Cable Operators

The Retailer Tipping Point

3/20/2005 7:00 PM Eastern

Buried deep in Circuit City Stores Inc.’s yearend financial report for 2004, the retail giant admits that during the fourth quarter of 2004 it faced “double-digit” declines in the sale of “tube televisions.” The statement comes after much brighter information about “triple-digit” growth in flat-panel displays.

While the numbers are vague, the buying trends at Circuit City are an indication that a tipping point has been reached: away from conventional TV monitors and receivers and into the digital-display era.

With an estimated 10 million digital TV devices expected to be sold this year — on top of the 16 million already in American homes — the HDTV sales picture takes on new dimensions for MSOs. After all, the Consumer Electronics Association says that 85% of all digital TV’s shipped are HD sets. Shoppers expect highest quality images from their expensive screens. Cable’s analog signals may not compare favorably to the DVD and other inputs that viewers are watching on their HD sets.

Circuit City is not alone in the tip toward flat panels and other HD screens. “Our largest growth is in flat panels, both LCD [liquid crystal display] and plasma,” says Frank Roshinski, vice president of video merchandising at Tweeter Home Entertainment, an upscale electronics merchant, headquartered in Canton, Mass. About 70% of those sales are in HD format, rather than the slightly lesser-quality enhanced-definition technology.

According to Tweeter’s yearend financial report, 20% of the chain’s overall sales came from flat-panel TVs in the fourth quarter, compared to 17% in the same period of 2003.

“A lot of what’s driving the excitement in HDTV is flat panel,” says Gary Yacoubian, president of MyerEmco AudioVideo, another upscale electronics retailer and custom installation firm in Gaithersburg, Md. He acknowledges that when some customers see the high prices of plasma and current LCD flat panel monitors, they shift their attention to lower-priced formats, especially the “micro-display projectors such as DLP [digital light processing, a rear projection format] and LCD projection formats.”

“It’s not just about depth,” Yacoubian adds. “It’s the elegance of the product.”

David Belfield, the HDTV product specialist at Saga Electronics in Tenafly, N.J., notes that his retail stores see a “pretty fair mix of rear-projection LCD and DLP.” But Belfield says, “We do more in flat-panel plasma … because we tend to sell more 42-inch and larger” screens.

In DTV, size does matter — and the 42-inch diagonal measure flat screen is currently the size that matters most.

“They fit into a variety of applications,” says Belfield.

He cites a typical bedroom TV set-up. The 42-inch monitor is about 10 feet away from the viewer’s eye — an optimal distance, Belfield calculates by noting the six-foot length of the bed plus a few feet of floor space to the monitor on the wall or a TV stand.

Yacoubian says that just 16% of his flat-panel sales are under 30-inches, and about 8% are in the 30- to 36-inch range. Overwhelmingly, customers are buying flat-panel sets in the 37- to 42-inch range (about 36% of MyerEmco sales) and the 50-inch models (33% of sales). About 7% of customers buy 60-inch HDTV monitors.

Keith Shindoll, owner of Interactive Environments in Van Nuys, Calif., finds that his clientele — largely entertainment and sports industry executives and personalities — are installing at least three HDTVs in their homes.

“I’m doing a one-bedroom condo with six TV sets,” Shindoll says.

Of course, for most people, price matters, too. The cost of HD equipment — especially LCD flat panel monitors — is falling dramatically, and price equates to size. Tube sets, such as Samsung’s 30-inch HDTV monitor and a Philips 26-inch set, were advertised this month in the $500 to $800 range, but retailers and manufacturers decline to say “for competitive reasons” how many of these sets are being sold. Nor do they disclose how many of the bigger plasma HD sets they are selling at current prices of about $4,500 to $7,000.

But sticker shock will probably be less of a problem in the future. “As you go into summer and fall, you’ll see 26-inch and 32-inch LCD flat panels go down in price dramatically,” says Tweeter’s Roshinski. “That’s what we designate as the flat panels for the second room in the house.” He also says that today the 26- or 32-inch LCDs are “not much less expensive than a 42-inch plasma, but that delta will change considerably as you go into fall.”

He predicts “You’ll see $1,700 for a 26-inch LCD, and the 32-inch will go for $2,200 or $2,300.” Roshinski also expects the 42-inch HDTV plasma models “will come to roost at about four grand by fall.”

Retailers agree that the football season continues to coincide with their peak HDTV sales, augmented by Christmas buying, which happens to fall just before the Super Bowl. Although other sports and special event telecasts — such as this month’s NCAA college basketball playoffs — may trigger scattered HDTV sales, nothing matches football.

Those patterns certainly suggest when multichannel distributors might experience the largest conversions to HD equipment. But it’s not only customers that need to be converted. He may not represent your average Joe retailer, but Shindoll says that when he sells new HD equipment to his tony Hollywood clientele, he refuses to help them install it unless they’re relying on satellite delivery.

“I don’t use cable for anything except for computer modems,” he says ominously. “I only use DirecTV [Inc.].”

September