For the collective TV and video industry, the year ahead falls into one of those critical four-year cycles anxiously awaited for profit and volume sales opportunities. The combined impact of the Summer Olympics, held this year in the U.S., and the presidential elections usually brings legions of spectators to showroom floors anxious to capture the excitement of the hour on a new television or VCR. But this time, many manufacturers are tempering their enthusiasm with cautious optimism, citing the hangover of a less-than-spectacular 1995 Christmas, which has left inventories high and made clearance sales necessary.
Meanwhile, as the presidential elections heat up, economists are pointing to the potential for a recession sometime after the second quarter. Although manufacturers say that shouldn't impact the big-screen TV and premium products businesses, it could wreak havoc on the high-volume commodity businesses. Under the circumstances, breaking record sales levels may be hard to accomplish for most categories. Still, 1996 promises to be interesting on a number of fronts. For starters, Sony, Philips and Hitachi have all announced plans to begin production of their own 35" picture tubes for the first time, which should invigorate an already volatile giant-tube market.
Two new digital satellite systems -- AlphaStar and EchoStar -- are scheduled to challenge a growing numbers of players in the Digital Satellite System camp. A new battle in channel map-navigation systems is heating up, as manufacturers try to determine which service to back for TV and VCR feature sets.
Also, several manufacturers have vowed to open a major new category with DVD by Labor Day.
For a closer look, here are the forecasts of some key video hardware marketers for video in 1996:
Executive VP, Thomson Consumer Electronics
The economy for consumer durables, with the exception of PCs, in 1995 had been a lot tougher than the general overall economy. It looks like television sales were going to finish 4% to 5% down at the same time both automobile and major appliance sales also showed mixed results. Unfortunately, my projection for 1996 is about the same, especially through the first half. If we see a recession as some economists are predicting, it could take business down further. But it is likely to affect the core businesses, meaning the 13", 19" and 20" color-TV screen sizes, more than at the higher end of the line.
The way the Christmas season was running two weeks prior to the holiday, we are looking at a hangover effect in 1996. It could take awhile to work manufacturing and retail inventories down. That's the bad news. The good news is that both manufacturing inventories and retail inventories, with the exception of projection TV, are in pretty good shape compared to the pre-Christmas period in 1994. We saw average price erosion across categories of a little over 5% in 1995. We think there will be a little less pricing pressure this year, because the inventories will hopefully be in a little better control throughout the year. But you have to figure it is still going to be 3% to 4% down.
Color TV: We are looking at the year ending slightly down in total unit sales. Total color TV sales will be a little over 25.5 million units in 1996, maybe a little higher given that it is a presidential election year and an Olympic year. But I don't think you will see that extra boost until the second half. In direct view, the year will end up around 23.3 million to 23.4 million units, and projection will grow from roughly around 825,000 in 1995 to around 950,000 to 1 million units in 1996.
Very large-screen direct-view and projection TV collectively will grow about 30% in 1995, and we see that continuing in 1996, maybe not quite the same level, but better than 20%.
TV/VCR: Combination units finished 1995 around 2.2 million units, and we see it growing to around 2.5 million in 1996.
VCR: We think the VCR category will finish 1995 around 13.6 million units, but it may be the last record year we'll see. We forecast that 1996 will still be a good year, but it will probably fall between 13 and 13.5 million units. With saturation at 90%, you have to think there isn't going to be much oomph left in it. Frankly, I was surprised the category did as well as it did in 1995.
In terms of mix: HiFi will be the strongest growth area. (It will be close to 50% for us.) But you can't discount two-head, because there will be a lot of Chinese stuff coming out and some other new sources coming onboard from Indonesia and Malaysia.
Camcorder: We are still looking at saturation levels of about 25% for the camcorder category, and prices are coming down as low as $299 to $399. We think unit sales will grow in 1996, finishing 1995 at around 3.5 million units and climbing to around 3.7 to 3.8 million units in 1996.
Digital Satellite System: DSS will finish with industry unit sales of a little over 1.5 million in 1995, and in 1996 we are expecting sales of around 2 million systems, depending upon how fast the next licensees get onboard. If they all start around July 1, it will definitely hit around 2 million.
Digital Video Disc: DVD will happen much faster than most people are led to believe. The specs are resolved, and now it's a matter of trying to get the ICs built. I can only speak for our manufacturing source-- we have dates, we have prices, and we think we are going to be in the marketplace September 1. Our lead price point will be $499 unless something dramatically changes between now and then. The rest will depend on how quickly other players can reach market. But my guess is that first-year salescould be as a low as 500,000 units or as much as 1 million, depending on how fast it all comes together.
Executive VP, Philips Consumer Electronics
Just how well the industry will do in 1996 depends to a large degree on how we finish 1995. If the Christmas selling period finished well, then we might be off a little bit. But if it finishes at a relatively weak level, just as it started out, then there will be an opportunity for modest growth this year.
