Category: The Front Line

A La Carte TV: No Blue Plate Special?

As the winds of change push more and more consumers away from conventional pay TV packages and toward streaming, “over the top” video, an interesting report has just arrived from Needham and Co. analyst Laura Martin.

The report, detailed in the Los Angeles Times, says that moving to an “a la carte” model for delivery of TV programming would result in higher costs for consumers and possibly knock the foundation out from under media companies.

According to Martin, a la carte delivery of pay TV channels would cause at least 124 smaller channels to disappear altogether, taking with them 1.4 million jobs and at least $45B in advertising.

Martin has calculated that a typical entertainment cable channel costs about $280 million per year to operate and requires (with current retransmission and rights fees) about 165,000 viewers annually just to break even. As a result, only 50 or so channels would be likely to survive out of the nearly 200 channels of programming currently available across a multitude of pay TV outlets.

Martin also notes that the typical subscriber watches perhaps 20 channels at most out of an average selection of 180 channels. I think that number is high; anecdotal evidence from friends and colleagues suggest the number is much lower and close to 10 – 15 channels.

The Needham study states that, in addition to the economic cost of a move to a la carte pay TV – pegged at $80B to $113B of “U.S. consumer value” – the costs to subscribe to existing channels would also increase, as they would inevitably lose subscribers as well.

I’ve previously detailed the growing calls for moving sports channels to their own tier, given the additional cost burden they add to the average monthly cable bill (about 10% to 12%). Not surprisingly, companies like Disney (ABC, ESPN), Fox, Comcast (NBC), and CBS oppose a move like this.

But the fact is; consumers are increasingly voting to switch off pay TV services and instead rely on the likes of Comcast and Time Warner to deliver broadband connectivity, and nothing more. This “cutting the cord” trend finally gained the recognition it deserved earlier this year when it was revealed that pay TV subscriptions went into decline for the first year ever.

Aereo, the disruptive “remote antenna” service that is rolling out nationwide and faces continued court challenges, charges about $10 to stream over-the-air broadcasts through the Internet to connected TVs, tablets, and phones, and is another approach to OTT delivery. Yesterday, the company petitioned the 2nd Circuit of the U.S. Court of Appeals for a Writ of Certiorari – in essence, forcing the issue to the Supreme Court for review.

If Aereo wins here – and it could – then the floodgates will surely open for other, competing OTT services that could cherry-pick channels and deliver them to the home in an attempt to lower monthly subscription costs. And even the cable companies are paying attention: Comcast announced in October a limited entry-level pay TV channel bundle that also includes fast Internet and HBO Go for about $60 – $70/month.

Even so, Netflix is still the largest pay TV service in the world, closing in on 30 million subscribers. And all you need to watch it is a fast Internet connection (if it’s fast enough, you might even be able to watch Netflix’ 4K movie service that is scheduled to roll out next year). In many markets, all you really need as a Roku or Apple TV box plus an antenna to get a nice selection of free and premium programming.

Granted, you won’t get as many sporting events, but studies have shown that only about 4% of pay TV subscribers watch sports channels on a regular basis to begin with. And many big-ticket events like NFL games, major league baseball, college football and basketball, and (of course) the Olympics are still available on broadcast TV channels.

While Martin’s study is interesting, it discounts the “free market” effect of consumers voting to save money and find other ways to access TV programming.  There are always winners and losers in a free market system, and the fact is; pay TV subscriptions continue to rise annually at rates above inflation. Consequently, consumers are making necessary economic decisions about the price paid versus the value received, which is why interest in OTT video is slowly growing.

Starting next year, Canada will require pay TV services to “unbundle” TV channel packages as a way to rein in expensive monthly bills. So we have the perfect test lab north of the border to see just how a la carte pay TV will work, or won’t work. Stay tuned!

Black Friday: Boom, Or Bust?

Two articles that appeared today and covered retail sales over the Black Friday weekend appear to contradict each other.

