I think we've seen this before, as the Japanese handed US TV makers their lunch. They produced equal or better quality products at prices US manufacturers couldn't match. Korean manufacturers are now doing it to Japan.
The problem for consumer electronics manufacturers is accurately guessing what the Next Big Thing will be, jumping in early, and *knowing when to jump out*. For several years, the market was big screen TVs. In the early days, prices were high, margins were too, and TV makers could make good money as the market got rid of old TVs and got the new big expensive models.
But sooner or later, the demand ebbs as people *have* replaced their old TVs, and as volumes rise, costs drop, prices drop, and margins become thinner, with lowest cost producer winning.
The Next Big Thing that was *supposed* to take up the slack when the big screen TV market was saturated was 3D TV, but that has been underwhelming, to put it mildly.
The question about the Japanese TV makers appears to be "Were they reading the tea leaves? Were they unaware the market was becoming saturated? Did they realize Samsung and LG were in a position to grab the low end of the market, and the high-end was largely filled?" It appears they weren't and they didn't. But in fairness, it's not clear what they could do *instead*. They arguably could have reduced production and trimmed losses, but without the Next Big Thing to build instead, that would have meant shrinking and layoffs, as there would be nothing for the plants that made them and the workers in those plants to do.
I think this raises bigger questions about the future of Panasonic, Sony, et al beyond TV. What *do* they do? What products *can* they make, *in* Japan, using *Japanese* workers, that have a big enough market to be worth addressing, and high enough value to allow charging prices that will let them be addressed profitably?
I think the answers will have important implications for Japan as a whole.
According to Ken Park, an analyst at DisplaySearch, LG reported a 4.1 percent profit margin for its TV business in the first quarter and Samsung reported a 5 percent margin. How are the South Korean companies able to turn a profit when the Japanese cannot?
It seems inevitable to me that the companies, particularly Sony, will keep putting branded TVs out there at least for the near term. I suspect they will outsource more of the manufacturing to Hon Hai and other contract manufacturers. My understanding is they have been having at least a portion of their TVs built by others for years.
Yes, Sony has been working with Foxconn for some time now; some say that 50 % already made by Foxconn. But it sort of proves the point that outsourcing alone is not going to be the answer for tv biz getting back to profitability.
I can believe LG getting a 4.1% margin, and Samsung getting 5%.
But we need to look at other factors related to the financial markets. If Sony or Panasonic could get that, would it be sufficient?
I remember when Sony dropped its popular Clie line of Palm OS PDAs. The Clie unit was profitable, but not profitable *enough*. Sony top management decided they could get a better return investing corporate funds elsewhere.
A profit margin of 5% might *not* be adequate for Sony, with an expectation by investorss that they could make more money elsewhere. (Where that might be is a good question...)
If I were Sony and Panasonic, I'd be outsourcing manufacturing. But I'd be looking hard at design, and thinking about what what features I could add that differentitated my products, added value for the buyer, and let me charge a higher price with a better margin.
I appreciate the margin discussion above. But with all due respect, I think what we should be looking at here is whether TV business is worth the effort of saving -- for any sane companies these days. Unless you can leverage the LARGE scale of economy to the extent Samsung made it possible, adding features and differentiations to TVs wouldn't seem to do the trick.
The days when TV was the focal point of many people's lives seem to be long gone. Added values and more differentiations will make more sense in smart phones and tablets...
Most consumers don't buy flat TVs because it's 3D or Google TV. It's because...well...it's cheap!
What makes a market worth being in in the first place?
If it's a market addressed by your industry, it's worth it if you can make enough money addressing it. What "enough money" is will depend upon who you are, what you do, what your business model is and what your financials look like.
"Unless you can leverage the LARGE scale of economy to the extent Samsung made it possible" is a key factor. TVs have become a commodity product, with commodity pricing and paper thin margins. It's what I was talking about earlier in product life cycles, where it's the end of an inevitable progression in consumer electronics, and when to *exit* a market you're in is an important question. Samsung and Foxconn are structured to do commodity manufacturing and make money, by selling enormous volumes. Sony apparently isn't.
But while the TV business may indeed *not* be worth saving, what does Sony do *instead?* If they decide it's not worth saving, how do they get out? It sounds like TV is a large enough part of Sony's business they they may simply not be *able* to say "We are out of the TV business." How many plants would be closed? How many workers would be laid off? What sort of a loss would Sony have to take close down that part of the company, and could they afford it? What would the resulting company look like?
