NPD Panelists Outline Tablet Impact On CE, Content Industries

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Las Vegas - The rise of the tablet is creating winners and losers and influencing the design of CE products that are trying to defend their value propositions, NPD Group analysts said last night during an NPD-hosted panel discussion at the Bellagio.

In a three-screen world, TVs, PCs, and cellphones "had clear demarcations," said NPD industry analysis VP Stephen Baker. But it took only one 10-inch screen to "upend the Apple cart."

One product whose sales have been unaffected by the tablet is the PC, he said. "The tablet has been an incremental sale to the PC" and has not cannibalized PC sales, he said. The tablet "is a new screen."

Although there is "some overlap in the tasks" performed by PCs, smartphones and tablets, the three devices are "used basically for different reasons," added Jim McGregor, chief strategist for NPD-InStat.

Notebook computer sales are down due more to market maturity than anything else, said NPD DisplaySearch senior analyst Richard Shim. Nonetheless, as tablets evolve to offer higher performance, notebooks are evolving into Ultrabooks with thin profiles and instant-on capability, he said.

Likewise, TVs and smartphones are evolving in a bid to compete with tablets for usage time to keep consumers interested in buying them, said Baker. As a result, TVs are getting smarter, and smart-TV sales grew 67 percent in the third quarter of 2011 compared with the year-ago quarter, he said. Similarly, smartphones are evolving to offer bigger screens. Sales of smartphones with screens of 4 inches or larger grew 126 percent in the third quarter of 2011 compared with the year-ago quarter, he said.

While CE makers evolve their products to compete for usage time, content makers could be headed for tougher times because of the tablet, said Russ Crupnick, industry analysis senior VP at The NPD Group. Apple's iPad is driving up sales of apps in the iTunes store, but iPad users are increasingly streaming music and video rather than downloading and purchasing the content, he said. Streamed content delivers lower margins for content providers, compared with purchased content, he pointed out.

The content-consumption trend "is not to the advantage of the movie studios or record labels," Crupnick said.

The challenge for the content community will be to leverage tablets' ability to help consumers discover new content and entice them into buying higher margin downloads or Blu-ray discs, he said. Content providers must develop "better tools for search and discovery to drive consumers to buy high-margin products," he continued.

Although tablets are pressuring the content community, tablets and smartphones might be posing a greater challenge to retailers. "Third-party retailers have a smaller share of the four-screen world than the two-screen [TV and PC] world," said Baker. Half of all iPads sold are sold directly by Apple, he said. Two-thirds of all Nook and Kindle e-readers are sold by Barnes & Noble and Amazon, respectively, and three-fourths of all smartphones are sold by cellular carriers.

Another challenge for retailers is that they sell devices, "and someone else sells the content and services," Baker added.

Amazon and Apple are formidable competitors in the tablet market precisely because they are content aggregators who provide a solution to consumers, added McGregor.

On other topics related to the rise of tablets, research director Linda Barrabee pointed out that tablets and smartphones are largely being used for different functions. Tablets are being used largely for web browsing, games, video playback and reading, while reading and video playback are the least used capabilities of smartphones. Smartphones are also used more often for navigation and picture-taking than tablets, she said. Surprisingly, only about 37 percent of smartphone usage is for communications.

 As for the sales potential for 3G- and 4G-equipped tablets, Barrabee said "the trends is not looking good for them [cellular carriers]." More than 90 percent of tablet users say they use tablets in the home, where they can access the Internet via Wi-Fi. With the average price for a cellular data package running at $25/month for 2GB of data, and because people use tabs mostly at home, consumers "just don't need it [3G or 4G]," she said. Unless the content accessed on tablets becomes need-to-have content versus nice-to-have content, "it will be an uphill battle" for 3G/4G tablets.

In response to an audience question about the potential for content providers to leverage tablets to add value to what they offer on TV, Crupnick noted that most consumers aren't interested in the BD-Live feature of Blu-ray Discs and players. The purpose of BD-Live was to get people more engaged with their Blu-ray title, he said.


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