Defining the market for high definition
High definition television; resellers find themselves with a unique opportunity to get on board at ground level
As increasing levels of hype surround the imminent launch of high definition television, resellers find themselves with a unique opportunity to get on board at ground level. But is it really worth the risk? Martin Lynch investigates
High definition TV (HDTV) is the next big market shift in home entertainment and commercial display technology.
It all comes down to image resolution and the HDTV images largely blow anything else out of the water. Next year, numerous UK broadcasters will start to roll out HDTV channels in a move that will transform the way we see TV.
The current grainy TV image will be surpassed by something that looks twice as good as DVD quality. With the arrival of HDTV broadcasts comes the need for new equipment in the form of HD-capable TVs, digital tuners and a host of peripheral devices ranging from digital video recorders (DVRs) to surround sound systems.
The sales potential for HDTVs – the vast majority of which will be a flat-panel screen of some kind – is massive. It must also be remembered that the majority of the flat-panel TVs – both LCD and plasma – sold in the UK so far are not capable of displaying HD images since their native resolution is too low. While this will make a lot of early adopters of flat TVs unhappy, it still adds to the potential customer base.
The question is whether or not the HDTV opportunity exists right now, and for whom?
“HDTV has been on the horizon for some time,” said Lee Baker, divisional manager for displays and home entertainment at Midwich. “Now, out of 100 flat panel TV sales, 70 per cent are VGA resolution screens and 30 per cent are high definition, XGA panels with the ‘HD Ready’ logo on them. Six months ago that split was over 90 per cent in favour of VGA panels, so HDTVs are now beginning to shift. In August, for instance, we found that we could not get enough HDTV stock. No one wants to spend all that money on a TV that can’t handle the HD bro adcasts coming next year,” he said.
Simeon Joseph, product manager at NEC’s visual communications group, added: “The opportunity is now. There is the chance for resellers to future proof their customers today. If you look at the cost of a 42in XGA HDTV, it’s the same as a top of the line VGA LCD TV cost a year ago. The difference in quality though is immense.”
There is little doubt that it is consumers driving this market. The early adopters are already shopping ahead of next year’s race to provide content. Sky is leading the charge, unsurprisingly, but all of the big players have a deadline in place: the 2006 World Cup. As Joseph explained: “Historically, many of the big surges in TV sales have been linked directly to major sporting events”.
Sky will launch HD broadcasts next year with Sky Sports and premiership coverage, Sky One, Sky Box Office and a range of other channels. Cleverly, it will bundle a set-up box – called STB – that boasts a 160GB hard disk drive for recording TV with each subscription. The BBC has stated it will shoot all of its content in HD by 2010. Both the BBC and ITV have recently teamed up to offer HDTV via satellite – Freesat – next year to those that cannot yet get the Freeview digital free-to-air service. NTL and Telewest have also announced plans to implement HDTV technology.
But Baker thinks some people are shopping early. “A lot of the electronics vendors haven’t correctly forecast how high the demand was going to be this year. Many were aiming at early next year, but people are taking advantage of the good prices now. More people are now looking for flat panels that support HDTV”.
However, the business-to-business (B2B) opportunity is less clear right now. The corporate sector adopted the first raft of VGA flat-panel displays through a desire to improve their image, reduce energy costs and desk space, and because costs fell fast. There are few corporate reception areas now without some form of flat-panel display – either TV or monitor – sprucing up the place. With no high definiton content, is there really anything to sell?
“There is no real opportunity in the B2B market right now,” argued Ben Leet, senior business analyst at Decision Tree Consulting. “Most of what are going in now are low-resolution panels for dealing with standard video signals. The fundamental thing is that content is king. It has to be about content and without content there is not much reason to invest more money in HDTVs.
“The outcome of the Blu-Ray and HD DVD battle will help, since once businesses start getting devices with high-definition capabilities they will start to see the necessity of investment in HD displays,” he added.
Baker is a little bit more optimistic: “It’s always difficult to sell the future – you can get some HD content off the internet and there will be stuff arriving towards the end of the year. The cost, while not so much a barrier, in the consumer space, can prove a more difficult sticking point in the commercial space which is more cost-conscious”.
That said, he believes there are niche sectors of the market ready to be exploited now. “If a company wants a 100 plasmas, it may just need basic VGA plasmas for sales forces and trading floors but there is an opportunity for resellers to up-sell HDTVs into boardrooms and receptions. Also, the digital signage market is a huge space, and those wanting to promote themselves and their image will take full advantage of the XGA resolution.”
