MP92072

MAPS : Home Entertainment: 2002

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This report covers: home entertainment, colour television, PC's, audio systems, games console, DVD Players, recorders, video cassette recorders, personal audio, radios, tape players,

Companies covered include: AIWA, UK, Dell Computer Corporation, Hitachi Europe, Matsushita Electric, Microsoft, Nintendo, Philips, Electronics, uK, Samsung, Sanyo, Europe, Sharp Electronics, Sony, Toshiba,

EXECUTIVE SUMMARY

Executive Summary

This report considers the UK home entertainment market, last analysed by a Key Note Market Assessment report in 2000. Historical market data from 1997 onwards is given to assist in an understanding of general trends in the market. The different sectors of this market are examined, along with the possibility of the convergence of the different technologies and media that make up these sectors.

The home entertainment market is taken as referring to audio and visual products, as well as to home-use personal computers (PCs) and games consoles. Some of the boundaries between these sectors have blurred slightly with the introduction of new formats, such as digital versatile disc (DVD) for video and audio equipment, and the inclusion of audiovisual equipment in PCs. However, convergence has been, and is likely to be, less dramatic than is often thought and individual sectors can still be considered in relative isolation.

The boom in home entertainment that characterised the late 1990s has not yet ended, although a number of sectors have been strongly affected by adverse economic conditions. At present, weak sales in some areas are outweighed by the success of some of the larger sectors, but this is not guaranteed to continue. The major equipment manufacturers have been inventive in creating new markets and growth in existing ones, as improvements in the entertainment experience, mainly through technological innovation, have increased replacement sales. The take-up of large-screen and wide-screen televisions (TVs) has continued, reinvigorating a mature market, and UK consumers have embraced the new DVD technology enthusiastically. However, campaigns to market personal MiniDisc (MD) players and audio separates, as opposed to systems, have met with more qualified success in terms of overall value growth.

The main difficulty experienced by suppliers in the home entertainment market continues to be rapid price erosion. The difficulty of maintaining demand for products at their entry price brings prices down, which, in turn, leads to expectations among consumers that the same will happen with the next product. Aggressive marketing strategies to compel consumers to spend more on better equipment worked during the affluent late 1990s, but have worked in fewer and fewer sectors in 2001 and 2002. In the PC market, for instance, advertising expenditure is directed towards campaigns for discounted machines of extremely high specification, the reverse of the tactics of the TV sector. Of the three sectors to have experienced strong recent growth — TV, DVD and games consoles — only TV seems likely to continue that growth beyond 2003.

Key Note has commissioned exclusive consumer research from NOP for this report. 1,024 adults were interviewed from 1st to 6th August 2002, and their attitudes towards home entertainment equipment, new technology and preferred methods of purchasing were established. Intentions to buy TV sets, DVD players and MP3 (Moving Picture Experts Group Layer-3 Audio) players in the next 12 months were also recorded. Analysis of the responses led to some interesting findings. Consumers seem to be considerably more price sensitive than they were in 2000, at the time of Key Note's last Market Assessment report on this market. On the other hand, there is much less confusion about digital technology than there was in 2000, suggesting that one obstacle to the success of the new technology in increasing replacement sales has been removed. The much-heralded importance of the Internet to the future of home technology and entertainment received little support from the survey, with respondents seeming largely indifferent to Internet connectivity in new products.

The consumer attitudes survey also indicated that there will continue to be strong demand for TVs and DVD players until at least mid-2003. However, interest in MP3 players was much more muted.

When respondents were asked about where they prefer to go to buy home entertainment equipment, a preference for High Street stores was clear. Smaller, independent stores are still the choice of a minority, but nonetheless of a larger minority than that interested in the Internet.

Advertising expenditure decreased considerably over the year ending June 2002 as suppliers saw their profit margins squeezed and demand fell. However, there are notable exceptions to this pattern, with some sectors seeing considerable increases in expenditure. The TV sector goes against the grain in this area too.

