AV Specialists Not Selling iPad, But Using It to Score New Business

PHOENIX -- As video margins slice into specialty AV dealers’ earnings, audio is looking better and better as a profit source, Home Technology Specialists Association members told us at their spring meeting. Although some sources said it was “like returning to their roots,” it’s new music sources that are driving the interest in high-performance audio. Streaming services such as Pandora, Rhapsody, Napster and Amazon’s cloud-based service are bringing customers to stores to learn more about the offerings and, in many cases, to get help in setting up systems for use around the home.

David Young, president of The Sound Room in Chesterfield, Mo., is holding a streaming event this weekend to teach customers how to get both audio and video streaming services. “Everybody wants to know how to get music and to learn the difference between Vudu, Hulu, Boxee and Rhapsody and what they need to take advantage of them,” Young told us. “Even I'm confused by it; it’s baffling.” Now’s the time to hold an in-store event, Young said, because local Blockbuster stores have closed and clients want to know how they can get Netflix videos for same-day viewing. “We'll say, ‘we'll sell you a Blu-ray player or a receiver or Sonos and give you access to everything you need,'” he said.

Young hopes the event will lead to add-on sales both in Blu-ray players, audio, including speakers, and step-up networking gear. The Sound Room’s message to customers is that “a $59 router doesn’t cut it,” Young said. “Networking issues people are having today are not about the hardware. They're about the network,” he said. The Sound Room sells $150-and-up networking solutions that it says are more robust than standard big-box-store routers. The message The Sound Room wants to get across to customers is, “We're in the networking business,” Young said. The Sound Room is partnering with the local public radio station in St. Louis to get the word out and the dual promotion is a win-win for both parties. Young gets the benefit of a free mention on the radio in exchange for serving as a demo location for HD Radio, which the station is trying to promote in the area for its new classic sub-channel. “It all comes down to audio,” Young said. “They come to our store to learn about streaming audio, HD Radio and the devices they need to play them."

Lyn Perry, CEO of Wilshire Home Entertainment in Woodland Hills, Calif., said the focus at his store this year is on improving margins. He said 2010 was the first in “many years” when audio profit exceeded video profit and the company will continue to focus more on music upgrades. The company plans to streamline operations, too, by working with fewer vendors, he said.

For a retail channel accustomed to being the launching pad for entertainment trends, many are now learning to adjust to riding the coattails of other technologies, namely, the iPod and subsequent iOS products. “How much money can you make on Sonos?” said Roger Koehler, president of Electronic Integration, Denver. But dealers can make money on getting the music customers have on their iPhone onto a server for playback throughout the house, and there’s margin in that service, he said. “The iPod gives us an opportunity to organize files on computers for our customers,” he said. It’s all about “managing expectations” so consumers who want to operate their Control4 or Sonos system using an iPad app don’t also think organizing music files into manageable folders comes with the package. The company has put together a $599 media package that includes organizing music into folders on a household PC, showing customers how to access it and setting up the distribution system to stream music around the house, whether it’s via Sonos or another brand. Hardware is extra, he said.

Being profitable is a matter of building value into a service consumers don’t want to take on themselves versus selling a product whose value has been established in an ad, dealers said. Video value has in large part been set by volume retailers, but opportunities remain. “Our clients don’t want to touch their computers,” said Jason Beatty, operations vice president at Cyber Sound, Phoenix. Rather than taking their iPod and Mac to the Apple Genius Store, many Cyber Sound customers would rather pay to have Cyber Sound techies organize and back up their music files, he said. It’s part of an IT operation the company launched recently to produce revenue from robust networks and technologies that run on them including connected video products, streaming audio services and even Internet refrigerators, he said.

Brian Perreault, general manager of Barrett’s Home Theater in Chicago, uses the iPad or iPhone as a qualifier in the sales process and a route to upsell customers to the Savant home control system. “Apple customers tend to have money to spend,” Perreault told us. “If someone walks in with an iPhone, that’s our target customer and we show him a Savant system,” he said. That’s bad news for the touchpanel controller business which used to generate $5,000-$10,000 per controller for custom integrators -- until the $499 iPad came along. “That revenue is gone but the iPad is giving us more opportunities in new areas of home control,” Perreault said. A customer with an iPad is eager to learn what more he can do with the device, including controlling lights, distributed audio and home theater, he said. “We're going to continue to ride it,” he said.

Audio is one road specialty dealers are taking to profits, and many are also diversifying into new areas. In a turn of events, where the custom electronics channel once offered new opportunities for security system dealers, now some companies with AV roots are moving into security where service contracts provide attractive recurring revenue. Koehler of Electronic Integration took the next step from networked IP cameras to starting a second, full-fledged security company with an annual monitoring contract. The company installed a $10,000 system for a client with a second home who wanted to monitor his garage packed with motorcycles and snowmobiles. The company installed four security cameras and gave the client 24/7 remote monitoring via laptop and cellphone. “Peace of mind has value,” he said.

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Home theater retail events aren’t just about sports anymore. The Sound Room in Chesterfield, Mo., is holding a Royal Wedding event Friday in conjunction with a local restaurant, The London Tea Room, in downtown St. Louis. The café, owned by Londoners, will open at 4 a.m. to show the event live on BBC America via HD cable, Young said. The event has sold out to 40 buyers, whose $40 ticket fee will be donated to charity. In exchange for loaning the Epson and 106-inch projection screen, The Sound Room gets mentions on the local Fox News TV station. “I'm a sucker for charity,” Young said.