Summary

CEA President Gary Shapiro addresses the International Electronic Cinema Festival, reporting that DTV sales are outpacing color TV, VCR, and DBS in their introductory years, with projections of 425,000 units and $1.1 billion in sales for 2000. Consumer satisfaction with picture quality is near-universal, but only 28% of DTV owners are satisfied with available programming content.

Source document circa 2000 preserved as-is
    COMMENTARY

        e- Cinema

    International Electronic Cinema Festival

    An Update on the Consumer Transition To DTV

    by Gary Shapiro
    President and CEO, Consumer Electronics Association


Introduction

  • Good morning and thank you.

    As a movie fan, Iím thrilled to have the opportunity to attend a real live film festival and be entertained by the extraordinary HDTV content thatís being featured here. And it is exciting to be part of the International Electronic Cinema Festivals United States debut. Itís not an accident, of course, that this debut coincides with the rollout of Digital Television here in the United States. Itís a rich time in the history of our industries and Iím looking forward to working with you to bring the best of this new technology to consumers.

    When I was thinking about this talk, it occurred to me that the rollout of digital television is not unlike that of a blockbuster movie. After more than a decade in the making, we are introducing this technology to a potential audience of more than 100 million households, hoping for good reviews and counting on steady ìbox officeî sales. The story of DTV has all the elements of a good movie: compelling characters, interesting plot twists, occasional conflicts and, ultimately, I hope, a happy ending. (Change slide)

    The Making of a Blockbuster

    Every project starts somewhere. Ours began more than a decade ago when government and industry got together to bring the benefits of digital technology to television in America.

    After years of investment, cooperation and testing, we had the worldís leading high-definition television system. The FCC approved a standard to guide the efforts of broadcasters and television manufacturers and a rollout schedule was established.

    As is true with new movies, DTV would open in the top ten markets first, then move to homes in the top thirty markets and, finally, to the countryís smallest markets.
    (Change slide)

    A Successful Premiere

    DTV premiered at retail in August of 1998, just a few months before broadcast stations in the top ten markets were scheduled to go digital. Eager consumers flocked to stores to see the long-awaited premiere and early inventories sold out quickly. (Change slide)

    DTV's opening was a big success and 1998 sales exceeded expectations

    In 1999, as distribution and availability grew, DTV sales did, too. We easily reached our unit sales estimate of 120,000. First quarter 2000 sales were about 68,000, bringing total unit sales to more than 200,000.

    CEA Market Research projects unit sales in 2000 to reach 425,000 in 2000. (Change slide)

    What does that look like in dollars? In 1998, it was about $43 million; in 1999, about $295 million, and in the first quarter of 2000, about $169 million. And our projection for 2000 translates into $1.1 billion dollars in DTV sales. (Change slide)

    These numbers are extraordinary for an introductory CE product. (Change slide)

    Let's look at some of the other products we've released in recent history. I'd like to point out that the products listed here were and are considered extraordinary hits. Color TVs and VCRs are found in almost every household -- with 98 percent and 93 percent penetration, respectively. Digital broadcast satellite, or DBS, was one of the fastest selling consumer electronics products in the history of our industry. (Change slide)

    Here's how their introductions compare to each other. (Change slide)

    Now, let's compare their early sales to DTV. Itís looking like DTV may turn out to be our studioís biggest blockbuster yet. (Change slide)

    In dollar volume, the introductory trends are similar across these earlier hits. (Change slide)
    Again, let's compare these to DTV. (Change slide)

    In fact the first three years of DTV sales will exceed the total first three year sales of three blockbuster products combined: color TV, VCR and DBS. Suffice to say that DTV is no Heavenís Gate. If early sales are any indication of future success, and we believe they are, weíre looking at a classic here. (Change slide)

    Early Reviews Are In

    So what do consumers think of their new DTV sets? Early reviews give it ìtwo thumbs up.î These early adopters have spent significant amounts of money for their receivers, and their expectations are understandably high. We are pleased to report that of the thousands of integrated sets, set-top boxes and HDTV-ready receivers sold to date, we have yet to hear of any customer returns.

