Saturday, May 05, 2007

Switchover One-Year Recap: Manufacturers

When I started this blog, I opened with a series of posts called "The Players", where I identified what I considered to be the main actors in the unfolding drama of the DTV transition. Since then, I've done twelve monthly recaps (since I'm counting down to 2/17/09, my "month" runs from the 18th to the following 17th) tracking the changes involving each group (The Public, Government, Broadcasting, Program Providers, HD Networks, and Manufacturers - retail being thrown in with Manufacturers). This series will look at what's happened over the course of those twelve months, and ask a longer-term version of the question I ask in every monthly recap - what's changed? (NOTE: This series does not replace my next monthly recap, though it has already made it much later than it usually is.)

It's interesting to note that when I wrote my first hardware-related post, the looming war between NextGen DVD formats wasn't even mentioned, considering how they've come to dominate hardware news. Here's how things looked on 4/4/06:
Let me say right up front that this will not be a hardware-centric blog. You can get tons of detailed tech specs, etc. from many other sources, such as HDTV Magazine (they publish an extremely extensive annual review by Rodolfo La Maestra). But the hardware that is made (and sold) will clearly affect the programming that is produced and distributed, and the channels that are launched and carried. That makes hardware developments that illustrate some aspect of the bigger picture fair game.

Here's an example. Recently a federal mandate went into affect that says that all TVs 25" and over must include a digital tuner, unless they're simply a monitor with no tuner at all. Note that this applies to manufacture, not sale, and does not cover existing stocks. However, it didn't take long for the "big box" ads to list every analog set (in that size range) in their circulars as a closeout. More importantly, we're starting to see ads for their replacements, the "digital SDTV".

And the digital SDTV worries me. I first heard about it last summer, and wasn't sure it had any future. But the more I think about it, the more I see the potential for it to become a big hit. The combination of a near-analog price and familar 4:3 aspect ratio could be just the thing for that segment of the public (which I'm guessing is pretty large) that would really rather have the TV experience they grew up with, or as close to that as can be had in the post-analog age. This effect will only increase next year when the mandate applies to even the smallest sets.

If these sets do become the replacement set of choice for all those analog sets out there, what does that do to plans for HD programming and new channels? How much of existing and planned investment was based on the idea that everyone would be watching HD in the not-too-distant future? Will those investments still be worth it if most people are watching a letterboxed (or cropped) image in 480i?
So what's happened in the year since? The story that's most directly related to transition is, of course, the FCC mandates that drove analog TVs out of the market. Soon after digital tuners became mandatory for 25"-and-above sets, digital took the lead in sales for the first time, a lead it has never relinquished. Now analog is truly on its last legs, as existing retailer stocks slowly run out. Early on, (as my initial post shows) I was highly concerned that the real beneficiary of these mandates would be the digital 4:3 SDTV, and early indications seemed to bear this out. However, it's pretty clear that my concerns were overblown, largely because HD prices have come down so dramatically in the last year. However, I suspect that the digital SDTV will do much better in the smaller sizes that have just recently been introduced. Speaking of the smaller sizes, how are the cheapest portables (a market segment where the additional cost could be much more noticeable) going to cope with the need to incorporate a digital tuner? This Engadget HD piece from December gives one answer.

Not just TVs are affected by the new mandates - every device with an analog tuner must now have a digital one as well. This TWICE article from January explores the ramifications for the recorder market.

Those HD price declines I mentioned above were thrown into high relief with the 2006 holiday shopping season, in which HDTV really seemed to emerge as a mainstream product, spurred on by huge Black Friday discounts But what was great for the consumer, has proven not as good as you'd think for the retailer, with discounts getting so large that they actually hurt retailers' bottom lines, with Circuit City being especially hard hit, causing much industry consternation. All this recent buying highlights a change in the overall TV marketplace, as flat panels now represent the majority of sets sold.

Looking ahead, a number of technologies have been struggling to emerge. One that's been having a hard time of it is the highly-touted SED (surface-conduction electron-emitter display). In August, TV Week speculated that market pressures could make it impossible to even launch it at competitive prices. Things were looking more hopeful with October announcements from Canon and Toshiba, but a patent lawsuit from one of Canon's other partners has raised some doubts about that. A brand new, coming-in-a-year, would-be plasma-killer technology called Laser TV was announced in October. And the ultra-high-res technologies that will eventually replace HDTV have begun to make their way out of the laboratories, so the fortunate among us will get to live this whole story out again sometime in the future (if we have any money left, that is). And while 1080P broadcasting may be a ways off, manufactures are beginning to show the equipment. On the other end of the spectrum, Texas Instruments is demoing 720P on mobile phones. (how could you tell the difference at that size)? But it may be "lights out" soon for our old friend the CRT tube).

