The Digital Transition Picks up Speed
As the world began to get used to a new post-9/11 reality in 2002, the consumer electronics industry’s transition to digital technology picked up steam and approached warp speed. CE was one of a handful of industries that grew during the year with industry sales up more than three percent over 2001 to total more than $96 billion. But the industry is not immune to marketplace forces nor to the impact of world events, so it was a challenging year with many companies in the CE market affected by the economic downturn.
Nevertheless, there’s much to be optimistic about in the consumer electronics industry as 2003 unfolds. The continuing proliferation of digital products, increased adoption of broadband connections and the growing implementation of wireless technologies for networking and for access to the Internet, bode well for the continued growth of the industry. Digital consumer electronics products truly have become integral to the lifestyle and workstyle in the early days of the 21st century. Consumers are using CE products in ways unimaginable just a few years ago. They’re using them to stay connected to their families, to work at home, to watch movies in home theaters and to take information and entertainment with them just about anywhere.
Video Gets Digital
The transition to digital video has been building for almost a decade now, since the first digital satellites came on the scene. Then digital cable, digital videotape and digital videodiscs captured ever-larger portions of their respective product categories. Consumers now are buying more than twice as many DVD players as VCRs as they choose digital technology to watch Hollywood movies in home theaters. Digital camcorders make up more than half of all units sold as consumers embrace the better picture quality, smaller size and editing ability that the technology offers.
But HDTV, digital high-definition television, represents the most dramatic analog-to-digital transition, and 2002 saw a number of events that really began building momentum. For instance, in mid-year for the first time digital TV (DTV) revenues for the month exceeded those of analog sets. Digital projection sets are outselling analog models by more than two to one â€“ a precursor of things to come for all TVs. HDTV programs â€“ the â€œcontentâ€ that is always key to success of new consumer electronics products â€“ are becoming more prevalent. Even more promising was the â€œplug-and-playâ€ agreement between TV set makers and cable operators â€“ an accord that will ease the way for the two-thirds of Americans who receive their TV via cable to enjoy HDTV.
Other video categories showed growth in 2002 as well. The competitive landscape in video games has intensified with the introduction of online gaming in the new generation of consoles. As Playstation 2 and Xbox continue to vie for preeminence among dedicated game players hardware and software sales exceeded $11 billion last year and are expected to pass $13 billion in 2003.
One of the most dramatic product advances has been in flat screen TVs. Many attendees at the 2003 International CES in January were struck by the proliferation of plasma and LCD screens in virtually every exhibit, along with the advance guard of new technologies like OEL and OLED. A TV that can hang on the wall has been a holy grail of the industry for half a century, and we’re finally seeing them approach mass market prices. The average unit price of plasma displays dipped below $5,000 in 2002 and will drop by another 20 percent or more this year. LCD displays are getting bigger too, so that in the coming months, consumers will have a choice of technologies in 40-inch and larger flat-screen displays.
DVD players are the fastest growing new consumer technology product with 39 percent growth representing more than 17 million units. CEA is forecasting additional growth of 14 percent this year. Many of these DVD players are connected easily to a home-theater-in-a-box, a category that marries audio and video and continues to provide growth to traditional audio-centric companies. HTIB inched above $1 billion in sales in 2002 and is expected to exceed that mark again this year despite dramatically lower wholesale and retail prices.
Other segments of the audio category continue to grow even as copy protection issues are debated and the music industry adjusts to the era of digital distribution of their product. Digital music players, a category generally known as â€œMP3 playersâ€ after the technology that first brought them to the fore, blossomed in 2002, with unit sales more than doubling to more than 1.6 million units as average prices plummeted. MP3 players now are offered in tiny models that can clip to a key ring with an hour or so of music, or paperback-book-size that let us take hundreds of hours of music in a pocket or purse.
Americans’ love affair with electronics is rivaled only by a passion for their cars. In our increasingly mobile society, CE products play more of a role than ever before in our cars for entertainment, security and navigation. Aftermarket autosound equipment sales advanced 10 percent to more than $2 billion with expectations it will inch ahead again in 2003. Sales of aftermarket vehicle security and navigation devices approached three-quarters of a billion dollars with navigation showing particular strength, increasing some 50 percent in 2002.