In an upbeat post on the Home Media Web site, writer Chris Tribbey said that more than 141 million shoppers gave their credit cards a workout last weekend, up about 1.4% from last year. Total spending for the weekend was estimated to reach $57.4B, according to the National Retail Federation.

The NRF also claimed that 40% of shoppers bought their items online, which is a record. ShopperTrak said that sales on Thanksgiving and Black Friday came to $12.3B, up 2.8% from last year. Electronics and DVD/Blu-ray discs were among the top four purchases made in over 1 million visits to brick-and-mortar stores.

Matthew Shay, CEO of the National Retail Federation (NRF), was quoted in the story as saying, “By all appearances and according to CEOs I’ve spoken with across the retail spectrum, it looks like the early opening of stores on Thanksgiving and the traditional start of holiday shopping on Black Friday is breaking new records, including what companies are seeing through their digital channels. The key takeaway at this point is that the real winners are in fact the consumers, who are recognizing more savings through competitive pricing and great promotions being offered in every category.”

In another story in the New York Times, Elizabeth Harris writes that consumers spent about $1.7B less than they did in in 2012, quoting the same National Retail Federation. In this story, Shay was not quite as upbeat, saying “There are some economic challenges that many Americans still face. So in general terms, many are intending to be a little bit more conservative with their budgets.”

The Times story showed that, although overall sales were up from last year, the average amount each consumer spent or planned to spend by the close of business on Sunday dropped about $16 from $423 to $407. Total weekend spending (as in the Home Media story) was predicted to be $57.4B, which actually represents a decrease of about 3% Y-Y.

Many retailers started their discounting as early as November 1, which may have impacted Thanksgiving and Black Friday traffic. The ShopperTrak data left out of the Home Media article reveals that Black Friday sales declined 13.2% from 2012, no doubt cannibalized from earlier store openings on Thanksgiving.

I spent the holidays with relatives in southern Vermont, and the Friday and Saturday news broadcasts showed plenty of parking spaces at malls in Albany, NY (about an hour’s drive to the southwest). Indeed; it appeared from the local news coverage that Thanksgiving evening was pure pandemonium, but Friday and Saturday were more like a regular Monday or Tuesday.

Either way, this annual exercise in crass mercantilism comes at a cost to store chains. Wal-Mart, Target, and Best Buy have all lowered expectations for the quarter, citing sliding consumer confidence and slow wage growth (now, THAT’S ironic, coming from Wal-Mart!) as reasons why consumers won’t open up more of their wallets.

Perhaps the lone bit of good news – at least for manufacturers and retailers of tablets and smart phones – was that 40% of all online transactions were from mobile devices, according to Jay Henderson of IBM Smarter Commerce. In the Times article, Henderson was quoted as saying, “That’s pretty staggering. You hear a lot about the year of mobile, and this is probably the fifth annual year of mobile. But 40 percent of all traffic feels like a tipping point.”

According to the IBM data, mobile sales were responsible for about 26 percent of total online sales on Thursday and nearly 22 percent on Friday. IBM saw a late surge in online shopping on both days. Smartphones accounted for about 25 percent of shopping traffic on Friday, with over 14 percent coming from tablets. As far as actual online sales went, tablets accounted for 14 percent and smartphones about 7 percent.

Even so; shopping in brick-and-mortar stores still accounts for more than 90 percent of all retail sales. I’ve used my tablet(s) to shop for the best price in retail stores and then gone a-shopping, and I suspect others have, too.

So – was this a good or bad Black Friday weekend? Depends on your point of view…

Mixed Signals about UHDTV

Earlier this week, there were a few “coincidental” press events and trade shows, all in New York City or just across the river in New Jersey. And all of them featured discussions about or demonstrations of UHDTV technology.

