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Plasma’s Bright Future

7 minute read
Jyoti Thottam and Kristina Dell

It’s not often that a single device can inspire tech-obsessed couch potatoes, home-decorating mavens and investment-fund managers all to swoon with admiration. Especially when that device is a television, the boob tube. Except that it’s no longer a tube.

Since Gateway unleashed its $3,000 plasma television last year, flat-panel TVs have moved from high-end curiosity to hot item, taking the hype-drenched world of consumer electronics by surprise. The flat-screen sets are brightening the picture in surprising places in this hard-to-tune economy. Design buffs love their sleek, minimalist profile; videophiles love the stunning picture quality; and investors are finally finding a bright spot in the beleaguered tech sector. In 2003, sales of plasma flat-screen televisions, despite an average price tag more than 10 times that of a conventional TV, tripled, to $919 million, according to the research firm NPD Group. This year the market for flat-panel TVs is expected to soar to $2.5 billion–and that does not include accessories, such as surround-sound speakers and A/V receivers, often purchased with the televisions.

“It’s a new chapter in the ongoing love affair between Americans and their television sets,” says Ross Rubin, director of industry analysis for NPD Techworld. The romance had been getting a little stale. Even as the number of channels has multiplied, the market for TV sets has been stagnant, at about 2.4 TVs per household, for years. Now those pricey, sexy flat-screens are steadily replacing bulky conventional televisions. Unemployment be damned, Americans are trading up.

It isn’t all heedless spending though. Lynn Franco, director of the Consumer Research Center at the Conference Board, an economic-research group that closely tracks consumer confidence, notes that the TV upgrades are typical of a purge-and-splurge shopping style that has emerged in the age of big-box discounters. “Consumers will trade up and buy down at the same time,” Franco says. “They’ll shop at Wal-Mart and buy a Lexus.” With their relentless discount shopping and the occasional affordable luxury, consumers have kept the economic recovery going.

Gateway’s low-end plasma set, introduced in November 2002, put big-screen and flat TVs within reach for more middle-class families. Its $3,000 model is the leader in its category. “In mid-2002, we saw that the television market was becoming way more digital than analog,” says Matt Milne, Gateway senior vice president for consumer products. By going to some of the same suppliers it uses for its PCs, the company slashed prices, and the rest of the industry scrambled to follow. The move could not save the ailing PC company’s retail stores–188 will be closed this year–but it has given Gateway a chance to reinvent itself in consumer electronics. Analysts expect prices to fall even further this year, driving up sales. According to Lee Simonson, senior vice president for consumer electronics at Best Buy, $2,999 was the “breakthrough price.”

Gateway has also spearheaded an American-brand revival, as companies like HP, Dell, Motorola and even Zenith (a U.S. brand now owned by a South Korean company) try to grab market share. “It’s driving traditional Japanese consumer-electronics companies crazy,” says Peter Kastner, chief research officer at the Aberdeen Group. Although flat-panel TVs are produced exclusively in Asia, U.S. companies like Gateway and Dell are developing strong brands that will allow them to go after other product categories dominated by Japanese makers. American tech companies are working behind the scenes: Corning makes glass for the displays, and Texas Instruments has created a low-price, flat-screen alternative to the biggest plasma-TV sets with its DLP (digital light processing) rear-projection technology. “Just when you think innovation is dead, this shows you that it’s very much alive,” says Kevin Landis, chief investment officer for Firsthand Funds, an investment firm based in San Jose, Calif.

Television’s flat pack is creating a dizzying array of choices for anyone seeking to buy a new set. Consumer Reports published its first ranking of flat-panel televisions in March, in response to thousands of letters from readers begging for a little guidance, says Gerard Catapano, who supervised the magazine’s test. While there were some standouts in each category–conventional TVs, plasma, LCD and rear-projection–there was no clear winner. Each technology has its inherent drawbacks. The best picture-tube and rear-projection televisions, for example, can weigh more than 200 lbs. Plasma sets (named for the pixels of gas in the screen that are turned into plasma by an electrical charge) can sometimes experience “burn-in,” when an image, such as a station identifier, leaves an imprint on the screen. The images on LCD (liquid-crystal display) and plasma screens, while usually bright and clear, may not have the best color contrast. Green grass against a blue sky, Catapano says, may look better on a top-quality conventional set.

For the future, the biggest question mark is high-definition programming. Not every flat-screen television comes equipped to handle the new HDTV format, which many consumers will want this summer when cable TV goes high def. And there are HD-ready conventional televisions that produce picture quality rivaling that of even the best plasma screens, at a much lower price. On the flip side, an HDTV set can sometimes make regular programming look worse. Catapano’s advice: Start with the size you want, and match it to the technology that fits it best. Then it’s up to your budget.

Flatness may prove even more important than picture quality in getting consumers to trade up. Best Buy’s Simonson notes that until now “the form factor of the television has never changed. It’s always been a very big product.” The slim profile of plasma and LCD TVs is finally attracting the attention of a group largely ignored by consumer-electronics peddlers: women. “What really makes a $3,000 TV sell is that the consumer can do things with this space that they couldn’t do before,” Milne says. “It’s a furniture experience more than a television experience. We are at the edge of remodeling people’s homes.”

Consumer-electronics companies will now have to market their products in a completely different way. Gateway and Best Buy are planning flat-panel promotions for Mother’s Day and will increase their advertising in women’s magazines. Capitalizing on the home-makeover television craze, Gateway tried a “technology makeover” offer at its retail outlets, providing customers with advice in the store or at home. Best Buy plans to retrain its sales staff. “We need to change,” Simonson says. “We need to appeal to women. We want the female customer to want the TV instead of just being the approver.” The Dutch electronics giant Philips is taking a more subtle approach to marketing its flat-TV line, with ads pitching a sleek, refined design aesthetic rather than low prices or picture quality. To make that point, the company featured its product on Queer Eye for the Straight Guy.

By associating flat-screens with hip home remodeling, the consumer-electronics industry hopes to convince Americans that they need a television in every room. Once hot video recorders and DVD players each provided a sales surge for the industry, but most households made do with one device. Getting Americans to watch not just more TV but more TVs would be a vastly superior growth model for electronics companies. When the TVs are as thin and light as the latest flat-screens, they argue, why not?

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