The U.S. Home Theater Market

1. Executive Summary
   
   The Products
   
   • As Technology Advances, Home Theater Grows
     
   • Home Theater Defined
     
   • Five Product Categories
     
   
   The Market
   
   • U.S. Factory Sales Near $11 Billion in 1997
     
   • Speakers Packages Increase Share at Expense of Audio Receiver/Surround-Sound Processors
     
   • Figure 1-1: Share of U.S. Factory Sales of HT Products: Audio Receivers/Processors vs. Speakers/Packages, 1993 vs. 1997 (percent)
     
   • Big-Screen TVs Lead HT Market
     
   • Mass Merchants Gaining on Electronics Specialty Stores
     
   • Factors Affecting Market Growth
     
   • Table 1-1: Estimated Factory Sales and Growth of U.S. Home Theater Market by Product Category, 1993-2002 (dollars): Big-Screen TVs, Video Source Products, Speakers/Packages, Audio Receivers/Surround-Sound Processors
     
   • Market to Top $17 Billion by 2002
     
   
   The Marketers
   
   • Hundreds of Companies in Market
     
   • The Ten Home Theater Giants
     
   • Companies Developing Home Theater In-A-Box Appear to Have Competitive Edge
     
   • DVD an Important New Product Type
     
   • Sales of DSS Systems Will Continue to Grow, Benefit Home Theater
     
   • HT Advertising Totals $56 Million
     
   
   Distribution and Retail
   
   • Warehouse Delivery Is Predominant Avenue
     
   • Bose Leads the Way in Direct Sales
     
   • Market Composition by Retail Outlet
     
   • Use of "Lifestyle Room" Settings
     
   • Electronics Specialty Stores Devote Ample Space to HT Products
     
   • Mass Merchant Sector's Importance Growing
     
   • Retailer Focus: Audio/Video International
     
   
   The Consumer
   
   • 3% Own Giant-Screen Projection Televisions
     
   • Larger Base for Television Surround-Sound Decoders
     
   • Male Skew for Home Theater Audio
     
   • Male, Married Slant for Stereo/Radio Surround Sound
     
   
   Scope and Methodology
   
   • Market Parameters
     
   • Report Methodology
     
2. The Products
   
   Introduction
   
   • As Technology Advances, Home Theater Grows
     
   
   Scope of Report
   
   • Home Theater Defined
     
   • Camcorders and Digital Still Cameras Excluded
     
   • Five Product Categories
     
   
   Big-Screen Television
   
   • Category Divided into Two Segments
     
   • Direct-View Television
     
   • Projection Television
     
   • High-Definition Television (HDTV) Around the Corner
     
   • Flat-Panel Televisions Not Yet Affordable for Most Consumers
     
   
   Video Source Products
   
   • Category Divided into Three Segments
     
   • Digital Satellite Systems (DSS)
     
   • Stereo Hi-Fi VCRs
     
   • Laserdisc Players
     
   • Digital Videodisc (DVD)— An Important Up-and-Coming Technology
     
   
   Audio Receivers/Surround-Sound Processors
   
   • Category Subdivided into Two Segments
     
   • Hi-Fi Stereo: Almost Everyone Has It, But Is It Home Theater?
     
   • Dolby Pro Logic: Four-Channel Audio Comes to the Home
     
   • Dolby Digital AC-3: A Huge Step Forward for HT Sound
     
   • THX
     
   
   Speakers
   
   • Speakers Determine Sound Quality in HT System
     
   • Speaker Placement an Important Issue
     
   • HT Components Sold Separately or in Sets
     
   
   Home Theater In-A-Box
   
   • Home Theater In-a-Box Transforms the Market
     
   • HT Systems as Furniture
     
   
   Government and Industry Regulation
   
   • Government Regulation of Airwaves Affects Development of HDTV
     
3. The Market
   
   • Figure 3-1: Estimated U.S. Factory Sales of Home Theater Products, 1993-1997 (dollars)
     
   
   Market Size and Growth
   
   • A Note on Sales Estimates
     
   • U.S. Factory Sales Near $11 Billion in 1997
     
   • Table 3-1: Estimated U.S. Factory Sales of Home Theater Products by Category, 1993-1997 (dollars): Big-Screen TVs, Video Source Products, Speakers/Packages, Audio Receivers/Surround-Sound Processors
     
