Electronics for 1997: Link Up vs. Plug In

Lured by the call of the information highway, shoppers are treating consumer electronics like the girl next door: They're giving her the cold shoulder.

Television sales were down last year for the first time in at least eight years. Audio equipment, telephones, answering and fax machines, even cassettes saw losses last year.

This has cast a pall over the Winter Consumer Electronics Show, which opened here yesterday and runs through Sunday. Industry executives are showing off electronic appliances that incorporate computer and information-highway technologies in new ways. But will the new "digital" look make traditional electronics popular again?

Industry executives are cautious.

"[Last year] was rough; I'm glad to see it gone," says James Meyer, executive vice president of Thomson Consumer Electronics. "But the core categories are declining and 1997, I think, will be more of the same."

Even in announcing one of the industry's brightest new products, the digital video disk (DVD), executives are trying to tone down consumer expectations. "We need to set realistic goals," says John Briesch, president of the audio-visual group for Sony Electronics Inc. "DVD is indeed the format of the future. [But] the future only begins this year."

DVD products, originally slated to appear last year, will begin hitting store shelves this spring. They represent the next-generation compact disc, except that they'll be able to hold at least eight times as much information. Consumers will be able to use them to watch movies, play a video game, or listen to music. The same format will work in several kinds of machines. Sony has just announced that Blockbuster will begin demonstrating Sony's DVD players in its top stores this spring and give purchasers of the system free rentals of DVD versions of various Sony movies.

In all, 1996 was a spotty year for the consumer electronics industry. It managed to sell $65.7 billion worth of goods to retailers, according to newly released estimates by the Consumer Electronics Manufacturers Association (CEMA), a 4 percent gain over 1995. That was the smallest gain since 1992. Moreover, that increase masked some important disparities within the industry. Products that already employ digital technology - computers, electronic games, and direct-broadcast satellite television - saw gains. But many older analog technologies declined.

Especially worrying were a 6 percent drop for standard color TVs and a 9 percent drop in audio products, which include stereos and portable devices such as the Sony Walkman. Those items have been the industry's bread and butter.

TYPICALLY, consumer-electronics prices drop about 4 percent a year, says CEMA spokesman Ed Korenman. But last year margins were severely squeezed because of fierce competition, says Mr. Meyer of Thomson. The company's strategy for reviving those markets is to incorporate digital technology. "This is a huge opportunity for all of us to reinvent television," he says.

To that end, Thomson is moving to make its TV sets Internet compatible. It is teaming with Compaq Computer Corp. to build a joint personal computer (PC) and television. The company is also working with a subsidiary of Oracle Corp. to make an Internet PC costing some $300 and hitting the store shelves in the spring.

Other manufacturers are doing much the same with various traditional machines. Here at the Las Vegas show, they are introducing "smart phones," which allow easy access to the Internet, and digital camcorders that are much smaller.

The increasing popularity of direct-broadcast satellite TV, which consumers can receive on dishes the size of pizza pans, is fueling interest in home theaters. Because the satellite feed is digital, making the TV's picture and sound clearer, consumers are buying sets of 30 inches or more and adding surround-sound speakers for heightened effect.

"You see things gearing up for the new digital time," says Mr. Korenman. "If it's the end of this year or next year, it's going to be."