3D Could Breathe New Life into DLP Projection Gear, AV Specialists Say

Amid surging popularity of flat-panel TV sets, some specialty dealers we polled at the HES meeting argued that they are best positioned for displaying 3D content on projection TVs because of the sets’ large size. Mitsubishi is the only remaining major supplier of DLP rear projection sets with a line that includes 73- and 82-inch models. With less competition, DLP sets are less prone to the pricing pressure brought to bear on flat-panel models, said Marty Hayse, co-owner of Dennis Sage Home Entertainment in Scottsdale, Ariz. Mitsubishi’s sets also have benefitted from a decline in the price of replacement UHP lamps to $199 from close to $400 a few years ago, Hayse said. The lamps carry a $119 dealer cost, he said.

"We sell a lot of DLP because they are 3D-ready and have the bigger screen,” said Vance Pflanz, president of Pflanz Electronics; Sioux City, Iowa. 3D is “our next profitable venture that we're going to get into and we're fighting for margins,” he said. “We need this new technology to drive our industry and it’s going to bring a lot of people into our stores. We've been short of footprints coming into our stores. And a certain percentage of those footprints will turn into sales."

But not all HES dealers are convinced that DLP rear-projection will drive 3D TV sales, or vice versa, they said. With so few rear-projection consumer models available, DLP front projectors might be a better option given their ability to be paired with a 120-inch film screen, said Brad Bergoine, marketing director at Boca Theater and Automation in Boca Raton, Fla. Typifying other retailers, Boca Theater has replaced much of its rear-projection floor space with flat-panel TVs, he said. But LCD and plasma TVs don’t compare with a front projector, Bergoine said. Even large-size flat-panel TVs “don’t have the juice” to compete with a front projector matched with a 120-inch screen in displaying 3D, Bergoine said.

The arrival of 3D TVs and Internet-capable sets comes at an opportune time for specialty retailers who are struggling with flat-panel margins, they said. Many HES dealers are selling flat-panel sets at margins of 15 percent or less, intent upon trying to make up the profit through attachment sales of services, accessories or add-on components, said Brian DeRosa, a product specialist at Northern Home Essentials in Havre, Mont. “Many people think that a specialty chain means higher price, but we may give up some profit on some products and make it up on others,” he said.

With 3D TVs’ and Internet sets’ arrival, HES is pushing CE manufacturers anew to better define their channel distribution and offer product lines and promotions more geared to specialty dealers, Ristow said. HES also wants a finer line drawn between Internet-only retailers and merchants that offer online sales in combo with brick-and-mortar locations, he said. Samsung and Sony are among the vendors working with HES on limited-distribution products and promotions, Pflanz said. HES also is working to develop product bundles with CE suppliers for specialty dealers, Ristow said. HES hopes to have those bundles available in the next several weeks, he said.

CE makers “to a man, have a clearer channel strategy in terms of how they are going to put goods in the market, including which ones go on the Internet,” Ristow said. “Some brands will have some series with no Internet, some with brick and click. It’s a whole different strategy. It’s not perfect, but it’s still better."

The stricter policies and more defined distribution strategies come as TV makers try to “stabilize” the market, Ristow said. Average TV selling prices tumbled 25 percent in 2009, and are expected to fall another 7 percent this year, he said. “If we sell those step-up goods that we talked about there is actual profit,” Ristow said. Pioneer’s plasma TV exit freed up floor space in most HES retailers’ stores, and “all these vendors want to be in that empty room,” Ristow said. “They want that step-up business.”

Brand Source Summit Notebook …

Speakercraft postponed delivery of its Nirv IP-based multi-room AV system to June from this month (CED Sept 10 p3) to add new features and functions to the product, President Jeremy Burkhardt told us. The refinements include adding a card-based home theater processor that fits into Nirv’s main controller, Burkhardt said. Nirv’s user interface also has been enhanced based on feedback from dealers, Burkhardt said. A three-week beta test of the system is under way, he said. Nirv is designed to distribute multiple simultaneous streams of audio and 1080p video over CAT 5 cable from CE devices and PCs. It connects to a home Ethernet network with a media bridge so PC-based content can be streamed to a TV and speakers. About two dozen SKUs make up the Nirv system offering, including a main system controller with ports to control connected home automation systems, an in-wall touch panel and keypad controllers and an RF wand remote. A single-zone system will run for about $1,800, while an eight-zone version that can carry eight streams of lossless, compressed HD video with 7.1 channels of surround sound may have a dealer cost of $10,000 with labor, the company has said. Retailers who sell Nirv will be required to take extensive IT training to install it, Burkhardt said. While some dealers may already have the needed experience, only about 10 percent of Speakercraft’s 1,000 or so West Coast installers will meet the requirements, Burkhardt said. Meanwhile, Speakercraft will likely add a mid-priced Vital AV model to fill out its first receiver line, introduced last year, the company said. Speakercraft started shipping a $425 two-channel 80-watt receiver in Q1. It also has a six-channel 130-watt model, $1,250, with Faroudja upconversion, Sirius XM reception and four HDMI connectors.

