Digital TV for the masses: Thomson venture to roll out alternative to HDTV sets at prices 'Middle America' should love

May 23, 2005

People with cars-up-on-blocks in their front yards could afford to buy this digital television.

TCL-Thomson Electronics Corp., the Thomson joint venture known as TTE, plans to launch ultra-inexpensive "SDTV'' digital sets this fall to aggressively court what some say is an ignored segment of the consumer electronics market.

If Bharath Rajagopalan and his colleagues are correct, TTE could get an edge on competitors who've been too drunk on profit margins from big, $5,000 plasma screen sets to worry about digital sets the masses can afford.

"At the end of the day, we have to make these appeal to Middle America," said Rajagopalan, general manager of product marketing for TTE's North America headquarters in Carmel.

The line of RCA-brand SDTV sets-short for standard definition TV-will hit store shelves this fall at less than $400. The product is a result of the world's-biggest TV maker's reassessment of the digital market known best for the high-dollar HDTV.

Despite bullish market penetration data from trade groups, digital TV has experienced a slower and more awkward transition than many in the industry had expected. Turns out that the masses weren't willing, after all, to sell a kidney to buy HDTV sets they drool over in Sunday newspaper ads.

"I think the hype overran the reality," said Rajagopalan of TTE, a joint venture formed last summer by French electronics firm Thomson and Chinese TV maker TCL International.

"In the rush to HD, people forgot the 'D' [digital TV]," added Rajagopalan, a former Texas Instruments executive.

Central Indiana has a lot riding on the success of TTE and of Thomson, which share the same 10330 N. Meridian St. headquarters. About 200 former Thomson employees now work for TTE in television development. Many are higher-paying electronic and software engineering jobs that economic-development types covet.

Another 800 continue to work for Thomson in other electronics ventures, such as audio-video accessories.

Employment at the facility is down about 200 from a couple of years ago as part of a restructuring. Thomson created the joint venture with TCL International Holdings last year after seeing its share of the market eroded by cheap imports from China carrying such names as Apex and Haier. Chinese brands have captured more than 20 percent of the U.S. TV market, according to analysts.

Thomson closed its last remaining Indiana manufacturing plant last year-a Marion picture-tube plant-idling nearly 1,000 workers.

With cost issues alleviated for now through the TTE venture, Indiana's role in the TV industry going forward depends largely on innovation and marketing savvy. SDTV is a case in point.

More plebian

Make no mistake, SDTV is in the steerage class of digital TV.

It has a little more resolution than today's conventional analog TVs, though it isn't subject to ghosting or signal arti- facts that plague analog. It hasn't the jawdropping clarity of HDTV, either. And it uses chunky old cathode-ray-tube technology, which makes the units deeper from front to back than top-of-the-line sets.

But TTE plans to command a leading market share of SDTV sets with seven models ranging from 27 inches to 32 inches, priced between $279 and $350.

By comparison, some "HD ready" sets that don't have built-in digital tuners cost twice as much.

TTE argues that most consumers wouldn't see much difference on smaller screens between SDTV and HDTV-at least not enough of one to justify spending more money on the latter.

Rajagopalan won't specify how much SDTV is expected to contribute to revenue, but "we think it will be a very material portion of our sales."

Consumers will buy the sets not only as their primary TVs but also for use in bedrooms, according to TTE.

Encouraging TTE's product-development staff in Carmel is industry data that show nearly 75 percent of consumers still pay less than $500 for a television, a huge percentage that seems irreconcilable with the steep prices for HDTV-ready sets that are most heavily advertised.

The SDTV sets are in addition to TTE's existing line of HDTV models that include thin plasma and LCD models that can be hung on walls. Rajagopalan said those models will become mainstream eventually and that TTE has already developed more affordable versions in each of its TV product categories. He noted that TTE already sells a big-screen rear-projection set-with built-in HDTV tuner-priced at about $1,000.

The less-expensive SDTV line will have tuners that can pull down the digital signals that will become the norm when stations stop broadcasting analog TV sometime in the next few years.

The Federal Communications Commission has mandated that manufacturers phase in a growing number of sets with digital tuners through 2007. But the analog phase-out date is likely to be pushed closer to the end of the decade.

"As a company, we couldn't be driven by uncertainty. We didn't want to wait and wait," said Rajagopalan, explaining the emphasis on SDTV.

"There is a potential market for [SDTV], particularly if Congress puts its foot down" on the analog cut-off date, said Phillip Swann, author of "TV Dot Com" and publisher of

SDTV sets stand to gain market share not only with the government mandate looming for built-in tuners but "given the price points in the market, it makes that very attractive to the price-conscious consumer," said Riddhi Patel, an analyst at El Segundo, Calif., research firm iSuppli.

Whenever it is that broadcasters go alldigital, those with analog sets will need a digital-to-analog converter box. With that there could even be "panic buying" of SDTV sets by consumers with modest budgets, Swann said.

But the market for SDTV could be shortlived if HDTV prices continue to drop. "People will go, 'Well gee, for another $300 I can get HDTV," Swann said.

Not as risky

Investing further in cathode-ray-tube production isn't as risky for TTE as it is for some manufacturers such as Sony that have all but ditched CRT for plasma- and LCD displays.

CRT sets are still the staple for Chinese consumers who can't afford sets sporting the more expensive display technologies. TTE also enjoys low CRT production costs in China thanks to partner TCL's vast manufacturing base there.

"Rumors of [CRT's] death have been greatly exaggerated," said Rajagopalan.

By 2008, CRT sets will still account for 68 percent of worldwide TV shipments vs. about 85 percent forecast for 2005, according to iSuppli. That's due in part to stronger sales of CRT sets in developing countries. Price is another reason. The average price for CRT-based sets last year was $302 vs. $3,342 for plasma-screen sets and $1,527 for LCD TVs, according iSuppli.

With that price gap in mind, TTE and other manufacturers, such as LG Philips and Samsung, are further refining the 50-year-old CRT technology to make the tubes smaller-so sets are not as deep in the back. In a corner of TTE's Carmel product gallery are mockups of 34-inch, widescreen CRT sets that are at least 8 inches shallower than conventional tube sets.

One of these, a digital set to be sold early next year, has a sleek front panel that looks nearly identical to the company's thin LCD TVs-no coincidence of design.
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