This report also takes into account the effect that external factors have had and will have on sales in the home entertainment market. Important examples include levels of consumer spending and changes in the structure of the UK population. Forecasts for the market until 2007 are generally positive, although there is likely to be a flattening out in the near term, as decreased demand continues to be fought by price cuts. However, the established role of electronic equipment in the home is unlikely to suffer in the long run, and the market is forecast to return to strong growth by 2001.

TABLE OF CONTENTS

Executive Summary 9

1. Introduction 11

OVERVIEW 11

DEFINITION 11

2. Strategic Overview 13

MARKET DYNAMICS AND SEGMENTATION 13

Total Market Size 13

Table 1: The UK Home Entertainment Market by Value by Product Category (£m at rsp and %), 1997-2002 13

Market Size by Sector 14

Colour Television 14

PCs 14

Audio Systems 15

Games Consoles 15

Audio Separates 15

DVD Players/Recorders 15

Video Cassette Recorders 15

Personal Audio 16

Radios and Tape Players 16

Consumer Expenditure 16

Table 2: UK Consumer Expenditure on Audiovisual Equipment and Total Consumer Expenditure at Constant 1995 Prices (£bn and %), 1997-2001 16

ADVERTISING 17

Table 3: Main Media Advertising Expenditure by Electrical Retailers (£m), Years Ending September 2000-2002 17

Figure 1: Main Media Advertising Expenditure by Electrical Retailers (£m), Years Ending September 2000-2002 18

THE CONSUMER 18

Table 4: UK Household Penetration of Home Entertainment Equipment (% of households), 1999 and 2001 19

MARKET FORECASTS 20

Table 5: The Forecast UK Home Entertainment Market by Value (£m at rsp and %), 2002-2007 20

Figure 2: The Forecast UK Home Entertainment Market by Value (£m at rsp), 2002-2007 21

3. Television and Video 22

BACKGROUND 22

MARKET SIZE 23

Colour Televisions 23

Table 6: The UK Market for Colour Televisions by Value and Volume (£m at rsp, 000 units and index 1997=100), 1997-2002 23

Figure 3: The UK Market for Colour Televisions by Value (£m at rsp), 1997-2002 24

Table 7: The UK Market for Colour Televisions by Volume by Type (000 units), 1997-2002 25

Figure 4: The UK Market for Colour Televisions by Volume by Type (000 units), 1997-2002 25

Video Players and Recorders 26

Table 8: The UK Market for VCRs by Value and Volume (£m at rsp, 000 units and index 1997=100), 1997-2002 26

Figure 5: The UK Market for VCRs by Value (£m at rsp), 1997-2002 27

Table 9: The UK Market for DVD Players by Value and Volume (£m at rsp, 000 units and index 1998=100), 1998-2002 28

Figure 6: The UK Market for DVD Players by Value (£m at rsp), 1998-2002 29

CONSUMER TRENDS 30

Ownership of TV, Video and DVD Products 30

Table 10: UK Consumer Ownership of Televisions (% of adults), 2001 30

Table 11: UK Consumer Ownership and Purchasing of VCRs (% of adults), 2001 32

Table 12: UK Consumer Ownership and Purchasing of DVD Players (% of adults), 2001 33

Attitudes Towards TV, Video and DVD Products 35

NOP Research 35

Attitudes Towards Televisions 36

Table 13: Attitudes Towards Television Sets (% of respondents), 2002 36

"I Plan to Replace My TV in the Next 12 Months" (S1) 37

"If I Was Choosing a New TV Set, the Quality of the Picture and Sound is More Important Than the Price." (S2) 38

Attitudes Towards TV, Hi-Fi, Video and DVD Equipment 39

Table 14: Attitudes Towards TV, Video, Hi-Fi and DVD Equipment (% of respondents), 2002 39

