Felix Torres
06-01-2006, 09:00 PM
The history of HDTV goes back to 1987, when the FCC established the <i>Advisory Committee on Advanced Television Service </i>to advise them on technical and policy issues. Initially, 23 different systems were proposed to the Committee, all analog, like the earlier efforts in Japan and Europe. In May 1990, the Committee received a proposal for an all-digital HD system and by 1991 it was weighing six proposals, four of which were digital. In February 1993, the Committee weeded out all analog contenders and focused on four all-digital candidates, suggesting that it would welcome a unified proposal that combined features of the remaining systems. The result of this merger came in May 1993 and would eventually be known as the American Television System Committee (ATSC) standard for Digital TV. The first ATSC prototypes began testing in May 1995 and by November of that year the FCC had accepted the finalized specification as the standard for digital TV broadcasts within the US. Since then, the standard has been adopted by other countries like Canada, Mexico, and South Korea.<br /><br />Actual HD TV broadcasts in the US began on July 23, 1996, with WRAL-HD in Raleigh, North Carolina. Ten years later, 15% of all TVs are ATSC-capable in some form or another, and there are currently 1500 channels broadcasting at least part-time HD content.<br /><!><br /><span><b>The HD TV Evolution: Part 2 – The Dreaded “C-word”</b></span><br />The point of this short history lesson is that, for the first 12-plus years of its existence, HDTV, as an industry, was focused almost exclusively on the needs and interests of the broadcasters and manufacturers who crafted the specification for the first HDTVs. We can think of this as the <i>First Age of HDTV; the age of the entrenched powers.</i><br /><br />This domination started to change once HDTVs became an actual shipping product. At that point, HDTV ceased to be a product of committees and commissions and became subject to the forces of economics and consumer choice. We can think of this as the <i>Second Age of HDTV; the age of early adopters and technical enthusiasts.</i> <br /><br />As pointed out in part 1 of this series, actual HDTV set penetration in the US has reached the 15-20% range and the US Congress has designated spring 2009 as the cutoff date when all analog over-the-air broadcasts must end. Which, given the relatively low rate of current HDTV penetration presents a disconnect between the development of the technology and user adoption that might lead to problems come 2009. At present, this disconnect is being addressed by the FCC—with rules that require that, over the next few years, new TVs of ever-decreasing size come with integrated ATSC tuners—and by Congress—with plans to subsidize the cost of tuner set-top boxes for the 11-15% of the households who do not currently receive their programming via cable or satellite. At the same time, however, market and technology forces are at play that will address the issue in a more effective manner over the next three to five years by the simple process of commoditization. This will bring about the very necessary <i>Third Age of HDTV; the age of the consumer</i>.<br /><br />The “dreaded C-word” haunts the dreams of the executives of giant electronics conglomerates as they see entire lines of perfectly profitable products being challenged by cheaper, equivalent or even interchangeable products from competitors hungry for their share of the market. In everyday terms, a product becomes commoditized when it is readily available from multiple, equivalent sources and the primary sales driver (though not the only one) is pricing. Think: detergents, toilet paper, cell phones, PCs…<br /><br />Now, I’m not saying HDTVs are commodities. Not yet.<br /><br />For one thing, a pre-requisite for commoditization is that the product be understood well-enough by consumers and suppliers that a common specification exists for what the product is supposed to provide. PCs, for example, started to get commoditized back in 1984 when the arrival of the IBM PC AT established a common baseline for PC compatibility. At the time, it meant running MS DOS, Lotus 1-2-3, and Flight Simulator; today, the ability to run MS Windows. Over time this led to the emergence of standard motherboards, video cards, and other components that could be mixed-and-matched to build generic systems that could provide most of the necessary features of name-brand systems, for significantly lower prices. This forced the name-brand vendors to justify their premium pricing or inch closer to the generics in features and pricing.<br /><br />These dynamics of product design, component supply chains, and competitive pricing are now unavoidably starting to appear in the HDTV market. Unavoidably, because whenever a new consumer electronics product category emerges (calculators, PCs, Cell Phones, DVD players, etc.), the same pattern has always played out: the product first arrives as a premium purchase, a status symbol, a rarity available to the well-heeled or the “connoisseurs”; hobbyists, techies, and enthusiasts. <br /><br />As the product evolves and the market matures, new players jump in, attracted by the high profits that the pioneers are enjoying. This grows the market by slowly driving prices down enough to bring in new customers.<br /><br />Finally, the product explodes in popularity, becomes understood well enough that mainstream consumers who have a use for its features, but are unwilling to deal with the earlier complexities, can safely buy into the market, and more often than not, commoditization begins.<br /><br />Now, once the process of commoditization begins, the center of gravity of the market rapidly moves away from the early adopters and towards the masses of late-comers. If they’re not careful, the pioneers end up as roadkill. (As the saying goes: you can tell the pioneers by the arrows in their backs.)