DTV Market Debated, Discussed At Summit

WASHINGTON— Calling the remaining obstacles to the digital television transition "minor bumps on the road to HDTV glory," Consumer Electronics Association president Gary Shapiro kicked off CEA's HDTV Summit here by declaring "the beginning of the end of the analog to digital transition."

Shapiro complemented both broadcasters and cable operators for stepping up efforts to get greater amounts of HDTV programming to consumers, adding that 2003 will be a critical year and that he believes the launch of ESPN's high-definition channel will be "the tipping point" to mass market success.

"More than $10 billion has been invested by consumers in digital television from the last quarter of 1998 until today," Shapiro said. "That's just four years over which nearly 5 million DTV products have been sold. Factor in that the average price for a DTV product has fallen almost 50 percent, and the DTV explosion really begins to sink in."

The next link in the chain must come from the broadcasting sector, which he commended for now reaching 98 percent of U.S. households with at least one DTV station.

"Broadcasters need to ensure they are running at full capacity, providing consumers with the best picture possible — an HDTV picture," he added.

From the consumer electronics perspective, CEA market research director Sean Wargo cited new survey numbers that indicate "consumers are starting to really get it."

Wargo reported sales of DTV television sets and monitors in 2002 topped 2.7 million units, up from 1.5 million in 2001, beating CEA forecasts by 600,000 units.

In 2003, CEA projects sales of almost 4 million units, "which will bring us to almost 8 percent penetration of DTV by the end of the year." The bulk of that will be high-definition television, he added.

At the end of 2002, over $10 billion had been invested by the consumer population in digital television. By the end of 2003 that will grow to over $15 billion, approaching $20 billion with the sale of ancillary devices such as set-top boxes, Wargo said.

Going forward, the bulk of the marketplace is still analog, but the industry "will rapidly approach the 50 percent mark as we move into 2003 and beyond," he said.

Almost 12 percent of TV sets sold in December 2002 were digital, and that is expected to approach 25 percent to 30 percent through the course of 2003.

Of the DTVs sold, 85 percent were HDTV capable in 2002, while 86 percent of all DTVs sold since the transition began in 1998 were HDTV.

Rear-projection models accounted for 72 percent of DTV sales in 2002 and 73 percent since the launch began.

Sales of widescreen DTVs also escalated in 2002, with 60 percent of DTV models having 16:9 aspect ratios, up from 50 percent for all DTVs sold over the last four years.

Models that are either connected to a DTV tuner or have a DTV tuner built in represented 11 percent of DTV sales in 2002, and 14 percent of all DTVs sold since the launch.

Wargo said many consumers who have bought DTVs have held off on the tuner purchase because they are waiting for the content.

DTV's have undergone "a fairly tumultuous ride down" in average selling price since the launch, he said. In 1998 the average DTV price was $3,147, while in 2002 the average selling price dropped to $1,693. This year, CEA expects average DTV pricing to dip to $1,441, continuing down to $1,134 in 2006.

Wargo called the pricing forecast optimistic, adding "We may see prices slip even further as we see some of the low-cost providers enter the market. That's great news for consumers and great news for the transition, but not necessarily great news for our profitability."

During panel discussions later in the day, some unsettled inter-industry contention surfaced when Jack Valenti, Motion Picture Association of America (MPAA) president, said movies could not be made if people are allowed to freely download them from the Internet.

Valenti indicated the MPAA is still determined to protect its content, citing as key concerns the need for a broadcast flag, "plugging the analog hole," and prohibiting peer-to-peer file sharing.

Valenti chided critics who say the best way to combat illicit Internet distribution is to devise new business models. "No business model devised by man can compete with free," he said. He added the average cost of producing a movie in 2002 was $90 million.

When questioned by Shapiro, Valenti also said he would support a consumers' fair use right to record an HDTV movie on a PVR or to redistribute it throughout a home.