DVD, HDTV, MP3: The Next Killer Apps?

Brandweek, June 19, 2000 by Todd Wasserman

The booming economy has been good news for the consumer electronics industry by making many feel flush enough to take a flyer on expensive new technology.

DVD (for digital versatile disk) became the fastest-growing CE product ever introduced. In only three years that the devices have been on the market, DVD layers already have a place in 5% of the nation's homes.

Likewise, CE dealers have been voicing surprise that high-definition TVs have also been strong sellers. Sure, the technology is impressive, but the devices still sell in the lofty $5,000 price range, before the anticipated learning curve brings prices down to levels that can stimulate mass levels of consumption. The surprising success of HDTVs was spotlighted during the last holiday season, when many retailers found themselves understocked.

Digitizing other CE cornerstones like VCRs and audio products will mean that for the next few years consumers will feel increasing pressure to upgrade, in much the way they replaced their tape and LP collections when CDs hit the market.

One of the biggest initiatives this year is digital audio players, as virtually all the big players invest significant marketing dollars behind the devices, also known as MP3 players. But before they can race to mass acceptance, digital audio players will have to overcome some problems. There are competing standards, always an inhibitor to new-technology adoption, and the major record labels, concerned about the risk of intellectual property theft, have yet to figure out how they will provide digital music for downloads. Even so, CE companies are jumping at the chance to be identified with devices that can greatly enhance their brand's relevance to the well-heeled, emerging demo of 18- to 24-year-olds. In other words, this could be the proverbial next killer app that marketers have been longing for.

This should be a crucial year for category leader Sony Among its pet projects is Memory Stick, a bid for an industry standard for so-called flash memory Sony's vision is that users will be able to insert the chewing gum-size slab of plastic and silicon into digital cameras, digital audio players and PCs. But although Sony can boast a roster of blue-chip companies that say they plan to employ Memory Stick, Sony is currently the only company to offer it. Panasonic's parent company Matsushita--Sony's old nemesis from the bad old Betamax-VHS days of warring video standards-- plans to back its flash memory device, SD Memory Card, with a campaign this summer. SD Memory Card is not compatible with Memory Stick.

On the gaming console front, Sony's PlayStation 2, backed by a campaign budgeted in excess of $150 million, should present a strong challenge to Sega's Dreamcast and Nintendo's N64 platforms as well as Sony's own PlayStation 1.

The industry will also be watching to see if Sega's online arm, Sega.com, will be able to prove that online gaming is a big draw Sony Nintendo and Microsoft, which plans its X-box gaming console next year, all are betting it won't be.

                           Consumer Electronics
Brand                     Location            Lead Agency,          Total
                                              Location              Sales
                                                                  (billions)
1. Hitachi                Brisbane, CA        Hakuhodo, NY          $65.9
2. Sony                   Park Ridge, NJ      Young & Rubicam, NY    44.5
3. Philips                Atlanta             Messner, Vetere, NY    33.5
4. Samsung                Ridgefield Park, NJ AG Worldwide, NY       22.8
5. Panasonic              Secaucus, NJ        Grey, NY                8.1
6. Thomson/RCA Multimedia Indianapolis        Lowe, Lintas, NY        7.0
Brand                        Media
                          Expenditures
                           (millions)
1. Hitachi                    $4.9
2. Sony                      661.0
3. Philips                   121.0
4. Samsung                    26.7
5. Panasonic                  29.9
6. Thomson/RCA Multimedia     29.1
Sources: Company financial reports (sales); Competitive Media
Reporting (expenditures)