Is consumer electronics back? That's a silly question of course, because CE never went away. But in Canada, key categories have been in decline for several years; and through the first 10 months of 2015, the industry suffered overall contraction.
But there are some bright spots emerging. One of these is the number of sunrise categories where consumers are looking for assistance from a capable dealer - which is good news for the independent channel. That trend will only accelerate in 2016. "We're starting to see good uptake in newer technologies," reports Barry Murray, Director of Marketing for Panasonic Canada Inc. "There's great interest in UHD and high-res audio."
According to The NPD Group, total Canadian retail sales of audio, video and imaging products during the first 10 months of 2015 declined 8.6% in dollar terms and 4.9% in unit terms compared to the same period a year earlier. During the same period, sales of information technology products, which for NPD include computers, tablets, printers and data storage products, fell 8.5% in both unit and dollar terms.
"The average price of a basket of goods decreased as a result in a shift in products," notes Mark Haar, Director of Consumer Electronics for NPD Canada. "TVs, cameras and MP3 players declined at a faster rate than the industry at large."
The year started (and ended) with the Canadian dollar in free fall, in lockstep with oil prices. By CES 2015, the loonie had slipped from near parity relative to the Yankee greenback to about US85¢; on the eve of CES 2016, it's a dime lower.
Another dreary story was the spate of retail closures. In late March, Best Buy Canada kyboshed its Future Shop brand, closing 66 FS locations and putting 65 others under the BB banner. In late May, Tiger Direct pulled the plug on its retail stores, announcing that it would henceforth focus on B2B sales. Then in late June, Telus announced that it was killing off Black's Photo Corporation, the chain it bought in 2009 for $28 million, and would close all 59 locations as of early August.
There's a good news-bad news element to both stories. "We didn't see the price contraction there would have been if the Canadian dollar had been stronger," Murray comments. "And we're hearing a lot less about cross-border shopping." Adds Karol Warminiec, National Training and Events Manager for Sony of Canada Ltd.: "Consumer spending is staying in Canada; they're leaving their dollars here. We saw that on Black Friday."
Moto Shimizu, Vice President, AV Group, Yamaha Canada Music Ltd.: "Instead of showrooming, in Canada we have reverse-showrooming, where people research online and then go to a bricks-and-mortar store to negotiate pricing."
Of the retail closures, the one that affected the AV sector most was clearly Future Shop. "The whole industry was impacted by the Future Shop closure," says Moto Shimizu, Vice President of the AV Group at Yamaha Canada Music Ltd. "There were fewer flyers, fewer outlets and less exposure for AV. That's why CE sales fell so far this year."
But there were certainly beneficiaries to the closures. As Murray observes, "The closure of Future Shop and Blacks drove business to regional chains and independent dealers."
BIG SCREEN BUSINESS
Flat-panel TV remains a key driver for the industry; but the category continued to shrink in 2015. According to NPD, Canadian dollar sales of TVs declined 12% in the 10 months ending October 31, 2015 compared to the same period in 2014, while units slipped 13%. There's a tiny piece of good news stuck in those numbers: the average selling price actually crept up 1%, to $520.
While exchange rates likely had a role in tempering price declines, as Haar notes, the TV market still remains highly competitive. The main reason ASPs are holding up is a continuing move to larger screen sizes. For the first 10 months of 2015, Canadian unit sales of TVs 65" and larger were up 30%, while dollar sales were up 15%. That translates to a decline in average selling price of 12%. While the 65"-plus segment accounted for only 4% of Canadian unit volume, it represented 16% of dollar sales.
All other size segments are declining, Haar says. Unit sales of TVs 55" to 64" were down 7% in unit terms in the first 10 months, and TVs 45" to 54" were down 14%.
Agata Mossop, Vice President of Sales, Lenbrook: "We believe our specialty dealers will have to morph from ‘gatherers' to ‘hunters.' There aren't enough people walking in the door to sustain these businesses."
It will surprise no one that the other hot part of the TV market is 4K/UHD. Canadian unit sales of 4K TVs were up 315% in the first 10 months of 2015, while dollar sales increased 195%. The average selling price for 4K TVs in this period was $1,657, 30% lower than in the same period in 2014. In terms of revenue, this is a very important segment. While they accounted for only 6% of TV unit sales in this period, they represented 21% of total dollars.
