SIC 3651
HOUSEHOLD AUDIO AND VIDEO EQUIPMENT



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.

NAICS Code(s)

334310 (Audio and Video Equipment Manufacturing)

Industry Snapshot

The household audio and video equipment industry faced a number of challenges in the early 2000s, which was nothing new for this often-bruised category. In 2001, manufacturer shipment values totaled $7.2 billion, marking a decline from 2000 ($7.7 billion) and 1999 ($8.2 billion). This was an exceptionally mature market in the United States, with household penetration for products in this category around 95 percent, while technological innovations have, with some notable exceptions, been few. Consumers in the market for home electronic equipment in the early 2000s were devoting their disposable income to digital products, namely DVD players. Thus, in the early 2000s manufacturers were focusing heavily on the digital market, including digital television and audio and video recording equipment. Because the rate of obsolescence among many products in this category is fairly slow, particularly in comparison to computer products, the large numbers of Americans who already possess such equipment have fewer reasons to upgrade.

During the early 2000s U.S. manufacturers were 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 early 2000s by American subsidiaries of Japanese companies who used technologies developed by American 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, regarding 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 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 by RCA in the 1920s, which also pioneered television manufacturing in the 1930s. For years, American 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, this cartel successfully lobbied the Japanese government to establish tariffs and other trade barriers that protected the manufacturers from foreign competition. This protection allowed the cartel to establish minimum prices and control their domestic market. In addition, U.S. companies 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, the Japanese manufacturers began to export televisions to the United States—using the profits from their protected domestic market to subsidized below cost sales in the United States, in violation of U.S. trade laws. In addition, a Department of Justice investigation later revealed that the Japanese gave American 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 antidumping 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 with abundant, low cost labor such as Mexico and Argentina 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, who 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 solidified their hold on the U.S. television market.

At least one U.S. company, however, 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 antitrust 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 together accounted for about 45 percent of all color television sets sold in the United States in 1980. General Electric quit 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 was losing 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 American-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; 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 American manufacturers disdained entering 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 technology components. U.S. companies were relegated to a marketing role, rather than manufacturing, which helped 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 the U.S. consumer electronics manufacturing in the mid-1980s. Reminiscent of Japan's entry into the U.S. market, 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 antidumping tariff, Goldstar began increasing production at a plant it opened in Alabama in 1981.

In the early 1980s lingering recession was also affecting 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—and a third partnership led by Thomson, Philips, and NBC—were hopeful 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, to maximize profits, U.S. based manufacturers were beginning 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 industry's center of gravity 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. Digital television (DTV) technology was widely expected to become the new lifeline of the industry, a hope upon which some firms staked their fortunes.

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) was working to establish a clear definition of DTVs so as 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, reaching a 30 percent market share by 2006.

Standards for high-definition televisions (HDTVs) have been no less controversial. When, in 1999, the CEA approved their standard for HDTV, it effectively excluded several high-level sets manufactured by companies such as Toshiba and Hitachi, which both 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, HDTVs shipped a mere 100,000 units.

Compatibility between various technological capabilities was becoming 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 attended to by industry players such as Thomson, by 1999 sales in this category had yet to recover to their mid-1990s peak. Meanwhile, manufacturers were scrambling to integrate their products' capabilities with those of personal computers in a move toward "convergence." Convergence technologies refer to equipment that can record and playback signals transmitted electronically via Internet connections.

Current Conditions

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 association forecast 2003 sales to reach record levels, totaling $99.5 billion.

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 rate represented an increase of 39 percent over 2001 and pushed DVD penetration among U.S. households to 35 percent. Unit sales were expected to exceed 20 million units in 2003, fueling growth of 14 percent. The DVD Entertainment Group predicted that DVD penetration would exceed the 50 percent mark by the end of 2003. Packaged home theater system sales also were very strong in the early 2000s, boosted in part by the popularity of DVD players. The CEA expected unit sales to reach 3.4 million in 2003, a 10 percent increase over 2002 levels.

