Why the TV Market Has Been a Bust

by Brad Moon | February 8, 2012 8:13 am

Sony (NYSE:SNE[1]), Sharp (PINK:SHCAY[2]), and Panasonic (NYSE:PC[3])—once leaders in the HDTV business—have faced repeated losses that are largely blamed on woes in their TV divisions. Sony’s loss for the year is expected to come in at $2.9 billion, after eight consecutive years of losses in TV sales. Panasonic is warning of a staggering $10 billion loss amid calls that it must restructure its TV efforts to regain profitability. Sharp announced in January that it was cutting LCD panel output from its Sakai facility (where it produces 40-inch LCD TV displays) by half.

Ten years ago, it seemed as though TV makers were entering a golden age. Sales of high-priced flat-panel TVs tripled from 2000 to 2001. Profit margins were high, sets were flying from store shelves, and then things started going wrong.

Flat-screen tribulations

There was no single overwhelming factor that contributed to the current state of affairs, but a series of issues—each a serious blow—combined to make the business of selling TVs a tough one, especially for the Japanese manufacturers who dominated the industry:

Together, these factors have combined to drive down flat-screen TV prices, turning them from luxury goods to commodity products. In 2005, Sony was selling 40-inch Bravia LCD TVs for $4,000. Today you can pick up a 40-inch Sony Bravia at Wal-Mart (NYSE:WMT[7]) for under $700.

More bells and whistles

Manufacturers have tried repeatedly to offer must-have new features that they hoped would trigger a repeat of a decade ago, when consumers replaced their bulky CRT televisions en masse with new flat screens. Higher display-refresh rates to make sports programming sharper, bigger display sizes, LED backlighting, and 3D capability have all failed to become must-have features. So-called Smart TVs, with Internet connectivity and applications, were the big thing at this year’s International Consumer Electronics Show, but consumers still seem to be taking a wait and see approach.

Waiting in the wings are new ultra-high-definition panels such as the 4k standard (which offers 4,096 x 2,160 pixels resolution versus 1080p’s 1,920 x 1,080) being pushed by Sony and Toshiba. The plan is to wow consumers with crystal-clear displays, but these don’t offer nearly the same visual improvement as current HDTV sets did over standard-definition CRT TVs. And with cable companies already compressing HD content due to its high-data bandwidth, don’t expect them to be jumping on board to deliver 4k content to homes.

For now, Japanese TV producers are regrouping, reorganizing, cutting costs, and hoping a killer new feature like Smart TV or 4k display ushers in a new golden age of TV buying —and preferably a demand for premium quality, high-profit-margin sets.

South Korean manufacturers are holding steady —generally trading profitable and losing quarters for their TV businesses. Vizio remains the top selling brand in the U.S., and all the TV makers are watching to see if yet another competitor enters the space. If Apple‘s (NASDAQ:AAPL[8]) rumored iTV set makes an appearance, it will almost certainly target the higher profit premium market and has the potential to be as disruptive as the iPhone was to the mobile phone market in 2007.

As of this writing, Brad Moon did not own a position in any of the stocks named here.

  1. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  2. SHCAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHCAY
  3. PC: http://studio-5.financialcontent.com/investplace/quote?Symbol=PC
  4. SSNLF: http://studio-5.financialcontent.com/investplace/quote?Symbol=SSNLF
  5. HIT: http://studio-5.financialcontent.com/investplace/quote?Symbol=HIT
  6. PHG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHG
  7. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  8. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL

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