Home Electronics in Transitional Phase at Consumer Show

When Compaq Computer Chief Executive Eckhard Pfeiffer told his audience this weekend at the annual Consumer Electronics Show that the personal computer industry had just entered its adolescence and “its hormones are just kicking in,” he was referring to the huge growth potential for the business as PCs become integral to home life.

But he could also have been referring to the awkward stage that the global consumer electronics industry is now going through.

Sales of discrete, well-established products such as televisions, VCRs and CD players have reached a plateau or begun to fall, but new products based on the complex but more promising digital world of networked products with computer capabilities have yet to flourish.

Amid the cacophony of the trade show, evidence of this clumsy transition can be seen in every sector from consumer applications on the Internet to the video game world.

For example, Walt Disney Co. gave a sneak preview this weekend of a new Disney Web site on the Internet that could eventually evolve into a powerful distribution system for Disney movies, games and other content when high-capacity communications systems are in place.

However, when it is first launched, the site will be a simple extension of traditional marketing tools using pictures books, games and contests about Disney characters.

“The only way to learn about this technology is to get the product out and see how people use it,” says Jake Winebaum, president of Disney Online.

Pacific Bell demonstrated digital cellular phones that are small and can be customized to include pagers and e-mail access. But the phones cannot be widely used until billions of dollars are put into new transmission systems that will take at least a year to complete.

Japanese consumer electronics makers were promoting a new generations of tiny digital camcorders that can fit in the palm of your hand and use matchbox-size tapes. They come with a dizzying array of features allowing easy transfer of pictures to computers for editing. But at prices of more than $3,000, they probably won’t replace traditional camcorders soon.

The newly displayed digital videodisc, or DVD, player is the rare exception. It appears to have crossed the chasm with its ability to play high-quality movies, store computer information in large quantities and sell for less than $500.

But even the DVD’s development will have ripple effects that could be unsettling for every other sector of the consumer electronics business. It has already reshuffled the deck by bringing laggard Toshiba Corp.--which spearheaded the DVD development--into a position to challenge Sony Corp. as the leading innovator in the consumer electronics industry.

And even Toshiba recognizes that in the new digital world, standard products don’t make much money as prices fall rapidly. Although the company expects to sell a DVD-ROM for use in computers for what seems a bargain price of about $350, for example, Toshiba executives say computer manufacturers are already pushing for prices to fall to $200 before they buy them in volume.

The company is one of several Japanese electronics makers that are looking at the possibility of developing “set-top” products based on the DVD that could show movies, play games and connect to the Internet.

Such possible new products raise questions about the fate of the numerous game platforms from 3DO, Sony, Sega and Nintendo.

“The game business is going through a transition period,” says Robert Kotick, chief executive of Los Angeles-based game-maker Activision. “With all this consumer confusion, you usually see consumers waiting it out.”

Kotick has responded in part by developing more games for the growing PC market. And he is developing his games with high-quality film and music so he can transfer them to DVD when the platforms are available.

The consumer electronics industry’s shift to the digital age could be accelerated as hardware and software companies push into each others’ businesses.

Amid the transition, opportunities will come in unexpected places. For Monte Farber, the emerging digital age fits neatly into his own preoccupation with New Age ideas. Farber, who calls himself the “Martha Stewart of the New Age,” demonstrated software he helped design that allows a user to do his own Tarot readings.

“This is for our time period,” Farber says. “God is everywhere, God is in the machine. You eliminate the middleman.”