    This anecdotal evidence is confirmed by research conducted by CEA in late 1999, which shows a very high rate of customer satisfaction.

    Let's look at the consumer response in more detail. (Change slide)

    When asked why they purchased a DTV, 95% talked about improved picture resolution. For the early adopters, at least, picture quality is critical motivating factor. 69% of DTV owners talked about the sound quality, and 32% were motivated by the prospect of interactivity. (Change slide)

    Overall, 79% of DTV owners say their DTV meets or exceeds their expectations. For video quality, the number is 100%. Audio quality is 74%. Availability of programming, however, meets expectations for only 28%.(Change slide)

    95% of owners said that they looked forward to getting all their favorite programming in HD. 63% thought that 18 months is a reasonable amount of time to wait to get their programming in HD. But, 69% were disappointed with the current level of content. (Change slide)

    Content Is Critical

    This brings me to my next movie analogy -- and I hope you'll bear with me. If we look at why moviegoers flock to theaters, we probably find many factors, not the least of which being the large-screen presentation and surround sound. But the truth is, the large screen and great sound system won't take you very far without something to watch. All the milk duds in the world can't sell a movie ticket if thereís no movie. (Change slide)

    So it is with DTV. Products are widely available, offering consumers a wide-screen experience at home, along with the absolute best picture and sound quality technology has to offer. Consumers are excited about the technology and many are buying it. But the magic of DTV is more than extraordinary hardware. (Change slide)

    This is nothing new. The availability of quality content has been a driving factor in the success of nearly every consumer electronics product.

    The early rollout of color TV, as you saw earlier, was relatively flat. This was due, in large part, to the limited amount of color programming available at introduction. The CE history books tell us that the appearance of regular color programming ñ on weekly shows like the Wonderful World of Disney - led to a spike in TV sales and, eventually, as programming grew, widespread household penetration. The history of the VCR was also closely linked to content.

    More recently, DVD player sales and acceptance have been driven by the willingness of Hollywood studios to endorse the format and the growing number of titles available to consumers.

    We've already seen a link between DTV sales and available content. During the fourth quarter of 1999, DTV saw double-digit growth for the first time. A critical factor in this growth was the significant spike in regular HDTV programming -- including manufacturer-sponsored prime time schedules, movie features and sports coverage. (Change slide)

    But, as we saw earlier, introductory DTV sales have been steady and more significant than other introductory products, despite limited programming availability. Why?

    Consumers can get a better quality experience with today's digital content when they buy a digital or high-definition television. The entire history of our industry tells us that consumers want the best picture and sound quality they can get. If they buy a DTV now, even without significant high-definition programming available, they can improve their DVD and DBS experience.

    But the widespread adoption of DTV will take more than that.

    Broadcasters Must Step Up

    Our concern is that, so far, the programming commitment from the broadcast industry to providing regular, high-quality DTV programming has been lackluster at best. Unfortunately, up-converted analog is the way most consumers are introduced to DTV.

    To be honest, this is a plot twist we could do without.

    I know Iím preaching to the choir here. The content featured here this week is the kind of content that drives technology. You are using the format to its fullest potential and producing the compelling images and sounds that bring DTV to life for consumers.

    However, as we move forward, broadcastersí willingness to deliver on DTV and HDTV will have a significant impact on the transition. (Change slide)

    Our market research department has recently revised its DTV sales projections based on three programming rollout scenarios:

    In the best case, if broadcasters chose the "fast lane" to DTV and demonstrate 100 percent compliance with the FCC rollout schedule while providing a high percentage of digitally originated content to consumers, DTV product penetration could reach 50% by 2006.

    If broadcasters take a "middle of the road" approach and experience station conversion delays while providing a high percentage of upconverted analog content, DTV penetration will meet our original projection of 30% by 2006.

    However, if broadcasters choose the "off ramp" to DTV and push for a change in the DTV standard, DTV penetration will be less than 15% by 2006.

