BusinessWeek has an article in this week's issue titled, "The Crisp, Clear Sound of Rising Profits" [registration req'd] on B&O's recent uptick in business. After years of stagnation, the company is rolling out dozens of new initiatives in high end audio systems for exclusive automobiles, yachts, and penthouse suites at the MGM Grand in Las Vegas.
That's all well and good, but those are relatively small markets with high investment required to enter. In other words, they're brand-building activities, not core products. Bose and Harman are exceptions: they make real money in their auto divisions because they've built the business over the past decade(s) across multiple auto product lines. High end brands like McIntosh and Linn who are offering systems in cars as expensive options (or for cars with limited production runs) is at best a break-even marketing expense. Linn has even admitted as much.
Product innovation is given some ink: a $1,600 PVR is on the way, and the company's BeoLab 5 speakers have been critically well received (I haven't auditioned them) - no word on sales figures, though. The problem here is simple: B&O products have tended to be high priced art pieces. There's nothing wrong with selling art, except when they're supposed to make music, too. The expensive B&O products I've heard have sounded terrible. The new CEO admits as much, calling it "a gap between our image and our performance... the 'pretty-face syndrome.'"
It will take more than a new product or two to change my impression (and the company's home theater loudspeakers appear to be based on older B&O designs). What's worse is that the high end of audio is moving away from spending tens of thousands of dollars on top flight design to spending hundreds of dollars on top flight design ...from Apple. Bose had the right idea when it put together a $300 iPod speaker dock -- as long as they understand that it obviates the need for any of their standalone products. Home theater systems are safe, for now, because their purpose is video, not music. While B&O offers speakers that can be sold for home theater use, it doesn't sell packaged home theater systems in the $2,000 - $3,000 range like Bose does. Custom installers selling higher priced gear are looking for audiophile performance or invisible in-wall options -- not B&O style art pieces.
So where are the profits coming from? Clues come later in the article: lower expenses. Roughly a third of the company's employees were laid off, and dozens of stores were closed. The company is planning to moved some production out of Denmark and over to Eastern Europe.
That's good operations management, but not a strategy. I seriously question B&O's product development priorities. I would expect them to capitalize on what's left of the brand and attack Bose in mid-priced packaged systems, move into custom installation in a big way, or both. Why why why an overpriced PVR? It had better absolutely set the world on fire because it's competing amongst a sea of struggling PVR vendors, not to mention Microsoft and cable operators. In the meantime, the iPod is melting away the design-oriented audio business.
-avi
Comments