Philips was one of the founding fathers of Dutch television. A growth engine for the Dutch economy, but in 2012 it had to part ways from television.
Philips is one of the most well-known technology companies in the world. Starting out as a light-bulb manufacturer, Philips has grown into a multinational specializing in lighting, personal care, healthcare and household appliances. But there’s one dent in their portfolio, the television division. In 2012, they sold off the manufacturing to Hong-Kong based TP Vision. Philips waved goodbye to a segment it had been operating in for many decades. What made Philips decide to make this move and how was TP Vision able to turn it around?
History of television and Philips’ first television channel
Philips has been one of the key players in the world of Dutch television manufacturing. Erik de Vries was one of the influential figures for Dutch television. de Vries was tinkering away in the Philips laboratory during the early 1920s. The first projected images were of poor quality, but during the 1930s quality started to improve. The Dutch government on the other hand was skeptical about this novel medium called the television, questioning why film would need to replace radio which has been working fine for many decades. Even Philips themselves were hesitant whether the medium would catch on as no standard existed. At the time three technologies were competing for a spot, namely the mechanical television, the electric television and a mini home cinema. Broadcasters were also content with radio in 1937 collectively declaring no need for television as a medium as radio was enough. Television would just become another money pit.
The television made its breakthrough in the Netherlands after the rapid adoption in the United States after World War 2. The United Kingdom quickly followed suit and then Philips director Otten, decided it was time for the Dutch government to step up their game. He urged the government to establish a national broadcasting channel, which would stimulate television sales. Through Philips manufacturing would flourish and become an essential part of the recovery of the Dutch economy, which was heavily crippled after the devastation of the war. But according to broadcaster Andere Tijden, the Dutch government yet again felt little for boosting the adoption of television, noting, ‘This was largely due to the Prime Minister: the notoriously frugal Drees. In a time of population reconstruction, when everything was in short supply, he especially did not want to encourage luxury purchases. Moreover, he had little faith in the substantive value of television.’ Eventually in 1948, Philips and the Dutch government came to an agreement. The government would not launch its own national broadcast, but Philips was allowed to establish its own channel in their homebase Eindhoven. The first programming of Philips channel would consist of newsreels, movies, kids shows, soccer matches which were accompanied by advertising.
Philips broadcasts were viewable on forty television in and around Eindhoven. This figure sounds small, but the television was a novel technology back then and pulled in huge crowds. Those who owned a television invited friends and family. Some stood in front of shops, even if the sound wasn’t audible. The excitement all revolved around the motion picture. Those who were savvy, created their own receivers to watch live television, which resulted in a rising popularity for the television. The exposure of Philips’ broadcast consequently grew. The growing popularity of the television from Philips was drawing attention from the Catholic Radio Broadcast (KRO) who found it preposterous that the television was allowed to flourish and that it was not befitting in a time when money had to be saved to rebuild the nation. Pastor Jan van Nieuwenhuijzen, who became the first television managing director at the VPRO, a protestant broadcaster deemed the television as a channel for the poorly educated who through its easy to consume format fueled immoral behavior. He said, ‘In Calvinist ideology entertainment is actually forbidden. We live in this world as in an earthly vale of tears. You must do your duty and work for the glory of God. Entertainment is not one of them.’ But his words and from his fellow church representatives could not stop the momentum that the television had gained. The minister of Education, Rutten, saw that the popularity was unstoppable and that further experimentation with the medium should continue despite objects and the fear of moral decay.
A changing market and the dominance of Samsung and LG
The television market was quickly turning against Philips with strong competition from Samsung who has been dominating the television market since 2006. Although the company started years earlier when it released its, what it called, world’s first television in 1998. During the early 2000s the company started to update its portfolio with the LCD television and Samsung claimed to become the first company to popularize the wall-mounted flatscreen television. In 2008, news broke out that Philips would step out of television manufacturing.
The television market was quickly turning against Philips with strong competition from Samsung who has been dominating the television market since 2006.