I can think of various reasons why Sony couldn't just say "We're out!" tomorrow, including corporate ego, the costs of exiting the market, and unhappiness on the part of the Japanese government.
If I were Sony, I'd try to do two things: wind down the TV business and shift production to outsourced partners, and try to make the TVs I *still* made higher end products I could charge a higher price for. I wouldn't expect to *make* money, but I'd be trying to *lose* less.
But my ultimate question would still be "What is the Next Big Thing that will be my bread and butter, the way TV *used* to be?"
If I don't have an answer for that question, I'm in trouble.
Sorry, Junko, but I have a different take on this. Whether or not Japan Inc. should look to "save" the TV business, it seems to me that there is still plenty of demand for large screen, HD displays in homes. All we need is a name change, at most, to get at what the future should bring. The new TVs should be IP-connected devices, fully flexible, capable of showing anything available on PCs, tablets, or even smart phones.
The fact that TV manufacturers only seem capable of building sorry excuses for actual "connected" TVs is what baffles me. I have no evidence, but the APPEARANCE is that they are in cahoots with the cable and satellite networks, deliberately making TVs that continue to make the customer overly dependent on these walled garden distribution systems.
Me? I've ignored their limitations and created my own. With an actual PC operating as "set top box." Networked into my home WiFi system.
I agree in your natural evolution of the industry theory. But I would like to point out a few things here.
1. Japan ate the U.S. TV companies'lunch because they offered cheaper TVs, they focused volume production. (So, in that sense, yes, we are seeing a parallel now in terms of the natural evolution of the industry.)
2. But Japan was able to hang onto its victory a bit longer because Japan innovated LCD, plasma TV technologies (including design and production technologies)
3. What was totally unexpected for the Japanese vendors is that in the digital era, the barrier to entry to the value added products (like digital TVs, smart TVs, etc.) is very low. Anyone with a good piece of software (licensable) and a solid SoC (smart TV SoC) can become a "smart TV" very quickly.
So, on the flat panel TV front, Japan lost twice. She lost in the volume war; and she also lost in the value-added TV business.
Wasn't Sony slow to get into LCDs? As I recall, they were, and they actually offered some CRT-based HDTVs early on. And yet, it should have been oh so obvious that LCDs would eat everyone's lunch, including plasma's.
Having worked for one of the Big Three, I would say that the main problem is that there were not able to make TV evolve enough.
The fact the needs for LCD was also driven by the move from analog to digital broadcast. 5 years I saw the same TV set in a store in Tokyo and in Paris. The one in Tokyo was using newly introduced full HD channel, whereas in Paris it was still analog. With such a poor quality nobody wants to pay twice the price. So the problem was not the TV set, but the contents (not talking about how lame are the shows...). In Japan the move to digital created a needs for new TV. It was the same in the US or in Europe, but with some time-lag. During that time the technology became common and Japanese company had to cut prices.
After digital broadcast something new is required. Up to last year, there were planning on 3D to create a new move, but it seems it will not happen.
I think that TV makers where not able to do what Apple did with the iPod: provide the hardware and the content.
For TV, streaming has been a big competitor. Why buy a TV if you can have the same thing + extra on your computer.
For the Big Three (and others) the next move is to rethink TV, not a box displaying broadcast content, but as an extension to the content they do provide themselves.
Great insight. Rethink TV, indeed. The TV broadcast industry is also going through revolutions...but perhaps not fast enough. Consumers' TV viewing habits have also changed over the last few years. TV as a big box to watch broadcast TV won't cut it any more.
This effort is rethinking it from a different direction.
TV maker Vizio just announced it was getting into the PC market, with desktop, laptop, and ultrabook models. (See http://goo.gl/kDwXW for the desktop.) They're looking to leverage the name recognition of their TV line to enter a new market.
What Vizio is up to may prove quite disruptive because of the manner in which they are doing it.
Vizio is a small company, with just over 400 employees. As you mentioned, they design, and outsource manufacturing.
Here they're taking that a step farher. When they decided to get into the PC business, they spent time talking to Intel about how to do the hardware, and Microsoft about how to do the software. They are allowing considerable input from their OEMs on the design process, and instead of handing OEMs designs and saying "Build this", they appear to be saying "This is what we want to accomplish, and this is the price point we want to match. How do you recommend we do it?" Vizio is serving as the general contractor in a joint venture with the participating firms, and allowing the partner's expertise to shape the final product.
