Speakercraft Becomes First iPad Audio System Licensee, Launches Music Systems for Mass Retailers

Apple’s iPod and iPad have been central to changes in the custom industry, from the way consumers listen to music to the way they control home automation systems, Burkhardt said, and the changes are happening fast. He said the custom market is under siege by new, less expensive technologies. “How quick did it take our industry to give up on control panels as soon as a competitive iPad came out?” he asked. In light of the falloff in business from the drop in new housing starts, Burkhardt said Speakercraft “got lucky” by making the first licensing agreement for integrated amplifiers and complete audio systems that work with an iPad. The largest expense for his company, owned by Nortek, is R&D, Burkhardt said, “so that’s how a little company like Speakercraft can get the first iPad system."

The retail-bound Flobox and Vital iPod systems are due to ship to PRO Group dealers and Magnolia stores this year. “I believe there will be a few other mass-market retailers that will want to be a part of this, but this isn’t going to affect our dealers,” Burkhardt said. “It’s a different market.” Integrators might sell three a month, while a mass merchant will move thousands, he added. More sophisticated products like the upcoming NIRV control system, will remain exclusive to the custom channel, Burkhardt said. He said mass merchants were involved in the design of the NIRV product, but “we don’t think they have what it takes to sell it, due to employee turnover.” Magnolia is aggressively “getting its stuff together” to be able to sell the product, Burkhardt said, and Speakercraft will stay with “higher end” mass market and not sell through chains like Wal-Mart or Target. The retail products won’t be sold direct, he said.

Burkhardt envisions the iPad systems as the beginning of a larger push into retail including both self-contained systems and speakers that require installation. “If you look at the housing market, I think the remodel market is going to be OK,” he said, “but it’s not going to sustain a company like Speakercraft and many of the people here unless we change our business models.” He said the company needs to be in retail “to survive” and six models of architectural speakers are also being sold through Magnolia. Asked about concerns over discounting, Burkhardt said the company has an aggressive Minimum Advertised Pricing policy and dealers that don’t obey it “are busted.” If the new products sell for less than retail, “it won’t be because they were advertised,” he said.

The move to retail is not an insignificant shift, Burkhardt said, noting that Speakercraft has been a high-end company selling to customers with $100,000 annual income and homes measuring more than 4,000 square feet. “We think there’s more growth to be captured on the mass level of consumers than there is on the high-end level,” he said, “so we're focusing on expanding our products to that demographic. But we're also going downstream with products that will be more mass-market and easily accessible.” The Flobox products range from $399 for a mini sound system with alarm clock function to $999 for a box that adds a CD player and higher quality speakers. The Vital 250 integrated amplifier with digital-to-analog conversion, will retail for $699, the company said. The Vital 250 is for multiple listeners, said David Donald, vice president of marketing. He said the company is on a campaign to educate younger music lovers about high-quality audio.

Burkhardt said he expects attendance to be down at this year’s CEDIA Expo, because of dealers’ having gone out of business. Speakercraft has had more than 15 percent dealer attrition total the past two years, he said. “That’s really concerning for us. As others go out of business we need to give our talent pool of dealers something to sell.” Burkhardt expects dealer pushback on the new systems, but the company is emphasizing the music systems’ ability to talk to a main networked audio/video system as a differentiator. “I know that kids in the homes we sell to want music in their rooms, and if they're lucky they get a volume control and cheap in-ceiling speakers.” He expects the Flobox system, with inputs and colors, to resonate with the younger market. “I think you'll see hundreds of thousands of these things sold,” Burkhardt said.

Dealers have no choice but to change their market to add customers, Burkhardt said. “I see a lot of them stuck doing the same thing year after year, and if they don’t change the way they perceive audio, they're not going to be here.” Speakercraft isn’t stopping with the iPod. The company hopes to have a Droid solution within a month and versions for BlackBerry and HTC phones down the road. “We believe your personal audio delivery device should work with everything you have in your audio/video system,” he said.

Burkhardt said Speakercraft was the largest in-wall speaker company during the building boom, “but we had to adjust. … The industry is changing very fast. Three years from now, if dealers haven’t accepted and embraced these types of technologies, there’s going to be a high-end part of the market that will be around, but the middle is going to get sucked out and go away.”