Potential Growth Contributors

TWICE: Where will growth come from in home speakers?

Franklin Karp, Harvey: I've seen some really innovative products from the design side, and those products have been warmly embraced on my floors and by the consumers. I've seen growth in certain box-speaker categories. It comes down to design and functionality, and they happen to sound good as well. I don't think I have any products on the floor that don't sound good. But a couple of manufacturers I do business with have made a concerted effort to step outside of the box and come up with products that are appealing to the eye, appealing to women. I'm seeing the fruits of their labors. I don't even want a traditional black-vinyl box on my floor anymore.

The faster that manufacturers go to outside designers, look outside their own employees at what's going on in the world in form and function, then I think that there is potential for us to sell more expensive speakers again — not necessarily to audiophiles but to people who appreciate something that looks good.

I said this at a speaker manufacturer's sales meeting several months ago. I said you're making a good-sounding speaker, but you know what? I don't know how important that is today. It's got to look good. I know it's going to sound good, but it's got to look good. And it's got to fit into people's lifestyles.

And it's not expensive because they're looking at nontraditional materials. They're looking at aluminum. I think that the guys who are willing to make the investment in tooling and design are going to get some business back. The traditional box builder has a problem.

Eli Harary, Infinity: At Harman, we have been focused on high-quality, forward-thinking industrial design for a very long time in the Infinity and JBL brands. From what we've seen, it's a matter of delivering the traditional loudspeaker at a much better value with better performance, then do the stuff that isn't traditional, and make sure that it is significantly more lifestyle-driven than in the past. Both brands are seeing pretty good business because we're addressing both of those sides of the market.

Karp: Sit inside an Acura and look at the fit and finish. This is what the consumer's becoming accustomed to. Mismatched seams are not acceptable anymore. It's about how it looks — the tactile impression. It's more about ergonomics and style than it is anything else now. The guys who embrace that are going to thrive.

Harary: There are consumers who have gotten to the point that if they walk into your store, they think they're not going to hear a bad speaker. There's a certain expectation that grew up over the past several years where consumers believe if it's a good brand, they're not going to make bad-sounding stuff. So now it's a question of whether the consumer finds something that appeals to them and is easy enough for them to want to get to.

T. Paul Jacobs, Klipsch: We don't see a lot of growth in the traditional boxes. We think there's a market for that and will be for a long time, but our investment is going into design, application and usability. What we're really trying to instill in our people is that you had all this passion for how the stuff sounded. People buy a Rolex or a BMW because it makes them feel a certain way. And we think we can accomplish that by getting the right mix of sound and design.

We've done a lot of testing with the female segment, and it is amazing how women turn on if you've got the right design. We have to spend more time on that message. I think it's going to be a long-term ongoing message.

TWICE: Perhaps new design could do for speakers what Franklin said plasma did for TV. There must be a big installed base of older, boxy speakers. Now, if consumers can go into a store, find really stylish stuff that sounds better and has a narrow profile, perhaps that will trigger a displacement sale, not a replacement sale.

Gary Bauhard, Pioneer: We've demonstrated a flat panel with 254 amplified drivers in a form factor that looks virtually like the plasma display, and it's able to create 5.1. It's $40,000 and not for everyone, but it speaks to application and solution.

We have to think more about application solutions, and a lot more diversity is coming in loudspeaker technology.

Sean Wargo, CEA: One thing about the speaker market is that it's totally applications-driven, even more so than video, because consumers will buy a TV to have the latest TV technology. For speakers, HTiB is proving that they want some sort of a solution bundle that fulfills a certain application need.

One thing missing today is a company that serves the gamer market and the PC-audio market with an application-driven speaker designed and packaged to cater to their needs.

TWICE: Any recommendations as to what you would like to see?

Wargo : If you go into a Tweeter or Myer Emco as a slightly higher-end consumer interested in MP3 or the gaming experience, you don't see it in those retail stores. You don't see applications, design elements, basically a package that would cater to that audience with an upgraded speaker experience, an upgraded integration experience, how it fits into your house and integrates into the house.

Jacobs: We have a pretty phenomenal gaming system. It's probably our most innovative design. But if you look at X-Box, you can't — with what you buy in the store — hook up a surround system unless you start buying accessories. They make it very difficult for gamers to actually have gaming audio.

We've been trying to work with retailers to do demos because we thought it was a niche with some real opportunity. It'll still coming. There's a projection that 144 million game consoles will be sold worldwide over the next couple of years. You only need a small piece of that to really make a difference.

But it's difficult if Franklin wanted to put a display like that in his store. Where do you get all the pieces? Do you want to be in the X-Box business when you're clearly not making any money on X-Box and the only way to make money is in software? It is an opportunity, but it isn't that easy.

If you take Best Buy, they've had a difficult time finding a way to demo it and get gamers to embrace it. The high-end gamers still play on computers. Game console users have not embraced spending a lot of the extra money on speakers and things like that.

The opportunities are with people who play on computers. They tend to be an older age demo. It might be a different, perhaps even easier sale.

Wargo : I'm thinking of a design concept built around games that doesn't look like a home theater. Personally, I don't have the space in my house for a home theatre. I have a living area that I would love to make into a game-oriented room with all the design elements that go with that. I'm talking lighting, furniture with all A/V integrated, and gaming at the center. But I don't see it in the stores.

I think the profit center in gaming could be in the actual design elements around the experience of gaming. Whether gaming is done on PCs or consoles, that's irrelevant to me. It's more about the experience.

Jacobs: Some retailers see the potential opportunity in gaming, but I'm not sure how you measure what a gamer is willing to invest to create this environment. From what we've seen, it's a pretty high risk at this point.

If you look at where the money is being spent on X-Box, PS2 and the like, they were pretty cool products as far as offering music, movies, surround and Internet gateways. Yet the first thing they had to do was lower the price from $299 to $199.

I always say to my guys that we don't want to become the Commodore of computers. You know, I want to be out there doing some cool things, but I don't want to be out of business saying, "Gee, if only we weren't the first ones."