A little over a decade later, Samsung introduced the LED television during CES 2009. This technology used semiconductor lighting as its source, being able to generate superior colors. While this in itself might sound like marketing fluff, Samsung was able to obtain over 3,000 patents for its LED technology. This heralded a new era for the industry. The television market was undergoing rapid changes after the introduction of LED screens, which drove away other categories such as the LCD and Plasma variants. But this growth was not shared equally. Established Japanese brands such as Sharp, Sony and Panasonic were feeling the pinch. Sharp lost 23% of revenue market share, Sony dropped by 18% and Panasonic by 3% in 2009. Samsung and LG were seeing strong growth with 13% and 20% respectively. Although their technological leap with LED technology didn’t give them a strong foothold within the television market. Which at the time was a novel technology. Andrew Everard from What Hi-Fi noted, ‘(…) OLED TV, once much trumpeted as the next generation of TV technology, saw its market share eroded by 33% in 2009, as sales of Sony’s XEL-1 slowed, while sales of CRT TVs fell by 37%, and rear projection TV shipments were more than halved.’ Further saying, ‘Over 50m LCD TVs were shipped in the last three months of 2009, along with 4.7m plasma sets. And while CRT TV may be in decline, that didn’t stop over 12m sets being shipped. 400 OLED TVs were sold in the same period.’
Whilst the economic turmoil of the recession was just starting out and dragging down markets along with it, the demand for televisions remained steady and even saw growth. TV shipments grew by 2% in 2009, reaching a total amount of 211 million units. The growth was most observed in the LCD segment, growing by 34% in 2008 and 37% in 2009. One of the driving factors for the accelerated growth was thanks to China, a region which was developing its middle class and who was ready to spend.
Revenue turbulence at Philips as economic crisis intensifies
Whilst television sales might be up, it couldn’t save Philips’ revenue, who was taking blow after blow. Dutch newspaper Trouw highlighted that the company was working steadily to decrease the risk of falling profits when the economic climate would turn against it. It aimed to reduce the size of its consumer electronics portfolio and emphasize on segments less susceptible to economic downturn such as light, health and personal care. But it wasn’t unfazed nor in time to feel the consequences. As car manufacturers’ output flat-lined, so did the demand for lighting solutions in vehicles. The building and innovation at hospitals stagnated as they held onto their wallets, resulting in less demand for its healthcare product line.
Philips was caught in limbo as the lower segment of the market was being captured by brands like Vizio and Westinghouse.
At the beginning of 2010, Philips warned about potential losses in its television division, estimating a loss of about €100 to €200 million. In the last quarter of 2010, revenues from television sales decreased by $179 million, falling the $1 billion revenue mark to 906 million. In the last quarter of 2011, the company had a net loss of €160 million, adding up to a total loss of €1.3 billion over the whole year 2011. This is in stark contrast to the €1.45 billion profit it was able to generate in the year prior. In the same year, 2011, Philips cut 1,400 jobs in the Netherlands and globally 4,500. The year after that another 2,200 jobs would be cut to save an additional €300 million.
The TP Vision era and revenue growth
In 2012, Philips sold a 70% stake of its television division to Hong Kong-based TPV (TP Vision). 3,300 employees would fall under TPV, who would take over the manufacturing. Philips would hold on to 30% of the remaining shares. Furthermore Philips would stop selling televisions in the United States and Canada. The brand would continue to exist, but licensed by Funai Electric, who would take ownership of the supply chain in the United States. The New York Times noted that the prices for LCD panels had been dropping for several years and Philips was unable to position itself as a premium brand like Samsung and Sony. Philips was caught in limbo as the lower segment of the market was being captured by brands like Vizio and Westinghouse. The premium segment was taken by Samsung and Sony, leaving Philips with a positioning aimed at nobody specifically. Through its licensing agreement, Philips would be present with the brand, collecting royalties, but omitting the potential risk of a loss-making business due to very low margins.
In 2013, a year after the consolidation at TP Vision, the company announced it would stop manufacturing in Hungary by the end of the year and move all manufacturing operations for Europe to Gorzow, Poland at TPV Technology. In a press release TP Vision stated, ‘TPV Technology is the 70% shareholder of TP Vision. As a consequence the company will stop its manufacturing activities in Székesfehérvár, Hungary, by the end of 2013.’ Further saying, ‘With this action TP Vision is changing its industrial setup, in line with its ambition of achieving profitable growth. Leveraging synergies with TPV by rationalizing the industrial footprint of both companies will lead to a significant and necessary cost reduction. The decision is a logical consequence of TP Vision’s strategy to return to profitability through economies of scale.’ Economies of scale is no new concept and whilst jobs are lost, the consolidation of manufacturing will ensure optimized logistics and a concentrated supply chain. Whilst benefits are present, over reliance on one particular factory location can have its drawbacks. But the cost benefit outweighed the potential risks it was taking through consolidation. A year after the closure of Székesfehérvár plant in Hungary, TP Vision unveiled its first Philips branded 4K television, the 8900 series which was powered by Android. This would grant access to the Google Play Store and its supported apps and other services. The move was a necessary one to remain competitive against the strong influence of the Korean brands which were pushing their imaging technology. In a market where the true selling point is picture quality at the highest available cost to obtain healthy margins, TP Vision had no other option.
