Culture

Falling costs of big-screen TVs to keep falling

The cost of big-screen televisions, which have been dropping by about 25 percent a year, are now expected to fall even more sharply this fall.

Aug. 27, 2005 1:00 a.m. PT

5 min read

In consumer electronics, as in much of life, good things happen to those who wait--good things as in plunging prices.

The cost of big-screen televisions, which have been steadily dropping by about 25 percent a year, are now expected to fall even more sharply this autumn, according to industry analysts. The coming markdowns reflect a singular confluence of business trends that will benefit consumers going into the holiday season.

"Prices are pretty much in a free fall," said David Naranjo, who tracks the television industry for DisplaySearch, a market research firm.



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The best evidence of this is the expectation of analysts that in the next few weeks the Panasonic unit of the Matsushita Electric Industrial Company will announce that it is dropping prices as much as $500 on plasma-screen TVs that retail for around $3,500.

Panasonic officials refused this week to confirm or deny the speculation, but because it sells the most plasma screens in the United States, a potential downward adjustment would be considered a harbinger of a price war for all varieties of big-screen TVs.

The chief executive of the Syntax Groups, James Li, maker of the Olevia brand of flat-panel TVs, said, "If they go to $3,000, I will go to $2,999."

All this spells good news for anyone thinking about upgrading from the old cathode-ray TV to screens that are 40 inches or larger in the three most popular formats. Full-featured plasma TVs with 50-inch screens that sold for $20,000 five years ago could edge close to $4,000 this season. A liquid-crystal-display version and a rear-projection TV with a digital-light processing chip will be considerably less, closing in on $1,800.

That does not mean choosing a TV will be easy. No longer is it just a matter of price and size. There are no fewer than eight competing technologies, as well as different screen sizes and display standards that force you to grapple with a shape-shifting matrix of at least a dozen dimensions.

Let's try to cut through that. It used to be that liquid-crystal-display technology was for small screens, plasma for medium, and digital-light processing for large. Though the TVs with digital-light processing have been the best value, plasma had the technological advantage and could sell for more because screens were big and flat. Now LCDs are as large and DLP TVs are flatter.

As the technologies overlap in the 32-inch to 46-inch screen sizes, the price differences narrow. A price cut in one technology forces cuts on the others, too.

While these changes make any purchasing decision more complex, the resulting markdowns should compensate for the headaches. "The consumer really holds the ace in this game," said Jonas Tanenbaum, director of flat-panel and direct-view marketing for Samsung Electronics North America.

The problem with buying any new technology is that tomorrow it will be cheaper--and better. So why not wait some more? When you buy a depreciating asset, it always makes sense to wait as long as you can. But at this stage in the introduction of big-screen high-definition TV sets, consumers are unlikely to get whipsawed by radical new technology that leaves them regretting their purchase.

This year there are several compelling reasons for trading up to a bigger TV, especially one that offers high-definition. Nascar and the National Football League have begun broadcasting events in high-definition. (When it comes to $2,000 TV-purchasing decisions, surveys show men control the purse strings.)

The TV networks are broadcasting more high-definition content, but it

isn't all that exciting to watch Paul Kangas read the "Nightly Business Report" on PBS in crisp clarity. Seeing the sweat knocked off the face of a sacked quarterback could be a thrill.

Content matters. " Walt Disney's Wonderful World of Color" began broadcasting in 1961, but manufacturers recall that sales of color TVs did not take off until the mid-1960s, after the broadcasters put most of their programming in color.

Driving big-screen prices below $2,000--about what a color TV cost in the late 1960s, adjusting for inflation--is also expected to increase demand this year. A number of factors are causing that to happen faster than anyone expected. Manufacturers in China and Taiwan, the so-called Tier 3 makers that few consumers have ever heard of like Vestel, Changchong or Xoceco, are dropping heavily discounted LCD TVs into general merchandise stores like Costco and Wal-Mart or at online discounters.

Manufacturers with high-profit margins have as much to fear from Texas. Dell is applying to TVs the low-cost supply chain and direct-to-consumer sales model that struck such envy and dread in the personal computer industry. While others were selling 42-inch plasma screens for $7,000, it blasted into the market with one for $3,500. It can do that because it does well on margins around 16 percent.

The well-known Japanese and Korean manufacturers, with margins closer to 40 percent, are finding they must trim prices or lose sales. Some are trying to get retailers to trim their margins of about 10 percent to offer TVs for even less. Dell is now selling the 42-inch high-definition plasma screen for $2,600 and the company suggests it could go lower as it gets further deals on components.

Michael Farello, Dell's vice president for United States consumer electronics, said he was recently looking at Dell ads from the mid-1990s comparing its $3,500 PC's with other makers' units at $6,000. "This isn't the first time this has happened," he said.

Amid all this new competition, new factories in Asia are cranking out flat-panel displays. Economic theory holds that as volumes go up, costs go down. TV manufacturers can lower prices and cover the cost of the expensive new plants with the increased volume of TV set sales. But too many of the big makers decided to build plants, so now there is an oversupply of plasma screens that threatens to grow even larger. That will force manufacturers like Panasonic, Philips Electronics, the Samsung Electronics Company and the Sony Corporation to cut prices even more to soak up some of that overproduction through the rest of this decade.

"Price is being led by capacity," says Gary Merson, editor of the HDTV Insider newsletter.

Aren't you glad you waited?