Best and Worst Consumer Electronics, 2007

Winners were clear in the music player and game console categories, but the dust has yet to settle in the fight over PC-to-TV and next-gen DVD technology

Every year there are winners and losers in the consumer electronics business. But rarely are they so acutely divided as they appear to be in 2007. Those products deemed winners not only won—they won big. Those that lost tended to lose big, too.

Some winners will come as no surprise. Apple (AAPL) continued to dominate the mobile media player business, its iPod brand still a synonym for the entire category. The clear loser in this market was pretty much any company that dared challenge Apple on turf it has owned in an undisputed manner since 2003.

iPod Far Outstrips Rivals

Microsoft's (MSFT) Zune player, despite a heavily hyped release and a respectable spurt of purchases when it first hit the market in late 2006, had generated sales volume of just 1.2 million units from launch through mid-2007, according to market research firm NPD Group. Apple sold more than 17 times that many iPods during last year's holiday quarter alone.

Still, as this year's holiday season was getting under way, the newly redesigned Zune player (BusinessWeek.com, 10/3/07)> was in surprisingly short supply at online retailers including Amazon (AMZN). Of course, while higher-than-expected demand may be the culprit, such shortages could easily be the result of either poor planning or deliberate strategy. There's nothing like an artificial shortage to build a buzz and create the illusion of strong demand.

But despite Apple's ongoing dominance in handheld music players, there was another winner in the consumer electronics business: SanDisk (SNDK). The maker of memory chips and storage devices managed to retain its distant No. 2 slot behind Apple in the U.S. market, capitalizing on the cost advantage of being its own flash memory supplier. NPD estimates that SanDisk sells about 10% of the MP3 players sold in the U.S.

Slingbox Edges Ahead

But Apple didn't dominate in every market segment it entered. Selling downloadable TV episodes—it has sold 100 million of those in two years—is one thing. Selling gadgets that make those videos watchable on a TV set is quite another. Take AppleTV, an iTunes-connected TV accessory that, with sales clearly not taking off in an iPod way, Apple CEO Steve Jobs described as a "hobby" (BusinessWeek.com, 5/31/07).

Compared with other devices meant to bridge the gap between a home PC packed with videos and the TV set in the living room, AppleTV appeared to be just another entrant in a crowded race that's just getting under way. "Nothing in this space is settled. In fact, the picture keeps getting cloudier by the day," says Chris Crotty, a consumer electronics analyst with iSuppli, a Silicon Valley research firm. Apple has yet to release any official sales figures since AppleTV was introduced in January, which can't be an encouraging sign since the company has already disclosed sales numbers for the iPhone, which arrived a half-year later than the set-top box.

If overall buzz and an unexpected acquisition can be used to declare an early leader, if not an out-and-out winner, for the TV gadget business in 2007, then the $380 million acquisition of Sling Media by the satellite TV concern EchoStar (DISH) fits the bill. Sling makes the curious Slingbox, a device that lets users watch their home cable TV channels and videos stored on a DVR from a laptop or mobile device on the road. It's expected that Sling, which has only vaguely quantified its customer base as "hundreds of thousands," will see its "place-shifting" technology added to future set-top boxes offered to EchoStar subscribers.

The video game market also produced a surprise winner in 2007. While Sony's PlayStation 3 console and Microsoft's Xbox 360 attracted all the prerelease hype in late 2006, both saw their unit sales come up behind Nintendo's Wii. More than 15 million Wii consoles had been sold this year through October, according to iSuppli. That beats the 10.4 million Xbox systems and the 8.8 million PS3 consoles sold in the same period.

DVD Stalls Out

While most segments produced clear victors in 2007, one battle for control of the home TV screen has yielded nothing but losers. With global sales of DVD players starting to fall as the market reaches saturation—consumers will have scooped up 126 million players in 2007, vs. 130 million in 2006, iSuppli reckons—the clash of next-generation DVD technologies ended in stalemate.

The Blu-ray disc camp, led by Sony (SNE), Samsung, and Panasonic (MC), traded minor victories with the HD DVD camp let by Toshiba (TOSBY). But neither side has the sort of momentum that would make consumers feel anything less than anxious about investing their money in a device that runs on what could become the losing format. As a result, they're showing little interest in either format. Combined, only 2.2 million Blu-ray and HD DVD players have been sold worldwide to date, says iSuppli. That amounts to less than 7% of the estimated 32 million HDTV sets in use. "By fighting each other, both sides are losing," iSuppli's Crotty says.

For now, awareness of the competing DVD formats remains relatively meager. A recent study by NPD found that 29% of those surveyed had heard of the HD DVD format, while only 20% had heard of Blu-ray discs. A strong holiday season for sales of HDTV sets combined with declining prices for both types of high-definition DVD players may help drive adoption, says Ross Rubin, an NPD analyst.

A price war is already under way. Toshiba's high-end HD DVD player is now listed at about $300, down from price tags of $500 and up (BusinessWeek.com, 6/23/06) earlier this year. And in recent weeks, retailers including Wal-Mart (WMT) and Best Buy (BBY) have featured a Toshiba HD DVD player on sale for $100. Meanwhile, the price on Sony's Blu-ray player has fallen to the $400 range, down from $500 to $600 earlier this year.

There has been one silver lining amid this standoff, for movie makers at least. Of those consumers who have purchased a next-generation DVD player, most plan to replace about a quarter of their existing movie DVD collections with next-generation discs.

courtesy @businessweek.com