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UHD, Home Automation Take Lead In Broad-Based Custom Growth

CEDIA To See Multiple Business Drivers

Everything is coming together in the custom-installation market.

Rapidly evolving technology enables electronic systems contractors (ESCs) to tap past customers with audio/video upgrades, home-automation upgrades, and wireless security/automation systems.

For new homes, installers have more types of home-automation products to install than ever before, including smart door locks and smart thermostats.

And new and existing homes are ripe for cellular signal boosters and upgraded wireless networks, which are often needed to stream audio and video throughout the house without failure and into areas where coverage had been spotty.

The potential for installers in the new-home market is also greater than what’s indicated by Census Bureau statistics. The federal statistics show first-half single-family housing starts were up 11 percent compared to 1.3 percent in the first half of last year and 5 percent in calendar 2014, but construction of more expensive custom-built homes is growing faster than construction of all homes in general, industry players contend.

The trends are lifting sales by ESCs and their spirits heading into the CEDIA Expo, running from Oct 14-17 in Dallas.

Industry executives surveyed by TWICE put this year’s channel growth at anywhere from mid-single-digit percentage gains to up to 20 percent, but despite the range of opinions, they agree on what’s driving sales, and they cite multiple factors.

“No one silver bullet is driving the majority of the business,” said Jim Annes, AVAD’s VP/general manager.

One of the bullets is more affordable pricing , which is motivating consumers “to put a lot more in the house,” said ProSource president/CEO David Workman. “People are willing to spend more on technology,” he said, and that’s leading to “slight increases in the value of jobs” despite declining prices. That, combined with slightly more jobs than last year, is driving up installers’ revenues, he said.

Another reason people are willing to spend more on technology is growing awareness, whether due to growing DIY awareness or general overall awareness, he said, adding that his members are enjoying 20 to 25 percent organic growth in custom.

Dennis Holzer, executive director of the PowerHouse Alliance of distributors, also sees consumers packing more technology into their homes. “More products can go into the house,” he said, pointing to smart door locks controlled by security systems, upgraded wireless routers and access points that improve Wi-Fi reliability, and cellular signal boosters, among other products.

In addition, he said, the market is growing because so many technological advances in TV, audio, home automation and security are giving past purchasers of custom systems “a good reason to update it all,” Holzer said.

Security installers, for example, are going back to previous customers to replace wired security systems with wireless systems that offer such new capabilities as controlling smart door locks and lighting systems and connecting to Wi-Fi security cameras.

“You can go back to customers who bought five years ago and sell an AVR with streaming,” he added.

TV Impact

TV is a major contributor to the upgrade trend, Holzer added, citing the lunch of Ultra HD TVs, OLED TVs, and the proliferation of larger and larger screen sizes.

And that’s having a downstream ripple effect in audio, encouraging people to trade up their home theater’s audio system to match the performance of their new TVs, he and other marketers said.

“Ultra HD is bringing back the premium customer,” Holzer said, as are the growing sizes of flat-panel displays.  “Before there were 60- and 70-inch TVs, and no one rushed to replace a 55-inch TV, but now there are 70-, 80- and 90-inch TVs. Ten to 20 inches more gives you something to upgrade to.”

Workman agreed that TVs are giving installers a lift. “The premium-TV customer is back in the market,” and they tend upgrade the rest of their home theater system, he said. “TV drives a lot of other products,” including audio/video receiver (AVR) sales.

Audio Ripple Effect

Marketers pointed to a need to upgrade AVRs to ones with HDMI 2.0a connections to pass through high dynamic range (HDR) video from future 4K Blu-ray players and from set-top IP-video streamers to 4K TVs. Consumers also need AVRs with HDCP 2.2 copy protection to pass through copy-protected 4K content from those devices to 4K TVs.

Premium-TV purchasers also tend to upgrade their home theater’s audio performance simply to match that of their new 4K TV, Holzer noted.  “It starts with the TV,” he said. “Customers upgrade the TV and look at the rest of the system.”

Not only can installers upgrade a home theater’s AVR and in-room speakers when customers upgrade to 4K TVs, but it’s also easy to change out the room’s in-wall or in-ceiling speakers, he said.  Installers can easily upgrade 6.5-inch speakers with 8-inch models by making the wall openings larger, he explained.

“Our AVR sales are starting to pick up,” Holzer said, as are sales of in-room speakers. “Custom speakers were already up,” thanks in large part to improved sound quality that means “you lose less if you go in-wall or in-ceiling,” he said.

Dolby Atmos, DTS:X

So far, the emergence of the Dolby Atmos and DTS:X object-based surround formats on Blu-ray discs hasn’t produced a major lift in AVR sales because the technologies are still new, Workman and Holzer said. But that will change, and the technologies will encourage home theater upgrades, particularly upgrades to add in-ceiling speakers that deliver height channels.

