The Cost of Having Fun - Consumer Electronics

The explosion of digital technology has changed the consumer electronics industry, making possible a wide array of new products and blurring the difference between information management and entertainment equipment. According to the Consumer Electronics Association (CEA), an industry advocacy group comprising more than 1,700 member companies, the wholesale value of electronics products sold to Americans was an estimated $96.4 billion in 2003, an increase of 2.3% over the 2002 figure, $94.2 billion. Sales growth was expected to continue, with a projected 5% rise in 2004 to $101 billion. (See Table 2.3.)

Spending on Computers Levels Off

After a period of dramatic increases in spending on computer products, this category was showing signs of leveling off. In 1998, $37 billion was spent on computers, peripherals, and software; two years later Americans spent $43.8 billion on such goods, but then this amount dropped to $42 billion in 2001 and increased by a modest 5% in 2002 to $44.2 billion. (See Table 2.2.)

One major change in the way Americans spent their money on computers was the rise in sales of notebook, or laptop, models. The NPD Group, a private market research firm, reported that in May 2003 the total dollar value of notebook computer sales exceeded that of desktop computers for the first time, accounting for 54% of the month's $500 million in retail computer sales. Just three years earlier, in January 2000, notebooks had accounted for just 25% of sales. At the same time, sales of flat-panel liquid crystal diode (LCD) monitors also topped sales of conventional cathode ray tube (CRT) monitors for the first time. These trends were expected to continue over time.

America Goes Digital

According to the CEA, digital products were finding increasing favor with consumers, especially devices that recorded video, images, or music. Blank media and accessories constituted the fastest-growing category during 2003, as manufacturers shipped recordable CDs and

TABLE 2.1

Annual expenditures of all consumer units and percent changes, consumer expenditure survey, 2000–02
				Percent change
Item	2000	2001	2002	2000–2001	2001–2002
*Income values are derived from "complete income reporters" only
SOURCE: "Annual Expenditures of All Consumer Units and Percent Changes, Consumer Expenditure Survey, 2000–2002," in Consumer Expenditures in 2002, U.S. Bureau of Labor Statistics, 2003, http://www.bls.gov/news.release/pdf/cesan.pdf (accessed September 10, 2004)
Number of consumer units (000's)	109,367	110,339	112,108
Income before taxes*	$44,649	$47,507	$49,430
Average age of reference person	48.2	48.1	48.1
Average number in consumer unit:
Persons	2.5	2.5	2.5
Earners	1.4	1.4	1.4
Vehicles	1.9	1.9	2.0
Percent homeowner	66	66	66
Average annual expenditures	$38,045	$39,518	$40,677	3.9	2.9
Food	5,158	5,321	5,375	3.2	1.0
At home	3,021	3,086	3,099	2.2	.4
Away from home	2,137	2,235	2,276	4.6	1.8
Housing	12,319	13,011	13,283	5.6	2.1
Apparel and services	1,856	1,743	1,749	−6.1	.3
Transportation	7,417	7,633	7,759	2.9	1.7
Health care	2,066	2,182	2,350	5.6	7.7
Entertainment	1,863	1,953	2,079	4.8	6.5
Personal insurance and pensions	3,365	3,737	3,899	11.1	4.3
Other expenditures	4,001	3,939	4,182	−1.5	6.2

