Household Audio and Video Equipment

SIC 3651

Companies in this industry

Industry report:

This category includes establishments primarily engaged in manufacturing electronic audio and video equipment for use at home or in automobiles, such as televisions, video recorders and players, radio receivers and amplifiers, phonographs, cassette tape players, and compact disc (CD) players. This industry also includes companies that manufacture microphones, speakers, and public address systems.

Industry Snapshot

According to the U.S. Census Bureau, the household audio and video equipment manufacturing industry shipments continued spiraling downward to an estimated $5.3 billion in 2009 and $4.8 billion in 2010, a reflection of the struggling global economy. Television receivers, including the combination models segment, took a huge hit with shipment values declining from $127 million in 2009 to $13 million in 2010. The automotive audio equipment (excluding speakers) shipments totaled about $309 million in 2009, while the other consumer audio and video equipment manufacturers shipped approximately $571 in products for 2009. The speakers and commercial sound equipment segment product shipments fell from $1 billion in 2009 to $865 million in 2010. The total cost of materials fell from $1.9 billion in 2009 to $1.8 billion in 2010.

In 2008 household audio and video equipment industry manufacturer shipment values were approximately $5.5 billion, the lowest of the decade, and down from the previous year's total of $7.3 billion. This was an exceptionally mature market in the United States, with household penetration for products in this category hovering around 95 percent.

However, technological innovations boosted sales, with the successful introduction of a variety of digital products, such as high-definition television (HDTV) and digital video recorders (DVR). Consumers in the market for home electronic equipment in the early years of the first decade of the 2000s were already spending their disposable income on digital products, namely DVD players, which by 2007 exceeded the VCR for market penetration. Thus, manufacturers focused heavily on the digital market, including digital television and audio and video recording equipment. Because many products in this category become obsolete slowly, particularly in comparison to computer products, the large numbers of Americans who already own such equipment have few reasons to upgrade.

During the early years of the first decade of the 2000s U.S. manufacturers focused almost exclusively on producing audio speakers and advanced technology televisions. Virtually all other consumer electronic components sold in the United States were manufactured abroad or manufactured in the United States by foreign-owned companies.

Organization and Structure

The U.S. household audio and video manufacturing industry was dominated in the mid-years of the first decade of the 2000s by U.S. subsidiaries of Japanese companies who used technologies developed by U.S. companies. These subsidiaries assembled color televisions and high fidelity audio equipment from components imported from Japan or from Japanese-owned manufacturing facilities in other countries. The exception was speaker systems, for which U.S.-owned companies were recognized as market leaders worldwide. By the end of the 1990s, the Zenith Electronics Corporation in Glenview, Illinois was the only major U.S.-owned company still manufacturing color televisions. The company grew in 1999 after having filed for bankruptcy a few years earlier. By the early years of the first decade of the 2000s, South Korea-based LG Electronics had acquired Zenith. Bose Corporation of the United States held a leadership position among U.S. speaker manufacturers, supplying as much as 25 percent of domestically produced speakers during the late 1990s. In the late 1990s, more than one-third of all U.S. establishments employed fewer than five workers.

Background and Development

U.S. manufacturers dominated the household audio and video industry from the first experimental radio and television broadcasts until the 1980s, when many U.S. owned companies were forced out of manufacturing by foreign competition. The first radios to be mass manufactured were developed in the 1920s by RCA, which pioneered television manufacturing in the 1930s. For years, U.S. manufacturers like RCA, Westinghouse, General Electric, Motorola, Philco, and Zenith dominated the industry.

Television Manufacturing.
Although the nature of television manufacturing in the United States began to change in the late 1960s, the stage was set more than a decade earlier when several major Japanese manufacturers formed the Home Electronic Appliance Market Stabilization Council. Despite opposition from the Japanese Fair Trade Commission, the Council successfully lobbied the Japanese government to establish tariffs and other trade barriers to protect the manufacturers from foreign competition. This protection allowed the cartel to establish minimum prices and control their domestic market. In addition, U.S. companies that were locked out of the Japanese market began to license advanced technology to the Japanese. In 1962, RCA Corporation became the first company to license color technology to the Japanese manufacturers.

