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Potential Growth Contributors

Digital Radio

TWICE: What new product categories could help turn the industry around? Satellite radio in the home? HD Radio (digital AM/FM)?

Don Milks, Onkyo: As far as HD radio, that is not going to address the inherent content downsides of broadcast radio. Most of the broadcasts now are almost unbearable to listen to because of the commercials. I find myself listening to NPR almost 90% of the time I’m in the car. That’s why I think a growing number of people are switching over to satellite radio in the car.

The question that I have a hard time answering is how to make the satellite-radio transformation from mobile, where it’s a given, to the house? I think as people grow to expect and enjoy and demand it in the car, it’ll start to make an influx into the home. I don’t think it’s there yet. We’re hopeful that it will, but is that going to change the outlook for the home audio industry? Not by any stretch of the imagination.

Franklin Karp, Harvey: How many guys in this room have DirecTV, but how many times have you turned on the music channels? I don’t think I’ve ever turned it on, and I’ve been a subscriber for four years.

Milks: However, I can’t tell you the last time I listened to an FM broadcast in my house. I put on DirecTV and play it into the stereo system.

Eli Harary, Infinity: I don’t see how it would drive more audio. I think that it fits into what customers already have. I’m not sure that it gets us back to the basics, which is better sound and spending more money for it.

Multichannel Music

TWICE: Any potential for the multichannel music formats to aid the home audio industry?

Karp: Manufacturers have done a horrible job presenting the category. I think DVD-A should have been a success because the DVD format has become the de facto silver disk to purchase. But it fell on its face. Multichannel SACD is wonderful, but I don’t think Sony’s done a particularly good job of communicating.

I’ll blame all the manufacturers and the software side, which stood to gain the most because they would be selling more razor blades. They didn’t do a good job on pricing. So unfortunately, what I thought had potential really has not blossomed at all.

The retailers can’t carry that format. They really can’t.

I’m impressed that a car manufacturer, Acura, is advertising DVD-A in the new 3.2TL. That’s pretty bold on their part, given how many DVD-Audio disks you can go to Best Buy and buy right now.

Gary Bauhard, Pioneer: There’s always the trap of having two formats. But let’s take the format issue out of the equation. It [multichannel music] is building steam because clearly, here is a case where the hardware is not what’s key. The content is going to drive the formats. On the hardware side, what is important is to not make the consumer choose. Deliver a product that plays both formats because, at the end of the day, what it’s all about is being able to choose the content that they want to listen to.

Karp: A confused consumer buys nothing.

Pioneer: And when you come to content, where do I get it? Only two retailers are taking a proactive stance in providing content, identifying it on the music itself, specifically Best Buy and Tower Records. Otherwise, from the consumer side, where do I go get it? Where do I go listen to it?

Certainly from the hardware side, there’s no longer much of a price barrier for hardware that delivers both formats. They’re under $200. They’re just an absolute tremendous value to the consumer. And they can figure out why they need it and what’s cool about it.

Sean Wargo, CEA: Let’s be honest. MP3 and online music services really stole the thunder on the content side for a large segment of consumers. That’s what they’re paying attention to. That’s what they’re thinking about when they go into the market for content these days. Yes, CDs sell, and they may be thinking well, it would be nice to have a better [multichannel] CD, but I really like the portability that these online music services give me.

Milks: If I went downstairs to survey 50 people at random, very few would be able to explain SACD or DVD-Audio.

Wargo: I agree. We haven’t asked that [in our surveys], but I would expect that to be the case, given what we’ve seen from other survey research. And they would probably have a hard time telling you whether it’s better than CD because a lot of consumers surveyed by us think MP3 as a general category is the same quality as CD. That makes a lot of high-end audio people’s eyes roll, but it’s one of the realities of the marketplace.

TWICE: Perhaps the multichannel formats haven’t taken off because the music industry was focused on fighting file-sharing battles and consolidating in the face of shrinking revenues. The music industry is in turmoil, and I don’t think that industry can focus on an emerging technology like this when they’re focused on fighting fires.

Kerry Moyer, CEA: Isn’t it interesting that every new digital music product introduced over the past 10 years met with some degree of controversy. Whether it was digital audiotape, DCC — even DVD-Audio — was delayed in its introduction due to the controversy surrounding the fact that it was a high-quality digital source. If CD were introduced today, would it even make it to market? Look at how many things have totally changed in 20 years, and yet we’re still listening to CDs 20 years later. What’s the replacement for CDs?

TWICE: Multichannel music to me makes a lot of sense, but I’m wondering if the real target for that ought to be the car where you’re in the sweet spot all the time. If consumers listen to music in the home mainly as background while moving about, then multichannel music makes less sense in the home and more sense in the car, where speakers will always surround you.

T. Paul Jacobs, Klipsch: If people are listening to music mostly as background in the home, and we have a tough time getting them to sit down and watch a movie in surround, it’s very tough to get them to listen to music at home in surround.

Harary: From the Harman perspective, we’re certainly deeply engaged in presenting multichannel sound in automobiles with Logic 7, etc.

TWICE: Do you think the car market would be the stronger market for multichannel music?

Karp: It would be a great place to get people exposed to it.

Pioneer: No doubt, it’ll help confirm the validity of the formats.

Moyer: Historically, if you think about it, when you had front and rear speakers and you had the option to fade between front and rear, it was, if you think about it, most people’s idea of surround sound.

TWICE: Perhaps promoting multichannel music in the car to the youth market could eventually stimulate this next generation of potential home audio buyers to step up to multichannel music in the home.