Headphones continue to be one of the few bright spots for the U.S. audio market ... or for the CE accessory market, depending on which product segment you think they belong in. While it's easy to view a pair of cheap airbuds as an accessory to your iPhone, some will argue that a $300-plus set of premium, audiophile over-the-ear headphones is clearly an audio product and not just an accessory to a portable music player.
Regardless of how one chooses to categorize them, the headphone business continues to grow. U.S. headphone revenue grew to an estimated $2.2 billion in 2015 from $1.7 billion a year earlier, according to Consumer Technology Association (CTA) data. In comparison, total U.S. audio technology revenue dipped to $7.5 billion from $7.7 billion, with Bluetooth-enabled speakers and soundbars among the few audio products seeing much growth last year.
Many manufacturers continue to try and take advantage of that headphone sales growth, which the CTA projected will increase to $2.5 billion this year. However, Beats by Dr. Dre from Beats Electronics continued to dominate the headphone market last year in the U.S., with few rivals managing to even scrape up a double-digit market share in any of the three most significant headphone categories (in terms of revenue): Bluetooth, fitness, and premium ($100-plus models), according to research firm NPD.
Beats led in total headphone sales in the U.S. last year, with a 32 percent revenue share, said NPD analyst Ben Arnold. Bose was the only other brand to have a double-digit share, at just 11 percent. LG was third at nine percent.
In Bluetooth headphones, Beats accounted for a whopping 46 percent of revenue in the U.S. last year, with only LG managing a similar double-digit share at 22 percent, said Arnold. JayBird was third, with a five percent share. In fitness headphones, Beats had a huge 49 percent share, with JayBird far behind at nine percent and Yurbuds at eight percent.
Beats had its most dominant share in the premium headphone category, at 60 percent. Only Bose managed a double-digit share there, with 20 percent, followed by LG at only six percent, said NPD.
There's clear evidence of the dominance of Beats in the headphone category if one surveys just how many young consumers (or at least the kids of adult consumers who can afford to buy them) are walking around with that company's headphones. For many of them, Beats headphones have become a status symbol to show off to their friends, due in part to the widely known higher price tag that they carry, much like high-priced clothing and pocketbooks. Rapper Dr. Dre's association with the headphones plays a key role.
However, one wouldn't have seen much evidence of the Beats headphone dominance at CES in January. The company didn't have a booth at the show and didn't announce any new headphones in the first two months of this year. It didn't respond to a request for comment about its 2016 product plans.
Several headphones were showcased by other headphone makers at CES, including some that were shown for the first time publicly. Not surprisingly, many of the models were in the premium segment of the market and--in the case of two standout models--were priced much higher than Beats headphones and targeted at audiophile customers instead of youngsters, who tend to be more interested in status and brand than quality sound.
HiFiMAN gave show attendees a sneak peak at a prototype of its new high-end electrostatic headphone, the Shangri-La. (See our CES 2016 Show Report and Photo Slideshow for more details.) The company also demoed its $1,799 Edition X planar headphone and its first on-ear design, the more affordable $249 Edition S.
The Shangri-La is "the most important product" from HiFiMAN this year, said Fang Bian, HiFiMAN founder and president, by email, telling us that it will be his company's new flagship model when it ships in the first half of this year.
For those who think Beats headphones tend to be costly, just wait until you get a load of Shangri-La's price tag. "Shangri-La will ultimately take two forms," with and without an amplifier, said Bian. "Because the headphone is coming along faster than the amplifier, it will be launched by itself in the coming months," he said. Although the price wasn't set yet, it will probably cost about $10,000.
That's "crazy expensive," said David Wasserman, owner of New York home theater retail store Stereo Exchange, in a phone interview. But they sound "fantastic," and he's considering adding the Shangri-La to the headphone offerings at the store. For now, Audeze represents his best-selling headphones in revenue, while Grado is number one in units.
"A long list of retailers will sell them," Bian said of the Shangri-La, without naming any of the dealers. Although the Shangri-La's pricing may be too high for it to have much of an impact on premium headphone market share, HiFiMAN's headphone revenue has been growing since the company was founded in 2007, and its high-end models represent "the engine for our quick growth," said Bian. The company's headphone market share is still "relatively small," he admitted, telling us that HiFiMAN needs to "work harder on consumer grade" headphones in the on-ear and in-ear segments to improve its total headphone share.
When asked what companies he saw as HiFiMAN's main competition, Bian didn't even name Beats, citing instead "audiophile headphone manufacturers" including AKG, Audio-Technica, Beyerdynamic, Grado, and Sennheiser.
Similarly, Dean Miller, CEO and president of Lenbrook Americas, said he didn't see Beats as a "direct competitor" for his company's PSB- and NAD-branded headphones. Direct rivals that he named instead were Audeze, B&W, Grado, Klipsch, and Sennheiser. That's despite the "dominant market share" that Beats has in headphone revenue and that Skullcandy has in headphone unit sales, he said. The focus of Lenbrook's headphones is on "performance and sound quality," said Miller. Lenbrook had only a small market share in 2014, and its 2015 share was "less small," he said without elaborating. What should help is its growing distribution. Lenbrook recently added Magnolia Audio Video to its retail accounts and also authorized six dealers to sell its headphones via the Amazon Marketplace.
Lenbrook's top-selling headphones continued to be its first and most expensive model, the $299 PSB M4U 2 active noise-cancelling model. Although the company didn't introduce any new headphones at CES, we can expect to see Bluetooth versions of its headphones this fall, Miller said.