"I Would Prefer to Buy a Home Entertainment System, i.e. TV, Video and Hi-Fi All in One, Rather Than Buying Them Separately" (S4) 41

"I Plan to Buy a DVD Player in the Next 12 Months" (S5) 41

MARKETING ACTIVITY 42

ADVERTISING 42

Table 15: Main Media Advertising Expenditure on Television Sets and VCR/DVD Players and Recorders (£000), Years Ending September 1997-2002 42

Figure 7: Main Media Advertising Expenditure on Television Sets and VCR/DVD Players and Recorders (£000), Years Ending September 1997-2002 43

Table 16: Main Media Advertising Expenditure on Television Sets by Company (£000), Years Ending September 2001 and 2002 44

Table 17: Main Media Advertising Expenditure on VHS/DVD Players and Recorders by Product (£000), Years Ending September 2001 and 2002 45

DISTRIBUTION 46

By Retailer 46

Table 18: UK Distribution of Television Sets by Retailer by Volume (%), 1997, 1999 and 2001 46

Table 19: UK Distribution of VCRs and DVD Players/Recorders by Retailer by Volume (%), 1997, 1999 and 2001 47

By Brand 47

Table 20: UK Market Share of Television Sets by Brand by Volume (%), 1997, 1999 and 2001 48

Table 21: UK Market Share of VCRs and DVD Players/Recorders by Brand by Volume (%), 1997, 1999 and 2001 49

4. Audio Equipment 50

BACKGROUND 50

MARKET SIZE 51

Table 22: The UK Market for Audio Equipment by Value by Product Category (£m at rsp and %), 1997-2002 51

CONSUMER TRENDS 52

Ownership of Audio Equipment 52

Table 23: UK Consumer Ownership of Audio Equipment (% of adults), 2001 53

Attitudes Towards Audio Equipment 54

NOP Research 54

Attitudes Towards Different Audio Systems and MP3 Players 55

Table 24: Attitudes Towards Audio Equipment (% of respondents), 2002 55

"I Prefer to Buy Audio Separates Rather Than Complete Audio Systems" (S7) 56

"I Plan to Buy an MP3 player in the Next 12 Months" (S8) 57

ADVERTISING 57

Table 25: Main Media Advertising Expenditure on Audio Equipment (£000), Years Ending September 2001 and 2002 58

Table 26: Main Media Advertising Expenditure on Audio Equipment by Type of Equipment and/or Brand (£000), Year Ending September 2002 58

DISTRIBUTION 59

By Retailer 59

Table 27: UK Distribution of Audio Products by Retailer by Volume (%), 1997, 1999 and 2001 60

5. Personal Computers and Games Consoles 61

BACKGROUND 61

MARKET SIZE 62

Personal Computers 62

Table 28: The UK Market for Home Personal Computers by Value and Volume (£m at rsp, 000 units and index 1997=100), 1997-2002 62

Figure 8: The UK Market for Home Personal Computers by Value (£m at rsp), 1997-2002 63

Games Consoles 63

Table 29: The UK Market for Games Consoles by Value and Volume (£m at rsp, 000 units and index 1997=100), 1997-2002 64

Figure 9: The UK Market for Games Consoles by Value (£m at rsp), 1997-2002 64

CONSUMER TRENDS 66

Ownership of Personal Computers 66

Table 30: UK Consumer Ownership of Personal Computers (% of adults), 2001 66

Attitudes Towards Games Consoles' Internet Connectivity, Home Computer Speed and Internet Access 67

NOP Research 67

Attitudes Towards Games Consoles' Internet Connectivity and Home Computer Speed 68

Table 31: Attitudes Towards Games Consoles' Internet Connectivity and Home Computer Speed (% of respondents), 2002 68

"It Is Important to Me When Buying a Games Console That It Can Connect to the Internet" (S9) 70

"The Speed of a Home Computer is More Important to Me Than Whether It Has a DVD Player" (S10) 70