That share will certainly grow in 2016. There aren't many sure things in Vegas, but you can safely bet that all the major TV brands will be putting a huge push on ultra-high-definition TV at CES 2016. Premium models will deliver the full-meal UHD deal: not just 4K resolution, but also support for high dynamic range (HDR) and wide colour gamut (WCG) imagery. And HDMI 2.0a inputs with support for HDCP 2.2 copy protection will be a standard feature, allowing connection to external components like 4K set-top boxes and Ultra HD Blu-ray players.
Manufacturers won't just be showing new UHD TVs in Vegas. As Warminiec observes, "On content, we hope we'll find lots of clarification at CES, both physical media and streaming." Netflix made big content announcements at CES 2014 and 2015; you can count on a three-peat this year.
Some 2015 UHD televisions like Sony's X850 series are HDR-ready, allowing for images with an expanded range of tones and colours. At CES, we can expect new UHD TVs with full HDR support from all major brands, as well as new Ultra HD Blu-ray players. In November, Sony Pictures Home Entertainment announced its first batch of Ultra Blu-ray titles, which will include The Amazing Spider-Man 2.
Streaming services have eviscerated sales of Blu-ray players, but the new Ultra HD Blu-ray format could give plastic discs a new lease on life during 2016. Last year at CES, Panasonic showed a prototype UHD Blu-ray player, and Samsung announced a player at IFA Berlin. It's a sure bet that you'll see players from these brands, and many others, in Vegas. Samsung and Panasonic have confirmed that they will deliver Ultra HD Blu-ray in Canada in early 2016. The cost is an open question, though Murray confirms that it will be Ultra HD Blu-ray will be a premium product.
Two studios have already announced their first slate of Ultra HD Blu-ray titles. At IFA Berlin in September, Twentieth Century Fox Home Entertainment said it would release new movies on Ultra HD Blu-ray on the same day as standard Blu-ray. The first batch of Fox titles will include Kingsman: The Secret Service, X-Men: Days of Future Past, Exodus: Gods and Kings, Life of Pi and Fantastic Four. Then in early November, Sony Pictures Entertainment announced that it will offer The Amazing Spider-Man 2, Salt, Hancock, Chappie, Pineapple Express and The Smurfs 2 on Ultra HD Blu-ray, followed "by a growing roster of titles including new-release film and television content."
One of the biggest UHD stories of 2015 originated in Canada. In October, Rogers Communications announced plans to offer 20 NHL games in 4K resolution on its Sportsnet service starting in January 2016, plus all home games of the Toronto Blue Jays for the 2016 season not just in 4K, but with HDR as well. There are broadcasters in other countries delivering sports in 4K, but I don't know of any who have announced plans for UHD programming with 4K resolution and HDR.
Add in UHD fare from Netflix (and I expect Netflix to really up its UHD game in 2016), and the content question around UHD is being addressed seriously. In the past, TV makers have emphasized upconverted HD content when talking about 4K. Now manufacturers and retailers will be able to talk about native UHD content.
"There are two sides of UHD," Murray says, "the person who knows about the technology, and is aware of what Rogers and Netflix are planning; and the consumer who's prepared to spend money for better picture performance. We think UHD provides very demonstrable reasons for stepping up to a better TV."
HOME THEATRE
In home and portable audio, one core category is declining; but others are catching fire. According to NPD Canada, sales of audio-video receivers declined 9% in unit terms and 8% in dollar terms in the first 10 months of 2015, compared to the same period a year earlier.
There was a bright spot here though: Dolby Atmos models grew 480%, admittedly on a minuscule base, as the technology made its debut last fall. More telling is the fact that Dolby Atmos AVRs accounted for 6% of unit sales and 13% of dollar sales in the first 10 months of 2015, which no doubt boosted ASPs in this category. When you consider that NPD does not track sales in the custom channel, it's likely that sales of Dolby Atmos receivers were even higher.
"Atmos has taken a while," says Paul Grove, Senior Vice President, Global Sales and Marketing for Paradigm Electronics Inc., which announced an Atmos processor and three Atmos receivers under its Anthem brand at CEDIA. "We need to drive dealers to make sure they're demoing it properly. It's a game changer for all of us. It's driving up ASPs for receivers - finally! And dealers are attaching more speakers. I think home theatre is back."
At CES 2015, Panasonic showed a prototype Ultra HD Blu-ray player. The Ultra HD Blu-ray spec was finalized during the summer, and at IFA Berlin in September, Samsung announced a player while Twentieth Century Fox announced its first slate of Ultra HD Blu-ray releases. It's a sure bet that Ultra HD Blu-ray players will be introduced by many brands at CES 2016.