Color TV: Traditionally, the color TV industry has been relatively flat overall, and I don't see anything that is likely to change that in any major way. Although a lot of our retailers are blaming PCs for eating into the TV and video markets. If that really does start an erosion trend, we should pick it up this year because we will be comparing numbers with a relatively weak period, without a lot of inventory to get in the way. Looking at the elections and Olympics ahead, it is hard to imagine this industry could go into any kind of a tailspin. In our category, people make purchases to watch events. This will help the big-screen category to accelerate with vigor. Projection sets in the 50"-and-larger screen sizes and direct-view sets 32" and up should be hot sellers. We will soon begin manufacturing 35" picture tubes at our Ottawa, Ohio plant, and we will be limited in the category only by the amount of sets we are able to produce. The category is in a very favorable position for growth right now. If you look at our market share in all the other areas where we have had adequate production, we run at a very high percentage. Until you get to 35", where you have brands like RCA, Toshiba, Mitsubishi and a few others, which have been able to build their businesses without having to compete against Magnavox. As we enter that category with some real volume for the first time, we will be a force to be reckoned with. We will bring the same high level of quality matched with good pricing.
VCR: VCRs continue to be an amazingly robust category. It seems to be doing pretty well and holding its own. As the price comes down in the digital age, it will have its hands full. We will continue to innovate and stay competitive.
DVD: We are excited about DVD, but I believe it will have a greater impact on the PC market in its first year, because it is such a super fuel tank that it solves a lot of the storage problems for the category, immediately. The PC industry will not be as sensitive to the higher initial prices as the passive entertainment industry may be. If it is possible to deliver DVD in 1996, we will certainly do it. But, as an educated guess, I would bet on late 1996 or early 1997. I find it hard to believe that things will happen as early as this summer, as some people are predicting. The technology will make a wonderful addition to the entertainment area, and right now it is a question of how fast we can get it, and what the final pricing will be. But I don't see it as a high-volume item at the kind of pricing it will get right out of the gate, based on my experience with other categories. But I could be wrong. Consumer and retail feedback is extremely enthusiastic about this technology.
Digital Satellite: In the digital broadcast satellite arena, I see us trying to be a niche player. The market is not fully developed by any means, but the world is not exactly waiting for more brands selling essentially the same thing. What we are trying to do is find ways that we can fill opportunities within the go-ahead market. Whether we will be in it or not, will depend upon us being able to find that unique need that is not being directly filled by today's offerings. We have not yet finalized our agreement with EchoStar, and we are continuing to discuss our future involvement with them. We are looking at mutual ways we can benefit from the terrific profit stream they generate from their ongoing service to consumers. If it comes down to just a matter of selling the hardware, frankly, it is not a very interesting business proposition to us. Clearly, we are looking at the way of the new world. The digital age is quickly approaching, and we are at the front end of it.
Financing Programs: I think we will look at different approaches than just financing programs. We came out with it primarily for competitive reasons, and now that everyone else is doing it, it really doesn't help us a lot. I can't imagine any retailer wanting to do a program that is not on his card. What we've tried to do is tailor our programs to the retailers, as opposed to using an RCA card or giving a break to some other financial company.
President, Zenith Sales Co.
One of the things we have to remember going into 1996 is that in this industry, we have a tendency to fall on our own sword when we don't continually establish record sales levels.
Color TVs: We estimate that the industry did 25.5 million units in color TVs during 1995, which is the second all-time unit volume year for the industry. Even though we have not surpassed 1994, it isn't exactly a disaster to have sold the levels we did this year. Frankly, we feel that color TV unit sales in 1996 likely will not reach the level we had in 1995. We expect 1996 to come in at 24.5 million to 25 million units. Historically, there have been three major downturns in the industry during the past 30 years, and each of those had a duration of about two years. I expect that to be the case again in 1996. We are already in the 13th month of decline, because the business really began to slow at the manufacturing level in November 1994. The downturn I suspect we will see in 1996 will be only modest at these levels, and I expect 1997 -- just as was the case in the prior three downturns -- will put the CE industry on the upswing again.
In terms of dollars, with the mix shift we have seen in the business, I suspect that the direct-view category in 1995 probably achieved the record dollar volume level we saw in 1994. This is due to the migration into larger screen sizes, with their higher prices and better margins.
For 1996, we see further migration into the larger screen sizes, which will contribute both higher dollar volume sales and higher margin opportunities that in my view will put us all in a position to offset the unit volume declines we project.
We hope the elections and Olympics in 1996 will help. Unfortunately, the last Olympic/election cycle we saw did not produce the results to the degree that had occurred in the past.While it will help, it will not put us in position to reverse this down trend we have been going through. It will help strongly with regard to the mix issue in 1996. The business that is driven by the Olympics and the elections will contribute to that critical dollar volume component.
In direct view, we will see continued growth in 30"-and-over segments next year. That category will be over 1.6 million units in 1995 and should be well north of 1.7 million units in 1996.
