Streaming Driving New Audio Revolution, CEA Industry Forum Told

Rather than big boxy two-channel speakers, today it’s tiny earbud headphones that are among the audio industry’s top growth providers. The headphone market -- propelled by digital music players, tablets, and smartphones -- is projected to log $795 million in U.S. sales this year, bumping to $839 million next year, Murphy said. Soundbars, which are riding the popularity and poor sound quality of flat-panel TVs, are tracking at 2011 sales of $499 million and expected to jump to $725 million in 2012, he said. Even AV receiver sales are slated to increase slightly, growing from an estimated $636 million in 2011 to $688 million next year as they take on cutting-edge features including Ethernet jacks for streaming Internet radio and AirPlay compatibility, he said.

Fresh off the Rocky Mountain Audio Show in Denver earlier this month, Al Baron, product line manager for Polk Audio, said, “It feels like we're entering the third golden age of audio,” following two-channel stereo and home theater “where we'd tell customers they needed five speakers instead of two with a straight face. It was like going to heaven for an audio salesman, without the dying part,” he said. In Denver, he saw a new customer and a new approach to audio. Nearly half of the rooms at the consumer event, held in a downtown hotel, used computers as audio sources, he said. “That would have been heresy a couple of years ago,” Baron said. “It was an eye-opening experience to see people embracing a computer as a source for music at this very very high-end show,” he said.

The new phase is more challenging, Baron said, and “there are going to be real casualties.” While opportunities are “enormous,” because “more people are listening to more music through more devices in more places than ever before,” the industry has to figure out a way to capitalize on those opportunities,” he said.

Paul Geller, senior vice president of Grooveshark, a content aggregator and platform provider for musical artists, spoke of merging content and platforms in the new phase of audio. “I can go to a music conference and we're not the content provider; we're the platform,” he said. At a CEA event, “we're viewed as the content provider,” he said. Companies like Grooveshark and Netflix are aggregating content and making it available on hardware as an API, he said, but the goal ultimately is to make available all of the content consumers want in all the different formats they want on any device “without their having to think about it. That will make this a real revolution,” he said.

Petro Shimonishi, category manager for headphones at D&M Holdings, said today’s music customer isn’t interested in technology per se, but the experience technology provides. It’s about enhancing the enjoyment of music “whether you're at home, on the go or in the car -- and keeping it consistent,” she said.

Streaming is revitalizing the music world, said Grooveshark’s Geller. The major marketing push coming from cloud-based streaming systems from Apple, Amazon and UltraViolet are going to “turn people on” to the concept in a big way, Geller predicted. He said Apple’s iCloud isn’t better than what’s out there already. “It’s a response,” he said. “There’s more talk about audio now than I remember in my lifetime,” including debates about the best way to listen to music, and he attributes the surge in interest to the boost in streaming.

Design and fashion are a major part of the next phase of audio, speakers said. Kevin Lee, vice president of brand and corporate development for Monster, said Monster’s success with headphones has come from learning from the fashion world how to market products to people based on what they want versus what they need.

Shimonishi said the audio industry is moving away from a “spec” perspective focused on “speeds and feeds” to one that’s more oriented to consumer products.” Denon is starting to do consumer testing on boxes that are non-working prototypes, she said. The company is gauging consumer opinion on form factor and asking focus group participants where they would put a particular product in the home, she said. “This would have been unheard of 5 years ago,” she said. “Getting consumer feedback, even on a dummy prototype,” will drive successful audio companies going forward, she said.

Still, reaching customers and coming up with a message that resonates with a different generation will be challenging for audio manufacturers, panelists said. In the new audio world, the playback device is almost “an appliance,” said Polk’s Baron. Audio was never viewed as an appliance, in the past, Baron said. “It was almost a narcissistic reflection of the designer. The consumer was an afterthought in a way,” he said. A quarter century ago, Polk co-founder Matt Polk was featured in the speaker company’s magazine ads, an icon for a generation that bought speakers based on the person who designed them. In the new era, word of mouth will be critical in getting consumers to buy products, Baron said. “I don’t think we have the resources to ever make education the answer to a more successful industry,” he said.

Where consumers will buy audio in the future remains to be seen, speakers said. “Consumers aren’t going into retail stores all that much” today, Lee said. In addition, the traditional audio message about better sound “isn’t all that sexy,” he said. Writing yesterday’s script about “the low end” full sound” or soundstaging doesn’t resonate with the younger audience, he said. “Kids don’t like to hear that kind of language,” he said. “They don’t like to be sold.” When Monster first discussed how to market Beats headphones with Beats marketing execs, the traditional better-quality sound approach was shot down. “They told us it was going to take too long,” Lee said. “It was too complicated.” So the company decided to simply sell the concept as “cool” and to let it “be a Trojan Horse for good sound,” he said.

Hardware companies have a major challenge as they try to adapt to an altered world, said Geller of Grooveshark. “The elephant in the room is that in the past 10 years there’s been a dwindling in the appreciation of music itself,” Geller said. The fact that music has gotten “so cheap and easy to get” affects not only artists and music labels but hardware, too, he said. “When you reduce the perceived value of something, the entire chain that comes along with it has a reduction in value,” he said. Add to that a generation that grew up on “sub-$300 sound, and you're going to be hard-pressed to find them interested in hearing ‘full sound.'” Geller said.

Geller sees interoperability as the looming barrier to significant growth in audio, citing the variation of ways people want to interact with music including CDs, downloading and streaming. “If you get yourself in the position where your device can only work with one of those, then you're forcing your potential audience to make that decision before they can even decide whether they want to buy something good or bad,” he said. “If you can break down this last barrier of allowing people to access content from whatever source they want, you've taken this by the reins.”