Flat-Panel TV: Another tough year for companies, another great year for consumers

If you've been kicking yourself for not buying a flat-panel TV during last year's Black Friday pricing madness, here's some good news: it looks like prices could significantly decline again this year, as many of the business fundamentals — including oversupply — that caused severe price erosion last year will remain in place until late in 2008.

That was the general consensus during the first day of market research firm DisplaySearch's annual U.S. Flat-Panel Conference, held this week in La Jolla, California.

Last year, there was a perfect storm of events that caused pricing on some specific TV sizes to drop as much as 75 percent in a just a year's time, said Display Search president Ross Young, who expects LCD HDTVs to continue to gain share in 2007. Among the events leading to the severe price erosion:

• The rise of Vizio — "the first successful warehouse club brand" — and its low prices, typically 20 percent less than its competition in a given screen size, enabling it to become the number five brand in the fourth quarter of 2006;
• Growing retail competition, resulting in 10 percent discounts below MAP (minimum advertised prices; the lowest price manufacturers will allow retailers to advertise) and offers such as free 18- to 24-month financing and freebies such as stands that helped to drain margins;
• A tremendous amount of brand competition, with over 70 brands competing for market share and retail shelf space;
• A price war last May between Sony and Samsung that saw the former company cut prices two times in a single week;
• Panasonic selling to Wal-Mart, and then being forced by other retailers to suspend MAP pricing during the Black Friday weekend, resulting in a $999 42-inch Panasonic-brand plasma at Best Buy;
• And post-World Cup blues, where manufacturers over-estimated demand in Europe for the World Cup, and then dumped product on the U.S. market in the third quarter leading to significant over-supply.

The result for many would-be buyers, of course, were heretofore unheard-of deals. For example, during the Dec. '05 to Dec. '06 period, the average price for a 42-inch HD plasma fell from $2,620 to $1,372, a 48-percent drop, while 50-inch models declined 40 percent, from $3,732 to $2,226.

Large-screen LCD models typically had an even more precipitous decline. For example, during the same period, prices for a 37-inch model fell 51 percent, from $2,328 to $1,148, while 42-inch 720p sets dropped from from an average of $3,027 to $1,275, a 58% decrease. A 46-inch 720p set fell 53 percent ($4,531 to $2,122), while a 46-inch"1080p "Full HD" set fell a whopping 75 percent, from $11,526 in Dec. '05 to just $2,839.

Given the lower prices, retailers can be expected to become more aggressive about selling accessories, peripherals and installation services to add margins to their TV sales.

During his presentation, Ross said that large-size LCDs continue to gain share against plasma. For example, in the 40-44-inch category in North America, in the fourth quarter of 2005 LCD had a 17% share, plasma had 68 percent of the business, and rear-projection microdisplay sets had 8 percent. A year later, LCD had 52% of the 40- to 44-inch business, plasma accounted for 46 percent, and microdisplay projection sets had fallen to 2 percent of the business.

However, plasma still dominates the larger-size (50- to 54-inch) segments. During the same period, plasma went from a 29 percent share to 55 percent of the business, while LCD went fro zero to 7 percent of the market. The share of rear-projection microdisplay sets fell from 44 percent to 26 percent.

While some analysts have been suggesting plasma's days are numbered, Ross said new plasma display technologies, which will take two years to reach mass production, will help it reduce costs by as much as 33 percent, enabling manufacturers reach 1080p resolutions more efficiently, and boost performance (twice the brightness and four times the contrast of current sets) significantly.

— James K. Willcox