Will High End Audio Survive?

Uh, Duesenberg went under in 1937, thanks to Cord losing all his money in the Depression, and after enduring very tough times Bugatti went under in 1939-40.
 
I'm not at all sure how this little industry is going to fare. Since I started writing for high-end audio magazines back in 1993, I've seen several recessions (we lived through one when we launched "Fi"), but none like this one. A lot depends, of course, on how deep and long and widespread the downturn is. The common wisdom is that the ultra-high-end will be OK, because, recession or no, the rich will always be rich, and the very-low-end segment of the market should be OK, too, because even if you're strapped for cash a $10 record-cleaning brush is still affordable. It's everything in between dirt-cheap and ultra-expensive that hangs in the balance. And, alas, that is precisely where most companies and retailers are most heavily invested. A consumer has to have a certain amount of disposable income to get into this hobby; more importantly, perhaps, he has to be able to give himself psychological permission to spend that money. It is true that people tend to entertain themselves at home more often when times are hard, which is something in high-end audio/home theater's favor, but if this thing does turn into the Great Depression II, as Krugman predicts, then the future of high-end audio will be the least of our problems. 
 
CES ought to be a bit of a barometer. Who shows, who doesn't, the mood among those on hand, and the kind of civilian/business traffic we see will tell us a few things. But, really, everything depends on what we don't yet know. Specifically, as already noted, how long and deep and widespread this thing turns out to be.   
 

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I think that the HE Audio Industry is in a very serious position. The economic downturn is only going to expedite the situation.
We have two many outlets, two much product, extremely high priced equipment and an aging consumer base.
This industry has no tools to help sell the products and to help interested customers purchase them.
The dealers are being squezzed by the internet, ebay and audiogon, that feature many bs dealers that offer nothing but used gear at a price.Many listeners come into stores with no intentions of buying but use the dealers as unpaid consultants. I am not crying just pointing out the facts. From a financial basis it has become very difficult for all parties here are some reasons
1) Lack of financial tools to help display the expensive gear for clients to see and hear. Very few dealers can afford to put the full lines of many companies out to show.
Many high end companies have little or no terms on purchase of product . this is extremely true as the prices go up. The dealers DO NOT get the gear for free
2) Overheads rising and profit margins shrinking
3) Product lines growing- almost all companies now have full or fuller product lines. No longer do you just get an amp or a preamp but many products including source, cables, speakers, power etc.
4) No payment options for clients to buy like every other luxury goods business
5) Video being a serious commodity - has taken many customers out of the small reatil stores and onto the internet and discount houses which gives them less exposure to the high end products. They dont see them they dont buy them. Many people have the wrong idea of how the business works. The magazines DO not drive clients that purchase into the stores. We must face the fact that without serious reworking of the business model that is 50 years old the industry is going to be in extreme trouble.
 
If you are concerned about the industry surviving support the local dealers for if they go out you will have no choice but to buy from the internet with nothing to go on but a review and a picture... if you are lucky!

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The attendance numbers at CES (more precisely, how crowded the show seemed compared with previous years), the overall mood of attendees and exhibitors, and my conversations with exhibitors all suggest that things are not as bad as the media has portrayed it. Although attendance was down slightly from last year, exhibitors were, with a few exceptions, happy with the quality of the attendees and the amount of business they were doing.