TABLE 2.2

Personal consumption expenditures on recreation, 1998–2002
(In billions of dollars)
	1998	1999	2000	2001	2002
Note: Consumer durable goods are designated (d.), nondurable goods (n.d.), and services (s.).
1Consists of admissions to professional and amateur athletic events and to racetracks
2Consists of current expenditures (including consumption of fixed capital) of nonprofit clubs and fraternal organizations and dues and fees paid to proprietary clubs
3Consists of billiard parlors; bowling alleys; dancing, riding, shooting, skating, and swimming places; amusement devices and parks; golf courses; skiing facilities; marinas; sightseeing; private flying operations; casino gambling; recreational equipment rental; and other commercial participant amusements
4Consists of lotteries, pets and pet care services, cable TV, film processing, photographic studios, sporting and recreation camps, video rentals, Internet access fees, and recreational services not elsewhere classified
SOURCE: Adapted from "Personal Consumption Expenditures by Type of Expenditure," in National Income and Product Accounts Tables, U.S. Department of Commerce, Bureau of Economic Analysis, December 16, 2003, http://www.bea.doc.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=73&FirstYear=1998&LastYear=2002&Freq=Year (accessed July 14, 2004)
Recreation	505.8	546.1	585.7	604	628.3
Books and maps (d.)	28.8	31.5	33.7	34.6	36.9
Magazines, newspapers, and sheet music (n.d.)	32.1	33.5	35	35	35.3
Nondurable toys and sport supplies (n.d.)	51.3	54.7	56.6	57.6	59
Wheel goods, sports and photographic equipment, boats, and pleasure aircraft (d.)	48.3	52.6	57.6	59.2	60.6
Video and audio goods, including musical instruments, and computer goods (d.)	99.7	108.1	116.6	115.5	119.1
Video and audio goods, including musical instruments (d.)
Computers, peripherals, and software (d.)	37	40.4	43.8	42	44.2
Radio and television repair (s.)	4.1	4.1	4.2	4	4
Flowers, seeds, and potted plants (n.d.)	16.4	17.1	18	18	18
Admissions to specified spectator amusements	26.2	28.4	30.4	32.2	34.6
Motion picture theaters (s.)	7.2	7.9	8.6	9	9.6
Legitimate theaters and opera, and entertainments of nonprofit institutions (except athletics) (s.)	9.2	9.9	10.3	10.9	11.5
Spectator sports1 (s.)	9.8	10.6	11.5	12.4	13.5
Clubs and fraternal organizations2 (s.)	17.1	18	19	20	21.1
Commercial participant amusements3 (s.)	63.1	68.8	75.8	79.6	83.5
Pari-mutuel net receipts (s.)	4.4	4.9	5	5.1	5.3
Other4 (s.)	114.4	124.3	133.9	143.2	151.1

TABLE 2.3

Total factory sales of consumer electronics, 1999–2002, estimated 2003, and projected 2004
(In millions of dollars)
	1999	2000	2001	2002	Estimated 2003	Projected 2004
SOURCE: "Total Factory Sales of Consumer Electronics," in U.S. Consumer Electronics Sales & Forecasts, 1999–2004, Consumer Electronics Association, 2004
Analog direct-view color TV	6,199	6,503	5,130	5,782	4,769	4,332
Analog projection TV	1,632	1,481	1,060	733	315	144
Monochrome TV	20	15	15	12	9	5
Digital direct-view and projection TV	295	1,355	2,485	3,574	4,009	4,690
LCD TV	61	107	101	246	651	1,049
Plasma TV	116	515	1,457	2,226
TV combinations	1,014	968	790	993	718	763
Videocassette players	15	14	5	4	2	2
VCR decks	2,333	1,869	1,058	826	374	273
Camcorders	2,448	2,838	2,236	2,361	2,105	1,959
Direct to home satellite systems	957	790	1,175	1,116	1,380	1,278
Personal video recorders	46	77	144	57	193	251
Separate component DVD players	1,099	1,717	2,097	2,427	3,050	2,859
Set-top Internet access devices	145	193	195	119	63	47
Total	16,264	17,926	16,607	18,766	19,095	19,878
Home & portable audio products
Rack audio systems	148	84	42	17	9	4
Compact audio systems	1,695	1,776	1,357	965	656	538
Separate audio components	1,530	1,545	1,261	1,202	960	867
Home theater-in-a-box	229	331	794	896	860	932
Portable equipment	1,987	2,156	1,846	1,526	1,289	1,162
Portable MP3 players	100	80	100	205	556	706
Home radios	348	351	326	300	289	245
Total	6,036	6,323	5,726	5,111	4,619	4,454
Mobile electronics
Aftermarket autosound	2,070	2,169	2,098	2,211	1,904	1,882
Mobile video & navigation	273	293	429	422	517
Wireless telephones	6,066	8,995	8,651	8,106	9,163	11,504
PDAs	875	1,265	1,077	875	759	657
Family radio services	306	418	461	251	235	201
Pagers	660	750	790	810	729	675
Aftermarket vehicle security	205	218	266	265	260	255
Radar detectors	165	170	170	134	123	120
Factory installed autosound	2,610	2,700	2,850	2,950	3,245	3,569
Total	12,957	16,958	16,656	16,032	16,840	19,379
Home information products
Cordless telephones	1,808	1,562	1,960	1,261	1,139	976
Corded telephones	483	386	294	266	251	223
Telephone answering devices	1,044	984	1,062	1,060	1,181	1,148
Caller ID devices	64	54	35	20	11	8
Fax machines	455	386	349	297	242	160
Personal word processors	240	240	97	36	13	6
Personal computers	16,390	16,400	12,960	11,523	12,458	13,093
Computer printers	4,500	5,116	5,245	4,829	4,196	3,799
Aftermarket computer monitors	1,505	1,908	2,173	1,670	1,497	1,492
Modems/fax modems	1,460	1,564	1,564	1,445	1,419	1,386
Digital cameras	1,207	1,825	1,972	2,794	3,421	4,184
Other computer peripherals	1,440	1,950	2,150	2,256	2,425	2,563
Computer software	3,930	4,480	5,062	4,961	5,060	5,162
Total	34,525	36,854	34,924	32,419	33,312	34,200
Blank media
Blank audio cassettes	208	162	129	98	87	70
Blank video cassettes	590	351	357	602	569	507
Blank computer media	900	1,200	1,550	1,600	1,800	2,025
Total	1,698	1,713	2,036	2,300	2,456	2,602
Accessories & batteries
Electronic accessories	1,398	1,356	1,378	1,500	1,635	1,782
Batteries	3,620	4,943	4,590	4,960	5,406	5,730
Total	5,018	6,299	5,968	6,460	7,041	7,512
Electronic gaming
Electronic gaming hardware	2,250	2,700	3,250	3,750	3,188	2,709
Electronic gaming software	5,100	5,850	6,725	7,375	7,744	8,131
Total	7,350	8,550	9,975	11,125	10,932	10,840
Home security	1,660	1,750	1,820	1,965	2,055	2,123
Grand total	85,507	96,373	93,711	94,177	96,350	100,988

