Sony Tightens ES-Series Distribution Policy, Bars Online ES Sales

BEVERLY HILLS -— At a time when other mid-level audio companies are broadening distribution to boost revenues, Sony is tightening distribution on its high-end ES-series line by limiting product to specialty AV and custom installation dealers who can demonstrate the benefits of the advanced-feature products and provide the education and installation expertise to get the most out of those features, it said. At the launch of Sony’s 2010 ES line last week, Brian Siegel, vice president of the company’s home audio and video group, told reporters that the company has a responsibility to specialty dealers, enthusiasts and shareholders to use the ES line to create new opportunities in a challenging environment.

As a founding member of CEDIA, Sony has an obligation to address a “challenging business environment” for the enthusiast and specialist channel, Siegel said. “We believe 3D allows us to create new market opportunities in addition to developing new products and technologies.” The ES line “is the jewel in the crown of the Sony home AV business,” Siegel said, adding that its legacy of innovation as a launching pad for various technologies including SACD, DVD and Blu-ray mega changers has given it a prominent status in the past. The company moved away from that specialty positioning in the past few years, distributing the ES line to mass merchants and online.

Under the new strategy, “no transactional business” of the ES line will be allowed over the Internet by authorized dealers, a policy Siegel said the company will strictly enforce. The policy extends to Sonystyle.com as well. “We've shut down tens of thousands of unauthorized dealers in the past several years and we're going to get more aggressive,” Siegel said. The company is also abandoning its SURE unilateral pricing policy for the ES series dealers and reverting to MAP pricing, which Sony described as less rigid and better suited to the lower volume, value-add specialty channel.

"ES has been in the last few years widely distributed and available at many national accounts,” Siegel said, including over the Internet, where unilateral pricing is more appropriate for high-volume retailers. It hasn’t been popular with specialty retailers who want the flexibility to price product within a system solution. “These are entrepreneurs who know how to manage their business better than Sony and we want to allow them that flexibility to manage their business,” said Jonathan Lin, Sony business unit manager for integrated products. Siegel added, “These are not hardware sales people. They sell an experience. On their bill of sale, the SURE program was too rigid to allow them to be able to demonstrate the total value they provide."

The distribution and pricing structure changes are the business side of changes in the ES line. The company said it’s supporting those moves on the product side as well and has responded to dealers’ requests for more compelling features and programs geared toward the custom market. In addition to a five-year limited warranty, Sony has put in place a 90-day advanced exchange policy for integrators. “If there’s any product failure on a job site,” Siegel said, “our ability to turn around a product for installers is faster than any other manufacturer’s out there.” That turnaround period is typically 24 hours, he said.

The 2010 ES receiver line includes three models ranging from $1,000 to $2,000. All include 7.1 channels, HDMI pass-through, an integrated four-port Ethernet switch on the back panel, a DLNA client, Shout cast Internet radio and Rhapsody, HDMI 1.4 with an audio return channel, 3D pass-through, and integrated iPhone and iPad apps that are said to be more integrated that previous versions. The receivers include system integration with Control4, AMX, Crestron, Élan, Universal Remote Control and Savant control systems as well as multi-room technology. “We believe multi-room will help to create new markets, and ES receivers are a big step in the direction of providing a multi-room experience,” Siegel said.

Extracting more user benefit from the receivers is important for re-establishing Sony as an innovator, too, he said. “What’s important isn’t just what they are but what they can be,” he said, noting that the technology incorporated in full-featured products ends up languishing if not demonstrated to consumers properly or installed in a way that makes use of the advanced features.

The 2010 ES line also includes a $399 3D-capable Blu-ray player with built-in Wi-Fi with protected setup, a Gracenote-powered database browser and rear-panel IR input jack. All new ES product will start shipping in August, with the high-end STR-DS5600ES receiver due in September. The no-Internet sales policy is in effect now, although current 2009 product will continue to be sold via the Internet while inventories last.

Retailers we canvassed about the ES changes said they were cautiously optimistic about Sony’s avowed renewed commitment to the specialty channel. “I see it as a positive,” said Bjorn Dybdahl, president of Bjorn’s in San Antonio, who said product will be key to making the limited distribution strategy work. Dybdahl said he applauded new ES audio/video receiver features including HDMI pass-through, the audio return channel and Control4 support. He welcomed the move to MAP pricing, saying it put independent dealers on an even footing with discounters pricing wise, but that “it still comes down to the product. If the product is right, it'll do well. If it’s not, it'll be like other recent ES products: not overly exciting."

David Workman, executive director of the PRO Buying Group, sees the move to MAP pricing as a good move for the group’s dealers, he said. “I've always felt that unilateral minimum pricing is a poor substitute for an effective distribution strategy,” Workman said. “SURE pricing can be very restrictive in that it’s very difficult to substantiate a product that has no method of discounting in competition to other brands that do. That product has to be extremely special or unique for it to hold its pricing strategy,” which dealers have noted hasn’t been the case in recent ES product. “Traditionally, the SURE structure has taken the markdown strategies into the hands of the manufacturers, and unfortunately, the manufacturers tend not to be as responsive to the market as the market is to the market,” he said. SURE, he said, is a patchwork solution to a “less-than-complete” distribution strategy.

Regarding the new line, Workman said it’s competitive, citing a “tremendous” feature complement including HDMI 1.4a and should match well with complementary video products. In terms of the no Internet sales policy, he was less sanguine. “I understand what they're trying to do,” Workman said. “However, I also believe the Internet has matured much like brick and mortar. Not all Internet dealers are equal just like not all brick-and-mortar retailers are equal.” He believes manufacturers should approach the Internet not with a one-size-fits-all policy just as they have evolved in how they've looked at traditional retailers.

Sony’s Siegel said the new ES line incorporates a level of sophistication that requires consumers to “go to it, see it, hear it, feel it and have that conversation with an installation dealer that can help you understand all the great things that the Sony products can provide and how well they integrate with power and climate controls.” At the same time, Sony will “continue to embrace the Internet as a way to educate, merchandise and create demand and awareness that there are really special products out there.” He said Sony’s hope is that online marketing will encourage consumers to go to their local custom install dealer.

In all, Jon Myer, the former MyerEmco executive who now heads MyerConnex, a new custom installations business, rates the new ES policy as “a positive” for Sony, he said. “I don’t think it fundamentally shakes” the custom installation market “at all,” Myer said. “There’s a lot of good products out there. Sony always builds a good product. They just never seem to find their magic distribution model. So, I guess this is like they're kind of finally accepting that it’s not a real high-volume mass-selling product, and I guess they're zeroing in on the people who can actually sell it because it’s a value-add, it’s expensive.”

One specialty retailer who requested anonymity told us that while he’s hopeful about the new strategies, he’s skeptical about Sony’s commitment to the specialty channel. “Things are different,” said the long-time Sony dealer. Every time they bring out new ES product, they say, ‘This is it, this will make the difference.’ They've cried wolf so many times. This time I hope it’s true.” He sees the new ES policies as a positive gesture from a company that has given lip service to specialists over the past few years, but he also noted that the company hasn’t shown the same kind of support to specialty dealers on the TV side with 3D product thus far. Recent Sony 3D ads have directed consumers to Sony Style stores to buy 3D TVs, well after 3D product was in specialty dealers’ stores for sale. “They said specialists were important to them but they weren’t showing it on the TV side,” the dealer said. “We got the Sony TV, but they say in all their ads, ‘Go to a Sony Style store.’ They don’t say to go to a dealer.”