Digital TV Transition Not As Lucrative For TV Makers, Cable
06 January 2009 - 5:45AM
Dow Jones News
A change in television broadcast standards coming later this
year was expected to boost sales of cutting-edge flat-screen
televisions and high-end cable TV packages. Instead, it's spurring
sales of more modest products, like RCA Corp.'s $60 converter
box.
Between August and November, sales of converter boxes, which
change digital signals to analog ones, have jumped nearly 50% as
consumers scramble to insure they can watch their favorite shows
after the changeover on Feb. 17, according to data from The Nielsen
Company, which tracks consumer TV behavior and spending.
The increase in box sales underscores the impact the worst
recession in decades is taking on the consumer electronics
industry. Before a crisis in the financial sector spread to the
economy last year, many observers had expected strong sales of
flat-screen televisions, like Sony Corp.'s (SNE) Bravia series of
liquid crystal display TVs, and advanced cable packages, like
Comcast Corp.'s (CMCSA) $80 per month Digital Premier package, as
consumers geared up for the change. The broadcasting change will
allow for clearer signals and significantly increase free
programming.
Instead, consumers are looking for cheaper solutions as they
tighten their belts. They've turned to simple boxes, like RCA's or
Magnavox's $50 box, so that they can continue watching television
without buying new TV sets. Some observers fear the rush might even
stress a government program offering subsidies for converter
boxes.
"People are cutting back on their consumer discretionary
spending," said Justin Nielson, senior analyst, SNL Kagan in
Charlottesville, Va., who has been tracking consumers making the
transition. "Most of the remaining over-the-air TV viewers are now
going just to converter boxes."
The growing popularity of budget fixes has curbed prospects for
companies from Comcast to digital video recorder provider Tivo Inc.
(TIVO). Analysts had expected as many as half of the roughly 22
million households affected by the change to buy cable or satellite
TV packages. Another third was expected to buy high-definition
televisions.
Those hopes have faded.
According to a November survey by Nielsen, 38.3% of consumers
were planning on buying a converter box rather than a more
substantial product to cope with the transition. That was markedly
higher than an August survey that showed 25% were opting for the
cheaper alternatives.
The slow uptake has weighed on expectations for sales growth of
new televisions. DisplaySearch, a research firm, says it now
expects the transition will spur only a 2% lift in TV sales, down
from expectations of about 10% earlier this year. Revenue from
television sales will likely drop 18% from last year to $88 billion
in 2009.
The pain will likely be felt by cable and satellite television
providers, many of which were aggressive in trying to woo new
subscribers. For example, Comcast Corp., whose territory services
millions of households making the transition, began offering in
October free service for a year in an effort to win over early
converts.
"We see a real opportunity to target and attract new customers,"
Comcast Chief Operating Officer Steve Burke said in an Oct. 29 call
to discuss the company's earnings. A Comcast spokesman had no
comment on current sales.
Analysts say the big gains that service providers had hoped for
are unlikely to materialize. Ben Piper, an analyst at research firm
Strategy Analytics, said service providers will likely get about a
third of the subscribers they initially expected.
Just 10% of consumers will opt for pay television to deal with
the transition, according to SNL Kagan.
Companies providing movie rentals and video recording services
might also see their prospects fade. Companies such as Netflix Inc.
(NFLX) and Tivo had hoped more consumers would start using their
services when they bought new televisions or subscribed to new
cable packages.
"We do realize wallets nowadays won't let people get into
satellite" and other expensive pay-TV services, said Francie Bauer,
a spokeswoman for DISH Network Corp (DISH). "But we have hope down
the road."
-By Ben Charny, Dow Jones Newswires; 415-765-8230;
ben.charny@dowjones.com
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