FIGURE 2.1

DVDs, batteries, and other accessories with a wholesale value of $9.5 billion, up about 8% from $8.8 billion in 2002. Other growth categories included mobile electronics, up 5% from $16 billion in 2002 to $16.8 billion in 2003; home security products, up 4.6% to nearly $2.1 billion; home information products, up 2.8% to $33.3 billion; and video hardware, up 1.8% to $19.1 billion. Sales of electronic gaming declined 1.7% to $10.9 billion, and home audio fell 9.6% to $4.6 billion. (See Table 2.3.)

Making projections for 2004, the CEA anticipated demand for cellular telephones, onboard navigation systems, and car audio systems to boost sales of the mobile electronics category by more than 15% to $19.4 billion, and forecast blank media sales to grow by 6.5% to $2.6 billion, while video equipment sales were expected to increase 4.2% to $19.9 billion. (See Table 2.3.)

Video Equipment and Cameras

Sales of new flat-screen, high-definition televisions were growing as prices came down and more digital and high-definition television channels were made available. According to a survey conducted by the NPD Group in March 2004, 6% of televisions sold during that month were flat-screen LCD models and 1% were the plasma type, while 9% were projection televisions. With the cost of such equipment still considerably higher than that of conventional analog models, the market penetration of such equipment rose sharply with income. In households earning less than $50,000 per year, 6% reported having projection equipment and less than 1% plasma, while in households with income greater than $100,000, 19% claimed ownership of projection TVs and 4.3% had plasma sets.

In several video and imaging device categories, the sales growth of new digital products far outstripped that of their analog predecessors. Digital videodisc (DVD) player sales continued to grow rapidly, while sales of analog videocassette recorders (VCRs) fell sharply. Another popular new device was the digital camera, which allowed instant viewing of photographs and gave users the option of either printing or e-mailing copies. In addition to offering improvements or new capabilities in imaging, the new technology also permitted the devices to be smaller, sleeker, lighter, and more portable.

In 2003, according to the Photo Marketing Association International report Photo Industry 2004: Review and Forecast, sales of digital cameras topped those of film cameras for the first time. During the year Americans bought an estimated 12.5 million digital cameras versus 12.1 million film models. For 2004 the organization projected sales of 15.7 million digital cameras versus just 10.6 million film cameras. (See Figure 2.1.) Sixteen percent of digital cameras bought in 2002 were purchased as replacements for film cameras, and half of consumers surveyed reported that they would buy a digital camera as a replacement for their film camera if it were to break.

According to Photo Industry 2004: Review and Fore-cast, one-time-use film cameras continued to be the industry's best seller, hitting an estimated 211 million units sold in 2003, up from 162 million in 2000 and just fifty-four million in 1995. (See Figure 2.2.) The total number of rolls of film purchased during the year was dropping, however, to an estimated 816 million in 2003 from 888 million in 2002, which included single-use camera

FIGURE 2.2

FIGURE 2.3

sales. (See Figure 2.3.) At the end of 2003, 31% of U.S. households owned digital cameras, and this was expected to increase to 42% by the end of 2004.

