As Consumer Electronics Evolve, Can Japan Rule?

Rohit Khare (
Mon, 7 Oct 1996 09:38:33 -0400

October 7, 1996

As Consumer Electronics Evolve, Can Japan Rule?


<Picture: T>OKYO -- Hiroki Shimizu calls it the "data refrigerator." The
Victor Co. of Japan plans to sell next year a digital version of the VHS
videocassette recorder that can store as many as two dozen movies, or a
year's worth of "E.R." episodes, on a single tape.

But Shimizu, who heads JVC's audio and video divisions, thinks the new
product's most useful function will be storing huge amounts of information
downloaded from the Internet at high speeds. The information could then be
viewed bit by bit -- like going to the refrigerator for a snack -- without
having to go on line.

JVC has little choice but to try to recast the VHS recorder, which it
developed and has lived on for two decades, as a digital Internet device.
The consumer electronics industry is undergoing a huge shift from analog to
digital technology, a transformation that could prove a mixed blessing for
the Japanese companies that have long dominated the industry.

An onslaught of new digital products could provide a shot in the arm for an
industry that has not had a big hit product in a decade. "This is a new
business opportunity for us," said Haruo Tsuji, president of the Sharp

But the shift to digital technology also threatens to accelerate a shakeout
among Japanese companies and to loosen their dominance of the industry.
That is because as it becomes digital, the consumer electronics industry is
colliding with the personal-computer industry and the Internet, areas that
are dominated by American hardware and software companies.

Already a battle for the living room is shaping up between the personal
computer and the television set. The personal computer is beginning to
usurp the role of audio and video products in reproducing pictures and
music. In a counterchallenge, Sanyo, Sharp, Sony and Mitsubishi Electric
have all introduced television sets that can be used for browsing the
Internet's World Wide Web, without the need for a personal computer.

While PC makers might scoff at underpowered television sets handling
computing, the consumer electronics companies think they have an advantage
in understanding consumer tastes and making products easy to use.

"Right now people complain about how hard it is to program a VCR," said
Minoru Morio, chief technology officer at the Sony Corp. "But the PC is
even harder to use."

For decades the digital computer industry and the analog consumer
electronics industry coexisted with hardly any overlap. That started to
change in 1982 with the advent of the digital music compact disk, which
later found a role as the CD-ROM storage disk for computers.

Now, the video business is going digital, with a wave of new products
sweeping through the industry.

The one attracting the most attention is the digital video disk, which will
go on sale in Japan in November and could reach American stores by
Christmas. A prerecorded disk, the same size as a compact disk, can hold a
two-hour movie or several gigabytes of computer information, making it the
potential successor to the VCR, the laser disk, the compact disk and the

Digital television transmission from satellites, as exemplified by the
Hughes Electronics Corp.'s DirecTV, has been a hit in the United States,
and similar systems are coming to Japan and Europe. Next will come
television programs transmitted digitally through cable and over the air.

Another big hit is the new digital still camera, which records pictures on
computer chips rather than on film and allows the images to be viewed on a
television or computer screen. And JVC has seen its financial results
increased by a digital camcorder the size of a paperback book.

Digital technology, which represents information in the code of zeroes and
ones used by computers, offers several advantages over analog technology,
which stores wavelike patterns. Digital sound and pictures can be free of
noise and static.

Digital information can also be easily compressed, to be stored compactly.
That means smaller tapes and disks, and the chance to transmit several
television programs in the frequency swath required for one analog channel.

Since music, pictures and data are all stored as zeroes and ones, they can
be mixed together in novel ways. Sharp is planning to introduce a digital
camera that uses a mini-disk as a storage medium, allowing it to play music
as well as take pictures. The company's new Zaurus electronic organizer,
which stores appointments and phone numbers, can also record speech on a
chip, connect to the Internet and take digital snapshots.

Finally, digital audio and video can be easily stored and manipulated by a
computer. A personal computer, for instance, can be used to edit the
footage from a digital camcorder.

But while these attributes might be beneficial to consumers, they can have
drawbacks for manufacturers. The pristine quality of digital sound and
pictures, for instance, could make it more difficult for companies to
differentiate their products.

This has already happened in the audio business. With analog technology,
there could be a big difference in sound quality between a $200 stereo and
a $1,000 one. But the digital compact disk erased hisses, pops and skips,
the most noticeable shortcomings of cheaper analog stereos. Now, "average
people cannot tell the difference between one CD system and another," said
Koichiro Chiwata, consumer electronics analyst at Salomon Brothers in

The result has been intense price competition that has hastened a shakeout.
Two Japanese companies, Sansui and Akai, lost their independence and are
now controlled by a Hong Kong company, the Semi-Tech Corp. The Kenwood
Corp. and the Pioneer Electronic Corp. have been suffering heavy losses.

The confluence of consumer electronics and personal computers also means
that many formerly self-reliant Japanese companies now depend on American
companies for key software or chips.

This provides a way back into the consumer electronics business for
American industry, which largely abandoned the field to competition from
Japan. The Netscape Communications Corp., for instance, recently said that
Sony, Nintendo, Sega Enterprises and NEC would invest in a company it is
setting up to develop web-surfing consumer electronics devices.

But the need to connect to PCs or networks makes the consumer electronics
companies more dependent on computer companies for setting standards. To
sell their new digital video disk system, for instance, Japanese
manufacturers are trying to convince both the Hollywood movie studios and
American personal computer companies that the new players will not be used
to illegally copy software.

Believing that it must be in the PC business to compete in consumer
electronics, Sony introduced its first personal computers recently. Other
Japanese companies are re-emphasizing their computer businesses and
Toshiba, which only made notebook computers, has now entered the desktop
arena with machines rich in audio and video capabilities.

Others do not seem so worried. "Everyone can make a PC," said Masao
Sugimoto, general manager of research and development at Pioneer. "Even my
son, a university student, made one at home."

One potentially big loser in the shift to digital, some analysts say, could
be Pioneer, which recently changed presidents and announced worker
cutbacks. The Tokyo company dominates the laser disk business, which is
likely to be made obsolete by the digital video disk.

But Pioneer is trying to compensate by entering new businesses, including
digital video disk players, car navigation systems, cable modems and
digital satellite television receivers.

Winners in the digital era could be the makers of components, such as laser
pickups for the video disk player or key semiconductors. That is the lesson
of the PC business, where the profits tend to go to Intel and Microsoft,
not so much to the assemblers of the final products.

Holding key patents is also crucial. That is why the 10 manufacturers in
the digital video disk consortium are still squabbling about how to divide
the patent royalties, which could amount to hundreds of millions of dollars
each year.

Japan's largest general electronics companies, like Hitachi, NEC and
Toshiba, which have generally been money losers in consumer electronics,
might now be able to make gains because of their overall strength in
computers and semiconductors.

Toshiba, which abandoned the audio business entirely a few years ago, beat
Sony and Philips in the battle to set a standard for the new digital video
disk and will re-enter the audio business using it. And Hitachi just
announced what it says is the first single chip that can instantly both
compress or decompress video using a standard known as MPEG-1, or Motion
Picture Expert Group.

Even Japanese companies' expertise in intricate mechanics will become less
important because music and video might be stored on chips, which require
no moving parts.