On an aggregate basis in the direct-view business, I think industry inventories are very, very healthy. Going into the last few weeks of the year, we had an overall pipeline supply of about three weeks of inventory. If we as an industry continue to maintain inventories at that level, we will all be approaching the business pretty sensibly.
TV/VCR: In the combo category we witnessed tremendous growth in a very short span in this industry, and it appears to have leveled off in 1995. My view of that business in 1996 is pretty much the same as my overall view: I think the unit volume is going to be relatively flat. But again, the industry has an opportunity to improve dollar volume and margins because the same screen-size migration we witnessed in the stand-alone TV business is also a factor in the combination business.
Real opportunity awaits in larger-screen TV/VCR combos next year. It is therefore incumbent upon Zenith to figure out how to be participants there.
Camcorder: The camcorder category had some growth in 1995, and we tested two products. But I hesitate to say we will participate aggressively in that category. My position on this remains the same: I like to be a big player in businesses that make economic sense. The camcorder business is one whose volume is still very suspect in terms of anyone having any real opportunity to make any money from it. For that reason, we are probably going to stay at our current modest level of participation.
VCR: We believe the VCR category is going to come in at about a 14 million-unit level in 1995. I expect to see that same level in the coming year. There too you see a greater portion of the industry's business going into higher-end product. That trend will continue, and we will see a richer mix of HiFi product next year. So although unit volume will be flat, we will hopefully as an industry have an opportunity for some improvement in the financial area of that business.
DVD: I am one of the strong believers in the DVD format. I know there are skeptics out there, but I don't understand that. It's a great product. Zenith will participate in that category, and at this time we are hoping to be there sometime during the third quarter of 1996.
Price Erosion: Across category lines, the pricing we have witnessed in this industry over the past year just hasn't made any sense. Over the years, I have said repeatedly that I didn't think there was any blood left in the stone. Last year at this time, I was looking at an industry inventory position that was very sensible. Admittedly, I along with others in the industry was looking for close to a 27 million-unit color TV sales level, so we were ambitious in what we were forecasting. Nonetheless, there has been nothing that has happened in 1995 from a production and inventory standpoint that justifies in any way shape or form the price erosion that has taken place this year.
1995 in my judgment was the worst year we have ever seen for price erosion, and I have been doing this for a long time. I hope to god it is going to mitigate somewhat in 1996, but I haven't seen any evidence that is going to happen. I think the reason any of us are in business is to somehow or other earn a return on investment, and the fear of manufacturers and retailers of losing a sale if we try to earn a reasonable return on our investments is an attitude that one way or another has to change.
We should take pride in the features and benefits we bring to people and not be embarrassed to charge for them.
Financing Programs: The same holds true for the financing programs the industry has seen this year. I believe that in January 1997 a lot of people are going to wake up to a bill for a product they bought in the fourth quarter of 1995 and go into shock. Here again we see an example of an industry that believes it should pay the electric bill for the guy who is going to pull the switch while we sit in the electric chair.
Executive VP, Sony Consumer Products Group
This year as much as any other, we have to learn to communicate well, along with our key retailers, the value our products offer end users. In that way, the consumer can enjoy the benefit of the products, the retailer can maximize sales and profitability, and the manufacturer can enjoy industry growth.
Color TV: We are seeing a major shift from the 20"-27" screen sizes to the larger screen sizes, such as 32" and 35". And in 1996, there will be many new manufacturers in the 35" segment, including Sony. This means that dollar-wise, we should see some growth for color TV, because the average retail for a big-screen TV is so much higher than for the smaller models. Unit-wise, we will see declines, with sales of the 26", 20" and 13" sets coming down. Projection TV will also see double-digit growth fueled by the growing consumer demand for home theater products. This is also good news for HiFi VCRs, surround sound receivers, and speakers. We hope the color TV industry does not see the price erosion in 1996 that it saw in 1995. Consumers are purchasing products that offer the best value, and if you present a product with added value that is clear enough to the end user, then they will make the right purchase, regardless of a $1,000 or $2,000 cost difference. This is why we are seeing so much growth in the projection TV and big-screen TV sales.
VCR: The HiFi VCR category has been growing steadily, but industry pricing on the category has been reduced so much that prices on four-head mono models have been greatly compressed. I believe that unit sales levels from 1995 will be maintained in 1996, but it is going to be hard to maintain dollar volume levels.
Camcorder: The industry saw about 10% growth in 1995, and we see another 10% growth year in 1996. There will be no shortage of outdoor activities, with the Summer Olympics and so forth.
The Vision camcorder series has been one of our most successful products, and here again, the consumers are showing that they will spend money for value, if they can quickly understand the benefit. As far as the format mix, full-size will continue to decline, and the rest will be split between VHS-C and 8mm. But we see room for growth ahead with 8mm and Hi8 models.
