Yesterday I visited a number of consumer electronics, hi-fi and computer stores, just to see how the markets have changed after Christmas.

A couple of quick observations

Plasma displays have just become a consumer product . It is now possible to buy a 42 inch plasma screen for 2000 pounds. This isn't much more than the cost of a 36 inch conventional CRT television (which is as large as they come). These are still an immature product. The cheapest ones come from Samsung and LG, and seem to have a resolution of 852 x 480 pixels. This is less than ideal: this is fine for the US market, where television has 480 lines, but in Europe and most of Asia, where television has 576 lines, one sixth of the lines of that lovely DVD picture are not being displayed on the plasma screen. For this and other reasons, the picture is therefore not as good as on a conventional television or even a rear projection television (although the picture is much brighter than on a rear projection set). I personally am not buying a plasma screen at this price today, because the features I want are not there in screens costing less than four or five thousand pounds. (Also, I am presently unemployed). However, plasma screens are a really cool product, they still look really good, and my feeling is that Samsung and LG will sell as many of these products that they can supply. One retailer was making the point that in inflation adjusted terms, plasma screens are now cheaper than colour televisions were in the mid 1970s. This is a good point, particularly given that I would argue that inflation adjusted terms isn't the key metric. The question is one of affordability, and because incomes have risen faster than inflation, they are even more affordable than that indicates. The Koreans seem to have a clear price advantage here which will do their images no end of good. I think lots of people will choose a Samsung or LG plasma screen over a conventional Sony TV, which is what it comes down to in many cases.

The big consumer electronics companies look severely threatened in the DVD business . Competition in the DVD player business continues to be a big story. As I have mentioned before, competition here is ferocious due no-name players being made in China. It is interesting to compare three different retail channels. If you go into a supermarket, they have no-name players for sale for fifty to a hundred pounds, plus a few more expensive players from brands you have heard of but which aren't top name brands. (Our friends the Koreans Samsung and LG are once again present). Supermarkets are selling large numbers of bottom end players, basically. If you go into a standard mass market electronics store, the players are mostly known electronics brands, from Samsung and LG again through to Hitachi, Sony, Pioneer and Panasonic. These stores are selling lots of players to people who care about brands and have enough money to spend a few hundred pounds, but who don't know much about technical details.

And then, we have specialist hi-fi stores. Because people who play DVDs often want top quality sound to go with it, the home entertainment/DVD business has merged with the hi-fi business. People who go into a hi-fi store to buy a DVD player and a sound system to go with it do care about technical details. And it is in these stores that a basic con of the consumer electronics industry becomes clear.

It has long been the case that low end products from famous name manufacturers have been essentially the same products as some of the higher end products, but with many features turned off. The high end features do not cost much extra to provide, but they are included in some models but not others for product differentiation. As long as everyone played the same game, it worked fine. There is now more competition, mostly from China, and the new competitors do not play this game. In the case of cheap supermarket players, this is not that much of a problem, as Sony and Panasonic can argue (with some justification) that their players are of higher quality manufacture, even if they have fewer features.

On top of this, out of pressure from the content industries, the Japanese manufacturers have crippled their products. They do not make combined DVD-Video DVD-Audio players. They make "region locked' players that can only play discs from one part of the world. In Europe, there has been much stalling on a feature called "progressive scan", which makes pictures clearer, and the content industry are scared by this because they think that widespread piracy of high quality pictures is worse than of low quality pictures. (This is how they justify the argument that "DVD piracy is different from VHS piracy, which is why DVD piracy will kill our industry when VHS piracy clearly didn't).

However, if you go into a hi-fi store, you see something which should really scare Sony and Panasonic. Hi-fi stores are full of people who really care about sound quality, picture quality, and features. The do not want players that have been crippled by Panasonic and Sony, for commercial reasons, or to make the RIAA happy. They simply want players that are as feature rich as possible. Hi-Fi stores are therefore full of players from companies that you have not heard of, but which are of good quality, and which have the best possible feature sets. Yesterday, I was utterly stunned to see this player in Richer Sounds. This is possibly the best featured DVD player I have ever seen: DVD-Audio and Video, PAL and NTSC progressive scan, multi-region, MP3 playback. Onboard Dolby Digital decoder. It comes from a company called Limit, that I have never heard of. And it costs a mere 150 pounds. Specialist hi-fi stores do sell the high end famous brands as well: Toshiba, Sony, Pioneer, Marantz. However, new Chinese brands are taking an ever larger share of their market - the high end market - as well.

We have a situation where new Chinese companies, rather than the traditional electronics companies, are taking very significant portions of the high and and the low end markets, with the traditional companies stuck in the centre. The centre is clearly going to be squeezed from both sides, so potentially, for Sony, it isn't pretty.

I have two conclusions. One the consumer electronics industry is turning into the PC industry. Lots of small companies, commodotisation of components, ferocious competition. Secondly, the Japanese consumer electronics companies are soon going to have to stop crippling their products if they are going to compete. This is going to cause more conflict with the film and music industries, who are pressuring them to cripple their products more and more due to "piracy" concerns.