Bye-Bye Audio Components, Hello PC, Video Connections - Twice

Bye-Bye Audio Components, Hello PC, Video Connections

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TWICE: What's become of home audio?

Jeff Stone (Tweeter): General audio, such as home speakers and receivers, has been soft for a couple years now. There is really nothing new driving that and it has had its own price compressions. Thank God for our custom business, because we were doing $5,000 to $40,000 systems and our installation teams were booked out. That business is still at a high premium and very viable.

Ken Weller (Good Guys): We have had very good television sales but awful home audio volume. The home audio situation is either self-inflicted or there is something going on there. I have been in retail for more than 20 years, but I do not understand it.

TWICE: PC sales may be slow, but PC applications are up. Could it be that the PC has become the home audio system of Gen X?

Mike Linton (Best Buy): Our audio was not that great either. I can't tell what is failing to drive audio. That is a good hypothesis and I think there are many others.

Tom Edwards (NPD Group): Our numbers show the home audio categories down for the most part, with the exception of the home theater audio systems, which were a runaway hit. Components, speakers, amplifiers, and receivers were all down and it was compressed more in the high-end price range.

Ray Brown (Sears): It's a tough sell. With television, the consumer walks in and the screen is bigger, the picture is clearer and it is an instant sell. On a Saturday afternoon in many of our stores, it is tough to tell the difference between speaker A and speaker B or receiver A and receiver B relative to what the customer has back home. So they end up saying, "I don't hear that fundamental difference so what I have is good enough." It's what we refer to as "good enough audio."

Dave Workman (Ultimate Electronics): Much of that is also driven by the fact that you have home theater as the prevailing audio source. When something goes "boom, boom, boom," that is your basic reference standard. People have forgotten about listening to music, or if they are listening, they are listening to MP3 files. It allows "good enough audio" to be just that.

Unfortunately, home audio is a victim of the way that people are using this product.

Linton: Almost all the technology in audio is being driven by connections to something else. The big news has not been in the audio components themselves, it has been how the music or sound is transported through the TV, computer or MP3 player. Audio did not have something you want to come see like plasma TV.

Workman: The killer app of audio for the season was the fact that you could package five cheap speakers in a box with a receiver and DVD player from China.

Rick Souder (Circuit City): I was visiting a very high-end manufacturer in Japan and they were very excited about demonstrating some of their audio product. We went into one of their state-of-the-art listening rooms and it sounded great, but what was most exciting to them was that this was their new home theater-in-a-box product.

Weller: From various trips to Asia I was starting to see that there is really nothing very exciting going on in home audio. At some point last summer, you had to make a decision and take an inventory position and it almost becomes self-fulfilling.

Here is a challenge for vendors. How do we bring excitement back to audio? Who can blow through this Pandora's box? We have dumbed down in that area and I do not know any other way to say it.

We know that there are people who get excited about television. Now where are the people who are excited about audio? People are walking in and spending a lot of money on digital, high-definition and plasma television, so the customer is there. How do we as either retailers or partners with our vendors attach that same enthusiasm to the audio that there is in video? As a company, we have not done that.

Stone: Part of the issue is how many dollars does the average consumer have to spend on our stuff? Five years ago, before HDTV, a very good TV was $4,000, whereas now it is $10,000 or $25,000 for a Pioneer Elite 63-inch plasma. Back then it was very easy to sell a $3,000 TV with $3,000 worth of audio. We were doing it every day. There was a one-to-one ratio of TV sales to audio sales. Now it is very difficult because the ASP on TVs has gone up because we are selling more of the better stuff.

Linton: What is the consumer need that is not being met? You can see the TV need or computer need, but the audio need is less clear to the consumer. It is apparent only to the "good enough" point in terms of what would make you want to put your money there, versus those other categories.

Workman: The audio business to some point has been this incestuous little pool of consumers that upgrade and buy stuff. To the vast majority of consumers, audio was those two little speakers that sat inside the television. Relatively speaking, home theater-in-a-box is a significant upgrade for them. The question is, as time goes by, do they upgrade further into better products?

I don't want to sound like the eternal optimist, but the fact is that everyone who bought home theater-in-a-box has now been exposed to audio outside the box. Over time, will those consumers migrate? Have we opened up an entirely new consumer base to home audio? Those Chinese DVD players and home theater-in-a-box products will eventually break. The good news is that the price points are such that they are not worth repairing, so they are replaceable products. If that occurs, we have widened the audience over time.

Hopefully that wider audience combined with a killer app in the future, whether digital radio or networking solutions or something else, will bring people interested in decent audio back into the marketplace and balance that trade out. If that occurs, I think we will have a nice balanced business again.

Frank Sadowski (Amazon.com): I spent the first 25 of my years in retail specializing in what we used to call home audio, but that business just does not exist anymore.

Hopefully, consumers will realize that more expensive, higher quality products will add real value to the experience. But what is out there in home theater-in-a-box at mainstream price points is not that bad compared to listening to it out of the two speakers. We esoteric audio people are horrified, but it is a big step up for the mainstream customer.

On the other side, I heard that the killer app in audio last year was five speakers in a box. I disagree. Maybe that is the killer video audio app, but the killer music listening app is mass storage and portability: The Apple iPod. Our MP3 business, particularly hard drive-based portable jukebox devices, is absolutely on the moon. I am an audio purist and I think the sound quality of that kind of product is not that great, but it makes no difference what you or I think. The customer loves this stuff and they are willing to plunk down $300 to $600 to be able to take 2,000 to 4,000 songs with them wherever they go and plug it into their computer, which is where people are listening to music in a personal space.

In my opinion, there is not a home audio business anymore. There is personal music and then there is listening to video.

Weller: You should have told me that last summer.

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