Digital Satellite System: Another area benefiting from the popularity of home theater is DSS, which offers a wide variety of programming and surround sound capability. This should continue to help the market and revitalize many, many other product categories as well. The industry's standardization of DVD will help fuel consumer growth as well. We expect that manufacturers from both the hardware and software ends of the business will make every effort to promote awareness to this new media.
Digital Video Disc: For DVD to be a success, we can't just focus on introducing the hardware. We must coordinate our activity with the software group. This will be, in part, a movie player technology, which is going to require movie titles encoded for the MPEG-2 digital compression system. That will likely be a long process. All the different parts of the business must be well synchronized in order for this to have a successful launch.
Financing Programs: Our intention in running the Preferred Card financing program in 1995 was twofold. One is that since the market was quiet up until the early part of the fall, we wanted to give retailers a vehicle to maintain their gross profits and cover sales expectations of a year ago. The other is that the pre-Thanksgiving period in October is historically very difficult, and we wanted to help the retailers create some excitement to bring the traffic into the stores. The program was very successful for us, and now we see that many manufacturers are running similar programs this January.
General manager, Matsushita Consumer Video
VCR: I'm looking at the market to be somewhat flat in 1996, maybe 1% to 2% up. HiFi is the segment everyone is going to continue focusing on, trying to get the average ticket higher. If you sell more HiFi, your average ticket will rise, but price points within the HiFi segment will probably slide down a bit. In the four-head mono segment, the pricing is pushing the envelope. We've seen $149 price points from other manufacturers this year, and I don't see an appreciable level of downside left on that unless it's at somebody's profit expense. In the first quarter we will likely see a lot of distressed inventory promotions, but that will be to liquidate discontinued items or overstock, and will not reflect true production costs. The two-head segment is being compressed by four-head, so more and more that category is shifting to four-head. In my opinion, now you really have to start breaking the category between mono and HiFi. The biggest emphasis will be on price and easy programmability. The hot spots next year will be HiFi at $199, and VCR-Plus will continue to be a big push.
In 1995, we took a more aggressive price position with a Super VHS deck, and it did very well for us in relationship to past years. But you have to keep in mind that it is still a niche market. It's still not a four-head mono or HiFi volume in its own right.Last year we introduced Spatializer sound enhancement as an added value feature in a deck that sold for around $399, and it did very, very well. Therefore, we will continue to emphasize Spatializer this year, because with HiFi the attraction is sound, and we think that circuitry provides more stereo separation.
TV/VCR: The combo market is a steady 2 million-plus market, and I think you are going to see continued growth in it, but not the 50% or 60% numbers we had seen two or three years ago. I do think you will see growth numbers in 1996 in the high single digits. We are doing very well in combo, and I am happy that we didn't enter into any 25" or 19" combos. That area is a bloodbath. It is a price-driven market. It parallels what is happening in the television category. We just re-introduced 27" last year, and I think the market has to digest that. We have to let it get more firmly established, building a broader base, and then we can worry about larger screen sizes.
Camcorder: In 1996, I see more of the same things we saw in 1995. I think that more and more the color electronic viewfinder feature is going to be emphasized by all of the players and having reasonable success. I think we will see people trying to emphasize performance and quality. But price-wise, I think the best we can hope for is that things level off. As formats go, VHS-C will continue to make market share gains -- at worst it has reached parity with 8mm. Because there are no hard figures anywhere, I don't want to make any outright statements that C may be out selling 8mm. The full-size market will continue to diminish, and lower pricing will be used to try and resurrect a dying breed.
Digital Video Disc: I think DVD will have very limited impact, immediately, on the VCR market. Eventually, I think we all know that when you get beyond the copyright issue and offer a recordable version it will start to affect VCR. But that won't be until the year 2000 or beyond. We will have a DVD player in the line in 1996, but the price has not been determined. There will be a lot of excitement and focus on it, and that will drive immediate business, even if it is just filling the pipeline and skimming the top echelon of early adopters. There will also be continued growth.
From a software standpoint, I think there will be both a rental market and a purchase market, but I think the studios are going to put more emphasis on selling titles, and that will result in a higher proportion of software purchases than there was in laserdisc. I don't think anyone who is honestly facing the music expects laserdisc to be viable in the face of DVD. Our position on laserdisc is that we will continue to service whatever part of the market exists as long as it is viable, and we will continue to handle laserdisc, especially karaoke, until it is significantly impacted by DVD.
Marketing director, Sharp
Audio/Video Products Division
According to sales numbers going into December, the industry was running slightly behind 1994, but when the final numbers are in, I think we will be little ahead. The same should be the case for 1996.
Color TV: We are looking for slight growth for overall TV sales in 1996, with some shifting within the category. Obviously, the growth is in the 27"-and-over screen sizes. That is where the opportunities are going to be as well. Last year, we got into the 31" and 35" screen sizes, with a total of four models, including two combos, that shipped at the end of the third quarter. Our widescreen direct-view set continues to play to a niche market, but as the HDTV question becomes clearer in 1996, we think it will become a great opportunity. To illustrate the point, this year at Winter CES, we are going to display a widescreen 16:9 rear-screen projection set, which is on the market in Japan. The technology in that product is very exciting. It allows for a 15" cabinet depth.