In 1963, Japanese manufacturers began to export televisions to the United States using the profits from their protected domestic market to subsidize below-cost sales in the United States, which was in violation of U.S. trade laws. A Department of Justice investigation later revealed that the Japanese gave U.S. importers, including Sears, Roebuck & Co., illegal rebates on every Japanese television they sold in the United States. Sales of Japanese-made televisions soared while U.S. companies suffered.

The United States Electronic Industry Association filed a complaint about the illegal "dumping" in 1968. However, Japanese manufacturers stonewalled the investigation for more than three years. In addition, the U.S. government was not eager to upset trade negotiations with Japan and proceeded with the investigation reluctantly. In 1971, the Treasury Department ruled that the Japanese companies had violated U.S. law and owed millions of dollars in anti-dumping levies. Nine years passed before a settlement was reached, however, and the Japanese paid about one-tenth of what they owed. The damage to U.S. television manufacturers was irreversible.

In 1968 there were 28 U.S.-owned companies manufacturing televisions in this country. By 1976 there were only six. More than 20,000 jobs were eliminated. Several financially strapped U.S. companies were purchased by Japanese or European competitors, while others simply went out of business. Matsushita Electric Industrial Company, the largest consumer electronics company in the world, purchased Motorola's Consumer Products Division. Magnavox was purchased by N.V. Philips, S.A., a Dutch manufacturer. Among the brand names to disappear were Admiral and Dumont. In addition, dozens of smaller manufacturers making parts for U.S.-made televisions also failed.

In 1977, the Japanese manufacturers signed an Orderly Marketing Agreement limiting exports to the United States to 1.5 million sets annually. However, the agreement allowed the Japanese to manufacture televisions in the United States in excess of the quotas. Three of the five largest Japanese companies--Matsushita, the Sony Corporation, and Sanyo Electric Company--had already established manufacturing facilities in the United States, and Hitachi and Tokyo Shibaura Electric soon followed suit. The Japanese also established manufacturing facilities in other countries such as Mexico and Argentina with abundant low-cost labor to circumvent the U.S. limits on imports from Japan. In addition, Taiwan and South Korea began exporting televisions to the United States. Taiwanese imports more than doubled in 1977, increasing that country's share of the U.S. market from 7 to 14 percent.

An investigation later revealed that Robert Strauss, the former Democratic Party chairman who had been appointed by President Carter as special trade representative to Japan, signed a secret agreement in which he promised that the United States would settle financial claims against the Japanese manufacturers "expeditiously" and would limit an International Trade Commission investigation into further allegations of illegal dumping. Strauss also promised that the Carter administration would appeal a ruling court decision in favor of Zenith, which had won a $400 million predatory pricing suit against Matsushita. The award would have been trebled under U.S. antitrust law to $1.2 billion. Finally, Strauss agreed to ignore official Japanese government policies that prevented U.S. companies from competing in the protected Japanese home electronics market.

Congress did not learn of the secret agreement until 1979, but it nevertheless agreed to honor the commitment. Under the Strauss agreement, the Japanese eventually paid about $66 million of the $500 million the Treasury Department said they owed for illegal dumping. The antitrust suit filed by Zenith was eventually dismissed by the Supreme Court. Meanwhile, the Japanese continued to solidify their hold on the U.S. television market.

At least one U.S. company blamed irrational cost cutting by U.S. market leaders as much as the Japanese for the decline of U.S. manufacturing. Robert J. O'Neil, then president of GTE Consumer Electronics Co., told Business Week in 1978 that RCA and Zenith were the biggest problems in the industry. At the time, RCA and Zenith were battling each other for the number one position in U.S. sales of color televisions. According to O'Neil, cost cutting by RCA and Zenith forced other U.S. companies to lower their prices to unprofitable levels. In dismissing the anti-trust suit against Matsushita, the Supreme Court noted that Zenith and RCA were still the leading television makers in the United States, with more than 40 percent of the market between them, despite 20 years of Japanese competition. GTE eventually sold its consumer electronics company, including the Sylvania and Philco brand names, to the Dutch company that purchased Magnavox, N.V. Philips.