Attitudes Towards Internet Access 71

Table 32: Attitudes Towards Internet Access (% of respondents), 2002 71

"I Would Prefer to Access the Internet Through My TV Than Through a Personal Computer" (S11) 73

ADVERTISING 73

Table 33: Main Media Advertising Expenditure on Home PCs by Company (£000), Years Ending September 2001 and 2002 73

Table 34: Main Media Advertising Expenditure on Games Consoles (£000), Years Ending September 2001 and 2002 75

Figure 10: Main Media Advertising Expenditure on Games Consoles (£000), Years Ending September 2001 and 2002 75

DISTRIBUTION 76

By Retailer 76

Table 35: UK Distribution of PCs by Retailer by Volume (%), 1997, 1999 and 2001 76

Table 36: UK Distribution of Games Consoles by Retailer by Volume (%), 1997, 1999 and 2001 77

By Brand 77

Table 37: UK Market Share of PCs by Brand by Volume (%), 1997, 1999 and 2001 77

Table 38: UK Market Share of Games Consoles by Brand by Volume (%), 1997, 1999 and 2002 78

6. An International Perspective 79

MARKET DEVELOPMENTS 79

COMPETITOR ENVIRONMENT 80

CONSUMER BEHAVIOUR 80

7. PEST Analysis 81

POLITICAL FACTORS 81

ECONOMIC FACTORS 81

SOCIAL FACTORS 82

Table 39: The UK Population by Age Group (000 and %), 2001 and 2006 83

TECHNOLOGICAL FACTORS 84

8. Consumer Dynamics 85

OVERVIEW 85

Table 40: Summary of Attitudes Towards Home Entertainment Equipment (% of respondents), 2002 85

ATTITUDES TOWARDS TV, VIDEO AND DVD PRODUCTS 88

Attitudes Towards Televisions 88

Table 41: Attitudes Towards Television Sets, (% of respondents), 2002 88

"I Plan to Replace My TV in the Next 12 Months" (S1) 90

"If I Was Choosing a New TV Set, the Quality of the Picture and Sound is More Important Than the Price." (S2) 90

Attitudes Towards TV, Video, Hi-Fi and DVD Equipment 91

Table 42: Attitudes Towards Television, Video, Hi-Fi and DVD Equipment (% of respondents), 2002 91

"I Would Prefer to Buy a Home Entertainment System, i.e. TV, Video and Hi-FI All In One, Rather Than Buying Them Separately" (S4) 93

"I Plan to Buy a DVD Player in the Next 12 Months" (S5) 93

ATTITUDES TOWARDS AUDIO EQUIPMENT 94

Table 43: Attitudes Towards Audio Systems and MP3 Players (% of respondents), 2002 94

"I Prefer to Buy Audio Separates Rather Than Complete Audio Systems" (S7) 96

"I Plan to Buy an MP3 Player in the Next 12 Months" (S8) 96

ATTITUDES TOWARDS INTERNET CONNECTIVITY/ACCESS AND HOME COMPUTER SPEED 96

Attitudes Towards Games Consoles' Internet Connectivity and Home Computer Speed 97

Table 44: Attitudes Towards Games Consoles' Internet Connectivity and Home Computer Speed (% of respondents), 2002 97

"It Is Important to Me When Buying a Games Console That It Can Connect to the Internet" (S9) 99

"The Speed of a Home Computer is More Important to Me Than Whether It Has a DVD Player" (S10) 99

Attitudes Towards Internet Access 100

Table 45: Attitudes Towards Internet Access (% of respondents), 2002 100

"I Would Prefer to Access the Internet Through My TV Than Through a Personal Computer" (S11) 102

ATTITUDES TOWARDS PURCHASING PREFERENCES, NEW TECHNOLOGY AND PRICE 102

Attitudes Towards Purchasing Preferences 103

Table 46: Attitudes Towards Purchasing Home Entertainment Hardware from Retailers (% of respondents), 2002 103