Digital television sets also were increasing in the early 2000s. Supported by an increase in HDTV broadcasts, unit sales from manufacturers to retailers increased by about 400 percent from 1999 to 2000, according to the CEA. Sales reached levels of 2.5 million units in 2002 and were expected to reach 3.8 million in 2003. In October 2002, 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.

An important agreement between seven leading U.S. cable TV operators and 14 consumer electronics manufacturers was forged in December of 2002 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."

Until cutting-edge technologies are fully developed and immersed in consumer markets, they continue to play a somewhat dubious role within the industry. Because consumers remain relatively ignorant of the new technologies, the products generally have helped flatten overall sales as they sit on shelves and older, lower margin products continue to make up the sales.

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 $51.8 billion in 2002. 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. Harman International Industries, Inc. was among the world's largest speaker producers, with 2002 sales of $1.8 billion. Also a leader in the world speaker market was Bose Corp., with 2002 sales of $1.3 billion. In 2002, Zenith Electronics Corp. was focused on the HDTV market, operating as a subsidiary of South Korea-based LG Electronics. A subsidiary of Netherlands-based Royal Philips Electronics, Philips Electronics North America Corp. was another major industry player in the early 2000s. A manufacturer of TVs, VCRs, DVD players and more, the subsidiary was responsible for $7.9 billion in revenues for the parent company in 2001, or 28 percent of its total sales.

Workforce

The workforce in this classification continues to decline, due mostly to the fact that American companies are increasingly getting out of the business due to foreign companies' domination. The industry employed approximately 19,000 production workers in 2000, down from about 23,000 in 1998. In 2000, production workers earned an average of $11.45 per hour.

Further Reading

"Cable and Consumer Electronics Companies Reach Key Agreement on Digital TV Transition Issues—Months of Talks Generate Steps to Advance Digital TV Transition, Benefit Consumers, Provide Market Certainty, and Bring New TVs to Market." Business Wire, 19 December 2002.

Consumer Electronics Association. "2002 DVD Sales Set New Record," 29 January 2003. Available from http://www.ce.org .

——. "2002 Sales Turbocharge DTV Transition into New Year," 27 January 2003. Available from http://www.ce.org .

——. "2003 U.S. Sales of Consumer Electronics to Hit New Record, Kissing $100 Billion, Says CEA." 7 January 2003. Available from http://www.ce.org .

Doman, Matthew. "Little Demand for Digital TV, Intl Study Says." Hollywood Reporter, 27 September 1999.

"DVD Killed Video's Star." New York Times, 7 January 2000.

"DVD Players Set Records in Electronics Sales." Salt Lake Tribune, 30 November 1999.

"DVD Software Sales Drive Video Industry to Record Breaking $20 Billion Year; More Than 40 Million U.S. Households Own a DVD player." Business Wire, 9 January 2003.

"Markets for Recordable CDs Spin Briskly Along." Journal of the Electronics Industry, December 1999.

"New Rule on High-Definition TV Roils Toshiba and Hitachi." New York Times, 18 December 1999.

"Sales of Ordinary Tube TVs Rise 0.2 Percent While Big-Screen Models Jump 16 Percent." Wall Street Journal, 10 August 1999.

Stern, Christopher. "Slow Sales Hamper High-Def." Variety, 3 January 2000.

"Strategy Analytics: HDTV Will Be in 15 Percent of US Homes by 2008; Operators and Content Owners Can Plan for High Definition Future." Business Wire, 29 October 2002.

Symons, Allene. "Into the Future with Home Entertainment." Supermarket News, 13 December 1999.

U.S. Census Bureau. Annual Survey of Manufactures. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, February 2002. Available from http://www.census.gov .

——. "Consumer Electronics: 2001." Current Industrial Reports. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, September 2002. Available from http://www.census.gov .



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