    We find these projections to be very sobering, both for our industry and the future of free-over-the-air broadcasting. That is why we have, in recent months, urged broadcasters to step up their efforts and deliver on DTV. (Change slide)

    Delays Have Consequences

    This is where the bad guy analogy comes in. No good story is without them. Recently, some have suggested that the DTV broadcast standard be revised or changed altogether. This change would inevitably delay and could permanently derail the DTV broadcast transition.

    We understand that conflict -- and critics -- are an inevitable part of any wholesale change. But delay is the enemy and those who endorse delay are the bad guys in this story.

    As you can see, our industry has a strong point of view on this. CEA supports the ATSC standard, and we believe that the current standard provides the best possible framework for moving the transition forward. It has broad support among both broadcasters and manufacturers will enable broadcasters to make the digital transition sooner and at lower cost than alternatives. (Change slide)

    The regulatory risks of delay are severe. While some broadcasters debate long resolved technology issues or rewrite business plans for DTV, they are jeopardizing their free use of the DTV spectrum. Many in Congress believe that while the law allows broadcasters to provide ancillary or supplemental data services, the DTV spectrum was loaned to the broadcasters on the assumption that they would provide free, over the air digital television.
    Delay also threatens broadcastersí ability to compete, and the future of free, over-the-air television. The home satellite industry is making an aggressive play for HDTV early adopters. DirecTV recently announced that HDTV marketing would be stepped up to meet consumer demand. (Change slide)

    Likewise, our recent cable compatibility agreement paves the way for cable to ramp up on DTV. HBO is now showing more than 50-60% of its film titles in HDTV, with a higher portion in primetime. The Madison Square Garden Network, owned by Cablevision, is producing approximately 30 hours of live HDTV sports programming per week. Showtime and Discovery are also producing HDTV programming.

    Other competitors are coming on strong. Consumers already like the combination of DVDs and DTV receivers. We expect that they will love HDTV on prerecorded media. And let's not forget the Internet -- as streaming media capabilities improve and broadband access grows, competition will increase.

    The point is, consumers want access to quality digital content, and, one way or another, they're going to get it. In an increasingly competitive media market, those who step up to give the consumers will be the heroes, and the heroes will triumph. (Change slide)

    Academy of DTV Heroes

    A quick word about heroes. In the DTV story, there have been many. Many people who dedicated years of their professional lives to build DTV and to make the benefits of DTV real for consumers.

    To honor these heroes, CEA recently announced the establishment of an Academy of Digital Television Pioneers. In the next few weeks, CEA will be contacting the nominees to the Academy, to honor them and to establish a group of individuals that can help us recognize the current and future heroes of DTV. The Academy's first awards will be presented on November 2 in New York City.

    Much like the IECF recognizes excellence in HDTV production, the Academy will recognize leadership and dedication in delivering DTV to consumers. The awards will go to heroes across all industries involved in the digital transition. I expect I will see some of you again in November. (Change slide)

    Conclusion

    The DTV story is a compelling one. The theater is filled with enthusiastic consumers on the edge of their seat -- not to mention the various industries involved in the business of DTV -- wondering how the story will end.

    So far, the plot line has delivered the worldís leading HDTV technology to consumers. Manufacturers have built more than 200 models of products and retailers across the United States are stocking DTV. Program providers, including a good number of broadcasters as well as satellite and cable operators, are delivering HDTV content to viewers. Consumers are embracing the technology. Along the way, the inevitable plot twists and conflicts have come up, as those with narrower interests try to thwart the progress of DTV.

    Then, there comes a point toward the end of a movie where all remaining issues get resolved and the characters can then get on with the happy ending. In eighth grade English class, they called it the DÈnouement or resolution. Whatever we call it, I'd like to think we're moving to that part of the DTV rollout story. (Change slide)

    Working together, content providers and the CE industry can ensure a happy ending for all consumers. Let's make this the beginning of a beautiful friendship.

    Thank you.