Plasma Vs. LCD: Retail Collision Course

by Steve Kovsky
Senior Analyst, Digital TV Industry
December 21, 2005

As flat-panel TV prices continue to glide downward, more and more consumers are finding themselves in the happy position of being able to afford one of the coveted items. However, now that the problem of being able to pay for one of these slender video marvels is receding, a bigger question looms: Should they buy plasma or LCD? Consumers are challenged, and so are the manufacturers and retailers that are desperately trying to divine which way the market will go.

From a technological standpoint, there has never been a clear winner in terms of video display performance. Both flat-panel technologies have their strengths and weaknesses, and manufacturers have been working feverishly to level the playing field. Plasma manufacturers have sweated to add longevity to the products while reducing the risk of burn-in. Simultaneously, LCD panel makers have been toiling to speed up response times and increase contrast ratios. Most important, perhaps, have been the increasingly successful efforts to produce LCD TVs in sizes and price ranges that directly challenge those of plasma offerings.

To illustrate this impending technology collision, it is worthwhile to look at the three primary screen size bands in which plasma and LCD TVs currently compete for U.S. retail consumer dollars. These are the 37-inch category, the 40- to 42-inch range, and the larger 43- to 46-inch segment. Anything smaller belongs to the LCD category as the sole flat-panel choice. Anything larger is still the domain of plasma when it comes to thin screens in major U.S. retail chain stores.

In the 37-inch segment, plasma is barely hanging on. The only models we detected in U.S. retail distribution in November were single SKUs from Sony and Panasonic. Samsung and Philips both began 2005 with their own 37-inch plasma offerings, but withdrew them from retail stores last spring. On the LCD side of the equation, no fewer than ten manufacturers are now selling 37-inch TV products. Sharp alone offers three different 37-inch models.

One look at the pricing trends in the 37-inch flat-panel category makes it clear why LCD now runs the board.

From an average selling price of $4,674 last January, 37-inch LCD TVs have plummeted down to the November level of $2,519–a difference of a mere dollar from the $2,518 ASP charged for a 37-inch plasma screen in November.

Offering the same level of price competitiveness has been more elusive for LCD TV makers in the larger screen sizes, but once again, it’s clear that plasma is under pressure. The largest LCD TVs currently available in U.S. retail channels are 45-inch and 46-inch models from Sharp and Samsung, respectively. Comparable plasma TVs include 43-inch models from Pioneer and 46-inch offerings from Daewoo and V Inc.

In this 43- to 46-inch size category, LCD TVs have made enormous strides in cost reduction, forcing plasma makers to take evasive action earlier this fall. While these large LCD TVs began 2005 with an ASP of $7,724, they entered the holiday shopping season at $4,857, a precipitous 37% drop. During the same period, plasma prices stayed essentially the same, with a November ASP of $3,943 that was only 2% lower than comparable January tags. However, average plasma prices had run up during the year to as high as $5,124, but succumbed to LCD’s pricing pressure in October, forcing a 1-month average price cut of 14% in order to maintain an advantage over LCD.

Of course, the most hotly contested area is the 40- to 42-inch category, which has been plasma’s traditional stronghold. Availability problems in the spring prevented LCD makers from achieving a completely smooth line of price reduction to intercept plasma; however, the march downward is still clearly evident. LCD TVs in this size range started the year at a 47% price premium over comparably sized plasma screens. By November, the price gap had shrunk to only 18%, or just under $1,000.

While the rapid reductions in LCD pricing are evidence of a strong determination to overtake plasma, a $1,000 price delta between products that many perceive as functionally equivalent is still a big step for consumers to take. It is true that the gap is narrower if you exclude lower-resolution ED plasma screens, which represent a significant performance hit compared to 720p plasma and LCD offerings. Alas, consumers are only just starting to wake up to the difference.

How has this pricing warfare between LCD and plasma TVs affected retailers? Inventories of LCD TVs with screen sizes of 37 inches and above have been a limiting factor, but production volumes are growing, and the toll on plasma’s domination of the 37- to 46-inch TV segment is clearly evident.

At Best Buy, LCD TVs now make up half of all flat-panel offerings in the 37- to 46-inch category. Circuit City has been a little slower to jump on the large-screen LCD TV bandwagon, but shelf share of the liquid crystal displays climbed from 14% of all 37- to 46-inch flat panels in January to 36% in November.

To sum up the situation, LCD TV is on the march, quickly and effectively infiltrating the portions of the digital TV marketplace where plasma has generally held sway. Plasma manufacturers have responded by dropping prices in the 37- to 46-inch sector, where the two technologies currently compete, while simultaneously scaling the screen size ladder as quickly as possible, hoping to stay out ahead of the LCD onslaught.

For consumers, the holiday outlook appears both merry and bright. TV makers are warring for their business, slashing prices, adding features, and improving product quality. For manufacturers and retailers, the developing situation may be a bit less joyous. As the overlap between LCD and plasma TVs becomes more pronounced, the decision of how to balance promotional and product development resources promises to become increasingly thorny in the coming months.

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