All Wired Up

What recession?

Consumer electronics wholesale sales will hit a record $95.7 billion this year, up three percent from 2001, projects the Consumer Electronics Association, Arlington, VA. Multi-use gadgets such as cell phone/MP3 players hitting shelves by year-end will drive interest and spark value-added marketing.

Consumer electronics dealers bought $93.2 billion in goods last year, about $3 billion more than what the association estimated last fall. The association credits the ubiquity of electronics, from digital cameras to MP3 players and navigation devices, as consumers worry about safety and the recession spurs more home entertainment.

This year, marketers concentrate on boosting household penetration for new gadgets such as digital video recorders, or on building up the existing mass-market base for, say, DVDs and cell phones. Each new technology faces the same objectives: Get consumers to sample it, drive the price down, get a steady supply, and expand use to build the brand. Here are some sectors to watch this year.

DVDs: Manufacturers shipped 31.3 million DVD players in 2001 as household penetration hit 30 million just five years after the technology’s 1997 launch. “It is the fastest-adopted technology,” says Marcy Magiera, editor of Video Business. “It took VCRs 13 years to get to 30 million households — and CD players eight years.” She credits pricing, which fell fairly quickly.

With penetration set, those ubiquitous introductory hardware/software bundles have waned and promotion likely won’t spike again until marketers make recordable players affordable (perhaps in 2003), Magiera says. In the meantime, DVD players are showing up as gift-with-purchase premiums (a Toshiba player with $170 in purchases at reflect.com, for example) and are a hot item for sweeps prize pools.

Digital video recorders: Cumulative sales of digital TV products are expected to surpass $8 billion by year’s end, per CEA. Only one to two million homes have DVRs, but penetration should at least double this year via set-top boxes that combine DVR with direct-broadcast satellite. ReplayTV and TiVo are rolling out upgrades of their stand-alone boxes this quarter, with marketing support likely in the fourth quarter.

TV network executives sued Santa Clara, CA-based manufacturer Sonic-Blue last fall to block the launch of ReplayTV 4000, which can be programmed to skip commercials. Rollout has continued despite the suit.

“We’re not enabling consumers to do anything they can’t do now,” said Sonic-Blue ceo Ken Potashner in a statement. “We are optimistic that the courts will continue to uphold the rights of consumers to receive the added convenience new technologies can provide.”

San Jose, CA-based TiVo rolls out TiVo2 with more, cheaper recording time, digital music and photos, broadband video-on-demand, and video party games, and has plans to add other services later in the year. The company won’t discuss marketing plans.

Also new this quarter is Moxi Media Center from WebTV founder Steve Perlman’s new company, Moxi Digital, Palo Alto, CA. Moxi Media Center mixes TV, Internet, games, and music and can be tailored by cable and satellite companies to suit their content offerings. (The system won Best of Show at the Consumer Electronics Show.) Consumers will first see Moxi software in EchoStar Communications Corp. direct-broadcast satellite receivers that will ship in the fourth quarter (after testing this spring). Moxi and EchoStar will collaborate on marketing.

Digital Audio Players: SonicBlue signed a licensing deal with Coca-Cola to extend its line of Rio MP3 players via co-branded Coke items set to launch by July. The partnership helps get four-year-old Rio into mass-merchandise stores, and gives Coke some high-tech cachet to extend its music-based marketing. A similar two-year-old licensing deal with Nike pitches co-branded MP3 players to athletes.

The Rio line of home, car, and portable players expands this quarter with portable Rio Riot, which has a hard drive large enough for 5,000-plus songs. In January, SonicBlue tapped Intel veteran David Huffman as vp-audio product marketing.

Cell phones/service: Marketing will jump-start this summer when third-generation devices roll out with larger, color screens and computer-like services such as e-mail. “These devices — they’re not just phones anymore — will be more like Game Boys, with interactive capabilities,” says Sprint PCS director of media relations Dan Wilinsky.

Mobile electronics sales will hit $16.5 billion this year, up four percent, CEA projects. Within that, wireless phones will reach $8.8 billion, up 2.3 percent. By 2006, manufacturers will ship nearly 184 million mobile phones and 65 million hand-held mobile devices (including PDAs and pagers) per year, projects Datamonitor, New York City.

Price deals still drive promotion strategy, and “family plans” — purchase up to five phones and share minutes between family members — got popular last year. Packages will continue to bundle minutes and accessories to woo new customers; hardware upgrades play up aesthetics and function to keep current customers brand-loyal. Teens and young adults are a prime audience, since 68 percent of them will have wireless phones by 2005, per research firm The Yankee Group, Boston. (Today, 44 percent of all U.S. consumers and 60 percent of all households have wireless phones, per Yankee.)

Ring tones will grow as a trendy accessory. Sprint PCS’s Ringers & More, launched in December, lets users download up to eight screen savers and songs — even college fight songs and logos, via a licensing deal with The Collegiate Licensing Co. Service is free for three months, then $4 per month.

Cingular offers (for 99 cents each) 50 college fight songs, 200 ring tones, 16 exclusive Sugar Ray songs as part of its sponsorship of the band, and “Tom Joyner Old School” disco tunes as sponsor of the disc jockey’s college-scholarship foundation.

Year-old Cingular, the Atlanta-based joint venture between SBC Communications and BellSouth, just wrapped a three-month Sugar Ray Fly-Away sweeps giving away three trips to a concert in Los Angeles. Winners got the call from band members, who also recorded voice-mail greetings for winners.

“Music fits perfectly with our umbrella theme, ‘Express yourself.’ The youth market is the poster child for self-expression,” says director of marketing and national promotions Greg Roberts. Sugar Ray’s management approached Cingular to offer rights to the band’s hit “Answer the Phone.” (Band members were Cingular customers.)

Product-driven promos with property tie-ins will target youth, Hispanics, and African-Americans this year. “Value-added promotions give us a point of differentiation,” says Roberts.

Phone maker Motorola, Schaumburg, IL, formally hired Creative Artists Agency, Beverly Hills, CA, late last year to ratchet up product placement on-screen and off by giving phones to high-profile entertainment execs. The company likely will run a summer campaign as lead-in for back-to-school and holidays.

A fourth-quarter 2001 tie-in tapped Bellevue, WA-based VoiceStream Wireless Corp.’s ties to America Online to give a shopping certificate redeemable via AOL with purchase of a Motorola phone. A regional effort with Verizon leveraged Motorola’s NFL sponsorship, awarding Super Bowl trips in a sweeps using calls as automatic entries. Zipatoni’s Chicago office handled both.

Watch for a widespread marketing upgrade from price promotion as electronics sales hold strong.