Anthem is joining the main AVR brands - Denon/Marantz, Onkyo/Integra, Pioneer and Yamaha - in offering AV receivers with immersive audio. Sony too is entering that market, having announced its first Atmos receiver at CEDIA. The STR-ZA5000ES will ship in Canada in early 2016. All of these brands are also supporting DTS:X immersive audio.
Atmos-enabled speakers, which produce height effects through upward-angled drivers that bounce sound off the ceiling, are available from several brands, including Definitive Technology, Klipsch and Pioneer. A unique Atmos product is Yamaha's new YSP-5600, the world's first Atmos-enabled soundbar. Its 44-driver array can produce height as well as surround effects.
MULTI-ROOM AUDIO
One of the hottest segments in CE is wireless multi-room sound. For the 10 months ending October 31, 2015, Canadian unit sales of multi-room speakers were 24% higher than the same period in 2014, according to NPD. The average selling price for multi-room speakers was $310, 14% higher than a year ago. "People are willing to pay a premium in this segment," Haar notes.
This wireless multi-room category was essentially created by Sonos, Inc. During the fall, Sonos introduced a new version of its top-of-the-line PLAY:5 powered speaker, and also announced Trueplay, a new function in the iOS version of the Sonos app that lets users tailor the sound of Sonos PLAY speakers to compensate for room acoustics and speaker placement.
Sonos is now getting loads of competition. Many of these new players are going after the premium part of the market. This fall, Paradigm launched its Premium Wireless system, which is based on DTS, Inc.'s Play-Fi platform. A unique aspect of Paradigm's offering is inclusion of Anthem Room Correction. "Sonos has done an amazing job capturing people's attention, but that's only a small piece of what this can be," Grove says. "A high percentage of dealers are buying their product. What these dealers need to get is how to transition to high-res and capture performance-oriented customers."
One of the first competitors to seriously enter multi-room was Canada's Lenbrook International, whose Bluesound system supports high-res audio. This fall, Lenbrook refreshed its Bluesound lineup. Like Play-Fi and MusicCast (but unlike Sonos), Bluesound supports playback of high-resolution files to 192kHz/24 bits. "We were expecting at least two-fold growth for Bluesound," says Agata Mossop, Vice President Sales for Lenbrook, "but we are tracking significantly ahead of that."
Citing findings by the Consumer Technology Association that states that 53% of customers who purchased an audio product in the last 12 months are interested in high-res, Mossop adds, "Given that we speak to over half of the population, and that the wireless multi-room category, while experiencing explosive growth, is still in the early stages of consumer penetration, we are well poised to make our mark."
Yamaha's YPS-5600 is the world's first Atmos-enabled soundbar, and will support DTS:X immersive audio following a firmware update. The unit's 44-driver array enables it to produce surround and height effects. The YPS-5600 is compatible with Yamaha's MusicCast system, allowing it to be used for wireless multi-room music.
Several major CE brands, including LG, Samsung, Sony and Yamaha, are also integrating multi-room capability into their products. Yamaha, for example, has over 20 different products that support its MusicCast wireless music streaming system. These include Yamaha's 2015 AV receivers, the NX-N500 powered desktop speaker system (see review on WiFiHiFi.ca) and the YSP-5600 Atmos-enabled soundbar.
Shimizu says this multi-room audio is quickly becoming ubiquitous. It won't be sold just as dedicated products like Sonos and Bluesound speakers, it will be built into many different AV products. "This technology is being applied to the whole AV category," he elaborates. "In the future, it's basically the whole store. It's a feature, not a category. That's the real disruptive character of multi-room sound."
HIGH-RESOLUTION AUDIO
Along with 4K/UHD and wireless multi-room, Mossop predicts that the "big buzz in 2016" will come from high-resolution audio. She's far from alone in that belief. "Audio is where it's at right now," says NPD's Haar, "and high-res audio is the next big thing." But Haar acknowledges that high-res is not going to be a mainstream market, and that education is needed to drive awareness.
Shimizu agrees. While Yamaha has a large selection of amps, receivers and powered speakers that support high-res playback, Shimizu is concerned about the learning curve involved in the technology. If I want to download an album, what format should I get? DSD? FLAC? AIFF? WAV? What's the difference? Where can I get high-res music? How much better will it sound than a CD, or an iTunes download? What software do I need to play high-res? Can I play it on my mobile device?
