The Limitation On Specialty AV's Next Generation Is Leverage

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For decades Baby Boomers have been the driving force behind the audiophile market, and in even greater numbers, have been the power behind the twenty-plus year boom in the world of home theater that has stretched from the rise of VHS to today's downloads and 1080p Blu-ray based systems. Much of this enthusiasm for consumer electronics was created by the incredible music made from the Summer of Love (1967 for our younger readers) which saw the best offerings from the likes of The Beatles, Led Zeppelin, The Rolling Stones, The Jimi Hendrix Experience, Motown and so many others. The Boomers stereotypically went to college or off to fight in Vietnam and in both instances learned a taste for the best in consumer electronics, be it a young American serviceman walking into a PX on a base, or a college kid walking into a record or stereo store for the first time and realizing that there was more to hi-fi than a cheapie turntable. Rolling out of the 1960's having a big stereo was a true American status symbol at a time when the economy for the most part offered the largest generation ever - the Baby Boomers - unprecedented economic opportunities in real estate, the stock market and beyond. Powered by the Baby Boomers, the specialty audio video industry boomed right along with their customers as Hippies turned into Yuppies and dotcom fortunes were made (and sometimes lost). Decade upon decade, these were good times for all parties involved.

Later in life, Boomers became quite prolific in the bearing children department. Today those children are known best as Generation Y (Gen Y) and by some reports they are actually a larger generation than the Boomers in terms of sheer numbers. Coming of age, many Gen Y'ers are now in college or just graduating to enter the workforce, so they are at that same critical period in their lives when they are ripe to be influenced for generations of AV purchases for decades to come.

Gen Y, without question, loves gadgets. Y'ers have been plugged in to some form of media including but not limited to the Internet, video games, Blackberries, iPhones and any other sort of digital distraction known to man. Generation Y is the driving force behind why over 170,000,000 Apple iPods have been sold and they absolutely love music and the convenience of having what would amount to a room full of LPs right in the palm of their hands.

But all is not perfect in the world of Generation Y when it comes to their ability to buy specialty audio-video equipment both now and into the future. Unlike their parents' generation, the economy today is both contracting and increasingly global. Jobs are as hard to find now as they have been since before World War II. While some Gen Yers have gone off to fight in Iraq and Afghanistan, there is no draft and the volume is nowhere near comparable between today's American heroes and the heroes that fought in Vietnam in the late 1960s.

The most important factor effecting the spending of Generation Y is the economy. With unemployment at over 10 percent in some historically opportunistic states like California, finding work - any work - is harder than ever for anyone other than what Gen Y's great grandparents had seen back in the 1930s. Fueling the problem is the price of college. While the rest of the world, specifically China, India and Russia, are cranking out PhD's like they grow on trees, Gen Y'ers are paying an incredible price for their higher education. At private colleges, it's not uncommon to see $4,000 per unit semester-long classes that are four unit classes. That's $12,000 for Comp 101. Another $12,000 for Econ 101. Another $12,000 for Calculus. What's is a kid to do if his parent's aren't flush with the $150,000 it costs to go to a private university or the $50,000 it can cost to go to a state school? Even transferring units from a low-cost community college often leads to the need to borrow money. And when I speak of borrowing money I am not talking about the kind of money you can pay off with a part-time job. This is major debt.

A family member of mine is an older Gen Yer who took five years to graduate from undergraduate program at a well regarded Southern California Catholic college. His first two years were at a lower cost state school. His third year was spent studying business in Spain where he became fluent in Spanish. He finished his education at a private school and when all was said and done, complete with loan consolidation and some deferments of interest, he has over $750 per month in low-interest student loan debt. He has worked for a major hotel chain for four years now, having received two promotions that now yield him a $52,000 a year salary. You could argue this isn't bad for a 27 year old by national standards, but factor in rent, insurance and student loan payments and you have a young man basically fighting to stay financially afloat. He has taken on a second job at a restaurant on the weekends and will be moving in with a roommate in a month to cut his costs. He worries about his 10 year old car failing. And he doesn't spend on AV gear despite the fact he absolutely loves it. In fact, in an unthinkable move for any Generation Yer - he doesn't even have high speed Internet access, pay cable or any other of the new media trimmings that do define his Generation. He's more worried about making his monthly nut in these troubled economic times. You gotta respect his responsibility, but as an AV enthusiast you'd like to see him dragging home an Anthem preamp or some Canton speakers every once and a while with his extra cash. Instead, he services the debt on his undergraduate degree and dreams of possibly saving money for a condo.

Nobody should feel bad for this young man. He is a hard worker who will do what it takes to be successful. He knows he lives is in an expensive market and that with the sun and freeway traffic comes a high cost of living. What is worrisome is that his love of Blu-ray, Xbox and all things HD translates into no sales of specialty AV gear. By 27, Boomers already had their bad-ass stereo systems. They had a muscle car in the garage. Many were married and millions owned homes. Home owners buy HDTVs. Home owners buy speakers. Home owners buy HDMI receivers, media servers, Apple TV, universal remotes and much more. For many Gen Yers heading out into the real world, the idea of just getting a job is tough enough. Paying their debt for their education is the next challenge. Home ownership seems like a distant dream which should be taken as nothing short of a nightmare for the specialty AV business. Buying low-cost HDTVs at Wal-mart is one thing, but the specialty AV business offers value added entertainment systems - yet millions of the largest generation ever are too leveraged to afford the beaming home theater system currently up for sale.

Despite what the cable news networks will have you believe (assuming you watch as many talking heads on TV as I do) - all things are not quite as bleak as they seem. A noted money manager at Wells Fargo in Connecticut pointed out that historically the S&P 500 index of stocks rebounds an average of 48 percent from the "bottom" of a recessionary economy in the next 365 days. Assuming we have hit bottom and this fragile economy doesn't feel the need to test the bottom again, and that we can inspire people (especially these young adults) to invest even pennies in the market, there are gains to be had. Ed Stadlen, the former head of domestic sales for Mark Levinson makes another strong argument for optimism in the specialty AV market related to the iPod. Ed says "The Apple iPod is to Generation Y what the transistor radio was to Baby Boomers" and he is spot on. Classic AM transistor radios are far from what anyone would call audiophile quality but the music being played for Boomers through their childhood was the foundation of their decades-long love of music. Even with the best ripping practices, I wouldn't call an iPod an audiophile source, but its ability to make millions of young people learn to love music in new ways is a beam of light in a world where the outlook often looks dark.

Much as my wife and I try to help teach our family member about personal finance, Boomers and Gen Xers would be well suited to note that the stock market doesn't always stay down. Recessions and even depressions don't last for an eternity, although they do require creative and hard working solutions so that young people can own their piece of the American dream. And in my dream: this vastly populated generation in the coming decades will wire their homes with the best the specialty AV products the business has to offer. Their love of all things HD, music from the iPod, a pending recovery on Wall Street, soon to be available affordable yet responsible home loans, ultra-low home prices and the need for a family home for millions of Generation Y'ers paints a prettier picture than the nightly news.

Keywords: Generation Y struggles to buy specialty consumer electronics, Gen Y loves home theater, Gen Y is straddled with student load debt, Baby Boomers powered the audiophile and home theater market, Gen Y and the S&P 500 index, Apple's iPod is the new transistor radio for Generation Y, Generation Y looking to buy homes, the cost of student loans for Generation Y keeps then from buying specialty audiophile and home theater electronics.


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