Russound Charts New Path Toward Integration, Cloud-Based Content Services

"Russound has been the number one brand in multiroom audio for the past two years,” said Charlie Porritt, its CEO, “but if we stay specific, the size of the market share that we can have is not where we want it to be. We need to grow, and the way to do that is to move into lighting, thermostat control -- whether ours or somebody else’s -- security control and everything else.” The company cited CEA figures for 2008-2009 showing a falloff in multiroom audio sales of 27 percent and a drop of 18 percent for home automation resulting from a 35 percent decline in residential construction.

The idea of “being complete in systems integration” isn’t new for Russound, which has been trying to break into the integration business for five years, Porritt said, but its lack of homespun patents has held the company back. “Getting into the lighting business by itself isn’t friendly unless you have a patent portfolio,” he said, saying “a nice patent portfolio” came along with the Colorado vNet purchase in the fall. He said lighting control companies Lutron and Leviton have hundreds of lighting patents each.

While home automation has suffered declines over the past few years, the rise of more-affordable home control solutions driven by Zigbee technology and IP-based systems has eased the revenue hit on residential automation systems, said Petro Shimonishi, vice president of sales and marketing for the Colorado vNet and Russound brands. Russound’s planned strategies center on IP-based control technologies that can be retrofitted into existing homes and that integrate audio and automation. According to CEA figures, integrators predict an 8.5 percent increase in revenue on average from home automation in 2010, and 84 percent of installers surveyed plan to explore energy management and home automation as new business opportunities, Shimonishi said. Further, 94 percent of multiroom audio systems sold last year were combined with at least one other subsystem, she said. “Our customers are starting to tie systems together because the end-user wants that,” she said. “The homeowner doesn’t want a multitude of controllers on the wall.”

Since buying Colorado vNet, Russound has been reshaping distribution for both brands, the acquisition remaining direct dealer-based and the other continuing in a distributor-based model. There’s very little overlap of Russound and Colorado vNet dealers in the U.S., according to Shimonishi, who said Colorado vNet dealers are a mix of home automation installers that position Colorado vNet as an entry-level system under Crestron or that are just getting into the business. Russound remains a mass-customization brand with an audio focus, moving toward the retrofit market. Russound trimmed its distribution roster this month, weeding out some regional distributors before signing a deal with AVAD for nationwide distribution several weeks ago.

Russound’s association with AVAD beefs up the higher end CEDIA-type segment of its dealer base, according to marketing director Rich Guida, and distributor ADI continues to handle the security dealer segment for the line. “We were thinly spread and some said over-distributed,” he said, “so we've partnered with AVAD which is focused on higher end dealers.” Guida said the company is contacting the distribution base to explain that the move to AVAD “will benefit everybody in the long run.” Unauthorized Internet sales and pricing pressure started to affect the line, Guida said, “and by dealing with larger distributors with a formal program in place to protect pricing, we can make sure that doesn’t happen.” Some of the dealers that Russound let go “had issues managing that end of their business and that became problematic for us,” he said. With AVAD lined up, “There’s not going to be as much competition with pricing and margins,” he said. Russound also has distribution in 40 countries and sells through to 87 countries around the world.

Russound is working on building its direct-dealer base on the Colorado vNet side, according to Shimonishi. Colorado vNet has about 350 active dealers in the U.S. and has added about 75 dealers this year. The vNet line is also distributed to Canada, Mexico, South America, the Caribbean, Australia and Taiwan. Colorado vNet hasn’t cracked the European market because the product wasn’t Conformite Europeenne-certified at first, but the approval is in the works, Shimonishi said.

Both product lines are being tweaked to take advantage of the company’s technologies, Russound said. Colorado vNet starter packages have been retooled to integrate with Russound’s A-Bus distributed audio/video system. Shimonishi envisions adding RF lighting control to the Russound Collage keypad to give dealers a complete retrofit package, but the company is focusing on Collage and its future feature set first. “It’s possible you'll see a differentiated Collage system offered from Colorado vNet to Colorado vNet authorized dealers in the future,” she said, “but we're still in discussions on the timing of that.” Business operations are also integrating where it makes sense. Engineering and technical support for the Colorado vNet brand will remain in Loveland, Colo. Training, customer support, accounting and shipping for both brands will be handled in New Hampshire.

Russound will stress meeting the needs of a networked customer base that accesses content rather than collects it, said Michael Stein, senior director of research and technology. Although Russound will continue to offer bridge products to legacy audio components, Stein said the company will support consumers “who want their content wherever they are.” In five years, he said, “we'll be selecting music by saying, ’soft jazz,’ whether we're listening in the car, the living room or over headphones.” Many content services will be free, Stein said, “and we need to tie into that ecosystem.” Russound’s road to the future starts with the Collage system, an IP-based system that will transition to the software and services-based future. The 10-zone, multiroom audio and intercom system connects to Rhapsody and other cloud-based music services and works over the current power lines.

Collage has had a slow start since it began shipping in February, said Product Manager Walt Zerbe. “It’s not going as well as we would like, because dealers haven’t taken the time to understand the value of the system,” he said. A Collage system with a price of $800 a room for an amplified keypad and controller is less than a traditional Russound system combining a $1,500 controller and $200 keypad. Russound’s strategy was to simplify the product, installation and programming, so dealers could get in and out of installations quickly and sell more systems per month. Since the system runs over power lines, it doesn’t require new wiring and taps off a room’s light switch for power, making it well suited to retrofit projects.

Having experienced resistance from dealers over an unfamiliar business model, the company is on an education campaign to have dealers see business in a new way. “The market is down, business is going into other areas that are not natural to dealers and retrofit projects are different from the new construction business integrators are used to,” Zerbe said. “The traditional market has completely dried up,” he said. The company has a webinar to help dealers understand the new business model while reinforcing that 90 percent of business today comes from retrofit and only 10 percent from new construction. With 5 million existing homes expected to sell in 2010, there’s a huge retrofit opportunity for dealers compared with projected new housing starts of 300,000, Zerbe said. What used to take nine days to sell, pre-wire, install and program can now be done in three days in more cookie-cutter fashion.

Profitability is a concern in the new services-based world, Shimonishi acknowledged. “We've been asking ourselves and dealers are asking us,” how margins fit into the picture, she said. “As an industry we're trying to figure that out. There’s a lot of concern.” She added that when markets evolve, creativity and innovation emerge. “I'm certain with the brains and talents we have between the two campuses, we're going to come up with something that no one’s ever thought of.” Meanwhile, she said, manufacturers in the industry need to share technologies and expertise through partnerships. “The days of the walled garden and products not working together are completely over,” she said. “We're going to be aggressively expanding our partnerships on the integration and technology sides.”