   • Big-Screen TV Still Leads Market, Though Sales Are Fairly Flat
     
   • Table 3-2: Estimated U.S. Factory Sales of Big-Screen TVs by Segment, 1996 vs. 1997 (dollars): Direct-View TV, Projection TV
     
   • Video Source Products Place Second in Sales
     
   • Table 3-3: Estimated U.S. Factory Sales of Video Source Products by Segment, 1996 vs. 1997 (dollars): DSS, Hi-Fi VCR, Laserdisc
     
   • Speakers and Packages Combined Are Third
     
   • Figure 3-2: Estimated U.S. Factory Sales of HT Speakers/Packages, 1993-1997 (dollars)
     
   • Speakers Packages Increase Share at Expense of Audio Receiver/Surround-Sound Processors
     
   • Figure 3-3: Share of U.S. Factory Sales of HT Products: Audio Receivers/Processors vs. Speakers/Packages, 1993 vs. 1997(percent)
     
   • Figure 3-4: Share U.S. Home Theater Product Factory Sales by Category, 1996 vs. 1997 (percent): Big-Screen TVs, Video Source Products, Audio Receivers/Surround-Sound Processors, Speakers/Packages
     
   
   Market Composition
   
   • HT Products Account for 16% of Total Consumer Electronics Factory Dollar Volume
     
   • Big-Screen TVs Lead HT Market
     
   • Table 3-4: Share of U.S. Home Theater Product Factory Sales by Category, 1996 vs. 1997 (percent): Big-Screen TVs, Video Source Products, Speakers/Packages, Audio Receivers/Surround-Sound Processors
     
   • Direct-View Leads TV Category
     
   • Table 3-5: Share of Big-Screen TV Factory Sales by Segment, 1996 vs. 1997 (percent): Direct-View TV, Projection TV
     
   • DSS Is Top-Selling Video Product
     
   • Table 3-6: Share of Video Source Product Factory Sales by Segment, 1996 vs. 1997 (percent): DSS, Hi-Fi VCR, Laserdisc Player
     
   • Speakers and Packages Climb to 6% of HT Market
     
   • Audio Receivers/Surround-Sound Processors Claim Under 5% of HT Sales
     
   • Sales by Retail Outlet: Mass Merchants Gaining on Electronics Specialty Stores
     
   
   Factors Affecting Market Growth
   
   • Technological Advances
     
   • The Advent of Satellite-Based Broadcastin
     
   • FCC Gives Approval to Digital TV License Plan
     
   • Development and Growth of DVD
     
   • Increasing Quality of Projection TV
     
   • Dolby Digital a Giant Leap Forward in Stereo-Imaging Technology
     
   • Introduction of Digital "Packets" Will Expand HT Product Applications
     
   • Home Theater In-A-Box Makes Purchasing HT Products Easy and Attractive
     
   • Increasing Movie Prices and "Cocooning" Trend
     
   • Lower Product Pricing Lures Consumers and Retailers
     
   • Decreasing Speaker Sizes Make Home Theater More Attractive
     
   • Packaged Systems as Furniture
     
   • Increasing Use of Point-of-Sale Displays in Mass-Market Outlets
     
   • Specialty Retailers Use "Lifestyle Rooms"
     
   • One-Third of Home Builders Include HT Systems in New Home Designs
     
   • Figure 3-5: Projected U.S. Factory Sales of Home Theater Products, 1997-2002 (dollars)
     
   
   Projected Market Growth
   
   • HT Market to Top $17 Billion by 2002
     
   • Big-Screen TVs Projected to Grow at 5% Annually
     
   • Video Source Products to Continue Fast Growth, Due Mainly to DSS Sales
     
   • Speakers and Packages to Continue Explosive Growth
     
   • Audio Receivers to Continue Slow Growth
     
   • Table 3-7: Projected U.S. Factory Sales of Home Theater Products by Category, 1997-2002 (dollars): Big-Screen TVs, Video Source Products, Speakers/Packages, Audio Receivers/Surround-Sound Processors
     
