Dell looks to squeeze a buck out of digital TV

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The category killer in personal computers is taking on the flat-TV market.

And reigning PC maker Dell knows a thing or two about how to wring a buck from a commodity market. It's risen to the top of the computer business with a low-overhead, direct model that yields much fatter margins than its competitors. Now with more than 50 flat-panel and digital-TV manufacturers flooding the retail scene, Dell is eyeing some very familiar territory.

Using its PC strategy of aggressively priced and quality-guaranteed products, buoyed by heavy print, direct and Web promotions, Dell is looking to extend the "Dell Effect" into the nascent flat-panel-digital-TV market.

"They say it's right down their alley, and that's generally true," said IDC analyst Roger Kay. "They use the same suppliers for their PC displays. They market to home consumers for PCs too, so it's not a big stretch to the TV market."

A Dell spokesman said flat-panel digital TVs, along with computer printers, are the prime focus right now in Dell's consumer-electronics division. For Dell, a big print and supplement advertiser anyway, that means plenty of advertising, via direct and Sunday supplements, to push TVs. "We've had great success as the No. 1 supplier of flat-panel displays. So when we looked to leverage that, digital TV is a pretty nice transition," the spokesman said.

The convergence of entertainment and computing, or the birth of the "digital home," should only help Dell's TV mission. "People are taking advantage of the power of the PC and using it as an entertainment platform," the Dell spokesman said.

Still, it's no slam-dunk for even the ultra-aggressive Dell. It has some obstacles to overcome. Its direct model trims costs, but it doesn't give consumers a place to look, touch and browse for what tends to be an in-person high-end purchase. To that end, Dell has opened Dell Direct stores or kiosks in malls across the country; those number 94 now, up from a little more than 70 at the end of summer last year.


There is certainly time to gain an advantage. About 10 million households worldwide are now watching high-definition TV, according to In-Stat. However, that's just a fraction of the more than 1 billion TV-watching households worldwide.

"We're still at the very leading edge of changing from analog to digital ... We won't get to 50% penetration of households with high-definition TV [in the U.S.] for another six to eight years," said In-Stat analyst Michael Paxton. "Right now, a lot of manufacturers, Dell included, and Sony, Philips, Samsung or Sharp, are very high on high-def TV because frankly they're making a lot of money on them."

The flat-panel-TV market seems to have no clear winners yet; and except for a few like Sharp Aquos, most brands have yet to establish strong identities and win a loyal following. Dell, which is beginning by offering direct deals to its existing customers, will likely have to shift and expand its marketing to continue growing. Omnicom Group's DDB, Chicago, handles Dell's account.

"They have that installed base of consumers they can reach out and market to. ... But on the other hand, purchasing experience is so different from a PC or even other consumer-electronics devices," Mr. Paxton said.

NPD analyst Steve Baker added, "Their ability to be a key player in this market is still in question. 2005 will be a much more telling year."

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