Retailers push next-gen DVD with HDTV sales

By Susanne Ault -- Video Business, 10/19/2007

OCT. 19 | Consumer electronics retailers seeking to boost their profit margin as HDTV prices drop are increasingly looking to sell accessories—including high-definition DVD players—to go with the new family TV set.

Ultimate Electronics’ goal for next year is to have one in four high-def TV purchasers also take home a Blu-ray Disc or HD DVD player. Earlier this month, Best Buy was offering $500 in total savings on bundled Sony products, encompassing a TV, a PlayStation 3, a PS3 game and a BD movie.

“We are looking at future-proofing people for the high-def transition,” said Matt Duda, director of merchandising for video at Ultimate. “Blu-ray and HD DVD is another way of looking at it. It is incumbent to inform the consumer about other product categories evolving as well, and HDTV is just one part of it. Why not get in on the ground floor and get all of the latest and greatest in technology?”

Ultimate is encouraging shoppers to pick up a Toshiba HD DVD player with a Toshiba HDTV by displaying the two together in stores.

“It’s absolutely important for retailers to try to make sales more profitable as TV prices come down,” said Rick Souder, executive VP of merchandise at Crutchfield. “You’re also doing it in good conscience because the accessory product can be mandatory for the total enjoyment of the main product.”

DisplaySearch estimates that prices for all sizes of 1080p sets will drop significantly through the end of 2008. The average price for popular 40-inch LCD sets will hit $1,482 this fourth quarter, marking a 33% drop from last year. That will further fall 17% to $1,234 in Q4 2008, analysts believe.

To maintain 14% operating margins in this bargain climate, retailers need to motivate consumers to spend $620 on TV attachments, representing about 60% of a $1,000-priced TV. By Q4 2008, the attachment share needs to reach 70% to keep margins healthy. Last year, customers spent about 25% of the TV price on attachments.

Today, Crutchfield’s hottest related accessories are wall mounts and HDMI cables, but Souder soon expects high-def hardware will become more popular add-ons.

“When players get below $200, it’s going to be a pretty common discussion on the sales floor when you’re shopping for a TV,” said Souder. “‘What stuff do you like to watch?’ If they say movies, it will be ‘Let me talk to you about next-generation DVD players.’”

For this year, about 6% of attached high-def TV purchases will be HD DVD or Blu-ray player purchases on a unit basis, estimates David Workman, executive director of consumer electronics buying group PRO Group. That assumes there will be 1 million combined HD DVD and Blu-ray set-tops sold at year’s end, as has been previously estimated.

Although bundling products with TVs is becoming more critical, Workman doesn’t think most retailers will be able to achieve a 60% to 70% attachment share of the TV price.

“All retail averaged out is more like a 15% to 25% attachment to TV,” he said. “A 70% attachment is a nice goal but probably unrealistic for most retailers. A $1,000 TV customer is not going to spend $1,700 for a product he thought he only needed to spend $1,000 to get into his home.”

Still, retailers are at least trying hard to beef up the overall TV purchase.

Best Buy is offering a budgeting tool at www.askablueshirt.com to help people calculate what they can afford in high-def TVs. Currently, the chain recommends that the TV price be 60% of their entire purchase budget, with the remainder being accessories.

Amazon.com’s entire business model is designed around how many extras they can pack into a user’s cart.

“We’re trying to personalize the shopping experience,” said Noah Herschman, director of audio and video at Amazon.com, speaking during the DisplaySearch HDTV conference earlier this month. “We do well with out ‘Better Together’ feature, where customers [are prompted upon adding merchandise to carts] that for people who bought this, they also bought this together. So this TV also works with this Blu-ray or HD DVD player.”

Conference attendees were polled about what they thought will be the next best-selling TV accessory. The largest percentage, 33.3%, said next-generation disc players. Home theater audio equipment was 28.6%; wall mounts, 23.8%; and customer installation, 14.3%.