[opendtv] Re: TV Prices Fall, Squeezing Most Makers and Sellers

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Thu, 29 Dec 2011 10:12:03 -0500

At 12:44 PM -0500 12/28/11, Mike Tsinberg wrote:

I cannot really blame TV manufacturers only for price downturn. They compete
in the marketplace that is wide open for any unfair practice. Web and
regular retailers bring in Chinese brands directly and this way force
Japanese and Korean brands compete on price. Unfortunately no more US brands
for the same reason. Every other country except US has tariffs to protect
their manufacturers including China. I recently came from a trip there. For
example a US made car that cost about $30K in the US sell for about $90K in
China all due to tariffs. With tariffs in place US can rebound its
electronics manufacturing and compete on features instead of price only.
Average salary for electronics factory worker in China is about $2,500 a
year. Using massive manufacturing facilities partly financed by government
or money from Taiwan these manufacturers can survive and prosper on
extremely low profit margins.
I can sympathize with Mike about competition issues, both online sales and cheap Chinese imports. 

But tariffs have never solved these kinds of issues.
The real problem here is that Digital TVs quickly became an undifferentiated commodity, and when this happened, many manufacturers tried to differentiate their products by adding unproven and questionable features like 3D. In terms of innovation almost nothing has happened, other than moving to LED backlighting and higher refresh rates.
Everyone could see the convergence train coming, especially as Apple and Google began to take a larger share of the Consumer Electronics industry. As I pointed out, most of this was well established in the '90s. But rather than getting on the train and innovating, the traditional vendors hooked their wagons to the media conglomerates, who were trying to slow down the inevitable shift in consumption and distribution models.
Just saw an interesting breakdown of the costs/revenues for several Apple products: 

China Makes Almost Nothing Out of Apple's iPads and iPhones
http://www.forbes.com/sites/timworstall/2011/12/24/china-makes-almost-nothing-out-of-apples-ipads-and-i/
"This article analyzes the distribution of value from innovation in the global supply chains of the Apple iPad and iPhone. We find that Apple continues to capture the largest share of value from these innovations. While these products, including most of their components, are manufactured in China, the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S. China's role is much smaller than most casual observers would think. 

The charts in the article are well worth a look.
Bottom line, consumers will pay a premium for products that are perceived as justifying that premium. And in most cases, innovative features lie at the heart of this behavior.
Just look at the smartphone and tablet markets BEFORE Apple entered these markets. Then look at Apple's profit margins...
The real problem with the TV market is that consumers are unwilling to pay for undifferentiated commodities. 

Regards
Craig



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