The Japanese connection

April 13, 2012
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment 

To manufacture TV sets is a thankless task as the massive losses of Sony and Panasonic show, but rewards will be plentiful so long as they become well connected.

Not so long ago, two respected Japanese giants struggled for their right to an honoured place in the households of the world. They fought each other with bigger, brighter and better weapons and attracted millions of loyal supporters locked in combat oblivious to the changes that took place around them.

After many years had passed, they paused, looked around, and discovered that their battleground had shrunk, the crowds had moved away and the territory they had claimed as their own was no longer the same.

The consumer electronics giants Panasonic and Sony once offered some of the finest flatscreen TVs in the world and from the point of view of image quality, they still do. The days of power-hungry plasma screens and the once-mighty Trinitron, however, have gone and the era of the LCD flat-panel is already on the wane. The future lies with LED and OLED screens and they are manufactured elsewhere.

It is almost seven years since a quarter of a million coloured rubber balls bounced down the streets of San Francisco at the start of the Bravia LCD TV “Colour. Like no other” TV commercial. The perception of Sony as a source of TV with better colour pictures remains in public awareness and consumers still recall the strong brand message that advertising agency Fallon London presented with such confidence in November 2005. The problem is that Sony’s TV manufacturing division lost money that year and has done so in every year since.

While the two conglomerates concentrated on broadcast TV and 3D distracted them briefly, the CE companies beyond Japanese shores responded far more rapidly to the changed audio-visual landscape. With increased speed and confidence, the digital world is moving away from external devices such as the set-top box, games console or Blu-ray player and into the flat panel itself. The TV has become “smarter” and the fortunes of the major corporations in Osaka and Tokyo are under threat.

Most people knew that former Sony Computer Entertainment President Kazuo Hirai would face financial challenges when on April 1 he took over from departed Sony Corp. President and CEO Howard Stringer. But only Jeremiahs forecast the extent of the problem that would confront him. Now, the predicted loss of £4 billion in the past fiscal year means that Hirai has to take unpalatable action that will include the loss of 10,000 jobs or roughly 6% of the 168,000 work force.

In a presentation to market analysts, the new CEO hinted at the unthinkable for long-term Sony watchers: whereas most observers expected the company to launch a new line of OLED screens, Hirai said that the TV division is no longer a “core business” and unless its fortunes changed, it could be closed or sold off.

Meanwhile, in Osaka, two and a half hours from Sony’s Tokyo headquarters on the Nozomi high-speed train, Kazuhiro Tsuga is about to take over as the new boss at Panasonic. He also faces a massive loss, in his case £6 billion, and here again the TV division accounts for a significant chunk of the problem. Panasonic moved early into plasma screen TVs, which were introduced alongside DVD at the January 1997 Consumer Electronics Show in Las Vegas. Quality and longevity improved over the next decade and Panasonic has a justifiably high reputation at the top end of this market.

Although Panasonic pushed hard for the introduction of 3D with active shutter glasses the lack of significant market penetration of the format means that there is unlikely to be a return that will match its investment, at least in the near future. The company took its eye off the ball while it focused on stereoscopic TV with the result that it failed to spot the growing market for connected-TV. Only now does the company aim to launch a smart TV that will compete with the advanced products from across the Korea Strait.

Samsung and LG, the two leading South Korean manufacturers, moved swiftly to embrace the country’s high-speed broadband infrastructure and they have profited immensely. South Korea has a national average connection speed in excess of 16 Mbps, according to figures provided by Akamai. Support for multiple connected devices within the home is therefore a viable option unlike Japan where the average connection speed is about half that. There is not the same incentive to link connected TVs into the home network in Japan and even less so in the UK and the US, where the average speed at the moment is between 5-6 Mbps.

Wifi also plays its part. According to a new report from market research firm Strategy Analytics, South Korea has the highest wifi penetration in the world and slightly more than 80% of broadband households have their own wifi network. The country with the second highest percentage of household wifi networks in the world is the UK where 73.3% of British and Northern Ireland households run their own network. France and Germany both have more than 70% of homes on wifi while the US lags at 63%.

Switch on a smart TV South Korea and it will sniff out the home network and connect automatically – all it needs is the password. Perhaps that is why the smart TV range from Samsung has the look and feel of a device built from scratch to integrate with the world around it rather than just a collection of component parts bought in from outside suppliers. Slowly but surely, the connected-TV will arrive in UK homes if only by stealth as the next generation devices connect themselves to the world about them and to the internet.

Almost 40% of US households own at least one connected-TV, wireless or not, according to a recent report from research organisation LRG, although many of them are linked up through a connected games console. LRG founder Bruce Leichtman says that the number of homes that access the internet through connected devices has risen from 5% in 2010 to 13% today. It is a trend that is unlikely to level off although for the moment broadcast TV remains the main source of video content for most UK households.

Both Panasonic and Sony TV divisions will survive to fight another day although perhaps the battle will be less one fought between giant manufacturers and more one of innovation and smart ideas to match the smart TV. It is said that up to half of the Sony shortfall results from the closure of a chemical division making crystals for LCD screens rather than from a misreading of the market. If Sony and Panasonic can put their considerable talents together, they could yet return to fight another day.

And there is still a lot of mileage in those bouncing rubber balls.