Among the last major U.S.-owned companies to manufacture televisions were the General Electric Corporation and the RCA Corporation, which accounted for about 45 percent of all color television sets sold in the United States in 1980. General Electric stopped manufacturing televisions in 1984 and began importing sets made by Matsushita with the GE brand name. In 1985, General Electric temporarily re-entered the market when it purchased RCA. However, despite a 23 percent share of the market for color televisions in the United States and 17 percent of the market for VCRs, the RCA consumer electronics division lost money. In 1986, General Electric sold the RCA consumer products division to Thomson S.A., a French electronics corporation second only to Matsushita in size. The sale left the United States without a single U.S.-owned firm manufacturing VCRs.

Audio Equipment.
The experience of the audio equipment manufacturing industry in the United States was similar to that of television manufacturers. Until the mid-1960s, most of the leading manufacturers in the world were U.S.-owned companies with such well-known brand names as Fisher, Bose, Sherwood, and Marantz. The first Japanese brand to appear in the annual Stereo/Hi-Fi Directory and Buyers Guide was Kenwood, in 1965. However, over the next five years, the number of Japanese brands sold in the United States increased dramatically. Sony, Pioneer, and Sansui were introduced in 1968, and JVC was introduced in 1970.

By 1980, most U.S.-owned companies had either moved their manufacturing facilities offshore to take advantage of cheap labor or had licensed their brand names to Japanese companies and become distributors for foreign manufacturers. Many Japanese companies eventually built manufacturing facilities in the United States. It soon became difficult to distinguish U.S.-made from foreign-made products.

VCRs, Camcorders, and CD Players.
With the exception of RCA, major U.S. manufacturers chose not to enter the market for VCRs, camcorders, and CD players, as those technologies were developed in the 1980s. In many cases, U.S. companies apparently underestimated the tremendous markets that developed. However, the loss of U.S. television manufacturing also hamstrung U.S. companies that produce high-tech components. U.S. companies were relegated to a marketing role, rather than manufacturing, which helped to create a huge trade deficit in consumer electronics in the 1980s.

The 1980s and 1990s.
Increased competition from Korean and Taiwanese manufacturers continued to affect U.S. consumer electronics manufacturing in the mid-1980s. Goldstar Electronics, a leading Korean television manufacturer, was found guilty in 1984 of selling its televisions in the United States for 20 percent less than those same sets were sold for in Korea. To avoid paying a 20 percent anti-dumping tariff, Goldstar began to increase production at a plant it opened in Alabama in 1981.

In the early 1980s, a recession continued to affect the industry. Ironically, many of the same Japanese companies that established U.S. manufacturing facilities in the 1970s to avoid restrictions on imports were beginning to move their operations to Mexico, where labor costs were considerably lower. Televisions made in Mexico by foreign companies went almost exclusively into the U.S. market. The North American Free Trade Agreement (NAFTA), endorsed by President Clinton in 1993, was expected to hasten this movement to Mexico.

In 1993 several major corporations, including Zenith and General Instruments, were waiting for the Federal Communications Commission (FCC) to set technological protocols for High Definition Television (HDTV) in the United States. These companies, along with a third partnership led by Thomson, Philips, and NBC, hoped that HDTV would help revitalize the U.S. electronics manufacturing industry. However, after considerable activity in the late 1980s, interest in HDTV appeared to be waning. Meanwhile, in an effort to maximize profits, U.S.-based manufacturers began to concentrate on large-screen televisions and home-theater units, leaving low-margin color televisions to be manufactured elsewhere.

The mature television market remained the core of the industry during the late 1990s. With a 98 percent market penetration and intense competition for market share anchoring prices and demanding bulk shipments to procure profits, the television market was stuck in a malaise that placed many companies in a precarious position. Some firms staked their fortunes on the hope that digital television (DTV) technology was generally predicted to become the new lifeline of the industry.

