PC Speaker Vendors Eye Home Theater Market

New York— Multimedia speakers are not just for the PC anymore as vendors move to gain new customers in the game console and home theater markets.

What started taking place last year, and is expected to accelerate in 2002, is the segmentation of the multimedia speaker business. No longer will these companies rely on PC gamers and those interested in simply upgrading their PC's audio capability.

The proliferation of downloading music from the Internet and burning CDs has boosted the need for better audio performance in PC speakers and the market is now being broadened to include console gamers and to a lesser extent the home theater market.

The first segment to break out is the audio area.

While the vast majority of PC sales take place at the entry-level with two and three-piece systems ranging between $20 and $50, the past several months have seen models costing $179 and higher taking off, said David Dietz, president of Cyber Acoustics. However, this does not spell the end for the meat-and-potatoes portion of the PC speaker market, as 60 percent of the business continues to be conducted below the $50 price point.

But the trend is dramatic enough for firms like Cyber Acoustics, which plays almost purely in the entry-level space, to roll out a $79 model sometime in June, Dietz said. The company is not interested in joining Altec Lansing, Bose and Cambridge SoundWorks in the upper price echelon, but it does see the business shifting that way.

Altec Lansing's George Pariza, product operations senior VP, confirmed that higher-end PC speakers are the emerging market and the direction the company is moving slowly in, but added that it is only one area that the company is looking to move into.

Sony's PlayStation and Microsoft's xBox are drawing sales away from the PC market, Pariza said, so Altec, along with several other vendors, are looking to take advantage of this popularity by offering game console speaker systems. Since most console systems are played on an older TV, there is a need to improve the console's audio capability to fully enjoy the game.

"Most of us are trying to bridge the gap between PC games and the console side of the business, and it should be interesting to see if the crossover takes place," Dietz said.

Adding high-end multimedia systems, which deliver 5.1-channel surround sound, to a TV potentially opens up an entirely new market: home theater. Pariza points out that the mating of a PlayStation console, which is capable of playing DVD movies, with a multimedia speaker system creates an instant home theater.

With home theater system penetration in the United States at about 20 percent, Pariza said, there is a great deal of opportunity for a company like Altec.

The reason speaker vendors are looking outside their traditional stomping grounds is not that multimedia speakers sales are faltering, in fact 2001 saw an 11 percent increase in sales or about 3 percent higher than what is normally posted. Instead the speakers have grown from being a simple and inexpensive method of boosting a computer's audio performance to full-fledged 5.1 channel surround sound systems.

"People chose to spend their discretionary money on these [items] instead of PCs," Pariza said.

Altec Lansing led all PC speaker vendors in unit and dollar sales in December with 29.4 percent of the unit share and 31.6 percent of the dollar share. Second-place Labtec had just under 20 percent of the unit, and Cyber Acoustics was third with 15.1 percent.