Flat Chance

Doug Gale, a 30-year-old Dallas banker, returned from a vacation to Tokyo and Hong Kong in 2001 raving as much about TV sets as about ancient temples, towering skyscrapers and exotic food. A self-proclaimed tech geek, Gale scouted out electronics shops and was mesmerized by flat-screen TVs. Their monstrous sizes, sleek designs and flashy displays were perfect, he thought, for watching his favorite Dallas Stars charge down the ice. "I'd never seen anything like them," he says of the TVs. "They were just phenomenal. As soon as I got back to Dallas I was thinking, 'I got to get me one of these!'"

Three years later, Gale's living room is still dominated by an old picture-tube clunker. He routinely stops in Best Buy and Circuit City stores to compare prices, but the model he craves, a 45-in. cutting-edge liquid-crystal display (LCD) TV, has a $7,000 price tag — twice what Gale is willing to spend. "These things are still prohibitively expensive," Gale laments.

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Sound familiar? While it seems as though hordes of couch potatoes are snapping up the latest displays, the wonders of LCD and plasma TV technology are still well out of reach for the average shopper. True, at retailer Circuit City, sales of flat-TV models have tripled over the past year, prompting CEO W. Alan McCollough to label this Christmas "a flat-panel holiday." But as long as the price tag on a flat-screen TV is four or more times as much as a comparable tube TV, many consumers will drool and dream but not bite. "Prices [of flat TVs] will be cheaper for consumers this holiday season, but not cheap enough to have them explode off the shelves," says Chris Connery, vice president of market research at DisplaySearch, a consulting firm based in Austin, Texas.

It's a virtual lock that the magic price point — at which flat-panel TVs switch from being a status symbol of the rich and hip to an everyday feature in American living rooms — will be reached in the near future. That's because the Asian consumer-electronics companies that dominate the flat-panel industry are building too many factories too fast. A glut is in the offing, and while prices have already been falling, more rapid declines are expected. Consulting firm iSuppli Corp. estimates that a 37-in. LCD TV that now retails for more than $4,000 will cost half as much in 2006 and is likely to be less than $1,000 by 2008. Plasma TVs will also see prices decline. A 42-in. plasma set that costs on average $2,700 today will probably fall to under $1,000 by 2007.

Lofty prices have kept the market for flat-screen TVs small so far. Plasma technology dominates in supersize TVs over 40 in., but plasma will hold only 2% of the U.S. TV market this year. More consumers buy LCD TVs, which are available in a wider range of sizes, but they still only account for less than 10% of the market. Dropping prices will change that, especially with LCD TVs, which manufacturers are gearing up to churn out the fastest. By 2008, 1 of every 3 TVs sold will be an LCD, according to iSuppli. The U.S. is catching up to some other rich countries. In Japan, where consumers are among the most technologically savvy and are much more space conscious, about 1 in 4 TVs sold is an LCD. "In the long run, [LCD TVS] will be a major part of the business," says Paul Semenza, an iSuppli vice president.

If you still think $1,000 is too much to pay for a TV set, consider yourself part of the spoiled Wal-Mart generation. In the 1950s, when the cathode-ray tube was cutting edge, an average TV cost about $1,000, according to Semenza. Adjusted for inflation, that's $6,700 today — comparable to the most advanced flat-screen TVs. The advent of the flat TV is seen by an electronics industry accustomed to razor-thin margins as a chance to reap some fat profits from a new technology. Japan's Sharp Corp. announced this month that sales of LCD TVs contributed to pushing up profits 40% in the first half of this fiscal year.