4. The Marketers
   
   The Marketers
   
   • Hundreds of Companies in Market
     
   • The Ten Home Theater Giants
     
   • Areas of Concentration Among the Top Ten
     
   • Table 4-1: The Home Theater Giants: Principle Product Categories (10 Marketers/Headquarters): TV, Video, Audio, Speakers, HT In-A-Box
     
   • 15 Smaller Players
     
   • Other Marketers
     
   • Table 4-2: The U.S. Home Theater Market: Selected Marketers and Their Brands (43 Marketers and Their Major Brands)
     
   
   Competitive Overview
   
   • Electronics Giants Dominate Most HT Categories
     
   • Specialty Marketers Find Niches
     
   • Companies Developing Home Theater In-A-Box Appear to Have Competitive Edge
     
   • Steady Technological Advances Ensure Wealth of New Products
     
   • The Possibility of Product Orphanin
     
   • The Betamax Debacle: A Case in Point
     
   • Companies in Unrelated Industries Begin to Compete in HT Market
     
   • Licensed Products Dominate Audio Receiver Category
     
   • Hardware Manufacturers Team Up with Movie Studios
     
   
   Competitive Profile: Bose Corporation
   
   • Corporate Overview
     
   • Company Driven by Spirit of Discovery and Technological Research
     
   • Lifestyle Systems Are Bose's Home Theater Mainstay
     
   • Combination of Marketing Approaches Reaches Large Number of Consumers
     
   
   Competitive Profile: Boston Acoustics, Inc.
   
   • Corporate Overview
     
   • Most of Boston Acoustics' Products Assembled from Purchased Components
     
   • 1996 New Product Introductions
     
   
   Competitive Profile: Cambridge Soundworks, Inc.
   
   • Corporate Overview
     
   • Sales Strategy Focuses on Growth Trend Created by Home Theater and Multimedia Computers
     
   • Catalog Sales and Aggressive Advertising Key Parts of Sales Philosophy
     
   
   Competitive Profile: Emerson Radio Corp.
   
   • Corporate Overview
     
   • Acquisition of International Jensen Incorporated
     
   • The Daewoo Deal
     
   • Emerson Champions Low-End Home Theater In-A-Box
     
   
   Competitive Profile: Kenwood Corporation
   
   • Corporate Overview
     
   • Globalization Activities
     
   • Kenwood HT Products
     
   • Table 4-3: Selected Kenwood HT Products (16 Product Names/Model Numbers/Descriptions)
     
   
   Competitive Profile: Mitsubishi Electric Corp.
   
   • Corporate Overview
     
   • Big-Screen TVs for HT Application
     
   
   Competitive Profile: Philips Electronics, N.V.
   
   • Corporate Overview
     
   • Home Theater Products
     
   
   Competitive Profile: Pioneer Electronic Corp.
   
   • Corporate Overview
     
   • Relationship with Carolco Pictures, Inc.
     
   • Patents and Licenses
     
   • Pioneer a Key Player in DVD Market
     
   • Other Pioneer HT Innovations Include Digital Cable and Flat-Panel Displays
     
   
   Competitive Profile: Polk Audio, Inc.
   
   • Corporate Overview
     
   • Product Lines
     
   • Distribution of Polk Audio Products
     
   • SRT and RT Series of Speakers Designed Specifically for HT Applications
     
   
   Competitive Profile: Sony Corp.
   
   • Corporate Overview
     
   • Home Theater Equipment
     
   • Research and Development
     
   
   Competitive Profile: Thomson Consumer Electronics, Inc.
   
   • Corporate Overview
     
   • RCA HT Products
     
   • Table 4-4: Selected RCA Home Theater Products (68 Product Names/Descriptions)
     