First off was the CES 2014 Unveiled event, held at the Metropolitan Pavilion. The morning and part of the afternoon were taken up by an Ultra HD Conference, which featured several panel discussions and a keynote address during lunch. The first panel, titled “Ultra HD: An Evolution, or Revolution?” featured executives from LG, Sony, Toshiba, and Sharp, and set the table for many ad hoc discussions later on in the day, such as (a) does the public REALLY want or understand UHDTV, and (b) will UHDTV stimulate a stagnating market for televisions?

The second panel, moderated by Deborah McAdams of TV Technology, was called “Native Ultra HD Content: Where’s The Beef?” and addressed the elephant in the room; namely, where is 4K video content going to come from, and how will we get it into the home? Panelists from the ATSC, the Digital Entertainment Group, and Rovi tackled those questions, while yet another group discussed “Taking Ultra HD to Retail” later in the day.

LG's 77-inch 4K curved OLED TV wowed attendees at the CES event.

LG’s 77-inch 4K curved OLED TV wowed attendees at the CES event.

 

Given that this was a CEA event, we did hear a lot of positive spin and wishful thinking about Ultra HD (UHDTV). And that’s not surprising, considering that the actual outlook for television sales for the upcoming holiday selling season isn’t all that wonderful. According to Shawn DuBravac of CEA, consumer spending on technology gifts is expected to increase in 2013 by just 2.6% over 2012, with tablet (14%) and notebook computers (12%) leading televisions (11%) as the most desired gifts on holiday wish lists. (Smartphones tied with videogame consoles at 7%.)

More tellingly; when survey participants were asked why they would adjust their holiday gift expenditures lower, 67% replied that they already have what gadgets they need and 68% said they had concerns about the economy. An additional 66% said they didn’t have the money, while 64% cited the increased cost of living as a reason to cut back on spending. None of that is good news for a new class of 4K televisions that retail for about $65 per diagonal inch, quite a premium above the $15 per diagonal inch that 2K LCD and plasma TVs sell for.

The following day, across the reviver at the Meadowlands Convention Center, I taught a class on HDMI troubleshooting at the Almo E4 Expo. This show, which is focused on the commercial AV industry, featured plenty of large screen displays from Sharp, Panasonic, Samsung, and others. And the discussions largely focused on the challenge of moving 4K content around a facility.

Would HDMI 2.0 be good enough? (Not for high frame rate 2160p content with deep color.) How about DisplayPort 1.2? (Yes, it is fast enough to handle 2160p/60 with 10-bit color, but needs to get faster.) Who is using DisplayPort? (Not enough manufacturers to date, although it appears to be the interface of choice for a growing number of digital signage media players.) Are there 4K media players available? (Yes, but in very limited quantities from a handful of manufacturers.)

Panasonic's first-in-class 4K Toughpad will be yours for all of $6,000.

Panasonic’s first-in-class 4K Toughpad will be yours for all of $6,000.

 

One day later, the CCW / SATCON show at the Javits Center had several panel discussions and presentations focused on the nitty-gritty of capturing, editing, and distributing 4K workflows. Several booths featured 4K monitors (Panasonic had both their 4K Toughpad tablet and 31.5” 4K reference LCD monitor at the show), plus 4K encoding/decoding solutions and camera interfaces. Once again, the biggest challenge appeared to be moving enormous amounts of data around reliably and quickly.

I had an interesting sidebar discussion with veteran journalist Stewart Wolpin at the CEA event. I stated that the Chinese are going to wreak havoc on the UHDTV market as they ramp up glass production and slash prices. Wolpin replied that he didn’t see it as a problem: “Who is going to give these brands (TCL, Haier, ChangHong, etc.) any shelf space? They don’t have much if any presence in the U.S. now and just won’t be competitive with the established TV brands. They’re really more concerned with making tons of money selling TVs in their own country.”