TV/VCR: We have a unique niche with the industry's first combos in the 31" and 35" screen size. Sales with the first big-screen combos have been good so far, although the numbers for the overall combo category were not up to levels seen in 1994. We see the total category as a growth category. The continued arrival of larger screen sizes has fueled growth, while driving up dollar volume. The same factors that made the small-screen combos popular have worked for our big-screen units: Consumers don't want to be challenged with hooking anything up. Additionally, when you get to the 31" and 35" sizes, the VCR doesn't require the overall cabinet to be any larger. Dimensionally, it becomes just another feature to the set.
Camcorder: Another product we will show at Winter CES is our first Digital Viewcam. We are looking for significant growth ahead for the camcorder category, particularly now, with the advent of digital products. Initially, we think the Digital Viewcam is going to be a niche market product, but down the road we think it will develop into more of a mainstream item. For now, we intend to continue leading the industry in analog LCD monitor models with our Viewcam line.
VCR: We are planning to introduce a new line of VCRs this year, with improvements made to picture quality. There was some growth in the category last year, but it was and remains a very, very tough market. The price erosion we saw in the category was extreme, and I can only hope it doesn't continue.
TV/VCR/DVD marketing VP, Toshiba
As an industry, we have to be more conscious of product quality and value than price. This year, for most categories, success will be determined by how well a dealer sells a product and not how many units he can sell.
Color TV: We think there will be some overall growth, and that will be driven out of relatively flat sales in the 25"-and-below screen sizes. However, we expect, fairly consistent growth levels to 1995 in the 27"-and-above screen sizes. The 27" category had just over double-digit growth last year, while growth in big-tube was between 25% to 30%. We potential for similar types of numbers in each of those areas in 1996. In the big-tube area the 32" and 35" area will have more players and better players in both screen sizes next year. Unfortunately, the 31" area will be relegated to a lot of promotional activity, so I don't know how much growth we will see there.
In projection TV, the biggest percentage of growth continues to be in the bigger screen sizes above 50", and there is no reason to expect that to change. In widescreen, I expect next year we will see the market grow at a little more accelerated pace, but it probably won't be until 1997 that it really starts to take off. It will be helped by new technology like DVD and DSS that provide more programming sources. Pricing needs to reflect a practical spread in the 32"-and-below screen sizes. Later this year, we will be introducing StarSight circuitry as a new feature in our TV line.
Digital Video Disc: It is hard to predict what the size of the whole market is going to be for DVD next year without knowing exactly who is going to be out there with it. If there are five major manufacturers introducing product in the third or fourth quarters, it will be very big. If it's one or two players, it may still be strong. But it's hard to put a number on what will be the first 90 to 120 days in the marketplace. People will be spending a considerable amount on promoting the technology from the consumer electronics, computer and software industries before the retailers even get involved. We are still holding to our target of having product ready for market before Labor Day.
VCR: We believe the market in 1996 will be very similar to 1995, with perhaps a little bit of growth. Unfortunately, that growth will be driven by a much more aggressive pricing structure, which started to take shape this fall. The key is not going to be in how many units you sell, but in how many better units you sell. Picture quality is the base for everything we do in the industry from here on out.
TV/VCR: The growth in the category in 1995 was really in the bigger screen sizes. There was single-digit growth overall, and a lot of it was in the 21"-and-above area. We think it could be as much as 15% to 20% of the market next year. We are looking at adding the 32" screen size to the assortment in the second half of the year.
Financing Programs: Although we used it in 1995, I don't think vendor-supported financing has become a necessity at this point. Every product or poromotion has its life cycle, and as an industry, I hope we all can be a little more creative than that. It is effective, but it is also expensive. And as it stands now, it is a snowball rolling downhill.
Video marketing general manager, JVC
Overall, I see growth ahead for the consumer electronics industry in 1996. Big-screen TV and camcorder will be up, and although overall deck sales will be flat, the HiFi segment will continue to grow. We can look forward to a range of exciting new technologies like DVD and DVC (Digital Video Cassette), which will continue to spur interest in their categories as a whole.
Camcorders: We see the overall market continuing to grow. I don't know if it will be up 10% as it was in 1995. I think that was a surprise to everyone. It will probably finish more like 4% or 5% up.
We expect full-size to continue to shrink in 1996. I expect full-size to drop to 18% of analog camcorder sales, and VHS-C and 8mm will probably each grab a point of that, to finish with market share of around 43% and 39%, respectively. The camcorder market should still see some growth next year. On top of that, we think digital camcorders will represent about 2% of total camcorder sales in 1996, growing to about 4% in 1997.
