Philips Electronics has announced that they are going to stop making HDTVs for the US and Canada markets, choosing instead to license the brand name in those markets. The company continues to be successful with these products in Europe and Latin America, but has failed to gain traction in the US and Canada against leading brands such as Sony and Samsung. The brand in those markets will be taken over by Funai Electric.
Funai? Never heard of them? Don’t be surprised; you’re not alone. The Tokyo-based company may not be a household word in the US, but they already license some familiar brands in the HDTV market: Sylvania, Emerson, and Symphionic. Funai will pay Philips a royalty for the use of the brand, reducing (or eliminating) the financial risk for Philips of trying to compete in this crowded market with small profit margins. According to reports, Funai will be responsible for all aspects of building and selling Philips-branded HDTV products in the US and Canada. This includes sourcing the panels, design, and marketing.
This is a pretty standard arrangement, but it may not be without risk for Philips. It appears that Funai is committed to coming out with the 2008 line of Philips products that have already been announced, and will be required to meet Philips’ standards for brand use and product quality. The two companies have a long history of working together.
The potential problem is that the Funai brands in this country are “OPP” — opening price point — brands, occupying the lower rungs on the price and performance ladders. While Funai has been successful at getting retail distribution, it’s not clear that they will be able to get shelf space for a premium product. With Sony and Samsung now available at Wal-Mart and “affordable quality” brands such as Westinghouse and Vizio offering a step better than the OPP products, it’s hard for a brand like Philips to find any room in the middle. There will be pressure to cut costs and lower prices — especially if the US market for HDTVs fails to reach expectations due to concerns over inflation and an uncertain economy — which could result in Funai feeling forced to turn the Philips brand into an OPP choice. Then Philips will be faced with the unsavory dilemma of choosing between cancelling the license agreement — and foregoing the royalty payments — or allow a decline in product quality that could erode the brand’s reputation in the rest of the world.