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Testing…1, 2, 3. It’s time to check in on how pro audio manufacturers are doing. The definition of pro audio is always hard. And better yet, should it be called professional audio anymore? Anybody with a little money and a dream can purchase pro audio products these days. Well, that’s probably an argument for another time.
To find out how the pro audio market is handling tough times, we called upon Lynn Martin of American Music & Sound; Nial McGaughey of Solid Cables, Ty Schultz of Blue Microphones; and Greg Heil of Heil Sound to give us their take on the industry. Let’s see what they had to say.
The Music & Sound Retailer: In what ways has the brutal economy affected you as a manufacturer?
Martin: As a distributor we do what we need to in order to mitigate the slowdown in business for our manufacturers. As sales have slowed in certain sectors we have had a bump in certain inventories. We’ve certainly seen the largest slowdown in the MI retail sector. The good news for us is that we are still growing year-on-year as a result of new businesses. The other good bit of news is that the install market is maintaining revenues for us.
Heil: In this economy, we have found that the consumers are looking for good quality at a better price, which has been the basis for all of Heil Sound products since the beginning. We are fortunate in that if someone needs a microphone, they will buy a microphone. With that in mind, we have been able to adapt and react to those consumers’ desires much faster than many of our larger competitors.
McGaughey: In the short term, it has forced us to cut back on overhead in order to remain profitable. That’s the down side. The upside is that we have been forced to do two things: 1. Innovate! Our product and our outreach to customers and dealers has been upgraded, and updated. It keeps us fresh, and I think invigorates us. 2. Focus. Focus, focus on the things that matter most to us: getting quality music gear into players’ hands and providing what musical instruments do best: positively affect emotions. This is the core of why we are in this great industry to begin with, and it has helped guide all of our decisions from day one.
Schultz: The economy has dramatically affected manufacturers along three key dimensions: Sourcing: Parts manufacturers are now demanding upfront payment of up to 50 percent for many components. This is an increase from what was previously 30-day payment terms. Persistence of this phenomenon ultimately creates a substantial working capital issue because it requires so much cash upfront to support the business and is especially problematic for a growing company.
Financing: Cash-flow based financing for small-to-medium-sized companies has virtually disappeared. In the short-term this is not a major problem; however, as upfront cash requirements increase, lack of financing sources dramatically reduces growth potential.
Buyer behavior: All buyers now take a much more discerning look at products and their assortment because everyone is competing for reduced open-to-buy dollars. Right now, having a quality product (or assortment of products) is the key to success. Also, buyers are much less willing to “bet big” by loading in new SKUs—many more saying “let’s put this in on a limited basis and see how fast it moves.”
The Music & Sound Retailer: As an industry as a whole, how has pro audio held up?
McGaughey: From my perspective, pro audio is very volatile at the moment, manufacturers are morphing and changing hands. Product quality seems to be much more of a customer priority than simply price point. As a customer, there are some really amazing deals on extremely good gear out there right now. This really is the best time to be making music, and I think most people know that. Sales are soft, but they aren’t going away completely. The revenue stream changes origin. You just have to find the source.
Schultz: Pro audio as a whole has been feeling the downturn for the last 12 months, but the final outcome may not be known for another 12 to 24 months. We have seen challenged manufacturers taking prudent steps (e.g., reducing staff, stretching payables and deeply discounting), but that can’t last forever. This environment is not one that will be kind to companies with thin balance sheets or cash sources.
Heil: From our vantage point it seems to be holding up better than many of the “mainstream” industries are.
Martin: Our business has always seemed to be a bit more recession resilient than many. The climate is the worst I’ve seen but we’re weathering the storm pretty well.
 The Music & Sound Retailer: What new technologies do you think could make an impact on the market and why?
Heil: Consumers are looking for the best value in a product and new, yet practical and useful technologies jump out at them immediately. Heil Sound is always developing new and improved technologies for our large diaphragm mics. Two of our products developed this year have a patent pending. You can’t put a halt to innovation just because the economy is bad.
Schultz: Products that look to the FUTURE, not the past, will continue to make inroads. The same way that people’s consumption of music is changing, so is the way music is being made, both in the live arena and in recording. If consumers want a retread they will progressively move to eBay and other less expensive sources for their products. When cash is tight, only the new and most differentiating products will merit consideration.
McGaughey: There are several things that are on the horizon. I think computer virtualization of “things” is the biggest single innovation that will peak in the next five years. For example, who wouldn’t want a modeled Neumann mic into a Neve preamp on their iPhone portable studio? I think the laptop as a platform will disappear and be replaced by virtualized environments that are hardware independent. The next is the trickle down of premium technology. Lastly, focus on customization and individualization of products to drive sales.
Martin: The ongoing integration of PCs, firmware, and software will continue to provide opportunities and challenges. Making sure our product offerings remain relevant to the changing environment presents both the challenge and the opportunities.
The Music & Sound Retailer: Are you optimistic, cautiously optimistic, or pessimistic about the future of the industry and why?
Schultz: Honestly, we are tremendously optimistic. Fifteen years ago we set out to build the best microphones on the planet that combined the best of the old with the best of the new. We’ve achieved that goal, and we are being recognized for it. It wasn’t until recently that we have had the resources to begin to tell this story and the growth of our company suggests to me that there is a very good story to tell.
McGaughey: I’m totally optimistic about the industry. Why? There are a lot of very smart and very passionate people in this field, and hard times call for revolution and innovation. They always have. This isn’t about selling socks and toothpaste. This is about inspiring artistry and dreams, and we get to work with such incredibly cool and talented people. That’s the fun part! We will get through this, and be better for it.
Martin: I’m generally optimistic. Our business is doing just fine under the circumstances and will continue to grow as time goes on. The economy is going to have challenges but the increase in government spending will result in budgets for pro audio in a variety of sectors.
Heil: We are very optimistic about our new product lines for 2009 and beyond.
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