In addition, they are *not* taking the money from software houses to install "crapware", and are "insourcing" tech support, which will be handled from a US based call center in SD.
Finally, they are taking a leaf fron Apple's book, and recognizing the importance of good product design. Instead of the plastic housings used by other PC vendors, they will use the same sort of robot-cut brushed aluminum casings they use for their TV products.
They believe that if they make the customer happy, they'll succeed.
Apple's forthcoming "Apple TV" can be expected to rethink what TV is, though it's not clear what form that will take. Vizio is doing a different sort of rethinking, not only about TV and PCs, but about the way you design and build them.
The implications for monolithic outfits like HP or Sony are profound if this succeeds.
At one time the names like Sony and Panasonic meant prime products , here in India. In the last decade this scenario has changed. It is only LG and Samsung everywhere.
So it is bye bye Japan and welcome korea as far consumer electronic products and white goods are concerned
What do we mean by Flat TV here? Does it include LCD and LED back-light TVs? If it does not then the market of the CRT based TVs is going to be lost day by day there is nothing strange about it. From the article it is very confusing to figure out which TV is being discussed at different stages.
Sorry if the article is confusing to you. By "flat TV," we include all the flat panel TVs -- everything from LCD, Plasma to LED back-light TV and OLED. Japanese TV companies stopped offering CRT TVs more than several years ago.
So, really, what's surprising is that despite the leading position Japanese TV companies had commanded with their flat panel display technologies (they spent a lot of resources in advanced technology development and not to mention in mass production technology), all the first mover advantages now seem gone as they are struggling to keep up with the Korean giants' volume.
That's the problem with *being* the first mover and innovator. It's splendid for a while, but sooner or later (and probably *sooner*, in consumer electronics), competitors can duplicate what you do, and probably do it faster and cheaper.
The Japanese manufacturers are experiencing that. Being first to market is one thing. Staying there is another. And the pace of innovation is increasing, so that you don't stay there as long as you once did.
Remember when 3Com's Palm division created the Palm Pilot organizer, and created a whole new market? 3Com spun off Palm, who couldn't make PDAs fast enough to meet the demand. Execs from Palm formed Handspring, as a sort of budget line alternative. Sony jumped in with their Clie line, and other manufacturers dipped their toes as well. Pretty soon the market was saturated and PDAs became commodities with commodity pricing and margins. Sony dropped out. Palm bought Handspring to get the Treo, and limped along on it as the smartphone cannibalized the PDA market. Palm no longer exists.
The PDA phenomenon recapitulated what happened with the IBM PC, as PCs became commodities competing on proce, but an order of magnitude faster.
The same thing appears to be occurring in TV, and while the big three Japanese manufacturers were probably aware it might happen, I don't think they grasped how quickly it could occur.
If I were a consumer electronics manufacturer these days, I'd try to keep that in mind. I'd want to innovate, and be first to market with the Next Big Thing, but I'd be aware it was transitory, that competitors would duplicate it and probably make and sell it cheaper than I could, and that that would happen sooner rather than later. So I'd be watching the indicators, and actively planning for how I would *exit* the market when I could no longer make money in it, *before* I racked up billions in losses trying unsuccessfully to compete.
Sony has good brand image in India compared to Sharp and Panasonic. Sony can beat Samsung if their pricing is equal or lesser with 2 to 3 year warranty. That is the only way to increase the volume of sales.
Japanese TV makers have stopped innovating. One area prime for a remake is the display itself. If the Japanese big three were first to come out with affordable, large (40 inch and above,) OLED displays for instance, they would have a competitive advantage due to the superior viewing quality of an OLED display versus any current LCD displays which are used in the majority of TVs sold today. When all of the parts of a modern flat screen TV are commodities you get commodity pricing of the entire TV as a result. Sony, Panasonic, and Sharp must find a way to compete on better technology and features - not price.
Innovation and vision from management is the key word. Perhaps, Japanese big three become to some extent laggard and they lost the race. Sharp has taken good step and Sony and Panasonic should become more nimble. They should not abandon TV products.
Abandoning TV business was unthinkable in Japan -- as far as I remember.
But the point of this story is that the profitability of TV business has gotten so slim (actually all the Japanese TV manufacturers are losing money) that the TV business at any Japanese consumer electronics company is no longer a sacred cow.
