Despite Weakened Economy, DTV Sees Significant Growth

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Despite the struggling economy and the war on terrorism, sales of digital television sets and monitors continued to make gains in 2001.

Industry observers said that the increase in over-the-air digital television programming had a significant impact on the popularity of HDTV sets and monitors in the second half of 2001. Programming now includes CBS and ABC networks broadcasting major portions of their prime time lineups in high definition, while the HDNet high-definition television channel joined HBO high-def on DirecTV service. Meanwhile, EchoStar announced it would carry the New York and Los Angeles CBS affiliates in high definition for subscribers who qualify to receive those out-of-market signals. EchoStar also carries HBO Showtime and pay-per-view HDTV programming.

"The availability of HDTV from ABC indicates that broadcasters now accept the business model of broadcast HDTV, and that it is clear that multichannel SDTV broadcasting is really not a viable business model," stated Bob Perry, Consumer Electronics Association (CEA) Video Division chairman and Mitsubishi marketing VP.

Meanwhile, Time Warner, Cablevision and most recently Comcast have or will soon add HDTV programming to select digital cable systems.

"Cable companies in select markets around the country are now indicating a willingness to provide full HDTV to customers, and that is very good news, and an important step in the transition to digital broadcasting," Perry said. "Cable companies have watched satellite systems take their top customers for the past two years and they are beginning to react. Comcast has also discovered some percentage of its customers are willing to pay $10 a month more [for] HDTV, and I think that is very smart."

According to CEA sales-to-dealer numbers, the industry is on course to sell 1.1 million digital TV sets and monitors to dealers by the end of the year. That is exactly in line with CEA projections, according to Jeff Joseph, CEA spokesman. The association projects sales of 2 million DTV sets and monitors in 2002.

"It's fair to say, that had the economy been better, we would have sold more digital televisions than we projected," Joseph said. "We had our best month of the year in September, and that was really only a three-and-half-week selling period, when you think about it."

At the store level, sales to consumers were also promising, although sales of the very- high-end DTV equipment did not keep pace with sales of more moderately priced products in electronics/appliance stores. According to retail market research firm NPD Intelect, unit sales of digital television sets and monitors to consumers were up 93 percent for the September-to-September period over the previous year.

"The surprise to me was that sales in audio/video specialty stores (to date the strongest distribution channel for DTV) were only up 13 percent," said Tom Edwards, NPD Intelect senior analyst. "That tells me that in September business dropped off [from the slow economy and World Trade Center attack], and the very high end that these stores specialize in doesn't seem to be as good. In comparison, the electronic/appliance chains, which have learned how to sell these things now, were 146 percent ahead."

Edwards attributed the change to consumers balancing "wants and needs."

"If you need something — if something breaks and it needs to be replaced — you just go out and buy it, but if you want something, you can defer it," Edwards said.

As for the final weeks of the year, Edwards said he expects sales to be "fairly good" and more in line with seasonal averages.

October sales should "go back to a degree of normality," he predicted. "The audio/video specialist seasonality is much lower than that of the TV/appliance retailer, which is much lower than the mass merchants," Edwards stated. "Mass merchants sell on ads and concentrate around 'Black Friday' Thanksgiving time. They don't sell the step-up products, where the TV/appliance retailers are pretty uniform and tend to sell more on advertising, but typically don't do a lot of that in October."

NPD studies show digital rear projection television sales to consumers are currently double last year's sales. Breaking that down, sales in electronic/appliance stores were two-and-a-half times higher and sales in traditional audio/video specialty stores were 25 percent higher.

"Those aren't bad numbers and that is where high definition really has its focus," Edwards observed.

NPD Intelect numbers show that even though pricing is down on digital sets, dollar sales are increasing. The average price of rear-projection TV dropped about 16 percent in the year to $2,408 from $2,865.

Edwards said the biggest impact on pricing in the year came from the release of Panasonic's new entry 47W-inch rear-projection HDTV monitor (PT-47WX49), which dropped street tickets below $2,000.

"We expect other manufacturers will be coming out with programs or pricing to support that level — they have to," Edwards said of the Panasonic move.

Another significant trend in the year was the continued shift toward widescreen 16:9 sets from standard 4:3 models, which represented the majority of initial DTV sales. NPD Intelect research shows widescreen rear-projection television sales were up 33.3 percent over last year, accounting for 31 percent of all rear-projection TV unit sales in the year. It was just 10 percent a year ago.

As of the end of September, integrated HDTVs saw significant growth percentages, with the heaviest coming in direct-view models. That was helped by Thomson's delivery of its 38W-inch 16:9 RCA Scenium direct-view HDTV set, and Sony's 34W-inch flat-screen Wega integrated product.

"We started shipping in quantity our 38W-inch HDTV set [F38310, $2,499] in February 2001, and it would stand as one of milestones in DTV for 2001 from our point of view," said David Arland, Thomson spokesman.

Meanwhile, sales of set-top DTV decoder boxes have currently sold 39,500 units year to date, versus 19,200 in all of 2000.

"Part of the reason for the vast difference in sales of set-top boxes and DTV sets to HDTV monitors is availability and cost," Edwards said. "But I think the biggest story there is that people are buying high-definition to get an improved picture on what's available on DVD, satellite or even cable."

Edwards predicted that set-top box sales will roughly double in 2002, with the percentage of sales to DTV monitors going from less than 10 percent this year to less than 20 percent.

Another trend that started to take shape was the escalation of fixed-pixel display devices, which some manufacturers believe will eventually outperform CRT displays for receiving digital signals.

Though still a tiny fraction of sales, displays based on plasma, LCD panels, liquid crystal on silicon, and digital light processing engines are heading to the mainstream market.

Digital light processing systems, in particular, gained momentum in 2001.

Texas Instruments, which manufacturers the digital micro mirror chips used in DLP systems, said it expects to see prices on DLP projector drop significantly by 2005.

"Our target is $3,000 for a 42-inch tabletop DLP HDTV in 2002," said a TI spokesperson. "About half of our customers seem to share this vision. This target is very challenging, but excellent progress has been made. We are certain we will see products below $5K in 2002 and think we have a 50/50 chance of seeing products at $3,000."

Frank DeMartin, Sharp DTV product planning director, said he expects 2002 to be a growth year for DLP and large screen flat panel displays.

"In the case of LCD we will see HDTV-ready panels get larger in size and plasma screens will get smaller with HDTV capability and price points to match," he said. "We plan on introducing larger LCD products and plasma products next year. By the end of next year, you can also expect to see something from us in fixed pixel rear projection."

As for milestones ahead, most CE industry observers see as critical the settlement of a digital copy protection standard. Some also cited the urgency of clear cable interoperability protocols that will enable cable-ready TVs in any market to connect to a cable system, configure itself to that system and receive programming without the need of a set-top box.

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