The format that may be affected by digital in the near term is Hi8, and the reason we think that is Hi8 was developed to be the smallest, the lightest, the sharpest format available, and Mini DV is all of that and more. The only thing that Hi8 and DV have in common is that they are not compatible with VHS. Clearly, the new products like our Mini DV (digital video cassette) are exciting and will boost demand for camcorders in general. The reason VHS-C continues to be so strong is VCR compatibility, and that will continue.
VCR: We are looking for a flat year for industry VCR sales, with significant growth within the HiFi segment. We plan maintain our position with some exciting new technological advancements. First, we will have the first deck with Gemstar's Index-Plus onscreen tape indexing system. Super-VHS was 0.7% of total deck sales in 1994. It will probably come in around 1.1% or 1.2% this year. Because of the emergence of DSS and the continued evolution of home theater, I originally forecast that it would be 1.4%, but we didn't see that quite happen. But people are buying better goods, and retailers are telling us that within the past 60 to 90 days, people were buying Super-VHS, and it was starting to make some real impact.
Our assortment of Super-VHS is currently two models, and we will replace those and maintain a two-piece assortment in 1996. Pricing will dip slightly, but we still view the format as a step-up feature that we add on top of a well-featured HiFi deck. We are also looking to bring D-VHS to market soon. We don't have any official product announcement -- there are still some issues to be resolved -- but technologically it is capable of being introduced in 1996.
President, Mitsubishi Electronics
For 1996, we are trying to stay focused on surviving in the current market while bringing a number of significant new technologies to market in 1997. Historically, we've been accused of being late with our line show, this year we've been able to move our engineering and manufacturing efforts forward so that we can hold our 1996/'97 showing this March instead of late April. For this company, that is a huge accomplishment. We have increased our manufacturing output, and we plan to continue to expand our distribution within our current base -- we expect there will be one or two additions -- but it is not within our plan to do national distribution. This is in line with changes made in 1995 that enabled us to better meet demand. As we have said, we intend to show our first 40" plasma-screen TV at our March line show, and it should be ready for market in early 1997. We also plan to show several other new products, including an 80" projection set and a new home theater audio line.
Color TV: We see continued growth in big-screen television sales. Regardless of the status of the economy, we expect demand for big-screen product to continue. Although we expect declines in unit sales of models below 27", we will continue to provide our dealers with all screen sizes. But it is clear that our emphasis will be on the larger screens. We are bringing out our first 80" projection television in 1996. In direct view, our 40" family has now grown to three distinct models, and we intend to improve the features and quality of that family. It has been very important to us. We have no plans for 16:9 product in 1996.
VCR: The market will continue to shift to the HiFi side of the house, but it is more probable that we will see significant price erosion in the VCR category than in the categories of CTVs and PTVs, expressed as a ratio. If there is going to be a struggle, it is going to be on the VCR pricing side. The lowest price points introduced by some companies will force the rest of the industry to lower its prices.
Financing Programs: It's hard to say whether it was the financing programs we ran or a general improvement in products that helped us the most in 1995. We know that financing played a role.
For 1996, we are currently evaluating the most effective way to support our dealers, and we are considering some new approaches. We are not going to eliminate financing, but we are going to make it balance with some other dealer-supported activities.
Digital Video Disc: We plan to show our first DVD player at our March line show, and it should be available in the fall.
Home electronics marketing director,
We are not looking at 1996 as a growth year. We expect it to be flat at best.
Color TV: We are not looking to ramp up production, but to possibly change our mix. That means moving away from 13" and 19" and moving more toward 25" and over.
VCR: The big news in decks is that there won't be the big glut of inventory we saw in 1995. The worldwide capacity for VCR is about 60 million units a year, and the demand has been about 40 million. So, we, like a lot of manufacturers, have started reducing our capacity for VCR. Hopefully, that will put less pressure on end-of-the-month deals for VCRs. The business is definitely shifting from two-head and four-head into HiFi.
TV/VCR: We definitely expect to see modest growth in the combo area this year. Retailers are giving it a lot more exposure, really. A year ago you only saw retailers giving it spot ads. Now there are more ads featuring more step-up product. In 1996, I expect between 5% and 7% growth. We are looking at bringing in 25" in the second half, but we don't have any plans to go much beyond that at this time.
Digital Video Disc: We are working on plans to offer DVD, but it probably won't be ready until some time in 1997 for us.
Home electronics marketing manager, Pioneer
We are looking at a growth year for our categories in 1996, fueled by the introduction of new home theater technologies such as DSS, and later in the year, DVD, which will benefit all segments of the home theater marketplace.
Projection TV: We don't perceive that the trends that have been established over the past two years will diminish that much. It may be optimistic to expect growth levels we saw this year of 30%-plus, but we believe it is realistic to expect a double-digit increase. That growth will be driven primarily by the largest screen sizes. We've found that the bigger the size, the better it has done. Additionally, the widescreen market may start to pick up somewhat in 1996, particularly after the introduction of DVD, which will actually allow for the development of 16:9 software.
