Last Friday, Business Week reported that Japanese electronics giant Matsushita is considering a sale of subsidiary JVC to Texas Pacific Group, a private equity group. No specifics of the deal have been announced yet, but the article valued the deal at $680 million to Matsushita, which is trying to raise profit margins and buy back some of its stock.
JVC (actually, Victor Company of Japan) has a long and storied history. Founded in 1927, as the Japanese subsidiary of the Victor Talking Machine Company, JVC manufactured the first TV receiver in Japan in 1939, developed the 45/45 stereo record format in 1956, and unveiled the world’s smallest two-head professional VCR in 1963.
But it is the VHS ½" videocassette format for which JVC is best known. Launched in late 1967, the VHS format entered into a tug-of-war for the hearts and minds of consumers with rival Sony’s Betamax videocassette - a war which Sony eventually lost, thanks to JVC’s aggressive licensing of VHS technology to companies like Toshiba, RCA, and Hitachi.
In 1987, JVC unveiled the S-VHS format, improving SDTV picture quality by separating the luminance and chrominance signals. Although S-VHS never caught on like VHS did, it did spawn a new video connector (S-video) that is still ubiquitous on consumer TV sets and camcorders - even newer HDTV models.
JVC is also known for their D-ILA LCOS display technology, which debuted at COMDEX in 1998. Originally marketed as a high-resolution professional display, JVC has since scaled back their ambitions (perhaps due to yield issues) and shifted more of their focus to the consumer and home theater markets.
Unfortunately, JVC hasn’t had a "home run" like VHS in several decades, and its operations have become a financial drag on Matsushita, who owns 52.4% of the company. Historically, JVC has lagged in adopting new technologies, such as staying with tape-based editing long after the professional video industry moved to non-linear editing (NLE) hardware and software.
JVC has also been slow to move away from CRT imaging to flat panel and microdisplay rear-projection TVs, all the while struggling against the free-fall of LCD and plasma prices. The result is a predicted $34M operating loss for this year and a 5 percent drop in JVC’s stock price since Matsushita announced the company was up for sale in early February.
According to the Business Week article, TPG may ultimately sell JVC to "…a tech company, perhaps in Asia," but the company’s money-losing consumer operations must be cleaned up first. Given the strong brand recognition that JVC enjoys worldwide and the mass consumer market it sells to, it’s not inconceivable that a Chinese concern might ultimately buy JVC largely as a goodwill investment (see Display Daily article from February 21st).
There are precedents. RCA, a brand name slightly older than JVC and now controlled by Audiovox, sits on the faceplates of Chinese-made TVs, DVD players, and accessories. Westinghouse Digital is a licensed OEM brand for televisions manufactured in Asia, as are Sylvania and Magnavox.
While the professional broadcast equipment division of JVC continues to make money, their consumer operations may require such an overhaul that the JVC brand alone could turn out to have the greater value, long-term. It’s all about shelf space and brand recognition in big box stores and wholesale clubs, something JVC has in abundance.
Such a sale would have seemed inconceivable a decade ago, but many Japanese electronics companies are under tremendous pressure to boost their stock prices and profitability, all the while dealing with cutthroat pricing and declining margins on televisions and other home entertainment products.
The sale of JVC is just the tip of the iceberg. Look for similar deals in the coming months and years as once-proud Japanese CE stalwarts struggle to maintain profitability (think Pioneer and Mitsubishi’s TV division). HDTVs can be made anywhere; reputations can’t. (But apparently they can be bought…)