DTV technology involves the digital transmission of data signals to produce a TV picture. However, during the late 1990s there were nearly 20 different formats that fell under the definition of DTV technology, primarily distinguishing themselves by the technique by which pictures are scanned or by the resolution of pictures. The Consumer Electronics Association (CEA) worked to establish a clear definition of DTVs to launch a concentrated marketing campaign, but squabbling continued among manufacturers over the nature of the standard. Despite the animosity and continued consumer confusion about digital television products, the CEA expected the technology to take firm hold, with the expectation that it would reach a 30 percent market share by 2006.

Standards for high definition televisions (HDTVs) were no less controversial. The standard for HDTV that the CEA approved in 1999 effectively excluded several high-level sets manufactured by companies like Toshiba and Hitachi that refused to recognize the vote and continued to market the televisions in question under the HDTV label. While the Toshiba and Hitachi models were digital in format and met the resolution requirements, they were in the traditional square-screen style, while the CEA standard defined HDTVs as fitting the movie-theater style wide-screen format. Cable operators, meanwhile, were not as quick to adopt the HDTV format into their programming schedules as manufacturers had hoped. In its first year on the market, only 100,000 HDTV units were shipped.

Compatibility between various technological capabilities became a primary and frustrating concern to the home audio and video equipment industry in the late 1990s. Direct broadcast satellite (DBS) systems, for example, experienced a swift decline in sales as a result of consumer dissatisfaction with their inability to receive many local broadcasts or integrate surround-sound audio technology. While these problems were addressed by industry players such as Thomson, by 1999 sales in this category had not rebounded to their mid-1990s peak. Meanwhile, manufacturers scrambled to integrate their products' capabilities with those of personal computers in a move toward "convergence." Convergence technologies refer to equipment that can record and play back signals transmitted electronically via Internet connections.

In December 2002, an important agreement between seven leading U.S. cable TV operators and 14 consumer electronics manufacturers was forged that had positive implications for the consumer adoption of digital television. Business Wire reported that the agreement centered on "plug-and-play" standards for interfacing digital TV devices with digital cable services. It further explained that the agreement "will ensure that the next generation of digital television sets will receive one-way cable services without the need for set-top converter boxes; enable consumers to receive HDTV signals with full image quality and easily record digital content; allow for an array of new devices easily to be connected to the new HDTV sets; permit access to cable's two-way services through digital connectors on high-definition digital TV sets; encourage manufacturers to speed the production of new sets and services for delivery to the market; and ensure that digital cable services will remain easy to access and use by consumers."

According to the Consumer Electronics Association (CEA), 2002 sales of consumer electronics were estimated at $96.2 billion, a 3.7 percent increase from 2001 levels. While the CEA's total includes more than just household audio and video equipment produced in the United States, it demonstrates the strength of the category overall. The U.S. Census Bureau reported industry shipments in the audio and video equipment manufacturing sector at $8.65 billion in 2003. The electronics industry grew 11 percent in 2004.

Fueling most of the industry's growth are digital audio and video products, according to the CEA. For example, manufacturer sales of digital videodisc (DVD) players reached 17.6 million units in 2002. This was an increase of 39 percent from 2001, elevating DVD penetration for U.S. households to 35 percent. By 2005, the CEA reported penetration almost surpassing VCRs. Packaged home theater system sales also were very strong in the early years of the first decade of the 2000s, boosted in part by the popularity of DVD players.

Digital television sets also were increasing in the early part of the first decade of the twenty-first century. Sales reached levels of 2.5 million units in 2002 and 7.3 million units in 2004. Research firm Strategy Analytics released a long-term forecast that indicated high definition television sets would reach penetration levels of 15 percent among U.S. households by 2008. In 2005 the CEA reported that 13 percent of U.S. households owned HDTVs.

