Goodies, games and gizmos goose the industry

The U.S. economy may be in the worst shape since the Great Depression, but some exhibitors at the 2009 Intl. Consumer Electronics Show in Las Vegas still have something to celebrate — cautiously.

The smart money is betting that several product segments will enjoy healthy sales in 2009 and, in so doing, provide a much-needed underpinning for the beleaguered entertainment biz.

“In the midst of a dismal housing market and an overall economic slump, consumers are still expected to shell out cash for consumer electronic products,” In-Stat analyst Stephanie Ethier says.

Across the board, CE analysts agreed that, although some product categories are hard-hit by the economic downturn — such as high-end, customized home entertainment centers — others are thriving. The Consumer Electronics Assn. projects a 6.9% growth for digital imaging, 5.6% growth for gaming and 30% growth for GPS/LBS products.

Kurt Scherf, VP/principal analyst at Parks Associates, says his company’s research shows a boost for products in the home. “Consumers are making the conscious decision to spend more money on home entertainment,” he explains. “That’s a result of the economy, but this was also beginning to happen well in advance of the economy.”

At the same time, says iSuppli Corp. senior analyst Sheri Greenspan, consumers are looking for bargains. “During a down economy, people would probably move towards the lower end of the price spectrum within segments they were already interested in,” she says. “If someone was looking for an HDTV, they’ll still buy one, but go for a lower-priced one than they initially planned. The same thing goes with portable media players and cameras.”

Scherf reports that penetration of HDTV sets is at 50% of U.S. households, with deluxe home theaters (large-screen TVs with 5.1 surround sound) at 20% penetration.

This trend is still playing itself out, says Ethier, who notes that HDTV sets were the “most desired CE product” of the 2008 holiday season and will continue to be a strong category in 2009.

Completing the picture, Scherf adds, are products that enhance existing household entertainment setups. “That includes Blu-ray players and game consoles at the center of so many home theaters,” he says. “Netflix and Blockbuster, both of which are now streaming content through the Internet, are making announcements about consumer electronics products that can link up that service to the TV set, including Blu-ray players from LG and Samsung, TiVo, Microsoft’s X-Box 360 and Roku’s Netflix player.”

Greenspan agrees the “connected living room” will be a strong category at this year’s CES. “I expect to see more focus on the ability to connect consumer electronics to the Internet and the personal computer,” she says. “The idea is for various platforms to interact, and to recognize the convergence of usage models within and across platforms, such as phones that incorporate a portable media player functionality, Blu-ray players with Internet access, or mobile gaming devices supporting VoIP.

“The entire supply chain is beginning to support this, from the semiconductors to wireless to display and content,” she continues. “There is more of a combined effort in the entire value chain to bring these usages to market.”

Parks Associates’ Scherf is also bullish about smart phones. “Multimedia-capable phones will be a relatively hot area at CES and throughout 2009,” he says. “Just getting digital content in front of consumers, no matter where they are, continues to be key.” He points out that mobile services have become a major part of revenue for the telcos, as landline customers move to mobile.

In-Stat’s Ethier reports that Apple’s iPhone moved into the top three brands sought by consumers, at 31% (Motorola and LG were the other two), and that an increasing percentage of users are interested in multimedia capabilities (41.6%) and navigation capabilities (50%).

Growth in the smart-phone area goes beyond rich media content, Scherf adds. “(The telcos) will offer ways for the mobile phone to become a controller for media in the home,” he says. “They’ll interact as remote controllers for home electronics.”

He also notes the growing importance of companies that provide set-top boxes and other residential gateway devices to centralize, manage and distribute services inside the home. “You’ll see major companies like Cisco and Motorola make announcements about this,” he predicts.

Though this year’s CES promises some encouraging news, analysts still have words of caution. Ethier’s study pointed to less revenue this holiday season than last year’s, with more respondents saying they had no intention to buy consumer electronics. Parks Associates’ study found that almost two-thirds of U.S. consumers had altered their spending habits in the last quarter of 2008, with the losers being providers of entertainment outside the home.

The solution? “Take a back-to-the-basics approach to revenue growth and cost savings,” Scherf suggests. And hope for a better season in 2009.

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