Sony's Shot Over the Budget HD Bow

HDTV’s still aren’t cheap. But mix high prices with a slowing economy and you have a good, old-fashioned recipe for slower sales...or maybe even a price war. HDTV sales fell 37 percent from December 2007 to January 2008, according to research firm Pacific Media Associates. (Last year, sales in January 2007 climbed 18 percent over December 2006.)

If you're a consumer, that may be a good thing. Unfortunately for investors, it probably means you'll have to wait to see any sort of HDTV gold rush.

AP / AP HD DVD player and HD DVD-ROM

Aside from price, another important consideration among consumers is store location, according to iSuppli. And that’s where a retailer like Wal-Mart comes in. Bank of America recently announced Sony (SNE) would be going after discounters like Vizio and Olevia on their own turf this spring, selling a $699 high-definition LCD television at Wal-Mart (WMT), with a potential discount from the retail giant that could cut the price to $648. That’s about $100 less than a 32-inch Sony Bravia currently selling on Amazon for $749 and right in the middle range of HDTVs currently available at Walmart.com.

Sony’s been selling in Wal-Mart for the last year, but this is the first time the company has sold a 32-inch TV at a price point below $700, according to Jay Vandenbree, Sony’s president of U.S. sales. The television itself has a resolution of 720p, so it’s not on Sony’s high end. But for the vast majority of viewers, who mainly watch DVDs on their HDTV, the set is more than enough. And the 32-inch size, adds NPD industry analyst Ross Rubin, has become the choice of viewers looking for flat panel sets for the bedroom.

According to Bank of America, the price cut is an effort by the Japanese giant to steal market share from off brands, and could be the beginning of a price war. But Rubin disagrees. “Sony entering a retail outlet generally doesn’t mean lower prices,” he says.

A closer look at Wal-Mart.com seems to bear him out. The store sells a number of LCD televisions at significantly lower prices, including an Emerson 32-inch set for $549, a 32-inch Vizio for $597 and a comparable RCA for $648. So while Sony’s entry could impact mid-level prices, it’s unlikely to do much to the low end, since they’re already pretty far below the Sony’s projected price.

While the thought of a price war is nice for consumers, HDTV shoppers shouldn’t expect prices for LCD-TVs to fall much further this year, mainly because of a panel shortage. According to Vandenbree, it’s more likely “demand [for LCD panels] will outstrip supply.” As a result, it is unlikely Bank of America’s price war will ever materialize.

Just the same, the intense competition for HDTV buyers has driven manufacturers to take unusual steps to bring attention to their products. Some companies offer online courses on how to choose a set. Others, like LG, have taken a different tack. The Korean manufacturer has hired “Trading Spaces” maverick designer Doug Wilson, branding him the “techorator” and offering appearances and bylined articles to help consumers incorporate a big-screen TVs into their décor. “The television has become the hearth of the 21^st century,” says Wilson.

These efforts to differentiate themselves could pay off for manufacturers later this year as the February 17, 2009 switchover to digital televisions approaches. On that date, the TV viewers have been watching over the airwaves via rabbit ears or an antenna will disappear. They’ll have to have a special converter box or service provided by a cable, satellite or telephone provider to watch TV. As that date nears, Wal-Mart could become a key retailer, according to NPD’s Rubin. “Sales at Wal-Mart will come at the expense of other retailers,” like Best Buy (BBY) and Circuit City (CC), he says.

Meanwhile, manufacturers hope that as the transition occurs, there will be a run on digital sets. And some are in a better position to take advantage. “Companies like Sony have locked up panels because we want to be ready for the transition,” Sony COO Stan Glasgow told reporters earlier this year.

So who stands to benefit from price cuts? Well, lower prices mean lower profits for manufacturers. So that has to be made up for through higher volume sales. Lower prices for manufacturers also means component makers are likely to be squeezed, as well. And while Wal-Mart stands to benefit from having Sony televisions in store, there’s no clear-cut evidence it will make a huge difference in the company’s bottom line. That said, if indeed HDTVs, particularly LCDs, become more mainstream through sales at Wal-Mart, the company could further damage the bottom lines of retailers like Circuit City or Best Buy, says Rubin. That may be why Best Buy CEO Brad Anderson refers to Wal-Mart as a “profound competitor.” It may not be an all-out price war, but the first battle has surely begun.

© 2009 CNBC.com