Digital Video Disc: I don't think it is realistic to expect DVD to immediately skyrocket. We've been in the optical disc marketing for the past 13 or 14 years with laserdisc, and the ramp-up is very dependent on the chicken-and-egg scenario between software and hardware availability. When there is software out there, the early adopters will be attracted to the market. We will unveil a combination DVD/ Laserdisc/CD player at Winter CES, and our thinking is that it will appeal primarily to a laserdisc customer who already has a laserdisc library and is anxious to make the transition between LD and DVD without losing their previous investment. We believe our experience in optical disc technologies will position us to be a major player in the future DVD market.
Laserdisc: Regardless of the arrival of DVD this year, we believe a laserdisc market will continue to exist for some time. To illustrate the point, there is still a turntable market out there today, although Compact Disc is fully entrenched. There will be a transition from LD to DVD, but it won't come overnight. It will take three to five years, and consumers will inevitably dictate to us what the future of the format will be. But we will definitely continue to be in both markets for some time.
Minkhorst Plotting Growth For Philips
By Bob Gerson
There are a number of hot seats at the various levels of the consumer electronics business, but the one sitting in what may well be the hottest is Robert Minkhorst, the president of Philips Consumer Electronics and the first true Philips executive to hold that post since the Dutch electronics giant moved into the U.S. market with the 1974 acquisition of Magnavox. In addition to his background, what makes Minkhorst different from his predecessors at PCE is his mandate. While past presidents were variously charged with stabilization, restructuring, stemming losses and/or bringing production quality up to world standards, Minkhorst's mandate is the engineering of growth within the framework of Philips' multinational presence.
Under the parent company president Jan Timmer, Minkhorst explains, "we embarked on a three-step program: Step one was cost-cutting and cash-flow management. It was decided then and there, to lay off 20% of our people." The impact of that was traumatic, he says. "That meant laying off one in five in a company that never had done such a thing before." Philips, he says, "had no choice because we were very close to major disaster. But we did that within the next six months, along with other cost-cutting measures." Phase two, he says, was analysis: "Are we in the right businesses? What businesses do we want to be in?" That, he says, involved getting out of a lot of businesses and getting into some others, "and that phase was also pretty tough."
Now, Minkhorst says, "we are in the third phase, growth and revitalization. It's a lot more fun, but it is still very difficult because the pressure to grow is enormous as we have exposed ourselves, and rightly so, to the financial world. So we have to deal with the expectations of the financial world."
Doing that means having to steadily improve performance, he says: "It is the same kind of pressure that has hurt a lot of U.S. retailers. They run into cash-flow problems, and we are going through that at Magnavox. You go through a lot of issues and steps. Where are we going to grow? How are we going to do that? The bone of the issues is how do we as a management team plan on being double the company that we are today."
Minkhorst says he felt a need to make some staff changes to bring in people "from different areas with different points of view than conventional, because we are moving into different areas, and businesses are converging." He says that "convergence" is something of "a fashion word, but it means also getting things together and taking a different look at things. Things are faster, tougher and more aggressive now, so we needed a few new people." Soon after his arrival last year, Minkhorst says, he created a new business department. The staff there are "entrepreneurs for the future. They have to look at new areas Magnavox can be in."
As a result of their effort, "we will move into security, home automation, go back into telecommunications and PC-related businesses." In Minkhorst's view, "TV is passive watching as a group, and PC is interactive, individually. There is a whole area in between that I think offers a phenomenal opportunity for us." Another, more mundane area of opportunity Minkhorst sees is audio, where he got his initial start with Philips. On his arrival, Minkhorst found he had to mend some fences between PCE and Philips' audio operation in the Far East. That done, PCE is back in the portable audio forefront, he says, and "that business is growing very fast. But, you know, here you are talking about a $4 to $6 billion business, depending on what you add in, and one which is dominated by Sony." That factor, says Minkhorst, "is interesting, because Sony's audio infrastructure is comparable to ours. They have their factories and management in the Far East, and so do we. They have simply done a smarter marketing job than we have, and I don't see why we should not be able to equal that."
Sony has come up with a smart strategic move in pushing up Aiwa, he says, "that doesn't make my life easier, but it does make the challenge more interesting. But there is still enormous room for maneuvering for us, and I am going to go after that business." Beyond portable products, the "audio opportunity within home theater is becoming very interesting, and it also is a market where we have capability and one that we can go after. Another is Marantz." Minkhorst feels that it would be too difficult to make Magnavox an accepted hi-fi components brand -- "We tried that with Philips audio, and you can forget it." So, he says, he is talking strategy with the Marantz group, which is owned by Philips but operates independently of PCE. "We have to tread very carefully because Marantz has a super high-end image achieved by quality discipline and distribution discipline. They do not sell to the Circuit Cities of this world. But now the question is, how long can you maintain that kind of strategy when the channels in which they sell are evaporating?"
