The Hottest Industry of 2010
Surveying the Digital TV Battleground
The wave of digital TV upgrades sweeping across Europe, the U.S. and Japan is coming to Taiwan. With electronics, telecom, and media giants on board, the battle for this NT$800 billion market heats up. Who will emerge on top in this visual revolution?
Surveying the Digital TV BattlegroundBy Benjamin Chiang, Elaine Huang
From CommonWealth Magazine (vol. 437 )
Last quarter saw a frenzy of merger/acquisition and joint venture activity among Taiwan's Big Five electronics firms (Foxconn, Quanta, Compal, ASUS and BenQ).
In September global electronic manufacturing services (EMS) leader Foxconn acquired a Mexican assembly plant from Sony, the world's number two maker of liquid crystal display (LCD) televisions. This transpired as Wistron Corp., a key contract manufacturer of Sony LCD TV sets and the world's number three OEM notebook computer maker, accelerated its pace of investment in China's Zhongshan LCD TV Manufacturing Zone.
In October, number four OEM notebook maker Inventec announced a joint venture with leading global LCD monitor manufacturer Groundjay Digi-Tech aimed at breaking into the large-screen television market.
On the heels of subsidiary Innolux Display Corp.'s acquisition of small-format display panel maker TPO Displays Corp., in November Foxconn announced Innolux would acquire Chimei, Taiwan's number two display panel maker. Just like that, the new Chimei Innolux Corp. displaces AU Optronics as Taiwan's number one maker of flat-panel displays.
Not to be outdone, Quanta Chairman Barry Lam, who in the past has had something of a love-hate relationship with Foxconn chief Terry Gou, has quietly brought aboard ETTV News Executive Vice President, Chen Hao, and a number of other television industry veterans to begin early preparations for the impending television wars in the days to come.
With so much going on on-stage, those watching the swirl of activity from the audience can't help but ask: What exactly is the impetus behind the bold moves of these Taiwan industry leaders?
The driving force behind the intensified actions of the Big Five electronics firms is that TV set in your living room.
Opportunity: visual revolution stirs TV-related stocks
"How much information can a person view in one day? The future revolution in IT must be visually integrated, and Foxconn is doing advance preparation for that visual revolution," asserts Terry Gou. The Foxconn Chairman recently addressed these remarks to top corporate executives at a meeting called to discuss future investment direction, ultimately indicating that the television industry, in addition to notebook computers, will be the engine driving the next wave of corporate growth.
"In the next several years the consumption volume of the global TV set market will surge to a peak of 250 million to 300 million sets annually," says Simon Yang, a vice president with Topology Technology Inc., adding that better than 90 percent of the new sets sold will come equipped to receive digital signals.
Even more enticing is that an estimated two billion television sets worldwide will gradually need to be replaced with digital sets over the next 10 years.
This is indicative of a future huge, virtually bottomless pool of business opportunities as integration with the Internet and telecom services waiting in the wings proceeds apace.
According to research by the Institute for Information Industry's Digital Education Institute, the commercial potential spans from digital TV sets, set-top boxes and digital TV peripherals to cable television and other services (see table 1).
Trend: capitalizing on transition to digital TV
Casting an eye across the globe, the conversion of television formats from analog to digital and Internet access through TV sets are irreversible trends as the world's airwaves rapidly go digital.
In 2010 Taiwan's government is set to earmark funding to help promote and shepherd the conversion of terrestrial television broadcasters to the digital format, making 2010 Digital TV Year One for the nation.
Sweden, Germany and the Netherlands began the push for full digitalization as early as 2007. U.S. broadcasters switched to digital in mid-June 2009, sealing the analog format's demise. And the analog format will no longer exist in Japan as of 2011 as the country goes fully digital.
Last year Vizio, the North American market leader in LCD TV sets, began offering Internet televisions, which have already arrived in Taiwan with advertisements on buses plying the Greater Taipei area touting them as "TV: Impossible."
There's even a "new toy" appearing on your home TV's remote control allowing you use it to directly connect to the Internet. AmTran Technology, Vizio's biggest ODM partner, has come out with the world's first TV remote with a fully functioning QWERTY keyboard.
"You use the remote control rather than a mouse to access the Internet through the TV," says AmTran Vice President Franky Lo as he shows off one of the company's sleek Blue Track keyboard remotes.
Internet televisions are also coming into their own in China. Haier, China's biggest maker of home electronics, last year introduced its MoCard line of Internet-enabled televisions. In March 2009, Haier teamed up with Chinese Internet portal Sohu to launch high-definition online movie channels accessible through the MoCard sets, boasting a library of approximately 40,000 movies.
China's domestic market for LCD TVs is forecast at 35 million sets for next year, which would eclipse the European Union market. The following year China's domestic demand for sets is expected to surpass that of the U.S., becoming the world's single largest TV set market. One need only gauge China's domestic demand to anticipate the demand for display panels.
Topology Research Institute forecasts global shipments of LCD TV sets for this year (2009) at 129.3 million units and predicts that figure will surge to a new record of 191.1 million sets in 2012, an increase of nearly 70 million sets in the three-year period in one of the electronics sector's fastest growing product segments (see table 2).
