Despite major growth brought on by dramatic price declines in 720p high-definition TVs last year, the HDTV market is taking a decided shift toward models with 1080p resolution.
Speaking at the The Future of HD: The Fifth Annual HDTV Conference, presented by DisplaySearch, an NPD Group company, DisplaySearch president Ross Young said 1080p HDTV will be the big winner over the next year, and will bring additional opportunities to affiliated product categories, including HDTV programming services and next-generation HD disc players.
Young predicted that 1080p will win at retail, as retailers, brands and panel suppliers all push the technology to make more money than they could with 720p models.
“Prices are reaching increasingly attractive levels,” Young pointed out, “and 1080p resolution offers the best picture — you can see more content with better detail. Additionally, even though most programming is offered in the 1080i format by broadcasters, it scales better to 1080p than 720p,” Young said.
As a result, Young said the fastest price reductions this year will come in 1080p, while supplies of 720p products will remain tight.
For HDTV in general, “prices have fallen over 40 percent over the last 12 months,” Young said. “A lot of the price reduction occurred over the second half of 2006, where we had too much panel supply, too many brands and too many retailers. The difference between last year and this year is that panel supply has begun to tighten up, particularly below 40 inches in LCDs. So, we are not expecting to see the same level of price reductions over the next 12 months.”
Due to the price declines, HDTV sell-through is growing very rapidly, Young said. “It has grown from 43 to 80 percent over the last 12 months. The same is happening in 1080p, revenue share has more than tripled, and unit share has increased more than six times in the past year.”
Along with the growth in HDTV sales, has been growth in the average screen size of HDTVs sold, Young said, and the average selling price for an HDTV has grown at double-digit rates.
“This is why the television industry continues to grow,” Young pointed out.
In channel margins, which he defines as the difference between the sell-through price and the landed cost, the gap between 720p and 1080p is 10 points or higher, Young said.
“Whether it is LCD, plasma or microdisplay, 1080p margins for brands and retailers is higher,” Young said.
Young pointed to advertising circulars run by national retail chains that indicates a shift in focus among 40-inch and larger displays to 1080p, “even though we have seen very aggressive prices in 720p LCD below $1,000, which you would think would cause people to run to the stores. Rather, the retailers are focusing on 1080p where they can make more money.”
As the emphasis has shifted to 1080p, unit sales have declined since February at the national chains, Young said, “and we think that is no coincidence.”
“The strong emphasis on 1080p at the national chains at elevated price points we think has driven traffic to the warehouse clubs,” said Young. “If you look at Vizio's growth in the clubs only, it is outstanding — more than 200 percent year-over-year at the clubs and Wal-Mart.”
Young said there is a dichotomy in the market where the national chains have focused on 1080p at higher margins while the clubs and Wal-Mart have focused on 720p, and you can have very significant price gaps in 720p in the clubs, because club-only brands, like Vizio, don't have the channel conflicts that other brands have and are able to pass along the margin gap between the national chains and the club channel to the consumer, getting to much lower price points.
“As a result, Vizio was No. 1 in flat-panel TVs in the second quarter,” Young said.
However, DisplaySearch doesn't think success can be realized in the long run “just selling 720p, because the panel suppliers don't want to sell 720p. They want to sell 1080p, and whether or not they can get enough 720p panels as demand grows for 1080p is going to be a big question mark.”
For the year ahead, 1080p will be a big winner, Young predicted.
“We are sure that 1080p TVs are the future due to better performance, rapid supply growth, healthy margins and a narrowing price gap with 720p. It's not just about the TV,” said Young. “Prices and margins are falling rapidly and retailers are going to need to sell more attachments.”
Young said the successes in HDTV sales and the emerging deadline for the end of analog broadcasting in 2009 will bring new opportunities in a number of areas, including HDTV services from cable, satellite and telco TV systems, as well as in next-generation source components including high-definition disc players and video game systems.
“Clearly, HD service is a great opportunity,” said Young. “There is very low penetration, but we think that is going to change as prices fall and more channels become available.”
Next-generation DVD player sales will reach nearly 1 million units by the end of this year growing to nearly 5 million units in 2008, Young said. Gaming consoles that accept next generation HD movie discs represent 1.7 million PlayStation3 units and 200,000 HD DVD add-on drives for the Xbox 360, according to DisplaySearch/NPD data.
Current total U.S. market adoption of high-def disc players is at 2.4 million units, said Young.
Next generation disc titles number over 300 in each of the HD DVD and Blu-ray Disc formats, with a lot more coming in the fourth quarter, Young observed. Continued growth has been seen every month in next generation disc sales, Young said.
“Title sales and revenue are growing very rapidly, but it is still a small market,” said Young. “The cumulative dollar value is still below $150 million.”
Looking at attachment rates, Young said there are about two titles sold per player, but when factoring in NPD video gaming data showing that 29 percent of PS3 owners play Blu-ray Disc movies, the number increases to about four titles per player, Young said.
In next-generation HD gaming consoles — Xbox 360, and PlayStation3 –— “the Xbox 360 has really driven gaming to another level,” Young said. “The market has grown 134 percent from the first eight months of 2006 vs. 2005, and another 75 percent from 2006 to 2007. HD gaming growth is even faster than that, and accounts for nearly half of all gaming revenue.
Comparing dollar volume of the three next-generation gaming consoles, Xbox 360 is winning with about 39 percent share on a dollar basis, and the Wii and PS3 are at 30 percent each.
“On a dollar basis the HD devices are competing very well with the Wii, and we think this will continue,” Young said. “If you look at HD gaming as a percentage of the total market it is well over 50 percent on a dollar basis.