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HTiBs Take On Price-Compression Challenge

Home theater in a box (HTiB) systems underwent more changes than hotel ownership in this city.

At International CES, here, HTiB suppliers raised performance levels, added PVRs and DVD recorders, made connections to PCs and portable MP3 players, offered cosmetics that complement consumers’ homes and TVs, and added technologies that make systems easier to operate and enjoy.

The goal is to add value to boost dollar sales that remained almost flat in 2004 despite unprecedented double-digit unit-sales growth.

With the goal of reversing the rush to the bottom:

  • JVC joined Panasonic in offering HTiBs that incorporate both a DVD recorder and HDD PVR.
  • Sony, Toshiba and JVC offered their first systems with HDMI output. All upscale DVD–Video to high definition.
  • LG showed an HTiB that could be the industry’s first with DVD recorder and VCR. It also features a seven-in-two memory-card reader and ships in the second quarter.
  • Samsung unveiled at least two HTiBs that connect to multiple brands of MP3 portables to play back the portables’ music, control song selection via a connected TV’s remote, and rip/encode CDs for transfer to MP3 portables.

In a related development, RCA launched a two-channel CD shelf system that rips/encodes CDs and transfers MP3 files to a connected MP3 portable (see story below).

  • Yamaha showed its first two HTiBs with universal DVD-Audio/SACD changer, both due in April: the $549-suggested DVX-C700 and $449-suggested DVX-C300.
  • Suppliers eliminated speakers to make more room for their systems in consumers’ home. Samsung, for example, showed its first system with the ability to deliver 7.1-channel surround through a 5.1 speaker system and its first system with a single front speaker that delivers 5.1 surround. Sharp and Sherwood showed their first system with main left-right speakers that deliver surround channels.
  • More suppliers adopted wireless to eliminate front-to-back speaker-cable runs. JVC showed its first two systems with wireless surround speakers, and Pioneer expanded its selection to two. Samsung continues to offer three such systems.
  • More systems cosmetically match popular flat-panel displays. JVC, for example, showed its first seven with slim wall-mountable speakers. Panasonic expanded its selection with wall-mountable speakers to three from one. And Sharp expanded its selection of systems whose main chassis can be mounted vertically on a wall near flat-panel TVs.

In other developments:

  • Klipsch dropped plans for the industry’s first THX-certified HTiB. JVC for the first time incorporated video up-conversion from composite to S and component video.
  • Akai entered the HTiB market with three models, all with integrated DVD and all with wireless surround speakers. They start at a suggested $199 and run to $399 for a model with DVD recorder and slots for multiple flash-memory cards.

In a separate development, JBL launched upscale component-based home theater audio systems priced at an approximate $15,000 to $30,000. They are the first such packages available from JBL outside the company’s Synthesis series, which is priced even higher.

Suppliers hope their introductions will help turn around a situation in which factory-level dollar sales rose 1 percent to $971 million while unit sales jumped 34.4 percent to 4.87 million units, according to CEA estimates.

For its part, NPD Group/NPD TechWorld said retail-level dollar sales rose a mere 0.3 percent to $500.1 million while unit sales rose 18.7 percent to 1.56 million during the January-September 2004 period. The company based its findings on point-of-sale tracking of more than 150 online and brick-and-mortar outlets, excluding industry giant Wal-Mart.

Like last year, most systems introduced here incorporated a DVD player or changer, more often than not integrated with a receiver. HTiBs equipped with DVD players and changers accounted for 78.9 percent of the HTiBs sold at retail in the January-September 2004 period, up from the year-ago 74.2 percent, according to NPD. Among the systems equipped with DVD, 49.9 percent were equipped with a changer, NPD also found.

Despite the growing percentage of systems equipped with a changer, average selling prices continue to fall because of “C-brand integrated products,” said Phil Abram, Sony Electronics’ home audio/home video marketing VP. For manufacturers, he said, key elements in their 2005 introductions “will be design and function in an effort to maintain higher prices.” Consumers, he said, “will look for products that complement not only their equipment but also their home. Less will be more. Products that can meet these requirements will command premium pricing.”

The key growth driver for home theater will be “ease of use,” Abram continued. “Wireless technology is one example of an easy-to-use feature that will drive sales,” as long as it doesn’t compromise audio quality.

To solidify pricing, “it’s not just a matter of adding technologies and features to lengthen a specification list,” said David Kroll, Boston Acoustics’ home and custom audio group national sales manager. “Most HTiB manufacturers have engaged in a feature war to include more stuff than their competitors at particular price points without particular regard to sound quality or ease of use. This has lowered the expectations of consumers and retailers.”

The most successful systems, Kroll continued, “deliver more and better sound and require consumers to manipulate and find places for fewer elements.”

Said Klipsch’s president T. Paul Jacobs, “Wireless surround speakers, virtual surround technology to deliver surround sound without the extra surround speakers, networking to a PC … will be important to different consumer segments, and wireless surround could be the most compelling. If the wireless systems truly work and work simply, they could be a significant business driver.”

When it comes to wireless, however, retailers must manage consumer expectations carefully, said Samsung’s senior marketing manager Bill Hadam. “When people see wireless, they expect to see zero wires,” Hadam said. “Once people understand what it’s intended to do, then it’s well accepted.”

Front speakers that also deliver surround channels “work tremendously well” in the estimation of dealers, Hadam also said, but it has its own challenges. “In larger retailers that don’t have soundrooms, there are no side walls or ceilings to reflect the surround [information toward the seating position],” he explained.