The digitization of television has also stimulated market demand for set-top boxes, shipments of which are expected to soar beyond 200 million units in 2011.
With the government's November announcement of the impending digitization of domestic broadcast TV signals and the attendant program to partially offset the cost of set-top boxes for end users, stock prices for makers of set-top boxes, including Foxconn, Zinwell Corp. and Gemtek Technology, surged from the opening of trading the following day and are now considered a rising category to watch over the coming year.
New paradigm: Big Three telecoms eye new TV experience
The future TV windfall is no way limited to set-top boxes, TV sets and the like. Internet television and TV signal digitization will bring forth integration of even bigger players behind the television industry – telecoms and fixed network operators.
In the past the television and telecoms industries generally stayed out of each other's business. After full digitization, however, telecoms and television networks will intermingle, touching off another wave of battles for digital territory.
By the third quarter of this year, the beat of war drums could already be heard among the industry camps. In September, Taiwan Mobile forked over NT$56.8 billion to acquire Kbro Co., the Taiwan cable TV assets of U.S. investment firm Carlyle Group. The Fair Trade Commission recently found no reason to block the marriage, indicating its conditional blessing.
With its investment four years ago in MOD (Multimedia on Demand), Chunghwa Telecom is Taiwan's pioneer in digital television.
Global TV viewership figures in hand, Huang Tze-han, president of Chunghwa Telecom's Northern Taiwan Business Group, says as recently as a year or two ago 95 percent of the world's television viewers were dependent on conventional broadcast or cable TV channels for content, with five percent accessing other services. In the next three to five years, Huang predicts, the public's reliance on TV channels will decline from 95 percent to about 50 percent, with other services accounting for the remaining half.
"Close scrutiny of the other services of that 50 percent, including accessing the Internet through computers or TVs, viewing video on demand (movies, animation, Internet streaming channels) through MOD, and interactive features such as polling and shopping, shows that the viewing habits of subscribers are certain to change," Huang says.
Opportunity: more "useful" TVs favor precise ratings
Far EasTone also formally began providing mobile television services for its mobile phone subscribers last year.
"We're not just looking at mobile television development," says Roger Chen, Far EasTone vice president for business strategy and development. "Any platform that can provide information and entertainment will be a future investment consideration."
As the drive toward full digitization goes ahead a firm grasp over the last mile – the conduit for the direct provision of services to the home end user – becomes crucial. And Taiwan Mobile, the island's number two telecom provider, has already thrown its hat into the television ring.
With its acquisition of Kbro Co., Taiwan Mobile takes control of that last mile for 32 percent of the island's cable TV subscribers. Its next step will be to accelerate the pace of its high-speed bidirectional digital television network project, constructing a DOCS 3.0 spec ultra wide-band network.
Although the seed capital for full conversion of cable TV systems will be enormous, commercial prospects for value-added digital TV services are favorable. In addition to offering high-definition TV programming, Taiwan Mobile plans to offer even more on-demand programming, online shopping, lotteries, and social networking website management services.
Challenge: where's the quality programming?
Despite the ability of digital television to provide personalized, interactive TV viewing services, why has the government been doing all the trumpeting of the new digital era while relevant companies have acted in lukewarm fashion?
The biggest problem for market penetration of digitalization lies not with the network infrastructure or end terminal equipment but with the current lack of programming with sufficient appeal to persuade consumers to make the switch to digital.
Virtually all of Taiwan Mobile's high-definition digital programming, for example, is produced abroad. With the lack of Taiwanese programming available for viewing on digital channels, even if a hundred or more channels went straight to digital, not much would have changed from the perspective of the public. Digital or analog, a TV is just a TV, with no intrinsic allure.
Additionally, the public has over the years become accustomed to the standard NT$550 monthly fee for 116 "all-you-can-watch" cable TV channels. "There's a considerably high degree of difficulty" in getting viewers to switch from cable to a rate structure based on the number of digital channels and pay-per-view movies, according to Chunghwa Telecom's Huang.
TV operators are in no rush to greatly expand digital TV features, largely because "the ad revenue has disappeared," says Zhao Xunping, general manager of Group M's media investment department.
Digital TV emphasizes information on demand, completely overturning the old viewing paradigm of inserting advertisements during TV programming. "The viewing public can watch movies without commercial interruption, but that spells doom for TV stations and advertisers," notes Zhao. With no revenue from digital TV advertising, operating costs will invariably be passed on to the consumer.
If the current digital TV advertising issue is not resolved, future digital TV programming will fall into a vicious cycle. With a government mandated ceiling on digital TV fees, as TV station revenues decline they will be unable to pay for quality programming or produce quality programming of their own, leading to a loss of viewers and ultimately a further decline in revenue.
Although digital TV is set to open an entirely new television economy, Taiwan's government has dithered at setting forth a lucid promotional policy. Consequently, opportunities in digital TV are currently limited to the manufacture of hardware.
Albert Hsieh, secretary general of Taiwan DTV Committee, offers a candid assessment of the current predicament: "Added-value services and content production that yield the highest margins are restricted by the inability of the regulatory framework to keep pace with changes in the digital industry. So right now Taiwanese operators can see it but they can't taste it."
Translated from the Chinese by Brian Kennedy