Smashed. Look out Kogan, JB, Bing Lee and Harvey Norman
Last week in Sydney’s Inner West and only meters from a homeless person’s humpy, a plasma TV sat on the footpath awaiting council collection. A large, flatscreen plasma TV. On the street. In the rain.
Years ago, at the liquidation auction for the collapsed One-tel, a bidding frenzy erupted for plasma screens sending the price for the large flat screen monitors over $7000.
But as Bob Dylan once wryly observed, the times, they are a changin’.
Between 1939 and 1941, 7000 TV sets were sold in the United States. By 1950, annual sales had reached just shy of 10 million and by the end of the 20th century annual US sales had reached 35 million units with penetration of 98 per cent within US households. In 2015 it is estimated that 141 million Internet connected TV’s were sold worldwide.
Today it is estimated that 78 companies, starting with Du-Mont in 1938, have sold hundreds of brands and well over a billion units worldwide. Now manufactured in the millions, with the only quality control for many brands being a test of the on-off switch, moments before being wrapped and boxed, the TV it seems is a cornerstone appliance of the modern, westernized home.
But new technology that ushered in the demise of VHS and Beta video, cassette tapes and floppy disk drives and the slow death of DVD and CD may now also be triggering the beginning of the end for the TV set itself?
Research outfit, Digital TV Research, projected the number of analog terrestrial TV households worldwide, would decline from 531.85 million in 2010, to 317.0 million in 2014. In the US, Cable TV penetration is flat lining at 61 million households, while free to air TV penetration has also flat lined, at 12.8 million households. And while IPTV is growing, it is doing so only slowly and is expected to reach 14.4 million households by 2016.
As you read the excerpt below from Fortune Magazine/New York Post, you might wonder what the impact will be, if the trend spreads to Australia, on electronics retailers like JB Hi-Fi and Harvey Norman, and also on TV networks like Seven, Nine and Ten.
Perhaps Bob Dylan wasn’t thinking about electronics retailers, TV Networks and TV manufacturers when he wrote:
“And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is rapidly agin’”
But his words are an apt reminder that no business is immune to the behavioural shifts now occurring at a rapid pace.
“Young people are ditching their television sets even faster than in previous years, according to new data, with traditional TV usage falling among viewers age 18-34 falling at twice the normal rate in the recent September to January season.”
The sudden acceleration of young people dropping TV in favor of Netflix surprised many analysts. “The change in behavior is stunning. The use of streaming and smartphones just year-on-year is double-digit increases,” Alan Wurtzel, NBC Universal’s audience research chief, told the Post. “I’ve never seen that kind of change in behavior.”
“In 2011, 21.7 million young adults were tuning in to their TV sets, but that figure fell to 17.8 million last month, a drop of almost 20 per cent.”
You can read the full Fortune article here: http://fortune.com/2015/02/18/millennials-are-abandoning-their-tv-sets-faster-than-ever/
Roger Montgomery is the founder and Chief Investment Officer of Montgomery Investment Management. To invest with Montgomery, find out more.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Patrick Poke
:
It will come down to how the companies react to the changing consumer habits in the end. There’s plenty of opportunities in electronics retailing (though perhaps bricks and mortar aren’t where those opportunities lie), but to survive in a cut-throat business you have to adapt. I don’t see Harvey Norman making the necessary changes, JB Hifi and Bing Lee maybe, but I’m not confident enough on it to risk my own money. JB remains on my watch list as they seem to be the most likely to make necessary changes, but as it stands I wouldn’t buy it.
Random Ash
:
I fit the demographic of ‘cable cutters’ (as the US terms it). For me, there are 4 reasons:
1) Ads – you pay for ‘exclusive’ access to a service yet still get bombarded with just as many ads as free-to-air. This used to be different in the 90’s/2000’s, but the ads are insane now. A 2 hour movie takes 3+ hours to view, not to mention ads ruining the suspense/feel of the program.
2) Money – the packages offered continue to reduce in size while the price stays the same. More sought after channels are then put into premium packages which cost even more. Foxtel has finally become aware (and scared) as evidenced by their $25/month deal they now have.