The M4U 2 is the best-selling headphone model at The Little Guys, said David Wexler, co-owner of that Mokena, Illinos, retailer. That model "creates a speaker-like listening experience as opposed to a typical headphone experience," he said. "Aggressive pricing" also keep them under $400, he said.
Sennheiser's New Orpheus
Sennheiser first introduced the audiophile Orpheus headphones in 1991 and manufactured only 300 of them, charging a whopping $12,900 initially. The company now plans to ship a new version of the Orpheus this summer at an even more whopping $54,429 (or so).�
The new electrostatic headphone system was first shown by Sennheiser in October at a news briefing for reporters in London. It was then touted by the company at CES, where the headphones were named an Innovation Awards winner. They "sound unbelievable," but "I don't know if I can sell any," said Stereo Exchange's Wasserman, telling us he didn't plan on selling them at his store unless he could get them on consignment.
It seems unlikely that those flagship headphones from HiFiMAN and Sennheiser will have a significant impact on total headphone sales this year. But the good news is that those two manufacturers have seen reasonably strong volume sales on their less expensive models.
Audio-Technica and Monster, meanwhile, were among several headphone companies that touted new models at CES that won't exactly break anybody's bank. Monster continues to try and become a major player again in the product category, a position that it has lacked since its pact with Beats ended a few years ago. The company has focused on several celebrity-endorsement and co-branding deals to try and once again grow its headphone share. One example at CES was the $99.95 adidas Sport adistar Bluetooth in-ear model targeted at the fitness market--specifically runners and cross trainers.
At a CES news briefing that was surprisingly missing much in the way of celebrity appearances (unlike prior years), Monster CEO Noel Lee also touted a new Elements line of Bluetooth headphones, including over-ear versions at $349.95 and on-ear models at $249.95 in multiple colors. Their design and pricing, combined with Lee's statement that they were designed for consumers "who want to make an impression, enjoy their favorite music without compromise, and exude a confidence and style embraced by top athletes, DJs, and musicians," signaled that the headphones are targeted at a similar demographic as Beats.
Excelling in Noise-Cancelling Models
Audio-Technica bowed several headphones at CES, starting with the $299.95 ATH-MSR7NC, which expanded its ATH-MSR7 high-resolution audio headphones (reviewed here) to include noise-cancelling technology, Greg Pinto, U.S. vice president-consumer markets, told us by email. Although Audio-Technica has been number one in headphone market share in Japan for seven years, it has fared best with noise-cancelling models in the U.S., he said.
Also new from Audio-Technica are the ATH-SR5 (shown above at CES) and $199.95 Bluetooth wireless ATH-SR5BT on-ear headphones. The BT version features Qualcomm's AptX technology that Pinto said allows the headphones to deliver "CD-like wireless audio quality."
Audio-Technica's "market share position in the U.S. has advanced nicely over the past few years," said Pinto, but he didn't elaborate. "The difficulty has been finding placement in an environment where customers can try our products and we can win them over," he said. "The headphone market is crowded with over 350 brands competing for shelf space. A retail buyer is inundated with choices, making it difficult to filter out marketing spin from reality when selecting an assortment that will satisfy the needs of their customers," he said. To fight that, Audio-Technica has "created small-footprint, modular displays" for stores "to help get the message of quality audio into the consumer's hands." The company's QuietPoint active noise-cancelling line had "another year of growth" in 2015, "driven by increased retail placement," he said, predicting that "will continue in 2016 with the addition of major national and regional retailers" that he didn't name.
Audio-Technica is focused on taking advantage of growing demand for Bluetooth technology, said Pinto. Bluetooth has "exploded over the past two years," he said, predicting that "combining this trend with hi-res audio functionality and superb aesthetics will place more Audio-Technica headphones on more ears across the country."
Different Strokes for Different Folks
Although Wasserman said he had no desire to carry Beats headphones at Stereo Exchange, other retailers are perfectly happy to take advantage of their huge popularity, whether their sound quality pales in comparison to more traditional audiophile brands or not.
Electronic Express, which has 16 locations in Tennessee and another store in Decatur, Alabama, had "great success" with Beats in-ear and over-ear headphones, as well as Bose noise cancelling and Bluetooth headphones in the fourth quarter of 2015, said Simon Sedek, that retailer's senior buyer. The Beats and Bose models were its top revenue-generating headphones in that high-volume period, while Skullcandy in-ear and JBL over-ear were its best-selling headphones in units, he said.
At the end of the day, the big question is, are any of the headphone makers we've discussed well-positioned to mount a major challenge to the dominance of Beats in the U.S. when it comes to total headphone revenue? It doesn't seem so. There are just too many players in the category with similar products, and none of them are in striking distance to Beats.
Looking at the market-share numbers, only Bose seems to be in any position to get close to Beats in the premium sector of the market, but Beats is so far ahead it would seem that only a significant change--such as the introduction of a revolutionary premium model or a major misstep by Beats--would enable Bose to catch up. The familiarity that many consumers have with the Skullcandy brand, combined with its mass distribution at national retail stores and regional CE dealers, could make it a more significant player in the premium market down the road--if it mounted a major effort to achieve that. For Monster and the other headphone makers, it will likely take at least one revolutionary product that's semi-affordable to a large number of consumers and much wider distribution to make major gains in the premium headphone market.
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