True, China is the only part of the world where there is growth in TV sales Y-Y right now. But they have become a presence to reckon with, if for no other reason than they can make inexpensive 4K TVs with all of the bells and whistles that sell for about as much as a 1st-tier 2K TV. TCL has shipped a 50-inch 4K TV that will retail for $999, and Seiki is also raising eyebrows with their recent announcement of a 65-inch 4K TV for $2,999.

It would be a fool’s errand to predict just how fast UHDTV will be embraced by consumers. Not all parts of the ecosystem are in place yet (HDMI limitations and the lack of H.265 encoder chips are just two stumbling blocks), and there’s still the issue of content delivery to be addressed.

Even so, the trend towards using 4K glass in larger LCD (and eventually, OLED) TVs is pretty clear. Remember the days of 720p and 1080p TVs? The move to 4K will follow a similar pattern, especially where LCD panel manufacturers are seeing little or no profit cranking out 2K glass.

So – UHDTV is definitely coming, from this analyst’s perspective. How fast is still hard to tell. Check back in a year!

The Diverging Fortunes of Sony, Panasonic, and Sharp: Is There Life After Television?

Last week; Sony, Panasonic, and Sharp announced their financial reports for Q2 2013. And it’s clear that all three would benefit from phasing out the production and sales of televisions.

Panasonic, who is on track to shut down production of plasma display panels by the end of the current fiscal year in March of 2014, turned in a strong performance and raised its operating profit forecast to $2.75B, according to a story on the Reuters Web site.

The company posted a net profit of $627M for the period from July through September, helped by strong sales of automotive and battery products. This number just exceeded an estimate of $621M by industry analysts.

The surge of black ink was helped by downsizing plasma TV operations, along with semiconductor and smartphone manufacturing. Panasonic also concluded a sale of 80% of its healthcare business unit to KKR for about $1.7B.

Not long after saying the company would increase shipments of lithium ion batteries to carmaker Tesla Motors by nearly 2 billion cells through 2017, Panasonic also announced it will exit plasma TV manufacturing, which along with its LCD TV operations lost $261M in the second quarter.

Down the road, Sharp (who operates the world’s largest LCD fab in Sakai, Japan) managed to pull a rabbit out of its hat and announced a profit of $138M for the same quarter, largely due to increased demand for solar cells and a weaker yen against the dollar.  Just one year ago, Sharp had a $5.5B net operating loss and required transfusions of cash from Samsung (2012) and Qualcomm (2013) to stay open.

While both companies have seen a steady decline in their worldwide TV market share (Panasonic dropped 26% from a 7.8% share in 2011 to 6% in 2012, while Sharp plummeted 22% from 6.6% to 5.4%), they’ve obviously figured out that it’s time to re-focus their efforts on more profitable products and are making progress in that direction.

Not so Sony, who evidently never heard Einstein’s famous definition of insanity as “…repeating an experiment and expecting different results.” Sony’s latest financials showed a net operating loss of $197M for the 2nd quarter, largely attributable to its TV operations. The fact that Sony Pictures also had a disappointing quarter didn’t help.

The TV group lost $95M between July and September after recording a $53M profit during the previous quarter. Sales of cameras, camcorders, and Vaio computers were also weak, with only smartphones showing any strength. The company also has high hopes for its PlayStation 4 platform, which will debut later this month.

Still, analysts aren’t convinced that Sony’s strategy to maintain its traditional consumer electronics products presence will work anymore. In a related Reuters story, Makoto Kikuchi, CEO of Tokyo-based Myojo Asset Management, was quoted as saying, “I still cannot see any fundamental and believable strategy for the rebirth of Sony’s electronics business. On the other hand Panasonic, which is shifting its business away from consumer electronics, is reporting better-than-expected results. The contrast is like night and day.”

Let’s be clear: Neither Panasonic or Sharp is out of the woods yet – far from it. Panasonic’s TV operations took an even bigger hit than Sony (-$261M) in Q2 ‘13, and Sharp is still sitting on the edge of bankruptcy. But Sony’s insistence on maintaining a losing CE presence may cost it dearly: Moody’s is apparently considering dropping Sony’s credit rating to junk status.