Telephone surveys conducted by the CEA and published in U.S. Consumer Electronics Sales & Forecasts, 1999–2004, found that U.S. households have growing numbers of video products of all kinds. In 2004, 98% of homes had color televisions and more than two-thirds had a TV with stereo sound. Fifteen percent of American households had DVD players at the beginning of 2001, but by January 2004 fully half did. Direct-to-home satellite systems also grew in popularity—in January 2001, 16% of homes had one, but by January 2004, 24% of households had them. In 2004, 54% of Americans had camcorders, up from 39% three years earlier. (See Table 2.4.)

Audio

At the same time that video equipment sales were increasing, sales of audio products were falling. According to the CEA in U.S. Consumer Electronics Sales & Forecasts, 1999–2004, from 2002 to 2003 sales of portable audio equipment dropped from $1.5 billion to $1.3 billion in wholesale dollars, sales of separate audio components fell from $1.2 billion to $960 million, and compact audio system sales dropped from $965 million to $656 million. Home theater-in-a-box systems held relatively steady, slipping from $896 million to $860 million, while the one bright spot was sales of MP3 players, which can store hundreds of songs digitally in a unit smaller than the size of a pack of cigarettes. Sales in this category increased from $205 million in 2002 to $556 million in 2003, and the CEA projected they would rise further in 2004, to $706 million. (See Table 2.3.)

Although wholesale revenues were falling, the CEA found that between January 2001 and January 2004 the number of American households with audio products increased. During this period the number of homes with personal portable compact disc players grew from 28% to

TABLE 2.4

Household penetration of consumer electronics products, January 2001–January 2004
(By percent)
	January 2001	June 2001	January 2002	June 2002	January 2003	June 2003	January 2004
SOURCE: "U.S. Household Penetration of Consumer Electronics Products," in U.S. Consumer Electronics Sales & Forecasts, 1999–2004, Consumer Electronics Association, 2004
All television	98	98	98	98	98	98	98
Color TV	98	98	98	98	98	98	98
DTV	1	1	2	3	4	5	8
VCR decks	94	94	94	94	92	89	87
Monochrome TV	41	40	40	39	39	38	37
Color TV with stereo	69	70	70	70	70	71	71
Camcorder	39	40	42	46	49	52	54
Projection TV	15	15	15	16	18	18	19
All LCD TV	12	12	12	13	13	14	14
TV/VCR combinations	21	22	22	22	23	25	25
DVD player	15	21	25	29	35	41	50
Direct-to-home satellite	16	16	18	20	21	22	24
Mobile electronics
Electronic car alarm	30	31	31	31	31	31	31
Wireless telephones	59	63	64	66	68	69	70
Pager	21	20	19	18	17	17	17
Car CD player	30	35	40	45	52	54	54
Home office products
Corded phone	96	96	96	96	96	96	96
All CD including CD-ROM	75	76	77	78	78	79	80
Telephone answering device	77	77	78	78	78	78	78
Cordless phone	81	81	81	81	81	81	81
Personal computers	58	59	60	61	62	64	66
Computer printers	54	56	57	57	58	61	64
Computer with CD-ROM	57	59	60	60	61	62	62
Digital camera	18	20	22	25	28	31	33
Multi-line phone	23	23	23	24	25	25	25
Modem or fax/modem	55	55	58	59	60	62	64
Home fax machines	12	12	12	12	12	11	11
Caller ID equipment	27	28	29	30	31	32	32
Audio products
Home radios	98	98	98	98	98	98	98
MP3 players	2	3	4	7	8	10	13
Home CD players	57	57	57	57	57	57	57
Rack or compact audio system	43	43	43	43	42	41	40
CD boombox	40	42	44	47	52	57	61
Personal portable CD player	28	30	33	36	40	46	52
Home theater system	23	24	25	27	28	30	32

52%, and those with home theater audio systems jumped from 23% to 32%. Personal MP3 players such as the Apple iPod increased in penetration over the three years as well, from 2% of homes to 13%. (See Table 2.4.)

Video Games

After a peak sales year of $11.1 billion (wholesale) in 2002, video game sales dropped in 2003 to $10.9 billion and were projected to fall slightly again during 2004 to $10.8 billion, according to the CEA. (See Table 2.3.) A study of retail purchases by the marketing information company NPD Group, found that consumers spent $11.2 billion at retail on video games and equipment in 2003, representing a drop of 4% over 2002's record $11.7 billion. A 27% decline in console hardware sales was a major factor in the decline, with growth occurring in other categories including console software, up 14%, portable game software, up 19%, and portable gaming hardware, which increased 54% to $750 million, up from $490 million in 2002.