Video Actions & Audio Reactions

To every action there is always opposed an equal reaction.—Sir Isaac Newton, 1687

Just as applicable to business as it is to physics, Newton's Law of Motion goes a long way toward explaining the audio industry's ongoing slump. Consumers aren't slapping down their credit cards for new audio gear because they're going crazy for video. For the year ended last September 30, more than 2.4 million high-definition television sets of all kinds (rear-projection, CRT, LCD, plasma) were sold in the US—50% more than in the previous year, according to figures published in November by the research firm NPD Group, based in Port Washington, New York. Boston's Yankee Group estimated that, by the end of 2003, as many as 9 million American homes were HD-ready.

The mania for quality video is nowhere near topping out. Research firm iSuppli predicts that global sales of LCD TVs will reach 27 million by 2007, 10 million of them in North America. Researchers say worldwide sales of plasma screens will hit 6 million by the same date. Global production of LCD TVs will more than double this year, from 4 million sets in 2003 to as many as 10 million in 2004. In the past 18 months, major manufacturers have invested billions to ramp up HDTV and flat-panel production, and signed unprecedented sweetheart deals to share costs and reap profits.

The surging popularity of bigger, brighter video has been a godsend for manufacturers—and for retailers. Trendy new technologies carry obscenely fat profit margins, buoyed by high demand and low supply. For a brief season, HDTVs will be free from the video sector's typically cutthroat commodity pricing. There's a flat-panel gold rush going on. Everyone in the electronics industry is suddenly jumping into the TV business, including makers of computers and cameras, enterprises long accustomed to single-digit profits. Even chipmaker Motorola, which hasn't made a TV in four decades, has decided to enter the flat-panel fray. Today's +50% margins are too seductive to resist, even for folks who should know better.

But gold rushes have short, brutal life spans—anyone remember the dot-com boom?—and when this one is over, the iron law of commodity pricing will reassert itself with a vengeance. We may begin to see the beginning of the end sometime this year, according to Reuters reporter Franklin Paul. In a December 1 piece on the Lycos financial site, Paul quotes analysts at the Consumer Electronics Association who predict flat-panel price drops of as much as 30% in 2004. From there it will be a long, slow loop back to the state of TV sales in the early 1990s—they'll be available everywhere for cheap, and retailers will once again be moaning about how there's no money to be made in video.

What does all of this have to do with specialty audio? Everything. Consumers dazzled by big pictures have been willing to settle for less-than-adequate audio, encouraged by salesfolk with visions of plummy commissions dancing in their heads. Once the novelty of the flat panel wears off—at approximately the same time as their last credit-card payments are made—these same consumers should be back in the shops looking to upgrade the audio end of their home entertainment systems. This rosy scenario assumes, of course, that retailers haven't totally sabotaged themselves by convincing their customers that "the image is 90% of the experience."

Audiophiles know better. We know that you really don't get the impact of a movie or concert from a flat panel's built-in 10W speakers, or from a dinky satellite system with a shoebox woofer. We know that any speaker system or amplifier featured in the Stereophile Buyer's Guide is infinitely better than most of the stuff that's sold to accessorize hot new TVs.

The trouble is, most consumers don't know this. They believe what they're told by advertisers and salespeople, and by well-meaning but misguided mainstream journalists, who persist in propagating the lie that all audio products are created more or less equal. Any audiophile of a few months' experience can cobble together an affordable setup that will outperform a pre-packaged home-theater-in-a-box system. So can any salesperson worthy of his base pay. But it rarely happens.

Why? Audio manufacturers aren't providing consumers the education, or salespeople the incentive. Instead of grumbling among themselves about how the world has gone to hell in a handbasket, audio companies ought to catch the video wave and ride it for all it's worth. It doesn't take much effort to mount a convincing audio demonstration, and it doesn't take much in the way of "spiffs" or bonuses to get salespeople motivated. Audio advertising should take its cue from Sony's SACD tag line: "Hear what you've been missing." Once exposed to the immersive experience that is good audio, how many music and movie fans would be willing to settle for mediocrity?

The specialty audio industry suffers from preaching to the converted. To grow, we need to preach to those still unconverted. Want proof? Look no further than the omnipresent advertising for the Bose Wave Radio. You'll never see an ad for it in the pages of an audio magazine—what would be the point?—but it's everywhere in publications read by intelligent people with disposable income. Bose's ads effectively position the Wave as not merely the equal of a large hi-fi system, but superior to it.

Why can't this industry pool its enormous resources and fight back? The superiority of specialty audio products is self-evident to anyone who knows what real music sounds like. If we didn't believe that, not one of us—designers, engineers, marketers, journalists—would persist in this business. Every one of us knows the transcendent ecstasy that superb audio makes possible. Why keep it a secret? Instead of indulging in arcana and internecine squabbles, we should be sharing our passion with the world.

Manufacturers, please make friends with the retailers again. As their margins fade on flat-panel TVs, they're going to have to look elsewhere for profits. Where better than to specialty audio?

The following letter was published in April 2004 (Vol.27 No.4):

Editor: I have just finished reading February's "As We See It" and I feel compelled to comment. Let me preface this letter by stating that I am an Audio/Video salesperson in a high-end store in a large metropolitan area. Between the five salespeople that I work with, we sold close to 250 flat-panel televisions in 2003 so I feel safe calling myself as "expert" on this topic.

The observation that Barry Willis made of the audio/video business and where it stands currently with flat-panel televisions dominating sales is quite accurate. However, his explanation of the reasons of why this exists are incorrect.

The biggest mistake he made was that margins on flat-panel televisions are higher than on audio equipment. Nothing could be farther from the truth. I assure you that margins on flat-panel televisions are actually 15-20% lower than similarly priced audio equipment.

This leads into his second error, that salespeople are not motivated to sell high-end audio to go with the customer's plasma purchase. I am more than motivated to sell high-end audio components (as most of my peers are) not only because of the higher profit margin but, more importantly, because most of our passions are in audio rather than video to begin with.

The real reason this "problem" exists is because most consumers really don't care about sound anymore (don't believe me, look at how many people use their crappy computer speakers to listen to music). Every single person that comes into my place of business looking at high-end video (or anything else for that matter) gets a high-end audio demonstration. Even the individuals that swear they are "not an audiophile," can hear the differences between "okay" and "outstanding" audio systems but most aren't willing to pay for that difference.

It is incredibly sad how many $25,000 61" plasma displays we sell with $3000 surround-sound systems. It is very much an uphill battle.

The point of this letter is to enlighten you that the "retail sales person" is actually working incredibly hard to educate the consumer on the benefits of a high-end audio system to go with their flat-panel display. If only more people would "listen."—Jason Zucker,