Are 3DTV Makers Turning a Profit?

Who's making money on 3D Television?

There's a wonderful I Love Lucy episode in which Lucy and Ethel decide to go into the salad dressing business. When Ricky asks about the economics of it, Lucy responds that they lose two cents on every bottle, but they make it up in volume. This is almost exactly what 3D TV makers are doing in today's market. None of the companies that make 3D Televisions - Samsung, LG, Sharp, Panasonic or Sony - are making any money off the 3D Panels they produce. This is a surprising find, since sales of 3D Televisions (and indeed flat panels in general) have been skyrocketing in recent years. According to industry figures, shoppers spent $115 billion dollars on 220 million televisions (3D and otherwise) in 2011. Still, display makers maintain that they have yet to make a profit on their ever growing volume.

There are several reasons for this. In many ways, the industry has become a victim of it's own success. 3D televisions these days are all high quality, dependable products. This makes one brand almost indistinguishable from the next and drives the premium a 3D TV maker can charge for their brand name down. Profit margins shrink as competition among nearly identical products increases. Secondly, many 3DTV makers increased production in 2007 and 2008 as the industry was at a high point. This increase in production supplied the market with an influx of new 3D televisions, causing prices to drop and profit margins to thin further. Lastly, the global recession in rich countries, which can afford to buy 3D TV's, means that there is less demand, further exacerbating the supply issue.

Due of these combined factors, the price of 3D televisions fell by 80% between 2001 and 2008. As manufacturers learned to make the panels more efficiently, they were able to reduce costs by up to 50% - not enough to make up for the price drops. So, a television that was being sold for $5,000 in 2004 and cost $2,500 to make would net the manufacturer $2,500 in profit. That same television sold for $1,000 in 2011 and cost $1,250 to produce. 3DTV makers found themselves making panels at a loss! To make matters worse, Chinese manufacturers, subsidized by the Chinese government, are about to come on line further exacerbating the oversupply issue.

To try and combat the free-fall, TV makers such as Sony and Panasonic are trying to increase the value of their television sets by adding services to them. Internet TV, HD 3D using 3D shutter glasses (as opposed to the regular definition RealD polarized glasses) and even adding apps to their televisions in an attempt to differentiate their products from the competition. So far many of these service have not caught on, but don't be surprised to see TV's that do more come online in the near future. Both Apple and Google are working on their own television services to try and lure customers. Networked Internet televisions may enable users to share photo's from their smart phone directly to the television without the hassle of wires. Different applications will enable users to watch YouTube, Hulu or even Netflix with a small subscription fee.

Whether these attempts to increase prices by adding value will work is still unknown. 3DTV makers certainly do have other industries from which to draw on experience. Both the airline industry and the telephone industry suffered the same problems in the early part of the millennium. Everyone loves to fly and use their phone, but because there are so many firms in those markets, it was nearly impossible to make a profit. Soon enough, however, the competition thinned as the weaker airlines and phone companies where bought out, merged or went out of business. The question for 3D TV makers is who will be the next dominant brand, and who will go the way of TWA?