December 2, 2003 2:46 PM PST

HP to turn on music service, flat-panel TVs

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Hewlett-Packard plans to offer flat-panel televisions and its own digital music service early next year, according to a source close to the company.

The music service, expected to carry the HP name but be run by a partner, likely will be followed in short order by an HP-branded music player. HP is aiming to launch the televisions and music service at January's Consumer Electronics Show in Las Vegas, although plans are still in flux, the source said Tuesday.

News.context

What's new:
Hewlett-Packard plans to offer flat-panel televisions and its own digital music service early next year.

Bottom line:
HP's plans represent the latest move by traditional PC makers to push into the consumer electronics market. It also shows the growing interest in music download services, although profit margins are extremely thin and likely to shrink further as competition heats up.

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As previously reported, HP is eyeing both the digital music and flat-screen TV markets as part of a deeper push into consumer electronics.

"Entertainment will be a very big focus for us going forward," HP Vice President Chris Morgan said in an interview Monday. "We think this holiday (season) was about digital photography first and foremost...A year from now I think entertainment is going to be an equally big deal, as is digital photography" today.

As for televisions, Morgan called the move a "natural extension" of the company's position as one of the leading sellers of displays.

The move into music players is not entirely new. Compaq Computer had a line of digital music players before the merger, though the products were later discontinued. Both HP and Compaq have sold devices that connect digital music libraries to the stereo, including the current Digital Media Receiver product.

Although HP is following companies such as Apple Computer, Gateway and Dell into the market, retail analyst Stephen Baker of NPD Group said that it has some advantages over other computer makers.

"The first advantage they have is pretty deep and extensive relationships with the retailers--more than anyone on the IT side," Baker said.

At the same time, Gateway and Dell have a captive customer once they get someone on the phone, while HP must find ways to distinguish itself against a variety of competitors, he said.

"That's probably HP's biggest challenge," Baker said. "They are going to be in an environment where there is a lot of choice. They need to find a way to stick out."

Tim Deal, an analyst with Technology Business Research, said that PC makers see the potential for higher margins with MP3 players and other gadgets, but that the companies will have a challenge making devices that are unique.

"Right now, the barrier to entry into this market is very low," Deal said. "What is HP's differentiation going to be?...What is going to tie the hardware to the music service? I don't think anything but the (HP) name."

HP also will need to get stores to showcase its entertainment products, or it might find itself lost against better-known names in the new categories it is moving into, Baker said.

"It has always proven to be difficult in a retail environment to try and move from one section to another," he said.

CNET News.com's John G. Spooner contributed to this report.

 

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