But as I mentioned above, the dominant hardware story over the last year has been the NextGen DVD war. I first wrote about it on April 20th of last year, stressing the potential for causing even more public confusion about HD. While people might be a bit less confused a year later, I still think this is going to be a niche product for a long time. While VCRs thrived in the middle of a long-running format war, you have to remember that those machines were delivering completely new capabilities (time-shifting and watching of pre-recorded material) to customers' television experience. For all but hardcore videophiles NextGen DVD represents an incremental improvement, not worth all that much money, but more importantly not worth the risk of picking the wrong format and having all that money go to waste in the end. So far, reports of consumer reaction seem to be bearing that out.

Despite early attempts to come up with a unified format, none of these considerations were enough to prevent the two incompatible formats from going ahead. At first, it didn't look too good for Blu-ray, with early reports of problems with quality of pressings and a shortage of titles doing little to justify the notion of paying twice as much as you would for HD-DVD. Retailers weren't impressed,, either. As late as September, a prominent backer was declaring victory for HD-DVD, and as late as December a market survey reported heavy negativity towards Blu-ray.

But slowly, things began to swing in Blu-ray's favor. The incorporation of a Blu-ray player into PlayStation 3 was critical (Microsoft had an HD-DVD add-on to its Xbox 360, but has no plans to incorporate it), and even its limited holiday-season American allotment of 400,000 units made it the top NextGen player to that time. There was a lot of skepticism about how much gamers would use this capability, but early figures point to heavy usage. Then in February the numerical superiority of studios supporting Blu-ray finally began to be reflected in the number of titles available. As far as sales go, an NDP Group study revealed that if you combined stand-alone sales (from April to December) of the two formats with PS3s and HD-DVD add-on drives, Blu-ray was the definite sales leader. That also began to be reflected in disc sales, where Blu-ray discs outsold HD-DVDs by 2:1 in the first week of January, and nearly 3:1 in the second week. And later this year at least one hardware maker will be putting downward pressure on Blu-ray prices, eroding one of the few HD-DVD advantages. But it's still very early in this game, and as Ben Drawbaugh of Engadget HD points out, too early to leap to definite conclusions.

(NOTE: Due to time and space constraints, I am just scratching the surface of my NextGen coverage. For much more detail of how this story played out over the year, please check out my monthly recaps in the "Archives" links.)

As dominant as these stories were, it's important to remember that there were other kinds of hardware stories during the year. The most directly transition-related is the digital-to-analog converter box that so many analog owners will be needing. So far, RCA, Samsung and LG have gotten into the game.

TiVo caught up with HD with the Series 3, but at $800 many are wondering if this is going to entice enough people away from their cableco DVRs. (In addition, Diego's MOXI box will be taking on Series 3 on the retail front.) In September, TiVo's Jim Denney made their case in this TV Week interview. By March, TiVo was promising cheaper HD recorders, but will they still work if your provider moves to Switched Video to get around bandwidth limitations? And here's something that will increase consumer familiarity with HD video - next year, new imaging chips will enable even entry-level digital cameras (that's camera, not camcorder) to record it.

Lastly, things weren't looking too good for CableCard. But with cablecos under an FCC order to begin supplying Cablecard-compatible set top boxes soon, things will probably be looking up.



At 2:57 AM, Anonymous Anonymous said...

You seem to know some stuff about this so I was hoping you could answer my question. At our house, we have digital cable from Comcast, but only 2 of our TVs use the digital signal (one has a box, the other cable cards). The rest of our TVs use the analog signal. My problem is, I don't know if, in 2009, our TVs will work. That is, is everyone using a cable analog signal still going to need digital boxes or are cable companies still going to send out analog signals to TVs so old ones can still function?

I'm so confused, I hope you can help, thanks so much!

At 4:08 PM, Blogger Bob Colby said...

If your analog cable signal is plugged directly into the TV, it is likely that Comcast will downconvert a basic set of channnels to analog for a while after that date to support customers in your situation, and the FCC may even mandate this (mandatory dual carriage) for broadcast stations later this year. If you are using analog cable boxes, go to the PROGRAM PROVIDERS section in my latest monthlty recap ("22 Months And Counting") and click on the link for the story about Comcast's Chicago experiment. Basically, the story talks about their plans to replace analog cable boxes with digital (as well as keep 30-34 analog channels for subscribers without boxes). If this experiment goes well in Chicago, expect to see this practice spread to other regions!


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