The Past, Present and Future of the Aussie TV Industry

As far as discretionary electrical retail sales go in Australia, in particular the Television sector, it is no secret that the current climate we are presented with has drastically changed the landscape for most operators. In days gone by, the latest “must have” technology had customers pouring into their local retailers concerned first and foremost with owning the latest model with all the bells and whistles, and price was a secondary concern.

Unfortunately, over recent years there has been no real “must have” technology release in the television sector. So therefore, it has basically become a race to the bottom on price. The result is retailers such as WOW and Retravision going into administration, Dick Smith store closures, and Mr Harvey raving and ranting on public television on a weekly basis. It’s just not sustainable.

With a heavy focus onto Smart TV, there is the potential for upcoming releases from manufacturers such as Apple and Google to drive the next upgrade cycle. The key to whether or not this will make a difference is not only the hardware itself, but the level of content available, and most importantly, the way it is consumed.

Can the Television sector return to market growth?

Prior to this season the price war between bricks and mortar retailers and online vendors, as well as each other, coupled with the strength of the Aussie dollar has resulted in heavy price deflation of TVs. This has coincided with one of the toughest economic climates on record, which naturally causes reluctance to purchase discretionary items such as TVs, unless absolutely necessary. And even if the customer “needs” to buy a TV, purchasing habits have really changed from the past. Online vendors, available with the flick of a Smartphone, and prolonged price comparison has given customers expectation that they will find that product cheaper at the next stop. So not only are retailers seeing less and less customers walk through the door, when they do come in the price of the TV sold ends up being so low that the margins are the slimmest they have ever been. It takes no genius to conclude that less sales with lower margins is not sustainable. Just ask WOW and Retravision.

So what will happen next?

Analysis points toward continued contraction of volume in terms of units over the coming years, and this reflects the increase in penetration rate. Rewind a few years, and many households still had a CRT screen, or possibly a single older model Plasma or LCD screen. The growth potential of TVs was huge – as they became more affordable and accessible most households upgraded or added a second or third TV in the kids room or spare room. Today, there simply aren’t that many households that haven’t upgraded, so the sheer volume that TVs were sold at in that peak growth period is never likely to be repeated. The flipside, however, is that there is likely to be a shift towards the premium, higher tier product – which will be driven by the next technology change led by Apple and Google.

The increase in the number of televisions sold has not been enough to absorb the price deflation – resulting in overall category value decline.

Looking ahead, analysts predict a strong potential for the Television category to cease it’s decline, and even show some small growth. The missing piece of the puzzle is innovation. A strong, compelling reason for households who already have one to three Flat Screen Digital TVs to want to purchase a replacement set. 3D and LED certainly offered something different from the norm, and while some took to the idea it definitely wasn’t a technology that consumers could do without.

Out with the old, in with the new…

what is needed for the television sector to flourish is a new, sexy must have technology, providing the same excitement levels as when flat TVs that you could hang on your wall were available to replace your big, bulky CRT. A “real” reason for consumers to spend money. That innovation will come from Apple’s iTV, along with the upgrade of Smart TV with new improved, desirable content, and the impending arrival of OLED. Let’s not forget that this is also an Olympic year, and history does show a spike in sales around that time. This, quite obviously, will only give a short burst of sales but a welcome one nonetheless.

Apple TV

If there is a company synonymous with innovation, then it has to be Apple. Interest in Apple’s TV set has been gathering pace since the authorised biography of Steve Jobs was published last October. In one earlier interview, Jobs spoke of how he finally discovered how to build an integrated, wirelessly connected TV set with “the simplest user interface you could imagine.” After the release of the iPhone 4S, rumours begun to surface that Jobs was developing a Siri-powered voice system for Apple TV, of 42″ and 55″ screens, gesture controls and, most recently, a touch screen remote control. In Steve’s own words “I’ve cracked the problem”, and in true Apple style when they release a product there will be much fanfare and publicity, and the resulting product is very unlikely to disappoint. The launch, when it finally arrives, of Apples much anticipated iTV will without doubt set the benchmark for what a TV should deliver. Industry sources have already confirmed that Apple has sought supply from Japanese panel manufacturer Sharp, and American chip maker Intel, alongside an agreement with Video streaming giant Netflix for content. While we have been given nothing from Apple direct, industry experts state that there will be two large screen sizes available – 42″ and 55″, both commanding a premium price point between $4k and $5k. The interface will be totally unique and designed to merge Free to Air TV, Smart TV and search capabilities into a single platform. In terms of design, it will be a single flat sheet of glass with no bevels or edges, and will certainly feature Apple’s Siri voice control. In early March, Apple announced that they have agreed terms with US giant Netflix to allow Apple TV users access to their huge array of content from their iTunes account. In further good news, it does seem that Netflix will be planning to enter our market in Australia – quite possibly alongside Apple’s entry into our TV market. Apple fan boys are not driven by price, and with such a worldwide devoted following we can expect a monumentally fast take-up of this new technology. This does represent a welcome shot in the arm for the TV industry, with much stronger volumes to be expected in the premium end of the spectrum. This should raise the average spend (ASP) of the whole sector. Besides the obvious lure of the Apple brand to customers, another hugely positive aspect of iTV will be Apple’s track record in setting, regulating and maintaining above-market price points.