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Unfortunately the economic downturn is only one of several challenges the high end audio industry faces. We will probably begin to see an upturn sometime in late 2009 or early 2010, and by that time some of the players who have been struggling all along will be gone, but there will still be an industry with most of the better established manufacturers still cranking out products.I'm more concerned about the longer term than I am about the next couple of years. The two greatest threats over the next ten years are the growth of internet sales and the resulting demise of the brick & morter high end salon, and the aging of the baby boomers.
Let's start with internet sales. It has become very hard for brick and mortar dealers  to compete with inernet sales, both used and new, for entry level products. Last week I bought a new Cambridge Audio Azur 540A for $299. I would have preferred to buy it locally, but the local dealer who used to represent Cambridge has found he can't compete with internet discounters, so he dropped the Cambridge line and focuses on the more upscale brands such as Krell, ARC, etc. Many high end dealers have been relying on HT sales and installations for their survival, but with the housing downturn that source of revenue is drying up too. I predict in the future most high end dealers other than a few long-standing East and West coast businesses will be in-home appointment-only types. The lower overhead of this type of  business makes it still viable. It will be interesting to see how the established manufacturers respond to this situation. I notice some are beginning to sell via the internet, especially through the larger sellers, but only to customers in areas where there isn't a local dealer within so many miles. Others are enlisting existing customers to promote and demo their products. The topic of this month's Houston Audio Society meeting is the Gilmore Audio speakers and electronics, which we will hear at a member's home.
The graying of the baby boomers probably is an even greater threat than the intenet over the longer term. We are the primary consumers of two channel high end audio equipment, and almost nobody from the next generation owns any high end equipment at all. Many people in the forty-something and thirty-something generation have great discretionary purchasing power, and judging from the cars my younger neighbors drive and the houses they live in I have to conclude that the price of high end equipment really isn't the barrier to entry. The barrier is that high end audio equipment is marketed to them so ineffectively that they don't even know it exists, and if they did they wouldn't buy it because none of their friends have it. Successful industries of today and of the future will be those with a limited number of participants offering high profile, effectively marketed brands. The high end audio business is so fragmented that this isn't possible. In ten years, when the sixty-something baby boomers are no longer buying equipment, if the industry hasn't found a way to attract younger buyers the game is over.

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Looking back over the long history of this thread, I think that Jon Valin identified what might be the most central point of all when he wrote: "A consumer has to have a certain amount of disposable income to get into this hobby; more importantly, perhaps, he has to be able to give himself psychological permission to spend that money." (Emphasis is mine).

While times are undeniably tough, I find that many people are continuing to spend money--sometimes quite a lot of money--but are becoming very selective in choosing what their expenditures will be. For obvious reasons, anything judged to be frivolous or inherently overpriced automatically goes overboard. My concern is that many consumers--including quite knowledgeable ones--are very quick to place high-end audio in the "frivolous and overpriced" category--perhaps with (some) good reasons.

Does High-End Audio Pricing Pass Common Sense Tests of "Reasonableness"?

In a word, no, and it's not hard to see why.

If you look at many classes of luxury goods, you'll find prices of top-tier or near-top tier products exceed the prices of their low/level garden variety equivalents by ratios of between 10/1 and perhaps 20/1. A crude example: A Hyundai Accent can be had for about $10k (in round numbers) while a Mercedes-Benz S600 goes for about $150k (and the even more exclusive Benz S65 AMG goes for a tick over $200k). The key point is that people are used to this math: garden variety product = X units of expenditure, while top-tier product = 10X-to-20X units of expenditure. Now look at high-end audio. 

Whether we like it or not, an average consumer is likely to have his or her opinions of what audio equipment should cost--at least at a baseline level--established by what can be seen in a big box retailer's showroom. If you visit the Best Buy Web site, you'll find that floorstanding loudspeakers start at around $150/pair (for some very inexpensive Sony models) and range on up to around $3000/pair (for Definitive Mythos STS speakers that are available only in Best Buy stores that have Magnolia departments). Note that once again, you see that 20/1 luxury-to-common product price ratio in action. Also note that, for very many customers--including those who will drive up to the Best Buy store in BMWs or Jaguars--the Definitives, at $3k/pair, would be considered very  expensive speakers.

Now overlay the high-end world view on the Best Buy "real world" view. In high-end land, those "very expensive" Definitives are regarded as good value-priced speakers--a good place to start the game on your way up. And then we start talking about what we consider to be the really good stuff, as in speaker systems that can range way on up into the 6-figure range/pair. Examples: a pair of Magico M5s costs roughly 29.7X what the Definitives do, while a pair of `Wilson Alexandria X2s are priced a whopping 49.3X more than the Definitives--speakers which the average customer already thought were premium products.

My point: I think the high-end's collective notion of what the word "expensive" means seems wildly distorted relative to the pricing math many customers understand, so that it becomes tempting to dismiss us as a bunch of harmless but misguided loons preoccupied with impossibly expensive electro-acoustic toys.

What Can Be Done to Re-Invigorate the High End?