Even our most long-standing CE product â€“ radio â€“ is getting a digital facelift with XM and Sirius delivering information and entertainment via satellite to a growing roster of subscribers, and soon digital terrestrial radio will be broadcasting high-quality signals on existing radio airwaves.
Digital technology rapidly is becoming embedded as the preferred means of recording memories of special events in our lives. Spurred by a plethora of innovative new models and lower prices, digital camera sales passed nine million units in 2002, a 60 percent increase over the previous year. Here’s another category where advances in digital technology have enabled much better picture quality in tiny key-ring models or full-size cameras with all the lens flexibility and other capabilities of film cameras.
Cameras also are taking advantage of digital technology by being combined with other digital devices, most notably hand-held computers and wireless phones, in multi-purpose units that can snap a picture and send it instantly to another handheld device or to a desktop computer anywhere in the world in a matter of minutes. These devices represent some of the most dramatic benefits of digital technology: speedy connections, mobility and convergence.
Staying connected â€“ to work and family â€“ represents one of the singular most popular uses of digital technology. From the newest generation of wireless phone to Web-enabled Pocket PCs and Palm devices, to tiny dedicated text messagers, products to keep us in touch with our home and office have become â€œmust-haveâ€ appliances for many Americans. Wireless phones continue to sell at a staggering pace with more than 57 million sold in 2002, a seven percent increase over the previous year. This year promises to see a similar unit increase with dollar value again exceeding $8.8 billion.
As third-generation wireless networks become more established and the 3G phones that can take advantage of them proliferate, the wireless Internet will bring much faster connections with vastly richer content â€“ including streaming video â€“ to users on the go.
Unwired connections closer to home have become a way of life too. The convenience of taking and making calls wherever you like around the house continues to spur sales of cordless phones with more than 43 million units sold, about twice as many as corded models. And just look around the mall, ski slopes or the neighborhood playground to see how many folks have embraced family radio service (FRS) walkie-talkies as an inexpensive means of staying in touch over short distances. FRS devices have gotten smaller and less expensive; there’s even a wristwatch model.
Accessories are writing one of the most remarkable stories of consumer electronics in the digital age. These are the products that make things work better and longer, make them easier to use, or make them easier to take with us as digital technology packs more power into portable packages. Accessories grew to $1.5 billion in sales in 2002 and are expected to increase this year too.
The batteries that power our digital products have gotten more powerful and longer lasting even as they have gotten smaller. Battery sales for CE products last year approached $5 billion and are forecast to exceed that mark in 2003.
Another trend emerging in the first days of the 21st century is the connection of many of these technologies in an electronically controlled home. CEA’s Home Networking and Information Technology (HNIT) Division and TechHome Division are devoted to the companies and products that network many devices in the home or office using cutting-edge wired and wireless technologies.
Making it Happen
Throughout the digital transition, CEA continues to work with policymakers in Washington and on the state and local levels on the important issues surrounding the introduction of these new technologies and products. Ongoing issues â€“ including the digital TV transition, the balance of fair use and copy protection, and energy efficiency of CE products â€“ continue to demand the attention of the CEA government and legal affairs division. CEA also continues to encourage states to institute sales tax holidays for CE products, an initiative that has had success in several states in recent years. Also in 2002 the work stoppage at West Coast ports had a short-term impact on the CE industry just before the holiday selling season.
Everyone knows about the International CES, the world’s largest showcase of consumer technology, but CEA also conducts many more conferences, meetings and networking events throughout the year. Events like the HDTV Summit, Technology and Standards Forums, Leadership Retreats, the Industry Forum and others address the key issues affecting our industry and involve all levels and interest groups in the digital transition.
There’s no industry more dynamic than consumer electronics, and it’s fortunate to be producing cutting-edge products that have the capability to make people’s lives easier, more enjoyable and more rewarding. CE products help us stay connected in troubled times. But as terrorist attacks, port strikes and war have demonstrated, the industry can be affected by events beyond its control. CEA will continue to work on behalf of its members and customers to expand the market for CE products in the digital age.
Audio Trends in 2002-2003
Â· Audio products join wired and wireless home networks.
Â· PCs and home audio systems build home network bridges.
Â· Headset portables that play MP3 and other compressed-music files gain unprecedented popularity.
Â· Headset MP3 portables morph into portable AV devices, called portable media players (PMPs), that deliver on-the-go viewing of time-shifted TV programs.
