires and associated connectors and installation products. Wires are said to virtually disappear under paint, wallpaper or carpet. A kit, including 10 feet of component video wire, coaxial-equivalent wire and AV electrical wire, as well as adhesive and tape, has a suggested $299 retail. The FlatWire also comes in composite and S-video units.

DeCorp technologies “give retailers a product to sell consumers to easily install or have installed a flat-panel HDTV and other complementary devices that matches their expectations,” said Ross Sexton, CEO.

This is a “new technology that finally creates the opportunity to place devices exactly where they are desired and wire easily on the surface of walls, ceilings and, in some cases, floors. No longer will your customers be required to install devices around conventional wire limitations. [You can] place wiring and connections exactly where they are needed, simply, cost-effectively, invisibly and, most importantly, safely,” said Sexton.

With the face of the television market changing dramatically, retailers need to focus on the connectivity of the new devices and other peripherals to reach a healthy profit margin, said Jim Wang, president of Poway, Calif.-based Harmonic Technology.

Harmonic offers two products for existing DTVs in the market — Crystal Component cable and Rainbow multi-channel cable.

At a $150 suggested retail for about 6 feet of Crystal component, the cable is said to significantly improve the depth of field, color balance and transparency of the video signal. Rainbow multichannel, at $310 suggested retail for about 3 feet of cable, is designed for home theater processors and multichannel DVD and CD players. It consists of up to six individual cables combined into one housing to replace the need for three individual pairs of digital interconnects.

“As the future continues to morph, retailers will benefit the most by understanding and offering the most advanced cables and peripherals necessary for the connectivity of these new devices,” said Wang. “Products available at the end of 2004 will convert the best theories of metallurgy into reality for the delivery of the best resolutions and image quality in the market.”

“There is a growing market for quality aftermarket cables beyond home audio and video,” said Michael Weizer, director of market at Fremont, Calif.-based Accell.

The company is offering its UltraCam line of high performance cables for the “rapidly growing” digital camera and camcorder markets. These are designed to make the transfer of pictures, video and audio from digital cameras and camcorders easy and more reliable. “A better connection ensures optimum picture and audio quality, and that's increasingly important as more of our priceless memories are being captured digitally,” said Weizer.

UltraCam products include an UltraCam USB 2.0 Mini-B digital camera and camcorder cable at 7 feet for a suggested $21.99 and a Mini AV to audio/video RCA camcorder cable at 6 feet for a suggested $27.99 retail.

Other products include an UltraCam FireWire 4-pin/4-pin camcorder cable at 7 feet for a suggested $27.99 retail and an UltraCam FireWire 4-pin/6-pin camcorder cable at 7 feet, also for a suggested $27.99 retail.