This is precisely what the television industry is crying out for now – a TV product that can be sold on merit and service alone, and not prone to price slashing wars between local vendors. Hopefully in time the other big vendors may follow suit and begin some form of price regulation of their own. Speaking of other vendors, there has been confirmation the Telstra is working with both Korean giants LG and Samsung to release a new offer of Smart TV sometime in 2012.

Making Smart TV Smarter

While Smart TV to date has enjoyed mild enthusiasm, the next generation of Connected TVs should begin to create a compelling reason to lure in potential customers. While the current (and past) offerings have presented quite different options from just regular television viewing, the take up hasn’t been met with vigour – and that could well be down to two reasons.

The first is sales person education. Which, in turn leads to customer education. If the staff aren’t sold on the benefits, or worse yet, don’t really know how to use or properly demonstrate the wide array of content these TVs are able to deliver – then what chance does a customer have of being impressed enough to open their wallet? It may seem like an obvious point – but salesperson education by the vendors needs to be delivered in a different fashion to how it is currently being provided. Whatever the method that is in place to this point, be it training nights, short company trainer visits to the store or whatever – it is not working. A greater focus needs to be made on how to sell this product, and sales people need to be given all the means necessary to be able to demonstrate the wide array of benefits in the stores.

Which leads us directly to the second point – ease of use. When any product, be it a phone, tablet or television, has a wide offering of content available then the key to making the customer want to use these features time and time again is how easily accessible they are. No one likes to have to go into a menu, wait for it to load, wait for updates, try to type with a remote that was meant for changing channels then try to find what they are looking for in a maze of menu options – there is no wonder that people return to their PCs or tablets to perform any web related tasks. Why would they go through a myriad of extra steps, at half the pace, to do something on a TV that can be done much easier on a tablet or PC?

That is why a single user interface – which merges Television, Internet content and Search into a single entity, is on the cards. Google, Apple and Telstra have all taken heed and are currently working with Sony, Samsung and LG to take Smart TV to the next level. The next level isn’t necessarily a whole host of extra features – but a convergence of Free to Air, Internet Content and Search into a single interface creating a pleasant, exciting and most importantly, user-friendly environment. Another great advancement looming is the addition of Pay-TV services, provided over the web through our connected TVs. An whole host of new, Pay-TV channels from Foxtel integrated into our TVs – without a separate box, second remote and second TV guide. Imagine plugging in your TV, turning it on and then the guide button allows you to access TV channels, Foxtel channels, You-Tube channels and everything else on offer. This is the next step for Smart TV. This could, in theory, also create an opportunity for retailers to provide IPTV connection packages and contracts for Televisions – just like phones and tablets, yet another facet of profit which will present itself in the next upgrade cycle.

OLED Technology

OLED will present retailers with a premium, high dollar value product to boost growth in the television sector, however the belief is that at this very early stage in the life of this technology will result in moderate growth. The potential of iTV and Smart TV evolution will drive the category to forward growth in the near future, as OLED is not exactly a complete change in innovation but an improvement on the Flat Panels currently on offer. Long term, however, the cost of OLED manufacture is expected to reduce significantly and eventually cost 20% less than LCD to build. Another factor which will give retailers hope of a return to margin in the future.

What does the future hold for TVs?

In the immediate future, experts predict a continued contraction in unit volume, as market saturation (only 18% of Australian households do not have a digital TV) and low price point, Chinese imports continue to flood our market. The continued reduction in price of branded digital TVs has also prompted many households to upgrade TVs in bedrooms and spare rooms – eliminating the rapid volumes we’ve seen in the past as customers purchased their first or second Digital TVs. So the unit volumes in entry level TVs will continue to decline.

There should be volume growth to be had, however, in the mid to high end price points. It isn’t surprising that a larger volume (in terms of units) is sold at the lower end of the price spectrum, but the coming year should see enough sales in the mid – high-end category to offset this. This will be realised with Apples foray into the TV market with iTV, alongside the Smart TV upgrades and the arrival of OLED.

Price deflation in the Television market in Australia has been accelerated by cheap Chinese imports, pricing battles between suppliers and retailers alike, and the emergence of the online retailer. The lack of brand new, cutting edge technology, and the fact that the vast majority of Australian households have already upgraded to Digital TVs, has slowed the uptake of the current technology dramatically. This leaves the only weapon in the retailers (and Suppliers) arsenal as price – and this has escalated into a price war which has eroded margins.

A narrowing of price difference between overseas and Australian stock have levelled somewhat, which means that we may have borne the brunt of price deflation already. With iTV arriving in the final quarter of 2012, alongside OLED and the Smart TV upgrade – many consumers will be tempted into upgrading their current TV technology into new, exciting cutting edge alternatives. If the trend toward higher dollar, desirable TV technology can be sustained over the coming years, then maybe the Television sector can lift itself from the doldrums and become the exciting, profitable department it once was!