Â· Satellite radio services forecast more than 1.3 million subscribers in â€˜03 as automakers aggressively embrace satellite radio and as more home receivers arrive.
Â· Hundreds of AM and FM stations go digital.
Â· DVD-based multichannel music players are common and affordable.
Â· Sales of home systems (all-in-one stereo systems and home-theater-in-a-box systems, combined) continue to outsell audio components such as receivers, speakers and amplifiers.
Â· New flat-screen wall-hanging TVs inspire complementary wall-hanging flat-speaker designs.
Â· Custom-installed audio and home theater systems continue to gain popularity.
The audio industry is making music in ways that its founding fathers could never have foreseen.
Music reproduction was the industry’s core mission when the first high-fidelity home audio components entered U.S. homes in the mid-20th century. Now that mission is undergoing a renaissance.
Changes in audio technology have accelerated in recent years, ushering in new and more dramatic ways for consumers to enjoy music. New music-reproduction technologies are generating levels of consumer excitement rivaling the thrill created by home theater audio systems, whose main mission is reproducing movie soundtracks in life-like surround sound.
New audio product designs, meanwhile, are making it possible to integrate a high-quality music experience into a home’s decor with style and minimum intrusiveness.
Top Audio Products Consumers Own
The PC’s Contribution Home theater still generates plenty of sales, but advances in music reproduction now are competing more aggressively for consumers’ attention. In part, you can thank the PC, which many consumers have turned into music jukeboxes that hold thousands of songs in such compressed music formats as MP3 and Windows Media Audio (WMA).
Seizing the compressed music potential, audio suppliers are using wired and wireless home network technologies to liberate music files from the PC for playback through networked, high-quality audio systems. Some systems consist of separate components such as separately purchased AM/FM receivers and component speakers. Other systems are compact all-in-one stereo systems (often called mini or micro systems) that incorporate AM/FM tuner, amplification, CD player and speakers in one package.
To unleash music libraries from the PC, suppliers are expanding the selection of traditional audio products â€“ including minisystems, component CD/DVD players and car CD players â€“ that play back compressed music files burned onto recordable data CDs.
Likewise, the selection and sales of headphone CD players that play compressed music files is increasing, as are the sales and selection of headphone stereos that store music files in unskippable solid-state memory or on tiny hard-disc drives (HDDs). Headphone HDD portables provide enough capacity to store a music lover’s entire CD library.
The technology for such products emerged from the PC industry, and even more audio products will incorporate computer technologies such as home networking, HDDs and Internet radio capability.
Digital Radio, Digital Disc Advances Advances in music reproduction extend to digital radio and to packaged digital media. Rising sales of digital satellite radios for the home and car, for example, will increase consumers’ access to a variety of music through two satellite services, each offering 100 or more music and talk channels.
Meanwhile, hundreds of terrestrial analog AM and FM stations will make the conversion this year to digital without making existing analog radios obsolete. And more consumers will enjoy music in surround sound, thanks to the proliferation of DVD-Audio and Super Audio CD (SACD) players and software.
Home Theater’s Impact Home theater is continuing to play an essential role in the audio industry’s vitality. When connected to a TV or video projector, the right audio system transforms the home video experience into the ultimate home entertainment experience. A home theater simulates the sonic and visual impact of a state-of-the-art movie theater. It puts you in the middle of a busy street scene, surrounds you with the sounds of explosions and flying debris, or wraps you in the lush sounds of a tropical rainforest.
Once consumers experience home theater, many people want to own one. In fact, as of January 2003, 30 percent of all U.S. households were firing up home theater systems, up from 21 percent in January 2000, according to CEA Market Research.
Because of home theater’s popularity, many audio suppliers have diversified and now offer all of the audio and video components of a home theater system. Today, most mainstream audio suppliers offer CD/DVD-Video players and changers, and others have added projection TVs, including high-definition TVs (HDTVs). Audio companies that used to offer only audio electronics have diversified into speakers, and companies that offered only speakers have added home theater electronics.
Home Networking Trends for 2002-2003
Â· The Internet is driving home networking.
Â· Platforms inch toward standardization.
Â· Major companies invest in HNIT research and development.
Â· Low cost and ease of installation are key factors driving growth.
Â· Connectivity still is the primary goal.
Â· Networked content is king.
Networking Connects the Home
As entertainment and communications content continues to go digital, consumer demand for the features and functions of connected digital products will continue to drive the evolution of home networking.
