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A little over a year ago the outlook for flat panel HDTV displays was encouraging. Flat panel displays would grow to $124 billion in 2009, according to NPD’s DisplaySearch. Display pricing was also expected to decline, caused by normal capacity expansion. BUT these projections are not proving reliable, due to a basic change in consumer behavior in reaction to economic problems. Now the projected $124 billion growth is not expected until 2014. Flat panel production is rapidly slowing, with several companies (Sharp, Sony, Hitachi, LG, Samsung, NEC, Toshiba, JVC) closing plants and/or laying off people—as a result of unprecedented and unbearable losses. Tokyo-based Pioneer, undeniably the performance technology leader in the plasma display panel (PDP) field, and the fourth-largest maker of plasma HDTVs, announced on February 12 that it will end HDTV production and spin off its Blu-ray Disc™ player operations into a new venture with Sharp. Pioneer had hoped that the growth projections for flat panel displays were a sign that they could make their business profitable. As of last spring, Pioneer had struck a deal with rival Panasonic to source its panels to save costs. But that was not enough to turn Pioneer’s plasma business around. Pioneer also intended to diversify its flat panel business by manufacturing LCD HDTVs, which the company announced in Japan for launch initially in Europe, followed with an introduction in the U.S. The LCD panels would be sourced through a partnership with Sharp, which had become Pioneer’s largest shareholder after acquiring a 14.3 percent stake. As a result of Pioneer’s decisions, Panasonic now benefits by reportedly hiring 200 of Pioneer’s best PDP engineers, even though Panasonic itself has announced that it is cutting or reassigning up to 15,000 of its workforce and delaying panel production at its state-of-the-art Himeji Plant near Osaka. Panasonic’s U.S. operations are being trimmed at the same time. Panasonic, which is the market leader in plasma HDTVs, has a huge stake in plasma technology and is certain to gain even more market share with Pioneer out of the picture. Hopefully, Panasonic will pursue developing and launching the next generation of KURO® displays. Panasonic now has the opportunity to introduce new plasma models that will raise the bar for HDTV performance and force other manufacturers to play catch-up. No HDTV sold today can display true blacks, compared to the best CRT technology. Pioneer has shown prototypes that rival CRT black levels. Panasonic now has Pioneer’s former PDP team on-board and, hopefully, Panasonic will deliver a true-black PDP HDTV in the near future. Not only is Pioneer now out of the picture, but Vizio, the low-price Costco/Wal•Mart HDTV flat panel leader, has announced that it would stop producing plasmas and focus solely on LCD panels instead. This further bolsters Panasonic’s prospects, as it does the other remaining two plasma manufacturers—LG and Samsung. All further development of Pioneer’s HDTV technology—including the state-of-the-art KURO plasma line (widely regarded as the best-in-class plasma displays available)—will cease immediately, and plant closings will follow in April, with no new product launches beyond what are currently in the market. The entire Pioneer plasma operation will shut down permanently by 2010. The company’s workforce will be reduced by 10,000 (both full-time and part-time workers), and executives will see both pay cuts and the loss of their regular bonuses. Pioneer intends to focus on car and home audio and next-generation optical-disc-based hard-drive production. “It hurts that we have to give up on a business that we were leaders in,” Pioneer President Susumu Kotani told reporters. “But market conditions changed too suddenly and we couldn’t stay profitable.” According to DisplaySearch, Pioneer could not overcome the impact of the slowing economy, dropping flat panel prices, and other HDTV makers shifting to budget models, despite the 24 percent rise in global plasma HDTV sales to 14 million sets last year. DisplaySearch reports that Pioneer’s revenues from plasma HDTVs fell 29 percent in the last quarter of 2008. Concurrently, there has been a collapse in plasma margins, as market demand for big flat screen HDTVs slows and pressure from LCD manufacturers increases. What happened? Pioneer has been the plasma technology leader and a technology leader in the optical disc field—LaserDisc, DVD, and Blu-ray Disc. The company’s business practices have always been supportive of the specialty performance dealer, with a strictly enforced authorized dealer policy and a non-Internet sales policy. Essentially, with fewer consumers visiting specialty dealers and instead opting to purchase HDTVs at volume