Said GoldenEar president Sandy Gross, “Object- based systems offer real sonic improvements, so they should provide a real lift in the marketplace, especially for custom install, as the better systems basically require this.”

Holzer saw an initial boom in Atmos/DTS:X AVR sales, then a lull, likening the sales trend to a new–store grand opening.

Home Automation

Perhaps the fastest growth is occurring in home automation. That’s what AVAD’s Annes sees, and though the growth is from a smaller base, he said, “I don’t see it slowing down.”

The acceleration started about two to three years ago and includes HVAC, lights and IP surveillance. “But it really picked up in the past year because the custom channel knows it’s here to stay,” Annes said. Consumers are asking for home-automation solutions in part because of DIY-product sales growth and “just knowledge in general,” he said.

In the home-automation sector, “more and more solutions have become mission-critical for consumers,” such as smart door locks and IP surveillance, Annes continued. The value of such products is high for consumers, and once they buy some products, they’re “more likely to continue to invest in it” through system expansion,” he said. “Once you install a basic system, you see multiple devices added within a year because the customer understands the changes it makes to their life.”

The growing intelligence of home-automation systems is also driving consumer adoption, Annes said. Consumers no longer need to press a button to do something because now an installed home system  anticipates needs and dooes it for them, he said. Instead of consumers remotely turning on outdoor lights at night, for example, a smart system can be programmed to turn on lights automatically five minutes before sunset.

Another driver of home-automation growth is the flexibility of newer home-control systems to integrate with more types and brands of products, Holzer said.  

More brands of door locks and thermostats interoperate with various security system brands than before, for example, opening up more opportunities for add-on sales, he said. Home-automation systems more easily integrate with more brands of equipment, giving installers more options to present to consumers. Workman pointed to lighting and motorized shades as still among the top-selling custom categories, along with smart thermostats. Multiroom audio, whether wired or wireless, is still strong, and outdoor sound is also growing, with landscape speakers doing “very well,” he said.

“Turntables as a statement of architectural fashion” are also rising in volume. “It appears to be a trend, not a fad.”

Thought turntables are a niche,” We live on niches,” Workman said. The job of ProSource members is “finding little niches that we can dominate, and there are lots of those.”

DIY Impact

Although home-automation products can now be bought at Lowe’s and Home Depot and installed by do-it-yourselfers, DIY growth hasn’t harmed the custom business and in fact is aiding it, marketers contended.

The rise of DIY home-automation products “is creating an incredibly larger addressable market that you can go after in a value-added way,” Annes said.

Most DIY automation systems, he said, are standalone systems that work independently of other systems with an app for each specific vendor or product. These systems “create a bigger total addressable market for installers who show consumers introduced to home automation through these products how they can unify systems and create a better overall experience,” he said.

As for hub-based DIY systems, he pointed out that “a hub that attempts to make integration work out of the box can only work with – and keep current with – a limited number of devices, which limits what is possible from a customer perspective.” For many consumers, “that is great to start with,” but integrators “have the advantage of starting with the experience that the consumer wants to achieve, then working to select the right products, best integration and programming to meet those expectations without having to compromise.”

“DIY is preview of what’s possible for a much larger segment of consumers that ever before,” he added.

However successful DIY home automation becomes, the custom market will continue to appeal to the customer who wants someone to “do it for me,” ProSource’s Workman said.  People can afford lawnmowers, but many still hire landscapers to mow the grass, he said.

A single Nest thermostat is great, he also said of custom’s appeal, “but if you want to connect everything to a system, you need a custom installer to connect the dots.”

As the DIY markets grow, he added, it will “create a broader base to the pyramid, and every segment will grow.”

Housing Starts

Continued gains in housing starts is also lifting custom sales, with single-family starts picking up in the first half at 11.3 percent from 2.2 percent in the first half of 2014, Census Bureau statistics show. But the new-home construction business is helping lift custom sales more than the statistics indicate.

“The price-point homes that matter to us are doing fine,” said Workman. Housing starts “are missing at the low end.”

Although PowerHouse’s Holzer expects full-year housing starts to grow in the low single digits, better homes are going up faster, but even tract homes are helping lift custom sales, he said. “In the past, tract homes weren’t prewired except perhaps for home theater rooms,” he said.  Now builders are prewiring homes for outdoor audio, security, networking, and the like.

Annes agreed about the impact of higher priced home sales. “We see growth in higher priced homes and tremendous growth in multifamily housing,” which are growing quickly in under-inventoried cities. “There are opportunities on both of those sides,” he said.