NEC recently announced aggressive plans to take 25 per cent of the total commercial display market in Europe within one year. To help it along, it took the wraps off nine new HD compatible and ‘HD Ready’ plasma screens. Joseph feels there are HDTV opportunities now in the commercial space, regardless of the lack of mainstream content.
“There is a new drive in the video-conferencing space to boost picture quality while a lot of corporate advertising will be shot in high definition,” he said. “As HD camera equipment becomes more affordable it will become the norm. Even now, we are starting to see home HD camcorders arrive. Even before the HD broadcasters are ready people can be making their own HD content.”
Ian Vickerage, managing director of distributor Imago, agreed that the videoconferencing (VC) sector is already accepting HDTV. “Some people say that videoconferencing quality is still not good enough. A lot of meetings take place on big screens where any image quality problems are highlighted.
“HD video-conferencing equipment and displays will dramatically improve quality. All of the major VC vendors have committed to supplying HD hardware by the middle of next year,” he said.
Despite the efforts of the early adopters, mainstream consumers still have some ways to go when it comes to understanding HDTV.
“One of the biggest problems is that consumers have not got a clue what HD is all about,” said Leet. “It’s what I’ve been spending all my time talking to TV manufacturers about. The EICTA [European Information, Communications and Consumer Electronics Technology Industry Association] standard is helping a bit now. The other problem is that no one knows what the broadcast material is going to be. A lot of the TVs being bought now are being purchased as future-proofing, not for HDTV content – people are just buying the extra features to cover themselves but are not actually aware what many of those extras are for.”
EICTA is the group hoping to help make it easy for people to understand what HDTV is about. It’s key influence to date has been through the creation of industry-standard logos that appear on suitable flat-panel TVs. The main one is the “HD Ready” logo that is used when a TV is capable of displaying HD content and supports content protection through its High Definitions Media Interface (HDMI) slot.
Even with the logo, few people understand HDTVs or the switchover from analogue to digital signals.
Leet added: “There is an element of confusion out there, not only about what is in a HDTV and what is not, but also about what happens when analogue TV is being shut off.
“Many people think that if analogue is being switched off they will not be able to watch TV. A lot of people think their CRT TVs will not work with HD broadcasts.”
This summer, research firm NPD conducted an online poll and discovered that despite high levels of interest in flat panel TVs and HD content, the technology is still confusing a lot of consumers.
“Manufacturers, service providers and stores must do more to clear up the distinctions between the different types of televisions” explained Ross Rubin, director of industry analysis, the NPD Group. “Since the study found most consumers prefer to gather information in person, the onus to answer questions from buyers seems to be on the reseller.”
Confusion does not usually lead to good sales, which is why there are some signs that high definition TV manufacturers have finally started to advertise their wares outside of the specialist press.
“A lot of the vendors are coming to us and now putting some significant effort into getting the retailers ready with HDTV displays, and HD content to show,” said Baker.
“A lot of ads and flyers are now appearing in mainstream newspapers and magazines,” he added.
Leet commented: “The vendors are starting to raise awareness now and the buy-in behind the EICTA ‘HD Ready’ programme is helping. However, the manufacturers could do more direct HDTV adverts – less about the brand and a little more about HDTV the technology and what it offers. ”
Even though the business opportunity is small at the moment, bundling seems to be the key. For any reseller currently selling LCDs and finding the margins shrinking due to incessant price competition, HDTV is the next logical step. What will help get those sales rolling and keep the margins respectable are bundles.
NEC’s Joseph said: “There is a definitely a good margin opportunity for resellers – especially those that can create their own offering. We supply a residential monitor for resellers without a tuner so that it allows them to offer a variety of packages based on satellite, cable and, soon, broadband HDTV services from BT. The bundling opportunities are good with DVD players, HDD recorders, and other extras.”
Baker agreed and concluded: “If consumers are going to be buying a new HDTV, then they will also want better accessories to accompany it. Soon we’ll have HD DVD players and recorders, and there’s plenty of scope for selling higher end sound systems. We are doing a bundle at the moment on Samsung, offering a 42in plasma HDTV, a 3-tier glass shelve, and a DVD 6.1 surround system for £1,399. That allows resellers to make easily double-digit margins.”