U.S. TV Maker
Wins a Shelf
At Best Buy
By GARY MCWILLIAMS
March 31, 2006; Page A11
Electronics retailer Best Buy Co. is set to start selling flat-panel television sets from computer giant Hewlett-Packard Co., marking the return, after more than a decade, of TVs from a major U.S. company to a national retailer's shelves.
H-P says components are being sourced from several suppliers and the sets assembled in Asia; still the deal marks a new approach to television marketing from a U.S. manufacturer. U.S. high-tech companies have struggled to win broad acceptance in consumer electronics. H-P, Dell Inc., Gateway Inc. and Intel Corp. all have stumbled through consumer-electronics pushes as purchasers have stubbornly stuck with big-name, mostly Asian brands.
H-P and Best Buy plan to take a fresh tack in addressing the $16.6 billion market for televisions in the U.S. Rather than taking on traditional TV makers Sony Corp. and Samsung Electronics Co. directly, the two companies hope to pioneer technology for receiving video and other streamed content straight from the Internet onto flat-panel TVs via wireless networks -- something Sony and Samsung sets don't now do. The technology, unveiled in a single H-P model earlier this year, is expected to become standard on future H-P television sets.
U.S. companies have been trying to rewrite the business model for consumer electronics, which has been dominated for four decades by large, Asia-based suppliers. H-P and others are trying to marry cheap, off-the-shelf components and advanced software to create hits like Apple Computer Inc.'s iPod. Meanwhile, the Asian consumer giants are making huge investments in their own chips and manufacturing facilities. In the case of flat-panel TVs, a product dominated by Asian companies, it can cost upwards of $1 billion to build a state-of-the-art factory.
Following the opportunistic U.S. model, H-P, Apple and Eastman Kodak Co. are selling consumer devices with advanced features at prices similar to -- or less than -- their Asian rivals. For instance, H-P's "wobulation" software -- which doubles the perceived resolution by wobbling a projected image -- is currently used in H-P's rear-projection TV models, without increasing hardware costs.
But the software driving H-P and Best Buy's alliance is its MediaSmart technology, due this summer. It will allow H-P's television sets to receive video, music and photos directly from a PC or the Internet, in addition to broadcast, cable and satellite sources. H-P already has agreements with content providers, including CinemaNow Inc., which distributes movies and other content online; Real Networks Inc.'s Rhapsody music service; and Snapfish, H-P's digital photo site.
People familiar with the situation say Best Buy will start selling three of H-P's standard flat-panel television sets, without MediaSmart, beginning April 23. The retailer also will start promoting online television services -- known as IPTV, or "Internet protocol TV." H-P televisions equipped with MediaSmart technology and wireless Internet adapters inside will become available at Best Buy this summer.
"What we're creating uses our [information-technology] heritage to integrate wireless networking into the TV," says Jan-Luc Blakborn, director of H-P's digital-entertainment business. "The TV becomes your window to the world." He declined to comment on the Best Buy relationship but said: "We have a great national partner who thinks very much like us."
Best Buy, based in Richfield, Minn., is the largest seller of TVs in North America. Yesterday the retailer credited strong television sales, in part, for a 13% jump in fourth-quarter profit to $644 million, on a 16% sales increase, to $10.7 billion. Darren Jackson, Best Buy's chief financial officer, told investors yesterday that it expects a more than 10% drop in flat-panel TV prices this year on top of the 20% drop experienced last year. "This will be the first year when flat-panel [sets] truly becomes accessible to a broad group" of consumers, he said.
Eventually, as part of their alliance, Best Buy and H-P expect jointly to offer downloads of movies and music, as well as household services such as remote-control of lighting and air-conditioning, Mr. Blakborn said. "Companies that can make it easier for customers to acquire content and move it around the house are going to put themselves in the best possible position," says Kevin Winneroski, Best Buy director of television merchandising. Currently, Best Buy gets an estimated 25% of revenue from sales of CDs, videogames and DVDs -- a business potentially threatened by Internet-delivered entertainment.
For H-P, the deal could more than triple its television revenue, industry analysts and executives say. They see the deal generating up to $200 million in TV sales for H-P next year, compared with about $30 million in total TV sales for H-P last year. That would still be small potatoes relative to H-P's $86.7 billion in revenue last year.
But H-P executives see the TV deal as an important foray into the much bigger consumer-electronics marketplace. Until now, the Palo Alto, Calif., computer company has sold its televisions through small, regional retailers and the Internet. It now sells eight models, including three LCD, two plasma-screen and three rear-projection sets.
"H-P spent the last couple of years slowly building that business and applying technology to create a strong convergent-technology story," says Stephen Baker, a vice-president with retail market researcher NPD Group, of Port Washington, N.Y. None of the major Asian TV makers now sell sets here with built-in IPTV connections, he says. H-P "is looking to be on the cutting edge," he says.
Write to Gary McWilliams at gary.mcwilliams@wsj.com
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