The fact is; Japanese manufacturers can’t sell TVs and remain profitable anymore; not as long as Samsung and LG maintain aggressive pricing and newcomers like Hisense, Haier, and TCL crash the party (not to mention discount giant Vizio).

And the move to 4K won’t help. Although Sony, Sharp, and Panasonic all have 4K LCD TVs at retail for about $80/inch, the Chinese appear primed for a 4K TV price war that they will inevitably win. Consider that without China, the worldwide market for TV shipments actually declined in 2012 by 4%. Add China to the mix, and it’s an eight-point upward swing.

To sum up; Panasonic seems to have gotten religion, while Sharp is still sobering up. But Sony apparently needs an intervention. Will disgruntled shareholders and/or downgraded credit and a higher cost of borrowing force the issue? Stay tuned…

UHD-TV, Small OLEDs, and Market Forecasting

Forecasting the market for technologies and for product categories early in their commercial lifetimes is a very tricky business.

First there are no straight lines — or even curved ones — representing historical sales data that can be projected forward. Of course, reputable market intelligence companies, and there are some, don’t make their predictions based only on the projection of historical data. They also interview individual manufacturers and supply-chain participants to obtain their predictions of their own output, and add up the results for a grand total. In addition, they interview major purchasers, such as Fry’s and Best Buy, for estimates on how many units they expect to buy in the future. There is, of course, no guarantee that the number of units manufacturers expect to sell equals the number retailers expect to buy, which provides the opportunity for some creative number-crunching.

All of this assumes that everybody is giving honest answers to the market intelligence firm’s questions, which may or may not be the case. One can easily think of situations in which one company or another would think it is in its interest to high-ball or low-ball the numbers. But even if everybody is providing their speculative numbers as honestly as they can, there is still plenty of room for a market intelligence company to get its projections spectacularly wrong. One of our leading display-industry prognosticators — which is still very much in business — was wildly optimistic in predicting the ramp-up of small OLED displays, which were, and still are, produced almost entirely by Samsung. It then revised its estimates of the timing and volume of the market ramp-up, and was once again spectacularly wrong. These cycle repeated several times before sales actually began to take off.

The problem was that virtually everybody, including the people in Samsung, did not anticipate how difficult it would be to manufacture small OLED displays at high yield and low cost. Fortunately, it was Samsung, with its deep pockets and impressive corporate patience, that was carrying the ball. Ultimately, the problems were solved and the products and manufacturing processes continually refined. Now, small OLEDs for smart phones please handset makers and end consumers, and constitute a successful and profitable business for Samsung.

Which brings us to Ultra High Definition Television (UHD-TV), otherwise know as 4K-TV. There are still a few analysts around who say that UHD-TV is being over-hyped and will, like 3D-TV before it, fail to be an important product. These analysts are wrong.

UHD-TV MarketNow, Displaybank IHS has published an interesting market projection for UHD-TV display panels in its “LCD Market Tracker — Q3 2013.” Please remember what I said about the reliability of market projects early in a product category’s lifecycle, but this one is (mostly) okay because it supports my position. IHS reports that 0.4 million UHD-TV panels were sold in Q2’13, with 0.8 million forecast for Q3’14. Market penetration by units is projected to be 1% is 2013, rising to 8% in 2017. IHS goes on to predict that penetration by revenue will rise much faster, and reach 20% by 2017. Panel makers would love that to be true, because it would mean they have a product to sell with more than a paper-thin margin. Maybe. The history of the display industry cautions us that high-performing panels generally command a higher margin for a relatively short time before becoming commoditized. But the unit penetration projections strike me as realistic.

We will soon see how UHD-TV prices will shake down for the holiday season. It will also be interesting to see if the very-low-price UHD-TV sets from China and (in one case) Japan will offer acceptable 4K image quality.