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In one of its first actions under new owners, Image Entertainment is working with HES on Blu-ray movie/flat-panel TV bundles for the group’s speciality dealers, David Rand, Image’s senior vice president of sales, told us. Image, bought by JH Partners in a $22 million preferred stock offering in January, is providing HES dealers with demo titles and may eventually stock movies for them in the stores, Rand said. At the BrandSource meeting, Image had 24 DVD and eight Blu-ray titles with special “stampede” dealer prices. The prices rand from $2 and $4 for DVD and Blu-ray versions of Sidney Lumet’s Before the Devil Knows You're Dead to $6 and $9 for Discovery Communication’s When We Left Earth. Image struggled financially last year. It defaulted on a $15.7 million loan from Portside Growth and Opportunity Fund in December before selling preferred stock to JH Partners to repay the debt. It also owed $3.4 million to replicator Arvato, which in January waived a default in exchange for Image’s paying a $1.8 million manufacturing advance. Wachovia also waived a default on Image’s credit agreement expiring May 4. The stock sale brought new management including CEO Theodore Green and John Anagliano, who replaced Jeff Farmer as chief financial officer. The company has since reached agreement to co-produce Samuel Jackson’s movie Blown, which starts filming in June in London and is expected to be released in 2011, Rand said. Image will seek to acquire the production rights to other “mid-level” movies and film catalogs, Rand said. “All the financial troubles have gone down and we can move forward now,” Rand said. Image also will seek to build the business of subsidiary Egami Media, which has digital download rights to 2,200 video programs and produces $5 million in annual revenue, Rand said. Image swung to a $2 million Q3 loss from a $304,000 profit a year earlier, as revenue plunged to $25.1 million from $39.1 million. U.S. DVD revenue fell to $19.7 million from $32.1 million, while that from Blu-ray dropped to $3.1 million from $3.3 million. Distribution sales increased to $1.3 million from $976,000.

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Brand Source dealers were offered show specials at sharply reduced costs. During what’s called the stampede Sunday, deals included a 47-inch LG 1080p LCD TV with a 120 Hz panel that was reduced to a $599 dealer cost from $864, with a limit of 10 units per dealer. A 52-inch Sharp LCD TV with 1080p resolution could be had for $1,199, down from a $1,464 dealer cost. Brand Source replaced one of the listed specials -- Klipsch in-ear custom 1 and 2 headphones -- when it was discovered they were refurbished models. The specials were accompanied by appearance for the first time at the meeting of HES vendors including Epson, NuVision, Paradigm, Peachtree Audio and Sonos. Among the new promotional bundles available will be Toshiba 670 series 46- and 55-inch LCD TV packaged with a title from BrandSource’s Movie Club, which is being stocked by distributor VPD. Movie Club, which launched in December offering DVDs ($19) and Blu-ray ($29) titles through the BrandSource Web site, is offering five new releases each month. It was being rolled out to dealers at the meeting. The new vendors and promotions came as Brand Source seeks to build on its Expert Warehouse business, which is nearing $1 billion in annual sales to dealers, HES officials said. Expert Warehouse has facilities in Atlanta, New Jersey and Reno, and is expected to add a location in Ohio, Pflanz said. Brand Source will begin testing April 5 the addition of 900 major appliance SKUs to Expert Warehouse after having planned to start in January, BrandSource officials said. The test will involve dealers in Michigan, New York, Ohio and Pennsylvania before expanding, said John White, executive vice president of appliances. Brand Source also will launch a new business-to-business website in June and seek to raise the profile of the group through Twitter, starting in April, and Facebook, said Bob Donaldson, director of digital marketing. BrandSource is seeking to expand members’ use of the group name, offering to reimburse $1 for every $2 allocated to advertising the brand, CEO Bob Lawrence said. Since the Brand Source banner was introduced in 2000, 75 dealers have switched their stores to the name, and about 50 percent of the group’s 4,500 members use the brand in advertising, Lawrence said. BrandSource members operate about 8,000 stores, spending a combined $800 million annually on local advertising, Lawrence said. The group also expects to expand its Expert Finance group by adding a wholesale finance unit, Lawrence said. The Brand Source group in Canada, which has 125 members generating a combined $350 million in annual revenue, launched a similar program when it merged with wholesale finance company Mega Canada.