TV MAKERS’ : NEW SEASON : Zenith Bets on Future of TV Industry
Tucked away in an unadorned, windowless room not intended for public viewing is Zenith Electronics’ $50-million bet on the future of America’s troubled television industry.
It is just a picture tube with an odd name--flat tension mask. But its design is so revolutionary and Zenith’s investment in it is so large--for a company that lost $10 million last year and is expected to report only a slight profit this year--that industry analysts say the new tube could single-handedly decide whether America remains a leader in television technology or abandons it entirely.
The stakes are high. Zenith, one of 15 major U.S. makers of color television sets in the mid-1970s, is now the only survivor after General Electric agreed last month to sell its GE-RCA consumer electronics division to the French electronics giant, Thomson S. A. Televisions will continue to be sold under the GE and RCA brand names for at least 10 years, but they will no longer be made by a U.S. company.
With its decision, GE joins such well-known names as Admiral, Motorola, Quasar, Sylvania, Magnavox and Philco. All caved in to cutthroat price cutting--first from the Japanese and more recently from the Koreans--and abandoned the business.
Zenith’s outspoken chief executive, Jerry K. Pearlman, says he was “neither troubled by nor surprised by” GE’s announcement.
“People seem to forget that GE has not pulled out,” Pearlman continued. “There is no business being closed here. They simply decided to let someone else play their cards and sit at their place at the table.”
RCA and GE together make about 23% of the color televisions sold in the United States, compared to Zenith’s 15%.
But from Zenith’s perspective, the sale wasn’t terribly farsighted.
“We, unlike GE, see (TV manufacturing) as a strategic business and one that can be a meaningful contributor (to profits) again before long,” Pearlman said.
His optimism stems largely from certain aspects of the trade bill being hammered out by a House-Senate conference committee and by recent increases in the value of Korea’s currency. It is the Koreans that are the current price-cutting leaders on small color TVs.
“We think prices have to go up” soon on small TV sets, and by as much as 15% to 20%, Pearlman predicted.
Zenith also views GE’s sale as a potential boon for Zenith.
In the short run, “this might be an opportunity from a sales standpoint,” said Zenith Sales Co. President Gerald M. McCarthy. “When these things have occurred in the past, retailers started wondering about the relationships they have had and sometimes take the opportunity to switch.”
And in the long run, McCarthy said, Thomson “appears to be a company that is very profit-oriented, which makes me very hopeful that they can help us bring some price stability to this business.”
But the GE news also prompted some soul-searching at Zenith, which itself has cut costs by more than $400 million a year by doing some of its manufacturing in Mexico instead of at its main plant in Springfield, Mo.
What emerged, McCarthy said, was a recognition that if Zenith is to avoid a similar fate, it has “little choice but to continue to innovate.”
The Zenith innovation that is causing such a stir in the highly competitive consumer electronics industry--Zenith said it has had inquiries or visits from every major TV and computer manufacturer and has orders from dozens of original equipment manufacturers of computer monitors and terminals--is actually an old idea made affordable.
Fascinated by the concept of a picture screen with virtually no glare or distortion and pictures so bright and sharp as to be lifelike, TV makers first tried building a flat picture tube in the 1940s. They could do it, but the price was exorbitant.
Zenith decided to resurrect the idea six years ago. Its big breakthrough came when it found an economical way to produce a high-resolution picture tube with a perfectly flat, tightly pulled faceplate--or mask, as the industry calls it.
The company’s first flat-mask products, high-resolution computer monitors, will sell for just under $1,000--about $300 more than conventional models. They will be on shelves later this month; TV sets with flat picture tubes are expected out next year.
The difference in clarity between a flat screen and the ordinary curved screen is so remarkable that Zenith is often accused of trickery by those who see it displayed.
The screen itself--in contrast with the dull grayish green on most computer monitors--is such a deep black that color pictures seem to jump from it. And the color images are an estimated 80% brighter than even those produced by popular high-resolution monitors now on the market--Zenith’s included.
The resolution, too, is much better than on conventional high-resolution monitors--by an estimated 15% and the flat tension mask doesn’t pick up reflections or glare.
(Engineers also are at work on a television technology called “high definition.” It involves a change in television electronics and in the method of broadcasting and would enhance brightness and clarity even more than the flat picture tube. That technology is expected to be perfected in the 1990s.)
Some competitors and analysts, however, question how many TV viewers or computer users will be interested in paying several hundred dollars more for a sharper picture.
“We wouldn’t be willing to bet the store on a sharper picture, but they apparently are,” said an executive at a competing company.
Analysts, however, are betting that customers will be more enthusiastic than Zenith’s competitors, none of which are known to be developing a flat screen of their own. Demand is expected to be especially high among companies that use computers for design and engineering tasks, predicts Stephen H. Lipmann, an analyst for Value Line.
With conventional computer monitors, engineers and designers often have to work in dimly lit rooms in order to better see the images on the screen. They could switch to normal office lighting with a flat screen.
“We expect the flat tension mask to bring in several hundreds of millions of dollars a year in sales and contribute 50 cents to $1 (per share) in profits,” said Charles K. Ryan, an analyst with Merrill Lynch.
Pearlman acknowledges, however, that there is a risk.
Two electronics giants--RCA and N. V. Philips of the Netherlands--tried their hand at a flat screen and gave up, “so this is a major step for us,” Pearlman said. “We’re throwing a lot of money at it--$50 million by the end of this year--for a little company.”
More than any other product, the flat tension mask blends the old and new at Zenith.
From its founding by two ham radio operators in 1918 until nine years ago, the name Zenith stood for consumer electronics. By the late 1970s, fully 90% of Zenith’s business was derived from such consumer electronics products as TVs, radios and video cassette recorders.
But as profits from those businesses came under pressure from low-cost Asian manufacturers such as Sony and Hitachi, company executives began scouting for related businesses in more lucrative fields. Their choice: computers.
It was a wise decision. If Zenith’s computer business were an independent company, says James I. Magid, an analyst with Magid Research in New York, “it would be one of the most attractive high-tech growth companies in America.”
Although Zenith’s $1.2-billion consumer electronics business continues to grow, the computer unit is advancing at a much faster pace. From 22% of Zenith’s sales in 1985, the computer unit now represents 53% of the company’s revenues.
“They have had explosive growth--50% last year and it looks like 100% this year--by far exceeding my expectations,” said analyst Ryan.
While it was Zenith’s grounding in television that gave company researchers the idea for the flat tension mask, Pearlman says the concept never would have become a product but for Zenith’s interest in computers.
“We would still be in the lab trying to decide whether to commercialize it,” he said. “Computer monitors gave us the opportunity and the challenge to really get this thing off the ground.”