Yes, but why is this surprising? As others have noted, US manufacturing went through the same evolution precisely. for TVs, for all other consumer electronics, for home appliances, for cars, for outboard motors for boats, you name it. All areas where it was "unthinkable" that the US would not dominate forever.
China is next, btw.
My only point was, just because the TV business is less profitable, because it is a mature business, does not mean that people aren't buying TVs. Or actually, aren't buying large screen displays. They still are. It just so happens that these large screens are not used ONLY for watching broadcast or cable television shows, per se. So clever innovation, meaning not the half-baked "connected TV" variety, should pay off in TV design still.
"China is next, btw."
If you mean, "China will be subject the the same phenomenon, and stop being low cost producer, I agree.
We are already seeing leading indicators. That pool of cheap labor comprised of peasants off the farm flocking to the cities to get factory jobs that pay better and are less arduous isn't as big as it was, and Chinese manufacturers are increasingly having to compete for workers and pay higher wages as a result, driving up their cost. One of the big manufacturers announced a full-scale push into robotics precisely to get around that problem and be competitive in the future.
Who will replace China as low cost producer is uncertain, but *someone* is likely too.
"Abandoning TV business was unthinkable in Japan -- as far as I remember."
That was my impression as well, but I suspect the notion was based on corporate ego and national pride, not economic fundamentals. Those same factors will complicate stemming the losses and getting out of the TV business.
This is the era of fashion more than reliability. Japan loose out as slow to catch up fashion, features and pricing interact on volume sales. I still prefer Japanese products are much reliable than Korean ones are fashionable and more features.
its not much to do with quality, Japanese are still leading in development of technologies, where they are lacking is *marketing.
Japanese industry and Korean are fueled by completely different ideologies.
it is hard to compete against Korean company on price with their weak currency and strong government backing and market flooding tactics, the country is basically run by Samsung.
Their "nation branding" initiative is surely to backfire if it is not already beginning to occur.
I think there are a few misunderstandings in the history of the TV industry. The issues that Zenith and RCA faced are radically different than those faced by Sony, Panasonic, and Sharp, and had very little connection with "America's industrial decline."
Visio is the best example of today's reality: They don't make the glass, they don't make the ASICs, they don't make the low-level display processing algorithms. What they do amazingly well is integrate readily available components into great products.
Sony's problem, and it's been eveident for years, is that in the post-CRT world, they had no inherent advantage. Since there are only a small handful of glass manufacturers, and a small handful of display processor manufactors, everyone had access to the exact same building blocks, and there could be little differentiation in performance. Usability, interoperability, and secondary "value-added" differences are what make a TV from one vendor better than another. Sony could no longer charge a premium for non-existant "better picture quality", nor were people willing to put up with the crappy propritary interconnection networks that they came up with. It became integration (with a little manufacturing) rather than technology.
Zenith became LG because of structural problems in the company caused by the idiot CEO running the company into the ground. Remember, they were also a computer and stereo manufacturer, set top box manufacturer, CA provider, and one of the major contributors to the HDTV grand alliance. It all imploded overnight.
RCA had bled itself dry by backing a number of losing technologies, including their Laser-Disk competitor. It was a husk when it was sold.
The TV is still the center of most households. The difference is that it has, from the CE perspective, become a commodity.
I tried to watch Line of Duty last night but found the music drowned out the conversation so that I heard about 60% of it. I find this with a lot of the programs on TV. It is time that TV’s were fitted with a mute button to turn unwanted back ground noise off. Audio description can be turned off as can subtitles so why are we not able to turn off irritating loud music. It may be possible for younger people to hear through this music but older people will have trouble hearing the dialog. This has been brought up many times in the past and we are informed that people like this noise,but next time you do a survey about this please ask older people
Can you adjust your surround sound?
I use a so-called "Hafler circuit" for surround sound. Initially, I had the same problem you describe. The surround sound, on some material, drowned out the dialogue. Very annoying.
The fix, in the Hafler circuit situation anyway, was to add 16 ohms in series between the two surround speakers (which are wired in series with this scheme). That was enough to tame the surround effects.
I would expect that any actual Dolby surround processor has a volume setting for the ambience level. Turn it down, and that should solve the problem.
I suspect that younger people in executive positions at consumer companies don't see it as an issue.
Also the music + voice is an integral part of the program makers's package.....so the director likes it that way....while audio description and subtitles are a service that is added and can therefore be omitted easily.