The major crisis in TV

July 2, 2012, 1:55 PM UTC

Once hot flat panel TVs are not, at least according to the latest data from NPD DisplaySearch. Worldwide TV shipments fell by 8% from a year prior in the first quarter of 2012. That was the steepest rate of decline since the second quarter of 2009. The biggest contributor to this decline was a slowdown in shipments of LCD sets, which fell year-on-year for the first time ever.

There is plenty of bad news. LCD models declined by just over three percent to 43 million units. Plasma sets took a tumble, declining 18% year-over-year after an 8% drop in the fourth quarter of 2011, while the volume of the plasma sets remain low-priced 2D HD models. While Q1 is normally a drop from Q4 sales, as consumers likely pounce on pre- and post-holiday sales, this year was unlike previous years. “Q1 was down far more than previous years,” said Tom Morrod, IHS iSuppli senior analyst and head of TV technology. “Beginning of this year was simply a lower market.”

What exactly is going with TVs?

Sales in the United States and other markets that transitioned from analog to digital television signals saw years of strong sales. Now, they are experiencing a dramatic ebb. Flat panel sets, once like “fantasy” purchases far too expensive for average consumers, dropped in price dramatically. Everyone who ever wanted a flat panel TV likely has one. And, it seems the industry doesn’t know how to respond to maintain sales. Consumers have rejected its biggest gambits, including sophisticated 3D panels and so-called connected-TVs that provide features tied to the Internet.

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“There are several dynamics in this,” added Morrod, “but it really comes down to the fact that price is the main driver, along with size. Consumers will spend a fixed amount of money and will shop around to get the biggest set for the money they have to spend.”

Thus the industry’s response to increase value with new features and keep prices at higher levels has fallen flatter than the sets. Other selling points such as thinner bezel or even thinner panel aren’t hooking consumers. “At present we see that 70% to 80% of households have a flat panel set,” said Paul Gagnon, NPD DisplaySearch director of North America TV Research.

As such there are simply fewer consumers to sell to, and in this regard the market’s new reality is that most consumers are now back to the replacement cycle. What is different this time is that TVs can last so long that manufacturers can’t wait for the TV to break. “Today consumers aren’t replacing sets because the old one broke,” Gagnon told Fortune. “Instead they are looking to simply get a bigger set.”

When consumers who first bought a set five or six years ago return to stores, they find bigger screens for less money, but features remain secondary. “The consumer today can get a bigger set and can basically double their screen size,” added Gagnon. “The downside — at least for the manufacturer — is that the consumer won’t pay for the premium features. So consumers will go the larger sizes with basic features. That’s not good for the bottom line for the companies making the sets.” Adds Morrod, “The consumer today isn’t going to pay twice as much for a connected TV.”

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What if anything can revive a moribund sector? Manufacturers are still banking on new technologies, two of which in particularly are waiting in the wings. One is the even higher-than-HD resolution sets and the other is the super thin OLED models. “OLED and 4K TVs both have advantages over current technologies,” said Morrod. “Makers of those sets will have opportunities to make revenue over current technologies.”

However, these technologies are being supported by different manufacturers. “OLED and 4K are in fact mutually exclusive for now,” emphasized Gagnon. “It is technically impossible at present to get the 4K display on OLED and while that will change, it probably won’t happen for five or six years. Until that time the two technologies will co-exist in the premium space. It will be up to the consumers to decide which is better.”

And by the time that happens the masses might be finally ready to buy a TV again.