LED Video from Overseas, Part 2: What Works, What Doesn't?

by Doug Murray
in Industry Perspective
The halls at InfoComm were packed with new video offerings.
The halls at InfoComm were packed with new video offerings.

Let me start by thanking all of you that commented on Part 1 (PLSN, June 2017, page 75). I had no idea so many of you were so interested in this stuff. My wife is very happy that I finally have some new friends to talk to about these things. A few of you were thrown off by the eight-year life cycle comment, but I think you got confused between LED and line array.

As one made their way through the aisles at InfoComm last month, it would have been difficult to ignore the sheer number of Chinese manufacturers that traveled halfway around the world to sell you a video screen. You may have recognized a few of the brands, but my guess is that unless you are a student of the game, you had a difficult time discerning one from the other. I mean, there are the Blue handle companies, the Red handle companies, it’s all too much to keep track of. Part 1 of this article touched on why I thought the sales distribution strategies of the Chinese manufacturers needed to mature, quickly. To continue my little rant, I will try to make clear suggestions on what changes they should make to ensure success.

‡‡         New Product Frenzy

So, the LED display market changed, and we all have to adjust. I’m sure a lot of you are out there saying, “Quit your whining, Doug.” The problem is, I’m not the one whining. We (Upstage Video) have figured out how to dance with all the new releases, updates and improvements. We’ve adjusted our business model to the “two-week product life cycle.” We focus on service and technical talent; the gear is secondary.

The factories, on the other hand, all raced each other to the bottom, at the expense of their own margins, and now the only way for them to make money is to sell, sell, sell, over and over to the same customers, or the few of you out there who are still on the sidelines, you know…’cause you’re a lighting company and, you know, you only do lights.

I read today, that, according to a report by Futuresource Consulting, the LED display market reached $4.5 billion in 2016; that’s some serious coin. I’m aware that the rental and staging sector is just a small fraction of that pie, but there are still some fundamental problems with the Chinese LED manufacturing outlook. There are too many producers, a disjointed sales and distribution model, and an overall system built on one big false belief that the world actually needs all of the product they are churning out. We don’t. We need quality products that last a long time (through the weekend) produced by a few innovative, efficiently run companies.

By a few, I don’t mean 400; my guess is somewhere significantly south of 100. As I have already mentioned, “There Will Be Blood.” The sub-$100 million factories will fail miserably or be acquired in a consolidation frenzy, and a few new billion dollar shops will emerge among the existing market leaders. Sure, there will be new customers born every day as LED continues to disrupt traditional display technologies like projection and LCD, but by the time they all figure that out, we’ll be well into the next wave of stupidity with OLED; yes we will.

‡‡         How “The Middleman” Can Help

Back to my new friend, the audio salesman who stopped in my office and asked for my perspective on this whole Chinese import thing in the first place (see Part 1). His rep organization recently signed up to sell for one of the more established manufacturers. He wanted the backstory. “How did we get here?” I gave it to him, blow by blow.

My hope is that the sales channel will actually start to dictate the behavior of the factory.

If this particular manufacturer truly gives this rep organization the reins to develop and control the sales strategy in North America, and if they have the discipline to allow this organization to do their thing (something these rep firms have been successful doing for so many other global brands), then I think we may have finally turned the corner. No longer would we be living in the Wild Wild West of the LED industry.

We would be colonized, divided into states, counties, cities and boroughs. The distribution of the products and solutions will come through proper sales channels, with distributors and dealers that can offer real pre-sale consult, systems design and post-sales service. It’s a difficult transition. Each level of the food chain will need a piece of that margin, which will drive prices up to the end user and cut into the profits of the factories.

Those who move first will feel immense pressure from their competitors that will still be selling direct to end-users (and gorging on all of that yummy margin), or without discipline into any channel their late night email armies can drum up. With the help of established and knowledgeable rep organizations, we can slow down the euphoria of lighter, cheaper, faster, more, more, more and hopefully land us in a place where quality and longevity are once again rewarded with market share.

Hint to Chinese manufacturers: This is going to be a tough game to win if you are under the pressure of being an underfunded public company. Buy your companies back, slim down your operation, believe in the process and watch your fortunes roll in.

‡‡         Some Additional Observations

A few points that didn’t make their way into Part 1:

1) The problems with the distribution model for LED video products made in China are not unique to North America; it’s the same story in the EU. However, I believe they are further down the path than we are. Their distribution network has a tighter handle on the situation currently. There aren’t as many direct sales happening over there.

2) It’s been obvious since their arrival that the disconnect between the factory and the customer on the ground was the problem that needed solving. Legitimate, existing rep firms are one solution to this problem. The customers need domestic resources. A factory can certainly build out its own sales and service organization, but time is running out. The pie is almost finished being divided, and every time you “get it wrong,” it takes years to fix.

3) My personal belief is that a few smart cookies will solve this problem through acquisition of existing North American firms that have already established sales and service networks. Consider this your Free Tip of The Day: There are a good number of Chinese firms that have market caps worth billions of dollars. Why haven’t any of them tried to acquire an existing American company? Perhaps someone who has lost millions in market cap in the last couple of years. They may not be doing great business with their own product, but they do have something none of the Chinese firms have. They just may have a huge network of service technicians, sales professionals and dealers. I don’t mean to put gas on the fire, but it’s sort of obvious to anyone with one eye that we are living in a global economy. No matter how much you pay, you’ll look like a genius in seven years.

4) Or, maybe that American company should pony up for one of the better Chinese manufacturers that will undoubtedly come under pressure as they realize they have no viable North American distribution in place. This would open that U.S. company to further international growth opportunities (something they’re probably interested in), as well as maybe giving them a path back into the rental market (if they choose the right target.)

This is the second of a two-part commentary from Doug Murray, president of Upstage Video (www.upstagevideo.com):

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