Wednesday, April 23, 2008

Why Do People Spend So Little on Their TVs?

According to data released by the research firm, Pacific Media Associates, the share of the TV market for 30 to 34-inch L.C.D. TVs jumped to 24 percent in February from 16 percent in January.

That move was at the expense of larger sets. Market share sales for 45 to 49-inch L.C.D. TVs dropped to 14 percent from 18 percent and the 40- to 44-inch L.C.D. and plasma segment moved to 18 percent from 20 percent.

The reason, according to Alfred Poor, Pacific Media Associates’ senior research associate, is obvious: it’s the economy.
Anytime I read the word "obvious", I have an immediate need to try and prove the statement wrong. Now, Mr. Poor (great name for this thesis by the way) could be correct, but I see two other possible explanations for this trend.

First, as TV prices lower, people who weren't previously able to afford an HDTV can now do so. The richer people are still purchasing their expensive TVs, but now additional customers are purchasing lower end models. This quote appears to back me up:
One interesting counterpoint to the shift to smaller and cheaper sets is that the biggest TVs, those 50 inches and above, have not seen a drop in sales.
Second, as many people already have upgraded their primary TV to HD, now they are looking to upgrade the one in the bedroom or in the kids' room. This secondary TV is not going to be watched as often and therefore people choose to pay less for it.

And once I got into my debunking mood, I couldn't let this statement go unchallenged either:
By shifting to smaller-sized models, consumers are saving hundreds of dollars. In February, the average 40 to 45-inch set cost $1,287, according to Mr. Poor. But the average price for a 30 to 34-inch model was almost half that, $685.

At the beginning of this decade, the average selling price for a standard-definition 34-inch picture tube TV was around $400. “We’ve asked consumers to triple the price they pay for a TV. It’s amazing that people have been paying this much.”
Mr. Poor may find it amazing that we pay this much, but I find it amazing that people pay so little for their TVs. Let me explain.

Let's assume that a new TV lasts for 8 years, or 100 months. A $400 TV would therefore cost $4 a month while the average $1,287 40-45" TV (lets call it $1,300) would cost $13 a month. While over three times as much, it would only be an additional $9 a month. If you were to go for a $2000 TV, this would be $20 a month, or $16 a month additional over the cheap TV.

Aside: These numbers assume no interest. If I worked my HP 12C calculator correctly, putting the purchase on a credit card with an interest rate of 20%, and paying it off over the 8 year period would double the monthly fee.

But, Comcast's Basic Cable now runs $52 a month (IMHO stretching the meaning of the word "basic"). This is 13 times the monthly cost of the $400 TV and 4 times the 2.6 times the cost of the $2,000 TV. And this doesn't even include HD service. For that you would need to pay $6.50 a month, or more than the lower priced TV itself! If you bought the $2,000 TV and had Comcast Basic cable with HD service, your monthly cost would be $20 + 52 + 6.50 = $79. Of that only 25% would be paying for the TV, and the other 75% would be for the cable TV service. In order to match the cost of cable with the monthly cost of a TV you would need to pay at least $5,850 for the TV, which would mean at Best Buy you would need to get at least a 63" TV.

The savings of $16 a month by going with the cheaper model seems trivial compared to the cable cost. If you are already paying for $60 a month for cable, I don't see why you would pay anything less than $2,000 on the TV, unless the cheaper models have everything you want.

Another way to look at it is how expensive TV entertainment is per hour compared to other forms of entertainment. According to the US Census, the average American spends 1,745 hours a year watching TV or 145 hours a month or 4.78 hours a day. With the $2,000 TV, the cost of the TV + cable service is $79 a month, which then works out to 55¢ an hour. If you went with the $400 TV, the hourly cost would be 43¢ an hour. This is much cheaper than the $5 an hour a $10, 2 hour long movie goes for. Even a video game that costs $50 and takes 50 hours to play would come in at $1 an hour. A new hardcover book at $20 that takes 6 hours to read will run you $3.33 an hour. If you drive to a friends house using $3 of gasoline and hang out for 3 hours, you are looking at $1 an hour. Going to a bar is likely to run you at least a $5 beer an hour. While there are cheaper forms of entertainment, such as reading a library book or meditating, watching TV is pretty cheap even with an expensive TV.

In 2006 the median US annual houshold income was $48,201 or $4,000 a month. The monthly TV watching service of $79 is just 2.0% of this, which doesn't seem too bad if you spend a quarter of your waking hours watching it. Going from a $400 TV to a $2,000 TV, would add $16 a month which is just .4% of total income.

So, with all due respect to Mr. Poor, given how much American's pay for cable and how much time they spend watching TV, the question is not why do we spend so much on TVs, but rather why do we spend so little?

via Bits


Audacious Epigone said...

Wow, great post! Thanks for the by-hour dollar breakdown of the common forms of personal entertainment.

Fat Knowledge said...

Glad you liked it.

Of course, if you don't watch as many hours of TV each month the analysis changes, but it should be easy enough to plug in the new values and recalculate.

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