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Max Lenderman
Digital television was all over the place at the Consumer Electronics Show in Las Vegas, not just on the expansive trade show floor but in the minds of retailers and television network executives alike.
Although some nay-sayers still chirped about DTV's viability with consumers, most of the talk was optimistic.
Howard Stringer, chairman and CEO of the Sony Corporation of America, reiterated this sentiment, saying that "the logic and promise of digitization have proven so resilient, so absolutely compelling, that not even digital's most ardent (detractors) have managed to scuttle it."
Indeed, the DTV numbers look pretty good in the midst of a very healthy consumer electronics market. According to Darrell Issa, chairman of the Consumer Electronics Manufacturers Association (CEMA), "overall 1999 CE sales should hit a record $79 billion. Digital technologies will lead the ascent...and taking the lead in excitement and opportunity, if not overall sales, is digital television. DTV means big opportunities for the consumer electronics industry."
CEMA estimated that about 150,000 digital sets will be sold by the end of 1999, reaching 200,000 the following year. "Sales will begin to increase dramatically thereafter," Issa predicted. "Our forecasts estimate that the first 10 million sets will be sold by 2003."
Of course, Issa said, DTV sales will not be the death knell for analog TV. CEMA estimates that more than 28 million analog sets will be sold in 1999. But at a DTV Supersession, manufacturer panelists unanimously said that at least two-thirds of all sets sold in 1999 would be HDTV sets versus standard sets.
Prices this year for high-end digital sets should hover around $10,000 this year, with set-top boxes coming in at an average $2,500.
Moreover, a number of speakers at the show - as well as the displayers on the trade show floor - all pointed out that the excitement and potential windfall from DTV will fuel sales for audio, home theater and accessory products.
At this year's CES, said CEMA president Gary Shapiro, 20 demonstrators had DTV on the show floor. Shapiro said that as more consumers experience DTV at the retailer, the technology would propel them to upgrade to other consumer electronics products.
In fact, the retailer must play an integral part in the digital television push. Stringer urged retailers to avoid confusing customers in the transition from analog to digital. "Like the PC revolution, DTV development will be a consumer-driven phenomenon," he said. "Consumers will decide the fate of technologies, goods and services."
Equally important to DTV's ensured success, Stringer said, is ease of use. "In order to keep consumers happy as well as connected to the information critical to them, these devices will have to be simpler to use...(this is) the mantra for the millennium," he continued. "To make a truly intelligent transition, we must make 'digital for Luddites' - for people so bewitched, bothered and bewildered by technology, they would have trouble with a quill pen."
Stringer also urged an environment of "an unprecedented level of cooperation for DTV success" and open technology standards at a time when "the road map for the next phase of the digital age is being drafted right now with the rollout of DTV."
Stringer urged broadcasters to develop an infrastructure to support digital production and transmission. He also said that "the cable industry's commitment is even more critical.
As the primary pipeline for the new services and interactivity enabled by DTV, cable will largely determine their success or failure. The industry's rapid upgrade of infrastructure - almost an $8 billion investment thus far - has been one of the most important catalysts for developing new services."
Broadcasters, however, still sounded the caution signal. Although Shapiro said that by the end of last November more than 40 broadcasters in 23 markets began airing digital programming, some were not convinced that DTV is the panacea retailers envision.
"It is still too early to judge HDTV mass appeal," said one ABC executive. "The question is the value between cost of the equipment and quality of programming. Programming will drive demand."
Another broadcaster questioned the HDTV proposition, saying that "it'll be a long time before the HDTV audience is substantial enough to make an impact on our financials." But on the other hand, the exec pointed out, "nobody knows the consumer better than the retailers and the quicker they get behind this, the better the category will grow."
Indeed, CEMA conservatively forecasts DTV penetration at 30% by 2006. In comparison, color TV penetration rose to only 10% during its first full eight years on the market; VCRs reached 30% in their first eight years on the mass market; and CD players got to 30% after eight years as well.
Retailers must convey the digital vision more clearly, a number of executives remarked. Stringer stressed the message again: "We are in dire need of coordination in the way in which we communicate about digital home products to consumers. By virtually any measure, we have not done this well."
Separately, the real competitive heat at CES was generated by the ongoing rivalry between DVD promoters and Circuit City's Divx, which many manufacturers say is cutting into the growing DVD market.
Divx and Circuit City chairman Richard Sharp announced that his company sold 87,000 Divx units between October 1 and December 31 of last year. Compared with sales of open DVD player sales, Sharp said one in three DVD sales in December were Divx-enabled units. Remarkably, only seven retailers offered Divx DVD players in the fourth quarter.
Warren Lieberfarb, president of Warner Home Video and an opponent of Divx, countered by asking "how much of that Divx business came because open DVD was not available in stores." He also noted that the industry sold 675,000 DVD players in the last four months of 1998.
Moroever, Lieberfarb said that "of the 1.4 million total 1998 DVD shipments, open DVD has an installed base of 1.2 to 1.3 million."
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