Complexity is always an issue, Murray agrees; but he says the solution is to present demonstrations that focus on the listening experience rather than technical specs. "We don't focus on the file format, but on the whole experience, what people can expect to hear. Most are pleasantly surprised."
Paul Grove, Senior Vice President, Global Sales and Marketing, Paradigm Electronics Inc.: "Only a small percentage of people listen to high-res, which means there is a growth opportunity. This is not a race; it's a journey."
This year, Panasonic revived its Technics audio brand, introducing a Premium Class system at $6,000 and a Reference Class system at $70,000. (Interestingly, the Premium Class system was being offered by Toronto's Bay Bloor Radio at $3,999 before Christmas.) At IFA Berlin, Panasonic announced the Technics Grand Series, which slots in between Premium and Reference. The company has also launched a high-res download service, Technics Tracks, which is now live in Canada.
Murray says the Technics launch has gone "reasonably well," but adds, "We're still learning about this market." And he says audio retailers are immersing themselves in high-res audio. "Dealers are very familiar with computer audio," he states. "Many associates carry USB keys containing their demo material."
Dale Mackintosh, President of D2MK Solutions, says most audio store owners are enthusiastic about high-res audio; but that enthusiasm doesn't always trickle down to the sales floor. "More and more resellers are embracing the category," he elaborates, "because they realize they must. They're using Tidal as a presentation tool. But the staff need to be personally interested. It's a mixed bag with salespeople on the floor in learning what the right solutions are."
Paradigm's Grove says a lot of work needs to be done in educating consumers, exposing them to the joy of high-performance audio and showing them how to adopt the technology. "This is not a race," he says, "it's a journey. Right now, only a small percentage of people listen to high-res, which means there is a growth opportunity. We should be excited about what's happening in our industry. People are listening to music again."
High-res presents manufacturers and retailers with an opportunity to show a younger generation what good speakers and electronics can do for their music, observes Vince Bruzzese, President and Founder of Totem Acoustic. "We have a whole generation of people who have grown up on headphones," he says. "The headphone generation has to be put in a place where they say, ‘I want some of this.' They love music just as much as we do."
A challenging aspect of high-res audio is the way it breaks the classic speaker-amp-source paradigm. One example is Yamaha's NX-N500 network powered speaker, which I recently reviewed. As Shimizu notes, these products resist simple classification, and sometimes elicit ingrained prejudices against unfamiliar products. "With a new category like the NX-N500, it's tough at the beginning," he says. "Neither dealers or consumers know how to use it."
THE RETAIL SCENE
Not only do retailers not always know where to merchandise new product categories, the fact is that in audio, there aren't enough stores to support all the brands out there. That's one reason brands are looking at alternative ways of building distribution and awareness.
For example, Paradigm sells some products online; but it fulfills orders through its dealer network. "We see a lot of activity through our Website, a lot of it driven by blogs," Grove says. "We need to understand that channel, and drive traffic to dealers." While e-commerce continues to grow in importance, a vital retail network is crucial for premium audio. As Grove observes, "You can't do a cool demo online."
Adds Grove, who's based in Indianapolis, IN: "On a per-capita basis, there's more retail in Canada than the U.S. But you have to find the right partners."
Vince Bruzzese, President, Totem Acoustic: "The headphone generation has to be put in a place where they say, ‘I want some of this.' They love music just as much as we do."
Bruzzese agrees about the importance of the retail channel. "Specialty retailers have a role to play in helping people reach the next level," he says. "But retailers have to up their game with more professional salespeople. They have to hire younger, more design-oriented people."
Mossop says dealers have to get more active in recruiting business. "We believe our specialty dealers will have to morph from ‘gatherers' to ‘hunters,' and will have to delve into e-commerce and custom integration. There aren't enough people walking in the door to sustain these businesses. They have to get out and find them, and show them how they add value and make their home technology experience better."
Shimizu agrees. "The dealers who are doing really well are marketing in all channels. They're still involved in print, but there's been a huge uptake in social media: not just Facebook, but Twitter, Instagram and original content. And they're expanding the categories they sell. Those stores are doing well."
Referring to "the myth of e-commerce," Shimizu says specialty retail in Canada is quite robust. "We hear about bricks-and-mortar losing business to e-commerce, but we don't see this at all. Instead of showrooming, in Canada we have reverse-showrooming, where people research online and then go to a bricks-and-mortar store to negotiate pricing. In Canada, we're lucky that we can still rely on an assisted sales floor."