Second-Half Home Audio: HTiBs Hot, Components Not

New York— Sales of home-theater-in-a-box (HTiB) systems will turn around in the second half to end the year in the plus column, but audio component sales probably won't begin to climb back from their historic depths until next year, audio marketers told TWICE.

In the first half, HTiB sellthrough was constrained by rising gasoline prices, severe weather in parts of the country and competition for disposable income from such product phenoms as digital cameras, flat-panel displays, laptops and portable MP3 players, suppliers said.

Component audio is grappling with these issues and other more fundamental challenges. Nonetheless, a smattering of new second-half products point to product directions that could spark a 2006 turnaround, suppliers said. Component audio's fundamental challenges include market maturity, products that are complex and hard to operate, the rise of the HTiB, and a need by retailers to more aggressively merchandise component audio as an attachment to advanced video displays, suppliers contend.

Solutions appearing in the second half to stimulate interest in the graying category include more receivers that eliminate multiple video-cable connections to a TV, enhance the picture by up-scaling video to high definition, distribute audio into multiple rooms and control connected XM satellite tuners, iPods, and other brands of MP3 players. Sales of receivers priced above $1,000 are expected to grow or, at worst, shrink less than the total receiver market, various suppliers said.

iPod-compatible and satellite-compatible [home] products "will be absolutely huge" and will give consumers more reasons to buy "if they're sitting on the fence," said Dan Jeancola, Tweeter's merchandising VP for mobile electronics and audio. "What in the past 10 years have we given consumers as an upgrade reason besides 5.1 or 7.1?"

In HTiBs, higher end systems will lead the growth rebound and will include more systems incorporating virtual surround technology to simplify setup. Denon, for example, will ship its latest two models, which come with two satellite speakers and a subwoofer rather than five speakers and a sub. Thomson already offers one such system and plans more in 2006.??

MP3 player connectivity will also stimulate step-up HTiB sales along with compact stereo sales, suppliers said. Thomson already offers its first HDD HTiB with USB port to transfer files to USB-equipped MP3 portables, excluding iPods. Denon's two new virtual surround systems control and recharge iPods, and one controls and recharges any brand of USB-equipped MP3 player as well. And Panasonic will join Thomson in offering a five-disc shelf system that transfers CD music directly to a connected flash-memory MP3 portable bundled with it.

HTiB sales will also benefit from the growing availability of wireless-network options that distribute music throughout the house. They include Bose's entry into the wireless-network market with an add-on to its music systems, two of which incorporate HDD music server (see TWICE, June 6, p. 34). Rival suppliers expect the $399 wireless option, available in May, to heighten awareness of do-it-yourself distributed audio networks in the home.

Likewise, wireless multi-room capability is seen as a way to reinvigorate the shrinking two-channel compact system business, and Philips will offer the industry's first compact system with wireless audio distribution capability. The WACS700 Wireless Music System with HDD music server consists of the main unit and a client, at a suggested $999. Clients feature speakers and AM/FM tuner. Additional clients are $299 each.

Wireless audio networking, however, is still in its infancy and isn't expected to boom until 2006 or 2007, in the estimation of many suppliers.

Other top-selling audio products in the second half include iPod-related accessories, including a$100-suggested Onkyo iPod docking/recharging station that lets consumers use the remote control of more than 5 million existing Onkyo audio components, HTiBs, and shelf systems to select songs and photos stored on the Apple device for playback and viewing.

Onkyo is the first CE supplier to offer iPod connectivity in a broad range of audio products. It's not expected to be the last.

"Everyone has to do what Onkyo did," said Klipsch/Jamo president Paul Jacobs. Klipsch plans iPod-controlling HTiBs in the spring, but until then, it plans a second-half launch of its first desktop and boombox docking stations for iPods. Both are equipped with amplifier and speakers at an everyday $249 and $199, respectively, and control and recharge iPods. They also control the volume of other-branded MP3 players, which must be equipped with a mini-plug output.

For its part, Tivoli Audio plans October availability of its first portable radio with built-in iPod docking/recharging station. The iSongBook's unilateral retail price is $329.

See stories below and on pages 36 and 38 for more information about second-half sales expectations in the home and portable audio categories.