In 2019, the Dutch website FWD, interviewed Kostas Vouzas, CEO at Philips TV & Audio Europe at TP Vision who started out at Philips in 2004 and at the television branch at 2011. A year later he would lead the television portfolio at TP Vision. He witnessed how Philips branched away from television and the television branch itself came under new management. When asked whether the market share had increased after it came under TP Vision’s command compared to when Philips was in full control, he could not clearly answer the question. Vouzas said, ‘That’s a very difficult comparison, especially because the market has changed a lot. I therefore prefer to look ahead. Our growth in recent years in both volume and value has been significant.’ FWD was furthermore wondering how the television market would develop according to Vouzas, to which replied that it is difficult to determine where the technology would be heading, referring to the curved screen technology which TP Vision did not adopt as it did not deliver an increase in picture quality, a core proposition that TP Vision is following. But 4K technology might become the next growth driver for the industry, although content for the medium is lacking. 8K was ever further away for TP Vision, as the technology had even less content support. To the question why TP Vision also acquired the sound division from Philis, Vouzas replied, ‘Like many large companies, we are always looking for opportunities to grow and expand in the very broad consumer electronics sector. In addition, there is also a natural link between image and sound.’ Further saying, ‘And finally, we would like to put the Philips audio brand back on the market strongly, in the Benelux and in Europe. We hope to replicate the success of Philips TV, at least we are here for the long haul.’ The reply of Vouzas, doesn’t come as a surprise as to increase margins on televisions, TP Vision had to look for complementary products. Something we see in other industries as well, such as smartphone manufacturers who are also adding audio products, cases and docking stations to drive up the value per purchase to increase their margins while keeping the smartphones themselves priced within range of their competitors.
Eight years after the take-over by TPV and a year after the interview with Kostas, the television division was doing better than ever according to a business performance review by TP Vision. It reported a growth of OLED televisions by 20% in 2020 compared to 2019, with an overall growth of 9% for Philips TV & Sound. In a press release, TPV noted that its supreme picture quality was one of the key growth drivers, saying, ‘Offering the best picture quality has been one of the key reasons behind Philips TV’s consistent growth in sales and market share with sales of OLED sets increasing by 20% in 2020.’
In February 2021 Samsung nonetheless reigned supreme, being the top manufacturer for 15 years in a row. Samsung was able to get a market share of 31.9% in the last quarter of 2020. In a press release Samsung noted, ‘In 2021, Samsung expects to maintain its industry-leading market position with the introduction and expansion of core products and by incorporating proprietary technology and features across all TV lineups.’ Further saying, ‘Over the next few years, Samsung will also continue to invest in R&D and product development in strategic business areas to strengthen its core and emerging technology offers.’ Korean competitor LG also maintained a strong position in the television market with a 19.2 percent market share in the first half of 2021. LG has a very strong line-up in the OLED segment. It remains to be seen whether TP Vision with the Philips brand can keep growing in a market where Korean brands are increasing their market share year over year.
An inevitable trajectory for Philips
Philips was the grandfather of television in the Netherlands. It fought hard to get the television on the map and get government support. But it met hurdles along the way, pushing it to experiment with the medium themselves. Soon after, the television was quick to catch on, becoming an integral part of the Dutch household with broadcasters lining up to get their shows on this novel new medium.
As strong as its past was, Philips started to feel the pinch of the economic crisis when economies around the world started to contract. It knew it had to reorganize its operations to move away from the volatile consumer market, which was very susceptible to changing economic climates. Philips, unfortunately was not fast enough, caught in the whirlwind of the economic fallout that was unfolding across the globe. Philips wasn’t the only one who had to abandon a product they’ve been working on for decades. Although they decided to abandon ship much faster. Additionally the traditional Japanese brands were making way for Korean brands who were claiming the premium segment. A segment in which Philips was unable to root itself firmly, with losses starting to accumulate across multiple business units. There was no way left to turn and to prevent the losses becoming too great, it had to cut off its least profitable entities. And so the television segment was sacrificed.