Home networking has entered a new era of growth. What started out as a way to connect home PCs and share an Internet connection has grown to encompass a wide range of network-enabled products including digital audio servers, video servers, PBX-style telephony systems and residential gateways. These enhancements present both opportunities and challenges to the consumer electronics industry. On one hand, the new features add value and functionality to a home network. At the same time, the network becomes increasingly complicated for consumers to manage. The Internet, many CE manufacturers believe, offers the ideal platform through which consumers can interact comfortably and confidently with a diverse and dynamic home network.
Home Theater Trends in 2002-2003
Â· Home theater households now are common.
Â· DVD players are in even more homes.
Â· Non-DVD homes are fast becoming the exception.
Â· Consumers spend more on DVD software than on movie tickets.
Â· More 5.1-channel DVD movie discs than ever are available.
Â· 6.1-channel surround is affordable.
Â· More TV programs delivered in surround sound.
Â· Home-theater-in-a-box (HTiB) systems break out of the box and provide everything you need.
Maybe the traffic jams near the highway 10-plex are getting to people. Maybe it’s the cell phone conversations that compete with the movie’s dialog. Or maybe more people just need a break from their non-stop routine of commuting, running errands and shuttling kids to after-school sports activities.
Whatever the reason, more people than ever are building home theater systems to enjoy blockbuster movies without leaving the comfort of home.
Home theater systems re-create the startling visual and sonic impact of the silver screen. They put you in the middle of the action, surround you with the sounds of explosions and flying debris and envelop you with the sounds of a tropical rainforest. And you don’t have to be a Fortune 500 CEO to afford one.
To create a state-of-the-art system, you could spend anywhere from $5,000 to $55,000 for a top-end high-definition video projector that projects movies onto 100-inch screens that retract into the ceiling. You could easily spend another $150,000 for window-rattling audio processors, megawatt amplifiers and multiple floor-to-ceiling speakers to make the room rumble when a plane roars across the screen.
You could even complete the experience with motorized curtains, plush theater-style seats, faux ticket booths and a nostalgic-looking popcorn-making machine, all of which are available through select home theater retailers.
You don’t have to go over the top, however, to enjoy a compelling home theater experience. Home theater went mainstream long ago, and by early 2003, a system with all the necessary audio and video gear cost as little as $319, including a 25-inch analog TV, down from about $499 in early 2002. Many consumers might not even have to spend that much because they already may own some of the necessary components. At a minimum, all you need is:
* A TV set with a minimum 25-inch diagonal screen size,
* A hi-fi/stereo VCR or DVD player,
* A product such as an audio receiver, DVD-receiver or other device with a surround sound decoder and amplifiers, and
* At least four speakers: one on each side of the TV and a surround effects speaker on either side of the sofa. An optional center-channel speaker above or below the TV screen locks dialog onto the screen. Optional speakers behind the couch generate a 360-degree surround illusion. And an optional subwoofer delivers bone-shaking low-bass sounds.
All told, the number of U.S. households owning a CEA-defined home theater system almost doubled during the past five years to 30 percent in January 2003, up from January 1998’s 16 percent, CEA consumer surveys show.
The sources and quality of surround sound have likewise grown. A decade ago, matrix-surround programs in the Dolby Surround format were available on prerecorded VHS videotapes, now-obsolete laserdiscs and a limited number of analog-TV stations and analog-cable systems. Today, matrix-surround programs are far more common over analog TV and analog cable systems, and they’re availability has spread to subscribers of digital satellite-TV service.
Home Theater Systems Penetration in U.S. Homes
For enhanced realism, a more sophisticated form of surround sound â€“ digital 5.1-channel surround â€“ also is available today. Sources of 5.1-channel surround include DVD-Video discs, satellite-TV services, terrestrial digital TV (DTV) stations and digital cable systems.
Whatever the surround sound format, the centerpiece of a home theater system is the TV, and a high-definition TV (HDTV) is the technology of choice to deliver film-like visuals.
Video Trends in 2002-2003
Â· Digital video transition boosts declining analog sales
Â· DTV sets and monitors account for majority of color TV sales measuring 40-inches and larger
Â· DVD player sales surge past sales of VCR decks
Â· DVD recorder sales to increase as prices drop under $500
For close to a decade, U.S. consumers have witnessed a paradigm shift in the way they receive and transmit audio and video entertainment and communication sources. Rapidly vanishing from the landscape are old, often less-efficient analog devices, while new digital products â€“ delivering sparkling clarity â€“ take over.