In 2007, there were 491 establishments operating in this industry, 75 percent of which had fewer than 10 employees. That year the industry shipped more than $7.33 billion in goods and spent approximately $6.3 billion on materials. There were 16,128 employees in the industry, of which 10,724 were production workers who earned more than $347 million. The three largest product segments in this industry were household video equipment ($7.5 billion), household audio equipment ($2.3 billion), and television receivers ($1.7 billion).

Current Conditions

According to the CEA, 2010 sales of consumer electronics were estimated at $180 billion, up 6 percent over 2009. While demand for DTV unit sales fell by 1 percent in 2010, demand for "Internet-connected" TVs surged, climbing by 151 percent to more than $4 billion in shipments. That trend was expected to continue with shipments surpassing $5 billion in 2011. 3DTVs were also a hot commodity expected to experience continued growth throughout 2011 and beyond ,fueled by video gaming, Blu-ray movies, and TV sporting events, following a 91 percent increase to 1.1 million units sold in 2010 to 1.9 million units in 2011.

High-definition display saturation was good news for the home audio sector with shipments up 27 percent in 2010 as consumers chose to upgrade. In addition, intense price competition continued to avail consumers with great deals on displays but were cutting into industry revenues, according to Steve Koenig, CEA's director of industry analysis in January 2011. Koenig added, "The resurgence of home audio is a signal that consumers are spending money and beginning to focus on a complete in-home high-definition experience."

Smartphones represent a huge market for the worldwide consumer electronics industry, followed by television displays. For 2012, demand for smartphones was expected to climb 24 percent to 23.5 million units; however, display revenues were forecast to fall to $17.2 billion as high-definition televisions were approaching a penetration rate of 70 percent. The CEA projected the overall consumer electronics industry was on target to exceed $200 billion as technologies evolved and additional "mobile connected devices" hit the market in 2012.

Industry Leaders

The leading makers of household audio and video equipment in the United States generally were subsidiaries of foreign-owned companies. Among these firms was Matsushita Electric Corporation of America, a subsidiary of Japan's Matsushita Electric Industrial Co. Ltd. The parent company posted sales of $91.3 billion in 2008 with more than 325,000 employees worldwide. Matsushita has more than 20 manufacturing sites in the United States and is home to such well-known brands as Panasonic, JVC, Quasar, and Technics. A subsidiary of Netherlands-based Royal Philips Electronics, Philips Electronics North America Corp. was another major industry player in the mid-years of the first decade of the 2000s. A manufacturer of TVs, VCRs, DVD players, and more, the parent company reported more than $37 billion in revenues in 2008. Sony Corporation of America, a subsidiary of Sony Corp. of Japan, had 2008 sales of $2.15 billion. Toshiba America, subsidiary of Toshiba Corp., posted $907 million in 2008 sales.

Matsushita Electric Industrial Co. Ltd. changed its name in 2008 to Panasonic Corporation, at which time its subsidiary, Matsushita Electric Corporation of America became Panasonic Corporation of North America. Panasonic Corporation had sales of nearly $105 billion with a workforce totaling 366,937 workers in 2011. Philips Electronics North America Corp.'s parent, Royal Philips Electronics, generated sales of $30.4 billion in 2010, of with one-third of sales were derived from developing markets. Sony Corporation of America reported $3.1 billion in sales for 2010 with 33,234 employees. Toshiba America's sales fell from $907 million in 2008 to $671 million in 2010 with 8,000 employees.

Workforce

The workforce in this classification continues to decline, mostly because U.S. companies are increasingly getting out of the business due to the dominance of foreign companies. The industry employed approximately 16,128 workers who earned just under $736 million in pay in 2007, 10,724 of whom were engaged in production and earned more than $347 million in wages, down from 25,000 workers in 2003, of which 14,800 were production workers. As the economy worsened in 2010, manufacturers of household audio and video equipment were forced to downsize from 10,100 employees in 2009 to 6,860 employees in 2010. Of the 6,860 employees in 2010, 3,573 worked in production working six million hours and earning wages of $121 million.

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