From The Wall Street Journal - Wednesday March 30, 2011
By EVAN RAMSTAD
SEOUL—In just a year, 3-D has gone from the cutting edge of television technology to a simple feature that will be one of several considerations for potential buyers of the 2011 models rolling into stores in the next few weeks.
Evan Ramstad tells us why Samsung and LG are waging a war of words over 3-D technology and the use of 3-D glasses, while data point to the greater issue at hand: 3-D TVs haven't sold as well as manufacturers have hoped.
But that hasn't stopped the two largest makers of TVs—Samsung Electronics Co. and LG Electronics Co., both of South Korea—from engaging in a bitter war of words over 3-D technology this month.
The dispute is over the best way to process three-dimensional images, whether to let the TV screen do it, as LG favors, or to let special viewing glasses do it, as Samsung does.
For consumers, the battle will determine whether they need to buy sets that require special glasses for about $100 a pair or simpler frames that cost about $10. But unlike previous video-industry squabbles, such as VHS versus Betamax videotapes, the outcome doesn't affect programs or the purchase of other video devices.
For the TV makers, the fight is important because they have traditionally counted on new features like 3-D to justify premium prices, which boost profits in a business with razor-thin margins.
At the end of 2009, when the movie "Avatar" gave consumers a fresh taste of 3-D technology, manufacturers hoped that 3-D TVs would sustain margins that were given a boost from the introduction of ultra-thin screens earlier that year.
Instead, consumers shied away from 3-D models, put off by the lack of 3-D content, the extra cost and the inconvenience of the glasses needed to watch such TVs. The result was an inventory glut that forced manufacturers and retailers to cut the prices of 3-D TVs, reducing the hoped-for profits.
Already, retailers in the U.S. and elsewhere have dismantled special displays and sections that highlighted 3-D TVs. As new models emerge in stores in coming weeks, 3-D will join features like Internet connections and app-style interfaces that will distinguish the most expensive TVs.
The average price of a 3-D TV in the U.S. was $2,990 in February, according to research firm IHS iSuppli. But the premium that TV manufacturers and retailers can charge for the most feature-filled TVs will be narrower this year, analysts say. "It is basically like the industry has given up on profitability to gain market share," says Riddhi Patel, video analyst at IHS iSuppli.
The division that includes TV manufacturing at Samsung had revenue of just over $50 billion last year but an operating profit margin of less than 1%. In the comparable unit at LG, the operating margin was around 2%.
Electronics retailers are also hurting from competition from online sellers and low-price chains like Costco Wholesale Corp. In the U.S., Ultimate Electronics, one of the last specialist chains, is being liquidated.
And last week, the chief executive of Best Buy Co., the largest U.S. electronics retailer, pointed to the fact that demand for 3-D TV "did not materialize as the industry had anticipated" as part of the reason for a 16% decline in quarterly profit. To help recover, a Best Buy executive said the company will boost its online offerings of TVs.
"For some part of the market, people no longer feel the need to go into the store to look at TVs," said Paul Semenza, vice president at DisplaySearch.
In such an environment, Samsung and LG are betting that the viewers' perception of 3-D technology could make a difference in sales and profits. Samsung sold 45 million TVs last year, compared with 30 million for LG. Samsung forecasts slower growth this year than LG does, a sign the gap between them will narrow.
To consumers, the chief difference between the two companies' approach to 3-D is in the glasses needed to view images. Samsung uses battery-operated glasses that flicker dozens of times a second in time with the alternating images on the screen to produce the 3-D effect. LG uses non-battery glasses to reconstruct images that are divided on the screen, the same as in movie theaters.
Samsung for months lobbied industry-standards groups to reject LG's approach as unsuitable for high-definition pictures. But the LG method was ultimately recognized as meeting high-definition standards in the U.S., Japan, China and Europe.
The dispute grew particularly tense earlier this month when a Samsung executive used an expletive in describing LG engineers to a group of Korean reporters, leading LG to threaten legal action. The Samsung executive sent an apology letter to LG this week, and LG accepted.
"It's very embarrassing that the No. 1 and No. 2 players are in this fight," said Kwon Young-soo, the chief executive of LG Display Co., a supplier of video components to LG and other manufacturers, after the expletive incident hit the Korean media.
Samsung in the past has hedged its bets on video technology, offering, for instance, videodisc machines that played both Blu-ray and HD-DVD formats. For 3-D, the company chose to concentrate on the battery-glasses approach because, a spokesman said, it "offers viewers the best combination of picture quality and viewing angle."
Write to Evan Ramstad at email@example.com