The trend first emerged in the eighties when the compact disc (CD) revolution virtually wiped out vinyl records and compact cassettes. For more than five years a similar movement is transforming video entertainment, with the birth of digital DVD players and the start of digital television (DTV) broadcasting bringing us the first high-definition TV (HDTV) pictures and sound.
Top Ten Video Products in U.S. Households
Some view 2003 as a watershed year for the DTV transition, as more DTV products move into mainstream distribution channels and DTV broadcasts multiple across the country.
In fact, the DTV evolution is expected to look more like a real revolution headed into the transition’s fifth year. Helping that acceleration are aggressive new HDTV adoption plans by the cable television industry, a steady increase in the hours of compelling HDTV content and continued strong sales of digital television displays.
In 2003, the DTV category will be the lead growth category in the video industry, a projection supported by the following recent developments:
* DTV sets and monitors now represent the majority of sales of all televisions with screen sizes measuring 40-inches and larger.
* In July 2002, for the first time, the dollar volume of digital TV sets and monitors surpassed that of analog products, according to CEA.
* Sales of DTV products spread from audio/video specialty retailers and regional/national consumer electronics chains into warehouse clubs and mass merchant discount stores including retail giant Wal-Mart.
By the end of 2003, CEA forecasts consumers will invest more than $15 billion in DTV products with sales for the year forecast to reach 3.8 million units on dollar sales of $5.5 billion. Factory sales of DTV displays exceeded CEA forecasts in 2002, with unit shipments reaching $2.535 million.
The DTV transition is following an adoption course reminiscent of the wildly successful DVD category, which now is regarded as a mainstream product.
Factory unit sales of DVD players in 2002 were 12.9 million, with dollar volume at $1.66 billion. This year, the category is expected to see a 14 percent rise in unit sales to 20.1 million players on wholesale dollar sales of $2.6 billion.
Separate Component DVD Players
Meanwhile, DVD recorders are expected to gain significant momentum in 2003, behind new sub-$500 price points, extensive advertising and promotional plans, and a growing consumer desire to find a digital replacement to the VCR.
Digital TV Sets and Displays
â€¦is clearer than it probably has ever been in the last century. Digital technology is slowly but surely usurping its analog counterparts. The capacities and flexibility of new digital technologies and products are growing almost exponentially. Ever-increasing resolutions for both digital audio and video products, bigger, brighter and more power-efficient LCD and plasma screens, increasingly faster and wider wired and wireless connections and networks, ever-expanding storage capacities, longer battery capacity and life, and most of all, alternately expanding and shrinking form factors and prices, all allow us to predict the future of consumer electronics more clearly.
However, history also illuminates the traps in any optimistic view of the consumer electronics future. Often, new technologies prove too complex for consumers. Developers concentrate on enhanced technology and not the user experience. Manufacturers often prematurely alert consumers to the wonders ahead. Similar products from multiple manufacturers often lack standardization and uniformity. Manufacturers develop and introduce products to take advantage of new technologies, and not a demonstrable consumer need. History has shown us that any or all of these factors have retarded consumer confidence, delayed purchases and, in some spectacular examples, destroyed both the market for that product and the companies involved.
Fortunately, this and future generations are being born into a digital technology universe. Vinyl records, wired and dial telephones, monochrome screens, sub-one gigahertz processors, et al, may as well be bear skins and stone knives. A world without pocket-sized computers, the Internet, instant global satellite communication, and hundreds of high-definition television channels is Stone Age. This and future generations have not only been far more willing to adopt revolutionary technologies, but find it far easier to integrate these new technologies into their lives as if they have been there forever.
And that’s something even futurists a century ago always thought would happen.
With more than 1,000 members with a presence in the United States. CEA’s mission is to grow the consumer technologies industry, through technology policy, events, research, promotion and the fostering of business and strategic relationships. CEA’s members are involved in the design, development, manufacturing, distribution and integration of audio, video, mobile electronics, wireless and landline communications, information technology, home networking, multimedia and accessory products, as well as related services that are sold through consumer channels. Combined, CEA’s members account for more than $85 billion in annual sales.