by Brad Moon | May 6, 2013 11:25 am
News broke a few weeks ago that Seiki Digital was offering a 50-inch Ultra High Definition (UHD) TV for $1,500. You can buy one on Amazon (NASDAQ:AMZN) for $1,339. And, according to reviews, it’s a pretty good TV.
For Sony (NYSE:SNE), this development must seem like deja vu. For TV manufacturers in general — Samsung (PINK:SSNLF), Panasonic (PINK:PCRFY) and others — it officially throws a wrench in their plans.
Back in the CRT days, when a television set weighed 200 pounds and there was a clear visual distinction between no-name sets and good ones, premium models like Sony’s 1990s WEGA/Trinitron line were in demand. Sony could price them high and count on its TV division to make money.
The growing popularity of flatscreen plasma and LCD TVs in the early 2000s looked like an opportunity to mint money as consumers eagerly looked at those big, lightweight, high-definition sets and began replacing CRTs en masse.
But as South Korean manufacturers like Samsung went upmarket and newcomers like Vizio entered the HDTV market, price wars began.
Manufacturers seemed determined to race to the bottom in a fight over dominance. In 2005, a 40-inch Sony LCD HDTV went for $3,500, but you can get one for less than $500 today. Instead of a repeat of Sony’s glory days as TV market leader, the result has been a decade or so of losses in the division, while Samsung has completely eclipsed it as the world leader in TV sales.
Sony looked at 4K UHD — the new ultra-high definition format with four times the resolution of 1080p HDTV — as a chance at a do-over. An advance more compelling than 3D or Smart connectivity, primed to drive consumers to replace their existing flatscreens — and this time, without the discounting.
Sony was the first out of the gates with an 84-inch UHD TV last year (priced at $25k). The company released two new UHD TVs this year to bolster its lineup: a 55-inch set at $5,000 and a 65-inch at $7,000.
With Chinese TV makers like Sekei — a previously little-known presence in North America that has licensed some of Vizio’s TV technology — looking to play the part of spoiler this round, suddenly getting 4K content to consumers isn’t the biggest challenge in commanding a price premium. Instead, the issue is the competition selling models at a fraction of the price (all the makings of that disastrous HDTV race to the bottom all over again).
Samsung will be watching this round of the TV wars from a different perspective: from on top of the market. The company is offering some of the most expensive TVs out there, and still managing to make money on them, although not much.
Based on its Q1 earnings report, Samsung is clearly counting on premium HDTVs and those 4k Ultra High Definition (UHD) TVs it displayed at CES in January to contribute to an improving TV business:
“Looking forward, although sluggish demand is likely to linger into the second quarter, a marginal boost in TV market sales is expected on improved demand for high-end TV products. Moving into the peak seasonality of the second half of the year, global market competition may intensify with the phasing out of older models and the introduction of premium products. Samsung’s response in developed markets will be on extending sales of differentiated Smart TVs and launching premium UHD TVs.”
That UHD TV market is already showing signs of cracks. The 85-inch S9 model that Samsung showcased came with a $45,000 price tag when it was officially offered for sale in April. The company has already “discounted” that to $40,000. Its new HD Smart TVs for 2013 are also being discounted only weeks after release, and Samsung’s throwing in a free Galaxy tablet with some.
Considering the emphasis that Samsung put on the advantages of UHD TVs at CES — charging $2,600 for a 55-inch HDTV, including a free Galaxy tablet — it might have dug itself into a hole when it comes to convincing consumers that a “mere” HDTV from Samsung is a better choice than a marginally smaller UHD TV from a Chinese company, selling for half the price.
Sekei isn’t the only Chinese manufacturer aiming to grab a chunk of the UHD TV market.
Hisense — whose TVs usually turn up on shelves at Walmart (NYSE:WMT) — unveiled a full lineup of UHD TV’s at CES, and they were good enough to be design and engineering award honorees. Skyworth and TCL also are offering UHD TVs, currently priced at $1,600 and under to take advantage of Chinese holiday sales.
According to DigiTimes, 4K UHD TV sales are on pace to hit 3.5 million to 4 million units in 2013 — considerably more than had been expected based on the lack of 4K content and the prices announced by mainstream manufacturers. How many of those sales Sony, Samsung and other premium TV makers capture and how low they have to drop their prices to do so is likely to have a real impact on their bottom lines for 2013.
In a worst-case scenario, it could be a repeat of the attrition that took place during the height of the HDTV price wars, when veterans like JVC and Pioneer abandoned the TV business altogether.
If that’s the case, look to Panasonic to go first … but Sony could be on shaky ground, too.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
Source URL: https://investorplace.com/2013/05/another-price-war-is-breaking-out-in-tvs/
Short URL: http://invstplc.com/1fpFdgF
Copyright ©2017 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.