Table 47: Attitudes Towards Purchasing Home Entertainment Hardware Over the Internet (% of respondents), 2002 105

Home Entertainment Purchasing Preferences (S12, S13 and S14) 107

Attitudes Towards New Technology and Price 108

Table 48: Attitudes Towards New Technology and Price (% of respondents), 2002 108

"I Am Confused About Digital Video-Recording Technology, Such as Recordable DVD and Digital Hard-Disc Recorders" (S6) 110

"I Usually Wait Before Buying Home Entertainment Products Because I Can Get a Cheaper Price by Doing So" (S15) 111

9. Supplier Profiles 112

AIWA (UK) LTD 112

Corporate Strategy 112

Profitability 112

Table 49: Financial Results for Aiwa (UK) Ltd (£000 and %), Years Ending 31st March 1999-2001 112

Future Company Developments 112

DELL COMPUTER CORPORATION 113

Corporate Strategy 113

Profitability 113

Table 50: Financial Results for Dell Computer Corporation ($m), Years Ending January 28th 2000, 2nd February 2001 and 1st February 2002 113

Future Company Developments 113

HITACHI EUROPE LTD 114

Corporate Strategy 114

Profitability 114

Table 51: Financial Results for Hitachi Europe Ltd (£000), Years Ending 31st March 1999-2001 114

Future Company Developments 114

MATSUSHITA ELECTRIC (UK) LTD 115

Corporate Strategy 115

Profitability 115

Table 52: Financial Results for Matsushita Electric (UK) Ltd (£000), Years Ending 31st March 1999-2001 115

Future Company Developments 115

MICROSOFT LTD 116

Corporate Strategy 116

Profitability 116

Table 53: Financial Results for Microsoft Ltd (£000 and %), Years Ending 2nd July 1999, 30th June 2000 and 29th June 2001 116

Future Company Developments 116

NINTENDO of Europe GMBH 116

Corporate Strategy 116

Profitability 117

Table 54: Financial Results for Nintendo of Europe GMBH (DMm and %), Years Ending 31st March 2000 and 2001 117

Future Company Developments 117

PHILIPS ELECTRONICS UK LTD 117

Corporate Strategy 117

Profitability 118

Table 55: Financial Results for Philips Electronics UK Ltd (£000 and %), Years Ending 31st December 1999-2001 118

Future Company Developments 118

SAMSUNG UK LTD 119

Corporate Strategy 119

Profitability 119

Table 56: Financial Results for Samsung UK Ltd (£000 and %), Years Ending 31st December 1999-2001 119

Future Company Developments 119

SANYO EUROPE LTD 119

Corporate Strategy 119

Profitability 120

Table 57: Financial Results for Sanyo Europe Ltd (£000), Years Ending 31st March 1999-2001 120

Future Company Developments 120

SHARP ELECTRONICS UK LTD 121

Corporate Strategy 121

Profitability 121

Table 58: Financial Results for Sharp Electronics UK Ltd (£000 and %), Years Ending 31st March 1999-2001 121

Future Company Developments 121

SONY UK LTD 122

Corporate Strategy 122

Profitability 122

Table 59: Financial Results for Sony UK Ltd (£m and %), Years Ending 31st March 1999-2001 122

Future Company Developments 122

TOSHIBA UK LTD 123

Corporate Strategy 123

Profitability 123

Table 60: Financial Results for Toshiba UK Ltd (£000 and %), Years Ending 31st March 1998-2000 123

Future Company Developments 123

10. The Future 124

MARKET FORECASTS 124

Table 61: The Forecast UK Home Entertainment Market by Value by Product Category (£m at rsp and %), 2002-2007 124

11. Further Sources 126

Associations 126

Publications 126

General Sources 127

Bonnier Information Sources 128

Government Publications 129

Other Sources 129

Text © 2002 Key Note

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Last updated by Amanda Porteous September 2002