Marketing Management

Forecast of HDTV demand from 1992 to 2000:

Certain aspects need to be answered to define optimistic and pessimistic scenarios:
1) Who is target market?
US colour industry was a mature one with 98% users' households owing a colour TV with
Zenith having 12% market share. Consumers were looking for TV's that were worth their
money and, they wanted to be in their budget, picture quality was the most important thing
for them is picture quality and here lies the opportunity for Zenith to grow and get a better
penetration in market.
2) Penetration rates going to follow which previous innovation?
Colour TV was introduced in 1955 and its growth was very slow until 1965 when it took off.
Colour TV penetration in US year on year basis -
1965 - 7%
1970 - 41%
1975 – 74%
1980 - 83%
1985 – 91%
1989 – 97%
1990 – 98%
Above mentioned are the penetration rates which HDTV will follow similar trends just like
colour TV were observed, initially the penetration rate will be slow but then after around 10
years there will be an exponential increase in the market penetration.
3) Will HDTV be innovative or only a replacement/ additional set?
Innovative product: A product can be termed as an innovative product when a technological
advancement brings about change in the product. Replacement product: When a product
replaces another set of products it can be termed as the replacement product. Taking into
consideration the above information and calculation data, we can say that HDTV will be a
replacement product because it brings about a change in the aspect ratio from 4:3 to16:9
rather than an advance technological development. Penetration will be most likely as per
Color TV

4) Will FCC make decisions on time?

Federal Communication Commission had announced that more tests would be necessary
before deciding on the high-definition television (HDTV) standard.
FCC has among other charters, the goal of protecting consumer investment. This surfaced
over forty years ago when the FCC mandated that colour TV's be backward integrated with
black and white sets. The FCC currently stipulates that the HDTV standard be compatible
with current TV transmission.
Zenith wants to set a fixed time after adoption of the HDTV standard to terminate NTSC.
Such a date should be at least seven years after adoption of the standard. To protect consumer
investments, Zenith argues that HDTV must be scalable (through converters) to
accommodate resolution on the 13-inch to 20-inch sets. Zenith forecasts a 1% penetration one
year after the adoption of the HDTV standard. Additional lobbying by Zenith includes a
proposed foreign excise tax. The company recommends that those sets with a domestic
content of 50% or more, enjoy reduced licensing fees.
The competition for a transmission standard will be judged by the Advanced TV Advisory
Committee composed of colliding interests including chief executives from TV
manufacturers, broadcasters, cable TV companies and suppliers. The Committee will finish
testing and recommend a system to the FCC in early 1993. Digital system proposals are now
being tested at the Advanced Television Test Center (ATTC). These tests and those of analog
proposals will be presented to the FCC. A standard should be chosen by mid-1993

5) Whether software will be available?

An important variable in determining HDTV demand will be the availability of software.
HDTV broadcast equipment will require a large initial investment by broadcasters not to
mention larger camera crews (up to 3 times as large) since flaws are magnified. Some of
these extra costs are mitigated by decreased production costs realized by eliminating film.
A study by the Transition Scenarios Group of the Advanced TV Advisory committee has
determined that broadcasters in large markets will be ready to broadcast HDTV within
eighteen months of a standard. Smaller broadcasters will, however, be at a disadvantage due
to capital demands for new equipment. A TV station might have to pay between $12 million
and $22 million to convert to HDTV. The average price of a TV station sold between 1987
and 1990 was only $19.7 million. HDTV stations might also service a smaller area causing
perhaps a 20% decline in revenues.
To alleviate conversion costs, Zenith-AT&T have developed a simple up-conversion process
that will allow local TV stations to convert their existing NTSC equipment to Zenith's DSC-
HDTV format. Through a two-step process the conventional NTSC signal is stepped up to a
high-definition format compatible with DSC-HDTV. "With a minimal investment, TV
stations would be able to move to high-definition signal and the up-converted locally
produced signal."
The FCC has given away HDTV licenses to 1700 stations to encourage investment by the
existing broadcasters in HDTV. There will be no competition for HDTV licenses. The value
of these licenses is estimated at $1 billion. Alfred Sikes, chairman of the FCC, states that "it's
not a giveaway, it's a transition from one format (of broadcasting) to another." Two months
before the license announcement was made, 100 broadcasters petitioned the FCC to require
cable to carry HDTV to ensure an adequate audience to justify investment. It is feared that
without fresh competition, existing broadcasters will cling to the NTSC standard. Public
demand for HDTV is likely to materialize mainly in response to broad program selection.
Studios will be hesitant to produce programs in two standards until broadcasters are able to
transmit HDTV.

6) Is this beneficial enough for customers to pay higher?

Any product in the market is judged on the basis of customer value it provides , as in this case
customers valued picture quality and viewing experience and hence HDTV technology will
be a game changer not only for Zenith since it will help in market penetration but to
customers as they will get better standards and quality of products. HDTV technology will
not only provide better picture resolution but will also provide superior digital stereo sound
and this is what attracts the most where they get value worth their money. Hence , HDTV
innovation will be beneficial for the customers and Zenith

Optimistic Forecast:
1965-1970 = 42% growth rate of Colour TV
1970-1975= 12.5% growth rate of Colour TV

Considering similar growth rate for penetration of HDTV:

Cumulative Growth:
Year 1: 7% of 92.1 million = 6,447,000
Year 2: 9.9% of 92.1 million = 9,117,900
Year 3: 14.1% of 92.1 million = 12,986,100
Year 4: 20.2% of 92.1 million = 18,604,200
Year 5: 28.7% of 92.1 million = 26,432,700
Year 6: 32.3% of 92.1 million = 29,748,300
Year 7: 36.3% of 92.1 million = 33,432,300
Year 8: 40.8% of 92.1 million = 37,576,800
Year 9: 45.9% of 92.1 million = 42,273,900
Year 10: 51.6% of 92.1 million = 47,523,600

Year-wise Growth:
Year 1: 6,447,000
Year 2: 2,670,900
Year 3: 3,868,200
Year 4: 5,618,100
Year 5: 7,828,500
Year 6: 3,315,600
Year 7: 3,684,000
Year 8: 4,144,500
Year 9: 4,697,100
Year 10: 5,249,700

Colour TV- OPTIMISTIC

Years Growth Rate Cumulative Value Value
Year 1 7 6447000 6447000
Year 2 9.9 9117900 2670900
Year 3 14.1 12986100 3868200
Year 4 20.2 18604200 5618100
Year 5 28.7 26432700 7828500
Year 6 32.3 29748300 3315600
Year 7 36.3 33432300 3684000
Year 8 40.8 37576800 4144500
Year 9 45.9 42273900 4697100
Year 10 51.6 47523600 5249700

Pessimistic Approach:
1970-1975 = 11.4% growth rate of Cable TV
1975-1980 = 10.7% growth rate of Cable TV

Considering similar growth rate for penetration of HDTV:

Cumulative Growth:
 Cable TV- Pessimistic
Years Growth Rate Cumulative Value Value
Year 1 7 6447000 6447000
Year 2 7.8 7183800 736800
Year 3 8.7 8012700 828900
Year 4 9.7 8933700 921000
Year 5 10.8 9946800 1013100
Year 6 12 11052000 1105200
Year 7 13.3 12249300 1197300
Year 8 14.7 13538700 1289400
Year 9 16.3 15012300 1473600
Year 10 18 16578000 1565700