We can start by getting our own house in order, which means demanding products whose price/performance ratios make sense. This doesn't mean abandoning expensive products by any means (in any product area, really first-rate gear is almost always expensive), but it does mean holding them to much higher standards of value than we currently do. A British high-end manufacturer (OK, it was Antony Michaelson of Musical Fidelity) once said to me, "The value proposition of a piece of high-end audio gear must be self-evident," and I think he was right.  If customers have to stop and ask, "Does the asking price of this product makes any kind of sense?," something is already wrong. 

We can also work much harder to focus attention on designers and companies that have perfected the art (and it is an art) of designing high-performance/high-value audio components. And when we discuss these products, we would do well to check our ultra-high-end attitudes at the door. Without realizing it, we all too often come across as nutball-grade snobs and elitists--not good. Basically, we need to be sensitive to the fact that what we might regard as "value-oriented" components are, for the rest of humanity, almost inconceivably expensive high-end luxury components. If we want more of our fellow citizens to take up this hobby we love, we must think about, write about, demonstrate, and then sell audio products from frames of reference (in both financial and sonic terms) that normal mortals can grasp.

Wherever possible, we can lobby to bring back music education as a standard feature in elementary, middle school, and high school curricula. My thought: you can't expect young people to want to listen to great music (as in, genuinely paying attention to it) if they've never been given a chance to hear (or better yet, to perform) great music. Putting first things first, let's recognize that love of music precedes love of hi-fi (or at least it should). 

By whatever means possible, let's give the high-end audio exposure, exposure, and more exposure.

Appreciation for what the high-end has to offer doesn't come overnight. Instead, it takes repeated listening experiences, plus a fair amount of what I call "soak-in" time. My own kids, for example, were largely indifferent to high-end audio--even though they had been around it all their lives--until I slowly and methodically began to show them the joys and possibilities inherent in having systems of their own. Even then, it took a while for the concept to take hold and gain traction. While my two oldest children now have and enjoy good starter systems, their interests developed only very gradually, over time. Bear in mind that most high-end enthusiasts-to-be need to be nurtured with slow and steady applications of great music coupled with great sound.

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Chris makes good points, but his analogy to price-to-perceived-value analogy is a bit misleading, IMO. Instead of cars, consider watches, which in many ways are far more analogous to high-end audio gear. If all you want to do is tell time, you can buy a Swatch for $15. You can also buy a hand-made, incredibly beautifully crafted Breuguet Classique Alarm for $35,800, an IWC Da Vinci Automatic for $47,000, an A. Lange & Sohne Datograph Flyback Chronograph for $66,300, a Vacheron Constantin Malte Tonneau Tourbillion Openworked Grand Complication Chronograph for $206,600, or a Patek Phillipe Grande Complication Perpetual Calendar Split-Second Chronograph for $241,000. By my calculations that makes the price ratio of cheap-to-expensive watches something between 2386x units-of-expenditure on the low end to 16,066x units-of-expenditure on the high side. In other words, fine watches make high-end audio pricing look sane. 
 
I'm not saying that I think high-end audio pricing is sane, BTW. (For one thing, there are too many instances in which "middlemen" are jacking up prices unreasonably. For instance, I have personal experience with a world-class stereo amplifier that sells for $29,000US in Europe and costs American consumers $40,000. That is a 38% price hike—and you don't get a single blessed thing extra for the added tariff!) What I am saying is that luxury goods are costly to produce and buy because, unlike even very expensive cars, they are often made by hand of very expensive materials in very small shops and in unusually small numbers for an even smaller market. I am also saying that, just like everything else in the good ol' free-enterprise system, goods are priced at what the market will bear. It was only a few years ago when TPV featured a 50" plasma TV (a first at the time) on its cover that cost $25,000. Just yesterday I saw a far better 50" plasma TV at Sam's Club for a little over a grand. How would you feel now if you'd bought that $25k set? There is this to be said about high-end audio pricing: If you went out tomorrow and bought, oh, a Magico V3 at $25k, you can rest assured that it's never going to drop to $1k at retail.
 