   
   Competitive Profile: Zenith Electronics Corporation
   
   • Corporate Overview
     
   • Zenith Posts Losses, But Outlook May Improve with HDTV
     
   • Sales to Circuit City and Sears Account for Over One-Quarter of Zenith's Sales
     
   • Home Theater: New Products, New Technologies, New Marketing Commitments
     
   
   Marketing and New Product Trends
   
   • Combining Components into Home Theater In-A-Box
     
   • New Products Driven by Technological Advances
     
   • DVD an Important New Product Type
     
   • Mixed Emotions Over DVD
     
   • Sales of DSS Systems Will Continue to Grow, Benefit Home Theater
     
   • Quality of Projection TVs Should Continue to Increase
     
   • Dolby Digital May Replace Pro Logic as Industry Standard
     
   • Development of PC Theater May Revolutionize Home Entertainment
     
   
   Consumer Advertising Expenditures
   
   • HT Advertising Totals $56 Million
     
   • Additional Unmeasured Expenditures
     
   • RCA in First Place
     
   • Other $3-Million-Plus Spenders
     
   • $1-Million-Plus Advertisers
     
   • Over $180 Million Spent on DSS Advertising
     
   
   Consumer Advertising Positioning
   
   • HT Ads Emphasize Technology, Performance, Value, and Ease of Use
     
   • Two-Page Spreads
     
   • Sony's Eight-Page DVD Insert
     
   • Internet Addresses Prominently Featured in Ads
     
   • Examples of Consumer Advertising
     
   
   Consumer Promotions
   
   • Cash-Back Rebates Popular with DSS Systems
     
   • Other DSS Promotions
     
   • Low Package Pricing as Promotional Tool
     
   • Examples of Consumer Promotions
     
   
   Trade Advertising and Promotion
   
   • Promotions Are Standard
     
   • Trade Advertising
     
   • Trade Shows
     
   • Examples of Trade Materials
     
5. Distribution And Retail
   
   Distribution
   
   • Warehouse Delivery Is Predominant Avenue
     
   • Advantages of Warehouse Delivery
     
   • Disadvantages of Warehouse Delivery
     
   • Direct-to-Consumer Distribution
     
   • Bose Leads the Way in Direct Sales
     
   
   Retail Overview
   
   • Market Composition by Retail Outlet
     
   • Use of "Lifestyle Room" Settings
     
   
   At the Retail Level: Electronics Specialty Stores
   
   • Electronics Specialty Stores Are Top Outlet, Devote Ample Space to HT Products
     
   • Displays: Full HT Setup the Norm
     
   • Marketers Use Various In-Store Promotions
     
   • Promotional Signage Utilized by Most Retailers
     
   • Margin for HT Products a Closely Guarded Secret
     
   
   At the Retail Level: Mass Merchants
   
   • Sector's Importance Growing
     
   • Mass Merchants' Approach Similar to ESS Retailers'
     
   
   Retailer Focus
   
   • Audio/Video International
     
   • Douglas TV
     
   • The Listening Room
     
6. VI. The Consumer
   
   The Consumer
   
   • Note on Simmons Market Research Bureau Data
     
   • 3% Own Giant-Screen Projection Televisions
     
   • Table 6-1: Demographic Characteristics Favoring Ownership of Giant-Screen Projection Televisions, 1997 (U.S. Adults)
     
   • Larger Base for Television Surround-Sound Decoders
     
   • Table 6-2: Demographic Characteristics Favoring Ownership of Television Set Surround-Sound Decoders, 1997
     
   • (U.S. Adults)
     
   • Male Skew for Home Theater Audio
     
   • Table 6-3: Demographic Characteristics Favoring Ownership of Stereo/Radio Equipment Home Theater Audio Systems, 1997 (U.S. Adults)
     
   • Male, Married Slant for Stereo/Radio Surround Sound
     
   • Table 6-4: Demographic Characteristics Favoring Ownership of Stereo/Radio Equipment Surround-Sound Decoder, 1997 (U.S. Adults)
     
   • Summary of Positive and Negative Demographic Factors
     
   • Table 6-5: Positive and Negative Demographic Factors to Ownership of Home Theater Components, 1997 (U.S. Adults)
     
   • Home Theater and Household Income
     
   • Figure 6-1: Median Household Income Among Owners of Selected Home Theater Components, 1997 (dollars): Owners— Giant-Screen Projection Television, Television Set Surround-Sound Decoder, Home Theater Audio System, Stereo/Radio Equipment Surround-Sound Decoder, All
     
   
   Appendix I: Examples Of Consumer And Trade
   Advertising And Promotions
   
   Appendix II: Addresses Of Selected Marketers