TV Makers Struggling With ASP Declines as Consumers Demand Low Pricing—DisplaySearch

According to DisplaySearch, North American customers are expected to refresh TVs once every six years versus once every nine years in the CRT era. But keeping a customer coming back will require new feature introductions on a regular basis without sacrificing profits for vendors and retailers, Gagnon said. A steady reduction in premiums for new features will be required to keep the adoption curve steady, he said. That happened in LED-based LCD TVs last year where most screen sizes saw a jump in LED penetration following a price compression. The exception was the 60-inch-plus segment where a premium cut didn’t occur, which led to “backtracking in penetration,” he said. For the first time, most LCD TVs shipped in 2011 will be LED models, he said, driven by less-expensive edge-lit designs. The LED premium will fall from 40-50 percent last year -- and in some cases, 100 percent -- down to 30 percent in 2011, he said.

In 3D TV, the feature premium averaged $500, regardless of screen size, Gagnon said. As a result, 3D penetration was only 2 percent in the 40-42 inch segment but 40 percent at 60 inches and larger. In active-shutter 3D, feature cost didn’t scale in size, he noted. The most recent DisplaySearch forecast called for 3.2 million 3D TV shipments worldwide in 2010, he said, and that’s been revised to 3.7 million, still “considerably less” than manufacturer forecasts for 3D early in the year, he said.

For 2011, lower price points in 3D will fuel adoption, Gagnon said. Of the 18 million units he projected to ship worldwide this year, 6.7 million units will come from the North American market, he said. Manufacturers’ estimates are 27-35 million units worldwide, indicating a “big disparity again” between the outlook for 3D adoption from the manufacturers and from DisplaySearch, Gagnon said. The DisplaySearch outlook is tempered by the possibility of a “format war” between passive and active TVs, he said. “Consumers are hesitant when manufacturers are sorting things out so we think there’s the possibility consumers will delay that purchase until it’s more certain,” he said.

Other issues remain for 3D, too, including limited content and poor conversion. “Sometimes the 3D content isn’t very good if it’s quickly converted from 2D,” Gagnon said. Glasses will be faced with an issue that didn’t exist last year when consumers had only the choice of active-shutter glasses that came with the TV. Consumers who want to buy the “cheapest glasses on the shelf” could find themselves with an incompatible passive pair, he said, so education will be more an issue in 2011 for retailers. The potential for dissatisfaction among consumers after a poor 3D purchase experience could lead to “negative word of mouth that spreads much more quickly, and virally, than a positive experience,” he said. “You need to make sure that experience isn’t a low-quality one that kills the transition in the early days.” DisplaySearch forecasts 3D TV shipments will reach 100 million units worldwide “within the next three or four years” when it becomes a “fairly standard feature” in large-screen TVs.

Gagnon cited a “a resurgence” in the 42-inch plasma TV market in 2010, calling it “a bit concerning” because most of the volume was in lower-priced, entry-level 720p TVs. With 42-inch plasma TV prices down to $500 or less, “it’s not hard to see why,” he said, adding that getting the industry to transition away from low-end sets to higher featured, higher-margin 1080p sets will be “a challenge.” Plasma is still “very much a 42- and 50-inch game” and transitioning to larger TVs “will be important” in coming years, he said.

In flat-panel TV, price erosion rates “slowed significantly” in 2010, Gagnon said, largely due to LCD TV transitions to LED backlights that boosted average selling prices. Unit growth slowed, however. LCD grew more slowly than plasma, which thrived in unit sales based on value pricing. Value rules “because consumers are more conservative in how much they're willing to spend,” he said. LCD prices didn’t fall much through mid-2010, while plasma prices continued to fall “at a fairly steady pace,” he said. As a result, the delta between LCD and plasma sales widened during Q2 and Q3 and “plasma really took off,” he said. When the delta narrowed in Q4 due to falling ASPs for LCD TVs, there was a slowdown in growth rate of plasma and a pick up in growth rate of LCD. “Consumers are very sensitive to subtle changes in pricing, and if prices aren’t falling fast enough, they're willing to go to the sidelines and wait for them to fall more quickly,” he said.

Overall, household penetration of flat-panel TVs in the U.S. is at 60 percent, “not as high as it can go,” Gagnon said. The remaining 40 percent of households are late adopters or “laggards,” which could stem growth. While unit growth for flat-panel is expected to continue, the pace depends on the economic recovery and whether consumers are willing to designate their technology dollars to TVs or allocate them to emerging technologies like tablets, he said. Sub-$1,000 TVs currently account for 89 percent of North American unit TV sales, and going forward new features have to focus on that price segment to generate “significant unit volume,” he said. In 2011, the top segment in shipments will be 40-49-inch TVs, replacing the 32-37-inch segment.

DisplaySearch Conference Notebook

Roku “quietly launched” a paid-app store in mid-January, Brian Jaquet, communications director, told us at the conference. Its store includes free content, paid apps and access to premium content from providers including Netflix, the NHL, Amazon and Hulu Plus. Users sign up for the latter through separate transactions with the content providers. The company chose to launch a paid app section in its online store after it was approached by subscription channel Wealth TV, which “needed an app store” to fulfill its $2.99 per month subscription model, Jaquet said. Roku has since made available its backend billing system to 13 other app providers who don’t have a transaction system in place, Jaquet said. Roku’s billing system is designed for small companies that had to go through PayPal for transactions in the past, and it streamlines the payment process for users, Jaquet said. Having a familiar and simple billing process eliminates frustration users might experience with a cumbersome third-party payment process, which could cause them to abandon an app altogether without completing a purchase, he said. All new Roku customers now assign a credit card to their Roku account during initial set up which can then be used in the Roku Channel Store to buy paid apps on a one-time or subscription basis, Jaquet said. Paid apps also include the Movie Vault from Imax and nature, games and photo channels from independent content providers. Prices range from 99 cents to $19.95. The list of paid app providers is “growing rapidly” and more channels will be added in the coming months, he said, including “mainstream and recognized ones.” The company delivered on a goal to have 150 total apps available for its streaming devices by the end of 2010 and has an aggressive target of 500 apps by end of 2011.