<br /><br />For HDTVs, the entry point into the market has been through home theater aficionados; the video equivalent of the “golden-ears” crowd of premium audio. These are highly educated, highly affluent folks who do not mind (and actually enjoy) getting down and dirty into the service menu of a display to squeeze absolute accuracy and video perfection out of their display and to whom a four-figure price tag is nothing to think twice about. Right until 2004, HDTVs were practically synonymous with “Home Theater”. The dominant products were high-end offerings from established consumer electronics giants like Sony, Matsu****a, Sharp, Samsung, and the like. Each product offered a unique feature set, a unique experience, a unique feature set powered by proprietary technology. And the most prominent features and technologies were those that performed best at the functions the enthusiasts valued; watching movies in dimly lit rooms. <br /><PAGEBREAK><br /><span><b>And Then, Things Started to Change…</b></span><br />New players slowly crept in with products that were obviously <i>not</i> meant for the established market. Strange names: Syntax-Olevia, Maxent, Polaroid, Westinghouse, Digimate, Astar. The first splash was made by Syntax-Olevia, who, in 2004, went from zero to 6% market share on the strength of their bargain-priced 30” LCD display. Then came Westinghouse in 2005, with a product that didn’t just match the big name players, but actually beat them to the gate with features that many of the better known players are only <i>now </i>starting to match, but at higher prices.<br /><br />How did this happen? Simple economics: demand creating supply.<br />As we’ve seen, 85% of the US TV market is up for grabs. That is big time money. And big time money draws attention from players big and small. And while the big name vendors have been merrily feeding the upper 15% of the market with their home theater-grade products, they’ve been ignoring technology developments that can bring HD to the unserved 85% - the folks looking for replacements for their 27” CRTs.<br /><br />HDTVs cannot remain a high-end product forever. At some point they have to become a consumer product, a commodity. And the way this is happening is via contract manufacturing, the practice where companies like HTC, Wistron, Flextronics, Celestica, etc., provide their facilities and personnel to manufacture another company’s product. This is not OEMing (a simple re-labeling or tweaking of an existing product), but, rather assembling a new, exclusive product where the customer brings his or her own design, his or her own component sources, his or her own supply chain.<br /> <br />This, of course, requires independent sources for these components. <br />For HDTVs, this means display components like TI’s DLP chips and LG/Phillips, AUO, and CMO’s LCD panels that are freely available to all. It means standard interface chipsets to handle inputs via HDMI or DVI, from companies like Silicon Image. It means image processing chips from companies like Genesis, Pixelworks, HQV, Trident and the like. And yes, these sources currently exist. And much like Intel, Seagate, and NVIDIA/ATI in the PC world, these are large, well-funded, tightly focused companies determined to dominate their particular piece of component technology. All are investing heavily and if the aggregate investment happens to exceed demand… Well, the other guy will have to lower <i>his</i> prices…Familiar game, isn’t it? Excess component capacity leads to component commoditization which leads to product commoditization via competitive component supply-chains and contract manufacturing.<br /><PAGEBREAK><br /><span><b>Contract Manufacturing</b></span><br />Contract manufacturing is the way Dell got into the printer and the PDA businesses. The way eMachines built a virtual corporation successful enough to buy out Gateway and go toe-to-toe in retail with HP/Compaq. The way Apple builds all their ipods and Microsoft their XBOXes. By identifying an unserved market and making deals, instead of building factories.<br /><br />And this is how Syntax and Westinghouse Digital can beat a Samsung or a Matsu****a to market with a new technology: by tapping early, low volume production runs from merchant component vendors. By not having to deploy world-wide and instead focusing on a smaller, more specific market. By being willing to sell their products at a lower margin than their better-known competitors. By willingly riding the wave of commoditization…<br /><br />As HDTV inevitably evolves away from the domain of the enthusiast into a mainstream consumer technology, it will acquire new features and lose old ones in response to the changing market. Even as we speak, name-brand vendors are responding to the challenge of the upstarts by reengineering their products with simpler interfaces, leaner feature sets, merchant electronics instead of proprietary scalers, and easier-to-build designs that resemble the products of their no-name competitors. Eventually, a consensus will emerge between the upstarts and the high-end vendors on a baseline product, based on what consumers are actually buying, and the commoditization of HD will begin in earnest. It will take time, but consumers aren’t going to move too far out of their comfort zone and the price points have to be met. And they will; I’ve seen credible projections that tell a story familiar to any long-time PC user:<br /><br />• 2006 - $999 name-brand 32” LCD displays;<br />• 2007 - $999 name-brand 37” LCD displays;<br />• 2008 - $999 name-brand 42” LCD displays.<br /><br />And I’ve seen similar, though less aggressive, projections for Plasma and rear-projection displays. All vendors reluctantly agree: prices will continue to fall for the next three to five years. They have to.<br /><br />There will be casualties. Some old players will find they are no longer first-tier players while others adapt and prosper. New players will emerge and use the transition to bootstrap themselves up into world-caliber players, like SONY and Panasonic did in the '60s during the transition to transistor radios or Samsung did in the '80s and '90s. Some will make a big early splash and then fade like APEX did in DVD players. But one way or another all will help the market move forward.<br /><br />Right now, the TV business is in transition and nobody (not manufacturers, not broadcasters, and certainly not consumers), fully understands what a standard display will end up looking like in the Third Age of HDTV. But I suspect that when the platform is fully evolved, say five years from now, it is going to look a lot more like what the upstarts are peddling today than what the big name vendors have been selling for the past five years. That is where commoditization leads.<br /><br /><b>NEXT: </b>CRT-based display tech is fading. What will replace it? Hint: high volume, low cost, at all sizes. It's all around us, right now.<br /><br /><i>Felix Torres is a dabbler in home entertainment electronics and a survivor of both the home computing wars of the 80's and the multimedia wars of the 90's who is currently most interested in home media networks and the North American transition away from broadcast media.</i>