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Gateway cuts PC-TV prices

Committed to the market, Gateway chops the cost by 25 percent to address criticism that PC-TVs cost too much.

Compaq, the world's largest PC maker, couldn't play in the market for first-generation PC-TVs, but Gateway 2000 (GTW) says it remains committed to convergence products, and lowered prices to prove it.

The South Dakota-based vendor has lowered prices up to 25 percent on its Destination PC-TV systems to address criticism of the products as being too costly for the average consumer.

Historically, PC-TVs from Gateway and Compaq have been priced at $4,000 and up. Gateway is attempting to redress this by reducing prices to as low as $2,499. This system comes with a 233-MHz Pentium processor, a DVD-ROM drive, and a 31-inch monitor.

Higher-end systems are coming down too. A Pentium II-based PC-TV with 32MB of memory and a big monitor was priced at $3,999 but will now go for $2,999, a reduction of 25 percent. A larger 36-inch monitor is available on all systems for an extra $600.

"Our issue with [PC-TVs] is the price point, and that viewers have to buy a new tube in order to be able to use it. It's prohibitively expensive for most consumers," observes Van Baker, an analyst with Dataquest. Baker says that a more palatable convergence device will be a WebTV or digital set-top box that is based on the PC architecture and costs well under $1,000. These devices will just hook up to newer TVs that come with the ability display computer graphics.

Gateway, noting that it "reaffirmed its commitment to convergence," says that sales of the Destination systems increased by 75 percent over the second half of the 1997, with 37 percent of systems purchased in the fourth quarter alone. Company officials point to this as evidence the so-called "convergence" PC-TV product category--a category which Gateway invented--is starting to become a viable market. "Buying a computer-based product for better audio and video is still a bit of an alien concept [to consumers]:," says Bill Graber, Destination marketing manager. "Our theory is that will change. DVD is maybe the first tangible event that would cause that migration," he thinks.

Graber believes the availability of high-speed digital access for video and audio via satellite, cable, and eventually DSL (digital subscriber line) hookups will spur a need for a full-fledged computers to control home entertainment centers.

Compaq, meanwhile, has apparently decided the PC-TV market is too small to pursue--at least in its current manifestation. The company pulled back from marketing its PC Theater product in retail stores earlier this month, presaging its eventual demise. (See related story) The PC Theater failed to gain widespread acceptance because of its high price--a system with 200-MHz MMX Pentium, DVD-ROM drive, and 36-inch monitor listed for over $5,000--as well as salespeople who couldn't figure out whether the system should be sold in the TV section or the PC section of a store.

"The reason Gateway and Compaq have had a hard time initially is that retail outlets were not set up for demonstrating the PC features of PC-TVs," says Richard Doherty, director of The Envisioneering Group, a marketing research firm based in Seaford, New York. (Gateway, though a direct vendor, at one time offered its systems through retail stores.)

Still, Gateway is continuing to refine the product for consumer use. Earlier this month at the Consumer Electronics Show in Las Vegas, Gateway demonstrated a voice-activated home control system called "HAL 2000." Using technology from Home Automated Living, users can control lights, sprinklers, thermostat settings, or alarms through the Destination by speaking. Gateway is interested in bundling the HAL software as well as other required hardware in Destination systems, but hasn't announced any new products yet.

Another PC-TV vendor, Philips, has a $5,000 PC-TV convergence product called the DVX8000. Philips appears to be enjoying a measure of success by selling the system through audio and video specialty retailers instead of computer or electronics superstore retailers.

Instead of selling a monitor with the unit, the system is sold as a standalone component intended to be connected to a user's existing big-screen television, in a high-end "home theater" environment which can control other pieces of electronic equipment.

Gateway could not be reached for comment.