The other guys in digital TV

A few years ago at the Consumer Electronics Show, the big topic of discussion was how Dell and the computing giants were going to change the TV market. Instead, much of the action has come from the elves.

Over the past year or so, a group of small companies--Vizio, Syntax-Brillian, Westinghouse Digital and Polaroid--have gained a greater share of the TV market in the U.S. than the name-brand computer companies. Those brands and others will display their latest models at this year's CES, which starts next week in Las Vegas.

Chalk it up to scrappiness. The small companies have succeeded by undercutting established manufacturers on price while simultaneously building alliances with retailers, contract manufacturers and component suppliers, according to executives and analysts. And costs are kept to a minimum.

"We don't have highly paid executives or fly around on corporate jets. The efficiency of the company is not hiding any kind of latency," said William Wang, CEO of Vizio. "This is how Sony got its start in the TV business several years ago."

In the third quarter, Polaroid was the ninth largest seller in the LCD/plasma TV market in North America, according to DisplaySearch, while Westinghouse was number 11. Vizio held the No. 10 spot overall and was No. 1 in sales of 42-inch LCD TVs, according to the firm.

Syntax-Brillian, not exactly a household name, ranks 13th in the U.S., according to DisplaySearch. But Syntax CEO Vincent Sollitto points out that it's a top three seller in Hong Kong, and a top 10 brand in China. The company recently bought Vivitar, the camera company, and may use Vivitar's brand and channel relationships to break into the European TV market.

"We sell (TVs) at about 20 percent below the tier ones and 20 percent above the tier threes," Sollitto said. In the quarter that ended in September, Syntax garnered $87 million in revenue.

Tuning in Market share for plasma and LCD TVs in North America, Q3 2006.
Rank	Maker	%
1	Philips	12.2
2	Samsung	12.0
3	Funai	10.0
4	Panasonic	9.7
5	Sharp	8.4
9	Polaroid	4.3
10	Vizio	4.1
11	Westinghouse	3.6
13	Syntax-Brillian	2.1
20	Dell	0.6
21	Hewlett-Packard	0.6
Source: DisplaySearch

Meanwhile, Dell ranked number 20 in digital TVs in the U.S., and Hewlett-Packard followed up at number 21. Gateway and Motorola, two other big-name companies that got into the TV business earlier in the decade, have bowed out. (Dell, HP and Gateway, though, sell large numbers of LCD monitors for PCs.)

In the worldwide LCD and plasma market, Vizio ranks 10th with a 1.53 percent market share, while Syntax and Westinghouse clock in at 12 and 13. Dell ranks 24th with 0.32 percent of the global market while HP is buried below number 36 in the "other" category, according to iSuppli.

Companies like Samsung, Sony and Panasonic remain the largest TV makers in the world and often command premium prices because of cutting-edge features that haven't trickled down to smaller makers.

Still, the new, small entrants have managed to establish themselves fairly quickly. Vizio started selling TVs under its own brand in 2003. This year, the company will likely pull in $800 million in revenue and ship 800,000 TVs. Just on Black Friday--the traditional blockbuster sales day just after Thanksgiving--Vizio sold between 35,000 and 37,000 TVs, according to the company.

"In a way, they (Vizio) are the poster child of the new TV manufacturer generation," said Bob O'Donnell, an analyst at IDC. "They have done an amazing job of coming from nowhere to play a big role."

The success of the "silver box" manufacturers, as the smaller makers are known, is beginning to rub off on name-brand players, he added. HP for one has begun to price its products more aggressively and add novel features.

How did we get here?
Syntax versus Samsung, of course, wasn't exactly the matchup many expected. Back in 2003 and 2004, PC makers said that they would exploit their brand recognition, expertise in digital electronics and relationships with component suppliers and contract manufacturers to get into TVs. These companies already accounted for a huge chunk of LCD monitors sold worldwide.

Gateway launched an early salvo in 2002 when it came out with a 42-inch plasma TV for $3,000, about half the price of similar TVs from other manufacturers at the time. Sales climbed rapidly.

Executives from consumer electronics companies such as Sony talked about how the PC makers might stumble because of their lack of experience in consumer marketing.

The newly formed entrants were seen as longshots. Like the PC makers, the smaller TV makers planned to rely mostly on contract manufacturers in Taiwan, but most were relatively tiny operations without the buying power or brand cachet of the multinationals. Analysts wondered how these companies could differentiate themselves.

"There's no reason to think the world needs more brands," Barry Young, a senior vice president of DisplaySearch, said in early 2004.