At some point in time, Minkhorst says, "you have to become practical and recognize that the Circuit Cities are really top-notch hi-fi selling places with top-notch people adding value in their stores." Currently being worked out are ways for PCE to "use the Marantz brand name in a smart way and still maintain the image and equity that the brand has." But rather than fold Marantz into PCE, Minkhorst says, "I think I will keep them separate somehow or other and use the synergies that are existing between us."
It's no secret that the parent company would like to see the Philips brand get the same recognition in the U.S. electronics market as it has virtually everywhere else in the world. But that isn't in the cards now, says Minkhorst. "That is a subject of constant discussion. From a global point of view, we certainly want to establish the Philips name here," but that's very difficult and expensive, he says. "You cannot, as was tried in the past, simply take our range of TV products and say these are Philips and these are Magnavox and that's Philco. That absolutely doesn't work."
Today, "the Philips brand is practically unknown" and has only about a 1% recognition rate in the U.S. "That doubled to 2% during the World Cup soccer match," but has since fallen back. Improving on that requires strict marketing and distribution strategies and strong image-building efforts, and all that makes "for a very costly affair." So, Minkhorst says, Magnavox will continue as the flagship brand, and PCE has to see how widely it can be utilized. "Can it really be stretched into PC-related businesses, into security or home automation or home services or health? We are finding out that you can move into security, but you have to watch where you move into PC-related businesses," he says. It's the PC area where the opportunity seems to lie for the Philips brand, "say in multimedia accessories. We are thinking and working along that line, so the product strategy for Philips is different than we have tried in the past."
As already reported in TWICE, PCE will be introducing under the Magnavox banner next year an MX line of high-end video products to compete against such lines as RCA ProScan and Sony XBR. And it will be entering the home satellite market with receivers designed for the EchoStar system. Additionally, Minkhorst says, it will be expanding in the professional market.
In 1996, PCE will introduce the LC9000, a second-generation front-screen LCD video projector, as well as a small portable version. Also, although the coming of the digital video disc has undercut the consumer potential of the CD-i system, Minkhorst says, "the professional market is still very interested in it as an attractive interactive media for mass communications." Philips, he says, grades its success on its return on net assets, and one way to improve on that is "to use our factories to generate additional sales opportunities." In keeping with that, PCE has established a Latin American connection, and its plants in the U.S. and Mexico will develop and make products for both North and South America, "and for us that means a change of mind set," as PCE adapts to the needs of other markets.
Looking at the current status of his company, Minkhorst says that PCE continues to be profitable, though the softness in the color TV market means "we are having a tough time, and while our bottom line is up, it's not as much as we anticipated." The problem in color TV, he says, is not just the slight decline in sales, but that too many companies anticipated and manufactured for growth. The oversupply is resulting in even more intense competition, and "we compensate as much as we can with VCRs and audio."
PCE this year discontinued its Sylvania TV lines -- avoiding a brand conflict with Siemens, which now owns the Sylvania name and lighting business. But that loss has been offset by growth of the Magnavox brand, "and by my arithmetic, we are still the number-two player" in the color TV business. PCE continues to use the Philco brand on low-end products for major discount chains.
Looking well into the future, Minkhorst says, as the industry moves more into the digital era "you don't have to be super creative to make new products or make existing applications much more efficient." The real problem is sorting out from all the products on the drawing board those with real market potential, and "how I can meld all the technological capacities we have into what the end users really want."
PCE is now starting to invest significant sums researching retailer and consumer views, he notes, and what has already "come out now is amazing. People want totally different things. Compared with the fast food, soap and cosmetics people, and the amount of money that they spend to know what the consumer wants, we are total amateurs. If you look at their distribution system, how they move perishable goods, we in consumer electronics are amateurs. We can learn a lot from different industries." But even though there are things that can be borrowed from outside, when it comes to consumer electronics, "you have to grow up in this business," to understand it, Minkhorst insists.
"I benefit from the fact that I started out in this world being under phenomenal pressure. I started in audio, and that was the first area of attack by the Japanese. So I was in it from the beginning of my career, and I think I benefit from that still today. "My sense of the strategic war process that you are into in electronics is totally different from any that I have experienced in domestic appliances or lighting. You have different kinds of players and a different way of working."
Consumer electronics, he says, "is truly a global business, and the U.S., Asia and Europe are part of this. Outside this industry you won't find a Robert Minkhorst. I'm still part and parcel of this large structure."
Joe Clayton, Thomson Consumer Electronics
Robert Minkhorst, PCE president
Ed Volkwein, Philips Consumer Electronics
Jerry McCarthy, Zenith Sales Co.
Yuki Nozoe, Sony Consumer Products
Stan Hametz, Panasonic.
Stephen Search, Sharp
Steve Nickerson, Toshiba
Bill Sims, JVC
Philips will use technologies such as DVD to merge the PC and television categories.
Phil Petescia, LG Electronics