Audio and Video Equipment, Household

SIC 3651

NAICS 334310

The global household audio and video equipment industry manufactures a diverse number of electronic entertainment devices, including television sets; radio receivers (including automotive); compact disc (CD) and other digital disc players and recorders; tape players and recorders; amplifiers and speakers; phonographs; and videocassette players and recorders

For discussion of makers of electronic components for such products, rather than the finished goods, see also Electronic Components.

INDUSTRY SNAPSHOT

Audio/video equipment is a strong industry worldwide that grows with developing technology. With maturing markets in the United States, Europe, and Japan, digital and other high tech products provided the highest growth rate in the 2000s. Some of these products included high definition televisions (HDTV), digital televisions (DTV), digital versatile disc players (DVD), mini-disc (MD) players, and digital video recorders (DVRs). Producers also targeted the emerging economies of Eastern Europe, Southeast Asia, and South America with basic model audio and video equipment. Areas of opportunity for mature markets were also available within the automotive industry.

The Consumer Electronics Association (CEA), predicted the total value of consumer electronics shipped would grow approximately 4 percent in 2005, earning just under $100 billion in worldwide revenue for the industry. 2004 sales of consumer electronics in the United States exceeded US$113 billion, and were slated to top an industry record US$125.7 billion in 2005, a 10.7 percent growth over 2004. Digital products were expected to generate 70 percent of that revenue, according to Gary Shapiro, president of the CEA. Sales of DTV products reached US$10.7 billion in 2004, 78 percent higher than 2003. The CEA projected sales of more than 47 million DTV units by 2007, up from 7.3 million in 2004. LCD television sales were expected to account for more than $3 billion in 2005, compared to $2 million in 2004, largely due to price decreases.

CEA "Home Technology Study" estimated that 35,000 firms were installing home theaters. Furthermore, its "Home Theater Opportunities Study" claimed there was a multi-tiered market with several types of consumers desiring to spend money on equipment and services.

ORGANIZATION AND STRUCTURE
Government Policy and Regulation

National governments have played a key role in the industry's development. The Japanese audio and video equipment industry was aided throughout the post-World War II years by the Japanese Ministry of International Trade and Industry (MITI). MITI provided subsidized loans to favored producers in the industry and facilitated research and development. MITI's activities were part of a broader strategy of the Japanese government that sought to protect its domestic market from imports and penetrate foreign markets by offering quality products at low prices.

In the United States, two government agencies—the International Trade Administration (ITA) and the U.S. International Trade Commission (ITC)—are responsible for monitoring trade practices of foreign firms. The ITC identifies foreign firms that sell products in the United States below market value, known as dumping. The ITC also determines whether U.S. industries have suffered material injury when the agency finds that dumping has taken place. Upon a finding of material injury, the ITA issues an antidumping order, which is enforced by the U.S. Customs Service.

Industry Associations

Japan's leading trade group, which includes as members all of the industry's leading companies, is the Tokyo-based Electronic Industries Association of Japan. Asian manufacturers are served by the Asia Electronics Union, established in 1968 and headquartered in Tokyo. The union publishes the English language bimonthly Journal of AEU and facilitates cooperation among its members in the areas of research, applications, and manufacturing techniques. Many Chinese producers of audio and video equipment are members of the China Audio Industry Association, the China Radio and T.V. Equipment Industry Association, or the China Electronics Chamber of Commerce. These three organizations were all established in the 1980s, a reflection of the relative newness of the consumer electronics industry in China. The U.S. industry is served by the Consumer Electronics Manufacturers Association of the Electronic Industries Association, established in 1924 and headquartered in Washington, D.C. Association publications include the Electronic Market Data Book and the U.S. Consumer Electronics Industry Today.

BACKGROUND AND DEVELOPMENT

The household audio and video equipment industry originated in the late nineteenth century. Thomas Edison's development of the phonograph in 1877 and Guglielmo Marconi's use of wireless transmissions in 1895 were major innovations. Another important early innovation was Lee DeForest's vacuum tube, developed in 1906, which allowed electronic signals to be amplified.

The 1920s were important years of research and commercialization for the industry. Developments included the first commercial radio broadcast in 1922; the Western Electric Company's patents for electrical sound recording and the placement in radios of loudspeakers instead of headphones in 1924; the introduction of the alternating current (AC) radio in 1926; Philo Farnsworth's television patents and the introduction of automobile radios in 1927; and the first U.S. experimental television station permits issued by the government in 1928.

The industry enjoyed rapid growth in the 1920s and 1930s. During that period more than 100 million radios were sold in the United States. The Federal Communications Commission (FCC) was established in the United States in 1934 to regulate broadcasting. The FCC authorized FM radio and television broadcasting in 1941, but these developments were forestalled by the country's entry into World War II. By the end of World War II, there were nine commercial television stations, 46 commercial FM stations, and 943 AM stations in the United States.

The late 1940s saw the industry return to its prewar patterns of rapid growth and innovation. In 1947 the first magnetic tape recorders were marketed, and Bell Telephone Laboratories demonstrated the first transistor. The transistor marked the birth of solid-state electronic components, commercialized in 1954 with the mass-marketing of the first "pocket radio." Home audio hobbyists who put together their own systems revealed that the capacity for fidelity of sound reproducing equipment far exceeded the fidelity of existing recordings. This led to the introduction of 45 rpm records and 33 rpm long-playing records in 1948. These records were the first mass produced "hi-fi" recordings. Other important developments in these years included color television broadcasting in 1954, videotape recording for television stations in 1956, and stereophonic audio systems in 1958.

Sales of color televisions surged during the mid-1960s. The first solid state color televisions were marketed in 1967. By the mid-1970s, solid state color sets dominated the market. The first color videocassette recorders for household use were marketed in 1975, and sales increased rapidly after the early 1980s. The 1980s saw the introduction and rapid diffusion of digital technologies in household audio and video equipment. The industry developed compact disc and accommodating audio systems—first mass-marketed in 1983—that quickly supplanted phonograph systems.

Japan's Emergence

One of the most important developments in the industry after World War II was the dramatic competitive success of Japanese producers, which progressively unseated U.S. manufacturers as the world's leading audio/video equipment producers. The foundations of Japan's ascendance were established in the immediate post-World War II years. The Japanese government's Ministry of International Trade and Industry (MITI) favored a handful of firms in the audio and video equipment industry, creating a powerful cartel. MITI's policy was to grant large low-interest loans to favored firms and deny credit to other firms. The Fair Trade Commission of Japan (FTCJ) argued that the consumer electronics cartel violated Japan's Antimonopoly Law of 1947. In a 1957 decision, the FTCJ ruled that Japanese firms had conspired to set prices. The FTCJ also stated in a 1970 decision that Japanese producers of consumer electronics were in violation of the Antimonopoly Law. In spite of these findings, however, the cartel continued to operate.

At the same time, foreign producers had great difficulty establishing a viable presence in the Japanese market. The domestic dominance of Japanese firms resulted in part from the common practice of granting exclusive retail dealerships. Retailers were given large rebates by affiliated manufacturers if they agreed to sell only that manufacturer's products. By the mid-1960s two-thirds of consumer electronics retailers in Japan were exclusive dealerships, and this share increased by the mid-1980s. Japanese producers of audio and video equipment also controlled the home market by purchasing wholesalers. By the 1970s, Japanese firms had acquired majority stakes in nearly all consumer electronic wholesale businesses in Japan.

Japan's trade policies helped buffer its audio/video equipment industry against foreign...

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