Westinghouse's digital entertainment group employed 15 people when it started in 2002. The company that makes Polaroid TVs doesn't have much to do with the rest of the company: it licenses the brand.

Costa Mesa, California-based Vizio was actually a consulting firm. One of its first engagements was helping Gateway put together its 42-inch plasma TV system, priced at a then-startling $2,999. Comparable systems at the time sold for upwards of $6,000.

"They sold over 4,000 in the first month. It was pretty exciting," Wang said.

The company's current strategy revolves around three points. First, Vizio tries to have the cheapest TVs in the mid- to high-price bands. In late 2006, for instance, the company announced it would release a sub-$2,000 47-inch LCD TV with 1080p resolution. The vast majority of TVs in this class sell for $2,500 and above.

"When the larger-sized TVs become cost-effective, they are the first out with a great price," said Ross Young, president of DisplaySearch.

Keeping it lean
Costs are kept low due to the company's structure. Vizio employs only about 55 people in the U.S. and most of them work the customer support desk, according to Wang. There are a few additional employees overseas. "We like to keep it really lean," Wang said.

Second, Vizio sold TVs through Costco and Sam's Club, although it now sells some models in Circuit City. These retailers, which are selling an increasing number of TVs, typically are looking for gross margins on their products only in the 10 percent range, said Young. Electronics retailers are looking for 25 percent or more. For Vizio, that's a two-way benefit: the price of its TVs are comparatively lower than those from major manufacturers at electronics stores and major manufacturers can't participate as fully as they'd like to at places like Costco.

"Best Buy probably wouldn't carry you if you were going to sell a TV for $1,499 at Costco and sell the same one there (Best Buy) for $2,499," Young said. "They (Vizio) don't have any channel conflicts."

Wang also adds that the company has put an emphasis on quality and customer support in an effort to build a brand. The company offers free in-home support during the warranty period for consumers who bought a TV measuring 30 inches or more across. It also has a "no bright pixel" guarantee for these TVs for the life of the product. White pixels are faulty pixels that become a pinpoint of light on a TV's display.

The TVs come with things such as full-color, life-size shots of the remote as well as poster-sized quick-start guides. After it started including the quick-start posters, support calls declined by around 60 percent. Retailers have asked other manufacturers to come out with a similar guide, according to Vizio.

Syntax, which started in 2003, can be seen as a conglomerate of convenience. One of its early plastic suppliers was actually a toy car manufacturer, said Sollitto. Another partner came from the refrigeration arena. There were also a few tier two and three video processor companies.

"There were all of these smaller Asian companies that wanted to participate in the market but they were too small on their own to stand toe-to-toe with the Japanese," he said. In 2005, Syntax merged with the publicly traded Brillian, which landed, then lost a deal to produce TVs for Sears. The merger gave the combined company access to public market.

Subsequently, it entered an alliance of convenience with South Korea's LG. LG supplies panels to Syntax, but the two will also collaborate on R&D in China, where Syntax already has a plant.

So far, the company has mostly sold its TVs online through Amazon.com and Target.com. It only recently signed deal with Circuit City.

"Our market share has happened in less than 40 percent of the market outlets," he said.

The big boys
The companies that migrated from PC land, meanwhile, each have made mistakes, noted IDC's O'Donnell.

Dell's direct model has crimped sales because consumers generally want to touch and see their TVs in person before buying them, O'Donnell and others have observed. The Round Rock, Texas-based company has put up kiosks in malls to ameliorate that effect somewhat. If things don't improve over time, O'Donnell speculated that Dell could retrench a bit in TVs.

Dell spokesman Mike Maher said that Dell will remain in the TV business, and added that consumers over time will become accustomed to buying TVs online. Critics in decades earlier, Maher noted, said consumers wouldn't buy servers or notebooks online either.

By contrast, HP thought its name entitled it to a seat in the premier manufacturer's club. "HP came out originally at ridiculous price points. They were up there with Pioneer and the other established guys," he said.

Over time, that has begun to change. HP has become more aggressive when it comes to pricing. It has also figured out ways to bundle its PC know-how. HP recently came out with a TV with a built-in media adapter, which lets consumers hook the TV directly up to a computer. HP has also revamped its marketing pitches in the last two years under peripatetic executive Satjiv Chahil.

Another PC power with an uneven history in selling PCs is ViewSonic. "They are doing OK, but not as well as expectations," O'Donnell said.

In the meantime, Westinghouse, Vizio and the other new manufacturers will be coming up with ways to cut prices.

"Unlike many brand-name consumer companies, our mission is to make sure that TV prices drop fast," said Wang.