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Against the backdrop of an economy that grows more precarious by the day, the outlook for holiday gift spending is bleak. Even so, consumers will be buying gifts, and consumer electronics will be high on their shopping lists, even if spending will be lower this year.

Amid the diminished expectations, some product categories will hold their own this season, industry and retail analysts say. An early November survey of consumer intentions by the Consumer Electronics Assn. found that U.S. shoppers expect to spend an average of $1,437 on gifts this year, less than the $1,671 they spent in 2007. Still, consumers say they'll allocate a larger percentage of their spending—28% vs. 22% last year—to consumer electronics. The idea is that families will opt for at-home entertainment rather than travel and dining out.

And despite what you may have heard about video entertainment migrating to the Web, the TV set is still the king of the home entertainment universe. Prices are coming down quickly. In September, the average price on a 32-inch LCD TV was $858, a drop of about $100 from the same period in 2007. Now, it's possible to buy a 32-inch LCD set for as little as $399.

No Competition for Blu-ray

One reason, says iSuppli analyst Riddy Patel, is that there is an oversupply of LCD panels, so manufacturers like Sony (SNE), Samsung, and Sharp can pass favorable component pricing on to consumers. "The prices are suddenly very attractive on these sets," Patel says. "The only question is how consumers will react." Her firm recently slashed its 2008 forecast for LCD TVs by 5 million units, to 94 million. It also trimmed its 2009 forecast to 112.5 million units, from 124 million units, meaning the market is growing, though more slowly than before.

Consumers may also be looking for stuff to watch on that new LCD TV. This will be the first holiday season that Blu-ray disc players have had the market to themselves without their onetime competitor HD-DVD. Consumers have so far been slow to embrace the format; even without the competition, sales have been slow. The Consumer Electronics Assn. expects Blu-ray sales of 2 million units in the U.S. this year, vs. 20 million conventional DVD players in the same time frame.

But fast-falling prices may get consumers interested, says iSuppli's Sheri Greenspan. "Blu-ray will gain some attention this year because the prices are coming down so fast, and because retailers are offering package deals that include players with TVs," Greenspan says. Some players, including Samsung, are also upping the ante by adding the ability to play streaming movies from Netflix (NFLX) and music from Pandora to their products.

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The market for digital cameras, a product group that has suffered slowing sales in recent years, is showing life in higher price ranges, and high-end digital single-lens reflex (DSLR) cameras are expected to sell well. "It comes down to the fact that the person buying a DSLR is different from the one who wants a point-and-shoot," says Ed Lee, director of consumer imaging at market research firm InfoTrends. "Despite the economy, people are still buying them, and the prices are coming down." The sweet spot of the DSLR market he says is in the $500 to $800 range.

LOS ANGELES

Movie studio executives on Friday presented the best-case scenario for a winter holiday surge in the purchase of high-definition Blu-ray players as their best hope to keep the U.S. home video market's decline from accelerating past 3 percent or 4 percent this year.

The executives hosted by The Digital Entertainment Group, a consortium of movie studios and electronics manufacturers, forecast that 10.5 million households would be able to play Blu-ray videos by the end of the year -- with about 2.5 million standalone players and 8 million PlayStation 3 game consoles.

That estimate is much lower than the 14.4 million households that Adams Media Research said in June would be playing Blu-rays by the end of the year. But if it is to come true, about 1 million more standalone players and 2.3 million more PS3s must be sold through the holidays.

Prices have dropped in recent months, and Blu-ray players can be found online for less than $200, encouraging hope for adoption of the format.

"The only dark cloud is the economy," David Bishop, president of Sony Pictures Home Entertainment, told a panel. He said the consumer products side of Sony Corp. is "showing no slowdown in the adoption of the PlayStation 3."

There are 5.7 million PS3s installed in the United States now, and Sony and expects to sell 4 million to 5 million more by March.

"We remain pretty confident that we'll meet our targets for the fiscal year," said Julie Han, spokeswoman for Sony Computer Entertainment America.

These so-called "early adopters" of video technology are especially important because they tend to buy more movies than consumers who join a trend later.

"These are the heavy buyers, the heavy collectors," said Craig Kornblau, president of Universal Studios Home Entertainment.

Executives agreed it is still the early days of Blu-ray because it was only February when the high-definition format beat out Toshiba Corp.-backed HD DVD. Last week, the consortium kicked off a $25 million TV ad campaign to push Blu-ray, acknowledging in part that half the people it polled in a recent survey didn't know the format war was over.

Gains in Blu-ray revenues, including rentals and sales, are expected to counter some of the expected 6 percent decline in regular DVD revenue in the U.S. in calendar 2008.

Through the first three-quarters of the year, video rental revenue in the U.S. was down 1.2 percent at $5.6 billion and sales were down 3.5 percent at $8.6 billion, according to the industry tracker, Video Business.

Economic headwinds remain a concern.

In a survey the consortium conducted in late August and early September of 2,200 owners of high-definition TV sets in the U.S., U.K. and Japan, just 12 percent said they were likely to buy Blu-ray players in the next six months.

Another 30 percent were open to purchasing them, it said. How potential Blu-ray consumers will respond to lower prices isn't clear.

"This was done before prices started to come down and before the economy started to hit," Chris Lang, senior vice president of research firm SmithGeiger LLC, told the panel.

Those who don't yet have high-definition sets are not expected to be large contributors this season, said Bob Chapek, president of Walt Disney Studios Home Entertainment Worldwide. Purchasing a $1,000 high-definition TV and even a moderately priced Blu-ray player may not appeal to some buyers in the slowing economy, he said.

"It's only logical to expect there'd be some economic impact," he said. But he added, "We've been pleasantly surprised so far."

The consortium said a growing proportion -- now about 10 percent -- of home video sales comes from Blu-ray. In October, as the U.S. financial crisis came into focus, sales of Blu-ray discs more than quadrupled to 2.2 million units, it said.

A number of upcoming titles are riding on the format, including Warner Bros.' "The Dark Knight" due out in December.

Previous top-selling titles, such as "Iron Man," "The Incredible Hulk" and "Hellboy II: The Golden Army" have had a strong appeal among PS3 owners, and that raises hopes for a December turnaround.

"Every week as the next title comes out, we're all holding our breath," Kornblau said.