HDTV Industry Challenges, Opportunities & Outlook Addressed at DisplaySearch’s 5th Annual HDTV Conference Last Month
A Clearer Picture of the HDTV Market
Ross Young | DisplaySearch
Picture of the HDTV Market
DisplaySearch held its 5th Annual HDTV Conference on October 10-11 at the Hilton Universal City in Universal City, California. The event continued to focus on TV technology and the TV market but also looked beyond the TV with detailed coverage of HD programming; HD service; Next generation DVD players; HD movies; HD gaming; audio and home connectivity
The key challenges, opportunities and outlook for each of these segments were provided by industry leaders as well as executives from DisplaySearch, The NPD Group, Goldman Sachs, Kersey Strategies, Nielsen Co. and Wedbush Morgan Securities.
Highlights of the conference according to attendees included:
During the conference, I presented DisplaySearch's status and outlook for all types of HD devices and content, including HDTVs, HD-related attachments, HD programming, HD service, Blu-ray and HD DVD players, HD movies and HD gaming. The following is a summary of my presentation.
HD and Flat Panel TV Share Continues to Surge
The rapidly falling TV prices have enabled very rapid growth in HDTV and flat panel TV penetration, as shown in Figure 1. The flat panel TV share of August TV sell-through has doubled to 78% with the HDTV share nearly doubling to 80%. In addition, 1080p sell-through is really taking off with 1080p TV revenue share rising from 12% to 39% and 1080p unit share surging from 3% to 17%.
HD and Flat Panel TV Share
Source: HD and Flat Panel TV Share, The NPD Group/Retail Tracking Service, This Month in TVs
With the rapid decline in flat panel TV prices, we have seen tremendous growth in average size, particularly over the past year. The average TV size sold through has grown from 27.5" in August 2006 to 32.1" in August 2007 with the average TV price rising from $745 to $868, according to The NPD Group.
1080P Will Win
The US TV market has been the rapid decline in 720p TV margins and the significant margin difference between 720p and 1080p TVs regardless of technology. This 10+ point margin difference has driven brand and retailer behavior in 2007. As we have shown extensively in our Weekly TV Flash Report, national retailers have rapidly shifted their Sunday circular advertising emphasis to 1080p and de-emphasized 720p TV sales. DisplaySearch thinks it is inevitable that 1080p will eventually win, for several reasons.
In fact, in 40-42" at national retailers, 1080p LCD has overtaken both 720p LCD and 720p plasma despite a $400, 30%+ premium. As a result, DisplaySearch is expecting 1080p to overtake 720p in 40"+ TVs this holiday season and grow to a 60% unit share and 70% revenue share next holiday season. We are also hearing that more Tier 1 brands will drop their 720p TV offerings at 40"+ in 2008 for the US market.
DisplaySearch data indicates that only 15% of US pay TV households currently receive HD service and only 44% of the 26"+ HDTVs are hooked up to an HD STB. What this means is that there is a tremendous opportunity for content providers to grow their subscriber base.
I polled the HDTV Conference audience to learn about HDTVs in their households. The audience indicated that only 53% indicated of them HDTVs. Although this was lower than expected, this was the first year a majority of attendees owned HDTVs. The second question was whether all of the attendees HDTVs received HD service? Similar to the data I presented, 46% of the attendees indicated that not all of their HDTVs were receiving HD service. The most popular reason for this was costs were too high; second was that they don't watch that much TV; also cited were limited availability and not enough HD channels.
The amount of HD programming should no longer be an issue, as there are now 77 HD channels in operation with 47 recently announced. As of October 5, DirecTV led with 52 HD channels, but that has since risen to 60 as they continue to roll out more HD channels. With DirecTV adding new channels, other providers are trying to keep pace and all content providers are racing to add more channels to capture all the more than 20 million HDTVs not receiving HD service. While DirecTV created more bandwidth by adding new satellites and switching to more efficient MPEG4 compression, cable will need to embrace new technologies. This was a key part of the content provider session.
Most consumers should realize that the costs for subscribing to HD are falling rapidly. In fact, at Cablevision, an HD cable subscription is the same as a digital subscription. Time Warner has the same policy in a number of regions, including Austin. As more HD channels are added, there is no additional cost. At DirecTV, the cost is $10 per month for HD service whether they offer 20 HD channels or 60 HD channels. Why is this? One reason is that the content providers are not being charged more for the new HD channels if they already carry an SD equivalent. The lack of additional revenue for HD networks is a concern given that it costs more to capture and transmit this content and also because Nielsen doesn't provide HD ratings, which potentially means lower advertising revenues as the number of viewers declines when they switch to HD channels. However, most everyone involved believes HD networks are a cost of doing business and are clearly the future of TV and they better get their HD programming out there. More HD programming without cost increases will also result in more HD subscribers, which is good for everyone involved in HD and will inevitably benefit the networks, content providers and hardware suppliers.
HD DVD & Blu-ray DVD Players & Movies
DisplaySearch is expecting next gen players to amount to 961K units in 2007 and 4.8M in 2008, benefiting from more titles and lower prices. The PS3 and the Xbox 360 add-on also offer next generation DVD playback. Cumulative sell-through through August for the PS3 in the US is 1.75M units with Microsoft's HD DVD at around 200K units. Thus, total next gen playback devices are around 2.4M units to date.
Source: Sell-in basis. CEA for standard DVD, DisplaySearch for next gen DVD
In terms of titles, both Blu-ray and HD-DVD have released around 320 titles as of September 30 and announced nearly 200 more to become available by the end of 2007. Total title sales in the US through August were around 4.6M units, according to studio sources, generating less than $150M in revenues. Clearly, it is still a small market. Each player sold has generated the sale of approximately two titles, but if we assume that only 29% of PS3 owners watch movies on their PS3 at least once per month as NPD has reported, then each next gen DVD player sold translates to around four purchased movies.
In the case of HD gaming, it has helped gaming become one of the largest and fastest growing segments with game platforms from January to August rising 75% to $3.1B and HD gaming platforms (PS3 and Xbox 360) rising 86% to take a 41% share of all gaming platforms. Despite all the talk about the Nintendo Wii, the Xbox 360 leads in revenues since the Wii was announced with a 39% share followed by the Wii and the PS3 with 30% each.
In summary, all devices and content associated with HD are enjoying rapid growth. Clearly, HD is the place to be.
Figure 3. HD Sell-Through Growth
Source: Hardware - The NPD Group/Retail Tracking Service, HD Movies - Studio Source
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