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What’s Ailing A/V Receivers?

NEW YORK – Sales of audio/video receivers (AVRs) are off by single-digit percentage rates in units and dollars, but don’t blame consumers waiting for products that incorporate all three of the most significant advances in AVR technology in years.

The technologies are DTS:X and Dolby Atmos object-based surround decoding and HDCP 2.2 copy protection, which is needed to pass through Ultra HD copyprotected video over HDMI connections from future HDCP 2.2-equipped 4K media streamers and 4K Blu-ray players to HDCP 2.2-equipped TVs.

Only high-end customers, who are on top of audio trends, are sitting on the sidelines waiting for products with all three technologies, marketers and retailers said. The factor responsible for most of the AVR sales decline has been the shift in disposable audio income to soundbars and wireless multiroom-audio systems.

The emergence last year of the first Atmos-equipped AVRs might have brought some people into stores to prevent sales from falling faster than they did, and the emergence this year of the first AVRs with all three new technologies will boost demand another notch, perhaps tipping sales back into the plus column.

For the 12 months ending March, AVR sales at retail are down 6 percent in dollars and 7 percent in units, NPD Group said.

“The high-end customers looking for expensive products and who do a lot of online research are definitely sitting on the sidelines,” said Kevin Zarow, VP/general manager of D+M Group Americas. But DTS:X, Dolby Atmos and HDCP 2.2 “are significant technologies that will positively impact the market in 2015.”

The lack of all three technologies in a single SKU hasn’t kept all highend customers out of the market, Zarow said. Some high-end customers who had to replace malfunctioning AVR, or who purchased a 4K TV, haven’t postponed an AVR purchase but have stepped down temporarily to a $700 receivers from a $3,000 receiver, Zarow said. In a year, they’ll buy a $2,000 AVR and relegate the less expensive model to a bedroom or other room, he said. “I have definitely noticed an increase in midprice points,” he said of the trend.

The technology wait hasn’t put downward pressure on sales of low- to midprice AVRs because of a lack of awareness by purchasers of those products, he said.

At the higher end, the appearance of Atmos-equipped AVRs in the second half of last year “had a positive impact on sales,” Zarow said, and if it weren’t for the “noise” surrounding DTS:X and HDCP 2.2 starting before last September’s CEDIA Expo, the industry would have sold more high-end AVRs than it did, he contended.

The appearance this year of all three technologies in single SKUs might not push AVR sales into positive territory, but “at least it will soften the blow,” he said.

For its part, D+M saved some high-end AVR and audio/video processor (AVP) sales by offering a planned DTS:X firmware upgrade and a free HDCP 2.2 hardware upgrade for the Atmos-equipped $3,000 Denon AVR and $4,000 Marantz AVP.

Sales of the duo have been “good” because “installers want to sell the right thing,” and it “puts high-end customers at ease if they buy for themselves,” Zarow said.

He was quick to note, however, that AVRs lacking HDCP 2.2 can still be part of a home theater system with HDCP 2.2-equipped 4K TVs and 4K Blu-ray players. He expects the first 4K Blu-ray players to come with dual HDMI outs, one with HDCP 2.2 to connect to an HDCP 2.2 TV and a second to transfer audio to the AVR.

For his part, Crutchfield merchandising executive VP Rick Souder didn’t pin the blame for softness in AVR sales on consumers waiting for new technologies.

“I don’t believe receiver sales are hindered because customers are waiting for new sound and connection technologies to sort themselves out,” he said. “I think there are bigger factors in play. While receivers have tremendous capabilities, they require substantially more investment in setup and time to learn how to use them than newer technologies. I think more and more customers are opting for soundbars and multiroom wireless systems such as Sonos for their movie and music sound experience. While none of these newer technologies matches the performance of a receiverbased system, they are easier to use and perform well for many customers.”

Nonetheless, he said, “I believe there will be a dedicated receiver customer for quite some time.” He pointed to, for example, “significant growth in the awareness and desire for various high-resolution audio formats that will only reach their full potential through an A/V receiver and high-performance speakers.”

Dave Workman also doesn’t pin the AVR sales decline on the wait for new technologies. “There is still very little top-of-mind awareness of this that it hasn’t really helped or hurt the category so far,” said the president/ CEO of the ProSource buying group.

Nonetheless, he said, “we do believe that with the surge in 4K TV unit sales expected this year, there will be a follow-on demand for receivers incorporating the HDCP 2.2 spec.” In addition, DTS:X and Dolby Atmos will “should help raise ASPs in the category,” he added. “We need these cool technologies to both motivate a consumer to replace their old unit and more important, spend a higher ASP to get the features their system will require.”

Because the technology trio will converge in the same products this year, “we are hoping that in the second half of the year that we reverse the trend in the category and begin to see modest unit and dollar increases.” Pro- Source’s business “has been good in the category, but all of this has come from market-share gains,” he noted.

The category, however, continues to face “strong competition from the step-up sound bar products and wireless multi room systems redefining what a music system is for the consumer,” Workman said.

Ben Arnold, The NPD Group’s industry analyst for consumer technology, pinned the blame for declining AVR sales largely to soundbars. Some higher-end consumers are waiting for the technology trifecta, but “the wider slowdown is probably attributable to growth in soundbars,” he said. Sales of premium soundbars at $600 and up are growing and encroaching on receiver sales because they include HDMI switching and many AVR functions, including wireless music streaming, he said. “If you’re in the market for a $500 AVR and you see a comparably priced soundbar, you’ll see more consumers swinging over to soundbars.”

At the same time, he noted, soundbars priced at $300 and less have attracted new people into the audio market who aren’t interested in HTiBs or low-end AVRs, he said.