3) Time – If I want to watch a particular show, I want to watch it now, not have to wait for it to be shown in prime time tomorrow night. TV is expected to fit around my schedule now rather than the other way around (as was the case in the later 20th century. Many will class this as a ‘first world problem’ but the fact that options exist for me to achieve this means I’m going to go with what I want.
4) Delayed release – this is better than what it used to be like but delayed release dates for no other reason than distribution contracts. The world is connected instantly now via the internet – good luck not coming across any spoilers on your favourite TV show once it’s aired in the US but you have another 3 months to wait.
I personally think the physical TV device is not going anywhere – but what is consumed on it (and where its sourced from) is changing massively.
Roger Montgomery
:
Great to receive that personal perspective Mr Ash. Stats suggest the TV however is not being used as much…
Andrew Legget
:
Nice story Roger. I remember recently a family member brought over some items thinking we might be able to sell it on the local buy, swap and sell site on social media that we have made some money on turning our junk into cash. One of these items was a cassette/radio. Our response was that there is nothing that we can do with this as there is no market for it. There wasn’t even a CD player let alone an iphone port.
On council clean up days walking down the street, you will find DVD players, TV’s and other such electronic devices mixed with the various bound books that are being thrown out. All of these would have previously been quite in demand.
The speed at which technology is evolving is a factor that all investors and businesses need to be aware of. It will pay to have a bit of an imagination as to how the future will look as this imagination might not be far from the actual truth.
Lets put it this way, there is no reason now why a TV and a computer should need seperate screens and there for no reason that a TV should not be able to link up to the internet (this is obviously already happening but just go with me here). The continued trend of this would be a house where there is no need for anything that cannot instead be stored on a hard drive. There for CD’s and DVD’s will likely be obsolete like vinyl records and cassettes are today in the very near future.
There will be quite a few industries that will go the way of Kodak and find that their really profitable product will all of a sudden evaporate into nothing. As with all of things in technology, this will likely be extremley sudden.
When thinking about technology, anything it now appears is possible, in fact there will also be possiblities and new products that are invented in the near future that even most of us mortals didn’t even know we needed (i remember questioning the need for an iPad, i now own one and think they missed some opportunities).
It is a really exciting but volatile place and obviously will have impacts on the performance of those businesses whose role is to sell them to consumers. This includes, keeping up with the technology theme, the question as to the appropriate mix between online and bricks and mortar stores.
In fact, i am struggling to think of businesses that will not be impacted in some way. Will Woolworths for instance need to rejig their stores or deliver in the future, 3D prinitng catridges that allow customers to print out edible food. I also can’t see a future for the simple newsagent either. Lets not even get into the media industry.
In summary, the evolution of technology is going to be a defining theme, possibly forever now that it has really begun, for all businesses and investors.
For all potential listed companies, i think the answer to “is technology going to cause disruption in my industry in the medium to long term future?” the asnwer will be undoubtably “YES”.
Imagination and understanding of technological improvement going on in all areas of the world nad industry will be a must have tool for investors.
Roger Montgomery
:
I agree with that assessment Andrew.
Josh
:
Big TV’s are going to be under significant pressure from virtual reality headsets (pick whatever “TV” size you like in VR) within the next decade anyway. A small and light headset that’s cheap to ship internationally, capable of being powered off the powerful processing unit you’ll already be carrying in your pocket.
Get hold of the latest Oculus rift and run the demos, which include a virtual cinema and virtual home theater among better things.
Stationary environments like sitting watching a TV might be a relatively boring application of VR, but it’s also the type of application that VR will excel at early on, in these cases the system doesn’t suffer from nausea and lack of realism relating to failure to simulate gravitational orientation and inertia.
Roger Montgomery
:
Very interesting Josh. Thanks.
garry howlett
:
Ahhh Bob Dylan, still a favourite of mine 40 years on. First album I ever bought,
“‘live in budokan””. Yes Roger the times are a changing.
Roger Montgomery
:
Thanks Garry.