Distribution Changes

Note: this article has been updated at the bottom on July 5, 2005 with a statement from Nagra CEO Gérard Beuchat.

We went to lunch with Anthony Chiarella, president of Specialty Sound and Vision, LLC, Audiophile Systems' New York metro rep firm, recently and were surprised to learn that Audiophile Systems would stop distributing the Swiss Nagra electronics and Canadian Verity Audio loudspeaker lines as of July 1.

The decision wasn't caused by unhappiness with the sound quality of either product line, but rather by impact of the weakening dollar and the difference in the expectations of the American consumer, according to Chiarella. "Both lines offered products that were reliable and well-made," he told us, "and we had a great distribution network—not to mention great reviews in Stereophile and elsewhere—but we just weren't selling these superb products. Why?

"Well, part of it was the currency exchange rate. Four years ago, the Nagra VPA type II monoblocks sold for $14,400/pair, which was a great price, but at $25,000/pair, it just wasn't really a gamer. The same was true with Verity's prices—the competition from American-built products gave those prices low perceived value.

"In addition, American consumers also demand certain amenities now that these lines just didn't offer. In the case of the VPA, for instance, you have a standard-setting product in terms of performance, but consumers didn't want to see the connectors hanging off the side, they wanted them in the back—and they wanted 12V triggers and Crestron compatibility. Nagra, which is a world power in satellite technology, just doesn't feel the need to add these features to an audio line it sees as small potatoes in comparison to its primary focus. It's an amicable break-up—let's just call it exchange rate pressures and a divergence in outlook."

Don't look for a flood of low-priced remainders as Audiophile Systems withdraws from distributing the lines, however. Its focus is on an "honorable" withdrawal, Chiarella emphasizes. "You don't just drop lines you've worked this hard on and walk away from them overnight," he said. "Besides, let's face it, there just aren't that many of these products in the pipeline in the first place, and the resale value of both lines is excellent. There are some dealers' demonstration pieces out there, but they'll be sold with warranties at fair-market prices." Audiophile Systems will continue to service the Nagra and Verity it has put into the marketplace.

Update: June 27, 2005 After posting the preceding story, we heard from Gary Warzin, president of Audiophile Systems, who expanded upon Anthony Chiarella's remarks. Mr. Warzin agreed with Chiarella that the declining dollar was an issue, but not, he clarified, the key issue. Warzin said, "A far more important factor was the amount of work required versus the return on our investment (both in terms of effort and capital).

"When you have lines like Arcam (which is growing at 40% a year), and dCS (which is in a truly unique position in offering digital technology that has consistently been years ahead of the competition), and contrast that with lines that seem to be requiring more and more effort just to maintain their current positions, the logical decision is to focus efforts on those lines producing the best return. This is particularly important in a small company like ours, where one is always working with limited resources. Those resources must be deployed where they will do the most good."

Warzin continued, "Keeping up with the rapid growth of both Arcam and dCS required our full attention. Continuing to distribute Nagra, Verity ... when we knew we couldn't apply our best efforts to lines, simply wouldn't be fair to those companies, our dealers, or the end users."

Warzin also told us that the same issues that had led to Audiophile Systems' decision to concentrate on Arcam and dCS had led the firm to drop the Acoustic Energy line of loudspeakers. "[We] love the speakers, love the people, but it's really hard to make it in this market with an imported speaker line when there are so many wonderful speakers manufactured in the US and Canada," he explained.

Warzin emphasized that there "is absolutely no dispute between Audiophile Systems and Nagra or Verity. ... We are actually doing everything we can to insure that all our current Nagra and/or Verity dealers can continue to sell the products. Fortunately, Nagra has always had their own office in the US, which handled the distribution of their professional products. So, it was a simple matter for that office to take on the home audio products as well. And Verity, being located in Canada, also has easy access to the US market. In fact, most of our Verity shipments were made direct from the factory to the US retailer. So, from the point of view of the end user, very little has changed.

Warzin also wanted to point out that Audiophile Systems will continue to distribute Nottingham turntables—"a line that takes very little effort and seems to just keep spinning (pun intended)."

Update July 5, 2005: Statement From Nagra CEO Gérard Beuchat
We are extremely surprised by the interview of Mr. Chiarella you have published on your website concerning Nagra distribution in the US. The interview contains several totally incorrect statements, and we would like you to publish the following information in order to correct and clarify a few points.

Nagra and Audiophile Systems have indeed decided to stop working together. Nagra Hi-Fi products will now be distributed by: Nagra USA. Tel: (615) 726 5191. Email: audio.usa@nagra.com.

Nagra USA is a subsidiary of Nagra Switzerland and is already in charge of the distribution of our professional recorders.

It is true that the exchange rate between US$ and Swiss Franc led to a price increase in the USA. However, now that Nagra has full control over pricing, the retail price of the VPA (standard version) is less than US$20,000. The price of $25,000 is a mistake on Audiophile Systems' website.

In addition the VPA is a power amplifier and the connections are on the rear panel and not on the sides as stated in the interview. We assume Mr. Chiarella is confusing the VPA with our line of preamplifiers (PL-L and PL-P), inspired from the legendary Nagra IV-S analog tape recorder.

The Kudelski Group has 3 main activity sectors: conditional access solutions for digital television (wrongly referred to as "satellite" technology in your article), where Kudelski is the world leader, physical access solutions for public sites (with a world number 1 position in ski resorts and number 3 worldwide in parking solutions), and Nagra Audio products.

Nagra Audio is certainly not considered as a secondary business inside the Kudelski Group; your assumption that it might be the case is offensive to our brand and to our company. Nagra Audio has been a world leader in the professional audio industry for more than 50 years, and still is today. The company has received numerous prestigious awards among which are two Oscars and one Emmy.

Today our very successful Hi-Fi range is being extended to offer a full range of devices. Almost all our products have been rated as A or A+ by Stereophile magazine. The new solid-state amplifiers, the Pyramid Monoblock and the Pyramid Stereo, are enjoying a great start and are being delivered all over the world.

Regarding the demonstration machines and the stock at Audiophile Systems. This will be dealt with by Nagra USA who will take back all the existing stock from Audiophile Systems. As a consequence the price position of our products will not be changed.

The US has always been a key market for Nagra, both for professional and audiophile lines and we intend to maintain our position and further strengthen our presence.—Gérard Beuchat
Nagra Chief Operating Officer