wholesale warehouses and on-line, the high-end Pioneer KURO HDTVs were not even on consumers’ radar, except for those who read enthusiasts publications or visited those specialty dealers that sold Pioneer. Of course, there is no denying that Pioneer’s KURO line got crushed under the pressure of declining flat panel HDTV prices and the sputtering economy. The impact on the specialty retailer will be significant, as Pioneer offered a premium high-performance, limited and protected distribution product that actually allowed the dealer to make profit (a necessity for all businesses to stay in business). With Pioneer’s exit, specialty dealers will suffer until another premium product brand can fill the void. In light of declining prices, Pioneer’s higher prices could only be justified by witnessing a demonstration of the product’s superior performance, and without this consumer experience, consumers would remain unknowing or unappreciative, and opt for lower-priced alternatives. Of course, even if one can appreciate the performance differences in displays and other home theatre equipment, one still needs the money to pay for the purchase, and not everyone can afford higher-priced equipment. Still, without A/B demonstration among properly calibrated HDTV displays, one cannot be expected to ascertain performance differences to appreciate superior quality. Such was the case with Pioneer—superior quality but higher prices—and not enough consumers to appreciate the quality and afford the price. Higher pricing in a competitive product category always needs to be justified to price-conscious consumers, and without demonstration and education, there can be no justification. Even in the $200,000-and-higher income bracket, consumer research findings show that such consumers are fairly price conscious. The non-educated public is presently choosing LCD over plasma by an overwhelming margin, even when all things appear equal in terms of size and price. Why, because they have not been educated to the performance differences and have not had the opportunity to compare performance. And while the performance gap between the technologies has narrowed, still, plasma outperforms LCD significantly in video accuracy. Pioneer also has been facing stiff competition from Panasonic and Samsung, whose plasma HDTVs are priced at less than half the price and look to many almost as good. The Tweeter specialty store chain was a major Pioneer Elite/KURO HDTV dealer. Tweeter is no longer, and Best Buy has announced that seven stores in its Magnolia store chain will be closed and consolidated into Best Buy stores. These are two examples of multiple-brick-and-mortar store closing, with many other independents no longer able to compete with wholesale warehouse and Internet outlets. The plight of Pioneer is faced by many high-performance equipment manufacturers, whose products require demonstration and education to fully appreciate their performance value and justify their higher prices. Without a specialty dealer channel that can properly present, demonstrate, answer questions, and provide educational guidance, these companies will eventually end up as Pioneer—producing a superior-quality product, but no customers, due to failing specialty retailers, who cannot possibly compete with warehouse and Internet pricing. Specialty retail has always been the foundation of performance-manufacturing companies, and without each other, neither can flourish. If there is not a reversal of this trend, which supports wholesale warehouse stores and Internet discount sales at the expense of specialty dealers, then there won’t be a specialty dealer channel that will play a significant role in fostering high-performance product appreciation and sales. I have written often in the past advocating that high-performance manufacturers enter into a partnership venture and underwrite the opening of a chain of specialty stores that properly merchandise their products, provide demonstration, and educate consumers. Microsoft is the latest technology company to announce plans to open its own chain of branded stores. Apple has been successful with their branded stores, as has Sony, and others. Unless, manufacturers reverse course and reinvent their partnerships with existing specialty dealer chains and independents, this trend will continue, and there will be no new generations of consumers who will have experienced real performance, nuances, build quality, and appreciation of innovative technology, which can only be experienced in live demonstrations and product education.
Tags:
- editor's couch -
- Pioneer -
- plasma -
- LCD -
- Panasonic -
- HDTV -
- Sharp -
- DisplaySearch -
- CRT -
- Vizio -
- KURO -
- Tweeter -
- Elite -
- Microsoft -
- Apple -
- Sony -
- PDP -
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