So...to me the question isn't so much a matter of economics or price ratios, it's a matter of what you get for all that extra dough. To use Anthony Michaelson's formula: Is the value of a Technical Brain TCP-1 ver.2 monoblock amp at roughly $40k-the-pair "self-evident" compared, say, to a $799 Odyssey Khartago? To which I would have to reply: "Self-evident to which 'self'?" To the mass-market buyer looking at $150 floorstanders to play back MP3s from his/her iPod Nano I rather doubt that the value of a $3k Definitive Mythos would be "self-evident." What I'm saying is that you have to have some knowledge and experience with "better" to understand when something really is better. You also have to have some interest in getting better.
 
Here, Chris and I are in agreement, though we may use different words He says exposure is key. I say knowledge, experience, interest. To my mind (and in my experience) tarring expensive gear simply because it is expensive as the problem with high-end audio is a straw man argument, generally made by people who resent the fact that they can't afford such gear and think (without having the experience of actually having heard what this stuff can do) that anything above a certain price—$150, $500, $1000, $3000, $5000, $10,000, $15,000, $20,000 (this usually depends on a person's wallet)—is automatically a rip-off or, additionally/alternatively, have so little interest in, experience of, and knowledge about high-end audio that they don't see the point of the exercise no matter how much or how little the gear costs.
 
Year in and year out, our magazine gives readers our knowledge of, shares our experiences with, and promotes interest in what is good, better, best. I think we are very good at doing this. I also think—despite the breast-beating—that we were, are, and will always be preaching mostly to the converted or pissing off the schismatics.
  
Try as we may, want as we might, high-end audio has never been mainstream. Never, ever. This is precisely why we are more like the high-end watch industry than the high-end automobile industry or even the plasma TV/home-theater industry (although even the high-end watch industry is far more mainstream than we are). We may convince a few folks to give our passion a fling—I think we can, should, and do. But it has been my experience (and it is an experience I share with virtually every audiophile I’ve ever known) that in the majority of cases the “bug” doesn’t come first from reading a magazine like ours; it comes, usually in our early teenage years, from a figurative “laying on of hands”—from going to someone house or someone’s dad’s house or very occasionally a stereo store and hearing an audio system make a magic that simply enthralls us, that imprints on us a desire to repeat and perfect that magic. This, I’m afraid, is a Grail experience that cannot be recreated virtually in words, although, God knows, we try. It is an epiphany, and you simply have to be there to have an epiphany.
 
 
The high end will survive because there will always be a small number of Grail seekers who’ve had that epiphany—passed on by someone else who’s had that epiphany. We are less like buyers of goods than members of a secret society, a sect of h-fi, complete with high priests, orthodoxies, schismatics, and doubters. Thus it has always been and thus it will always be. That’s OK. As long as we continue to refresh the little gene pool that makes us the way we are—and I see no reason why not—a small but passionate few of us will be buying high-end gear, arguing about value and prices, and in our own quasi-alchemical ways trying to make magic—trying to make the dead come back to life and the still-living show up in our listening rooms for the cost of a CD.

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Kiddo, I can't tell you the number of times I've gotten "burned out" by high-end audio--a couple of times for several years. The secret to a recovery, I think, is to step back for awhile and try to stop thinking about the whole enterprise as a matter of equipment acquisitions. The moment you allow yourself to stop wondering whether you own "the best" (or the best you can afford) is the moment you'll liberate yourself from the treadmill of high end. It isn't easy to do--I know from experience. But if you give yourself a few months to decompress and come back to your hi-fi with a determination to enjoy music rather than listen to equipment, you may find that your enthusiasm is gradually rekindled.

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 Well, I don't have any broad industry perspective to speak from, but I'll illuminate the story from a personal perspective:
 
A couple of years ago, I began the hunt for a preamp.  Initially, my target price was $5 to $6 thousand.  Last year, I changed that target to $2 to $3thousand.  Now, I'm searching CraigsList & eBay for under $1 thousand items.
 
Am I the exception rather than the rule?  I don't think so.  
 
Will this change in the near future?  It might.  But even if it does, my spending won't rise with the increase.  Instead, I'll be saving more for potential future lean times.  Again, am I the exception?  Again, I don't think so.
 
Extrapolate this to the broader picture as you wish...

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