Best Buy bets on 3D TV, but no quick payoffs seen
NEW YORK (Reuters) - While James Cameron's 3D sci-fi epic "Avatar" took the box office by storm instantly, the road to success will be much longer for Best Buy Co Inc, which is making a big bet on 3D televisions this year.
The top U.S. electronics retailer unveiled a line of 3D TVs made by Japan's Panasonic in New York City on Wednesday, as it joins a host of companies hoping to cash in on the new technology.
While many expect 3D TVs to draw curious shoppers to Best Buy stores, helped by blockbuster 3D films like "Avatar" and the new "Alice in Wonderland," they do not see the higher-priced products acting as a big sales catalyst or a quick-fix for weak margins in 2010.
"3D TV is a nice to have. Certainly not a must-have. To me, it is kind of like a cherry on a sundae," BB&T Capital Markets analyst Anthony Chukumba said.
"I don't necessarily think that 3D TV is going to move the needle a ton for Best Buy in 2010," he said.
Barclays analyst Michael Lasser estimated the margin on a 3D TV to be "meaningfully higher" than what Best Buy earns on an HDTV of a comparable size, but added demand for the products was uncertain at the moment.
"I don't think 3D TV will be decisive for margins," Goldman Sachs' Matthew Fassler said, adding, "It is not reasonable to expect consumers to pay a premium for technology without sufficient associated content."
Many manufacturers are now tying up with studios, broadcasters and game developers for deals to boost offerings of 3D content.
Walt Disney Co's ESPN is rolling out its 3D network in June beginning with the World Cup soccer match between hosts South Africa and Mexico in Johannesburg. Discovery, Sony and IMAX are also scheduled to launch a 3D network in the United States in 2011.
Besides Panasonic, Sony and Samsung have also announced plans to launch 3D TVs in coming months, hoping they will become the next big thing in the electronic industry.
The 50-inch Panasonic VIERA VT20 Plasma 3D HDTV unveiled by Best Buy on Wednesday is priced at around $2,500, with accompanying eyewear costing about $150 a pair.
In addition to 3D content, high pricing and the required use of glasses are other hurdles for the new technology.
According to a survey by market research firm NPD, more than half of consumers cited the glasses were an "inhibitor," NPD analyst Ross Rubin said.
Panasonic, however, said it looked to sell about 2 million units of its 3D TVs in the first year of launch.
Companies are counting on sports fans, hardcore gamers, movie buffs and the not-so-price-sensitive technology fans to be early adopters, but skeptics doubt if there will be enough takers for 3D TVs in the near term.
"I think the real question is, will consumers want to replicate the cinema experience, the theatrical experience with glasses, in their living room?," Fassler said
"3D is just one more little product that drives people into the store. Is it going to be 10 percent of sales? No way!" Credit Suisse's Gary Balter said.
Even over the long term, higher-priced 3D TV may not be the ultimate cure for anemic margins at Best Buy.
Flat-panel TVs account for only about 20 pct of Best Buy's annual sales of about $45 billion and 3D is going to be an even smaller portion even in 2011 or 2012, BB&T's Chukumba pointed out. "The impact is going to be muted," he said.
Michael Vitelli, Best Buy's president of the Americas, said he had no "specific expectations" for 3D TVs in 2010, but added that the new technology should help over the long term by spurring demand for higher-margin accessories and ancillary services.
Global demand for 3D TVs will probably reach 15.6 million units in 2013 from an estimated 1.2 million this year, according to research firm DisplaySearch. That figure could reach 64 million in 2018, when the research firm expects total revenues to hit $17 billion.
(Reporting by Dhanya Skariachan, editing by Matthew Lewis)
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