Why is There Not More Consolidation in Audio?

Consolidation happens when larger companies see profit in buying smaller companies or to eliminate competition. This is such a tiny niche market there's really not much of a point except for a few bigger brands.

There are always a lot of high-end audio companies disappearing or being bought by other companies. What I find amazing is how many new companies spring up to take their place.

It can’t be easy or inexpensive to bring a new high-end product to market, but there are always people willing to try. I think it has to do with the love these people have for music and their desire to see their ideas about its reproduction come to fruition.

For instance, in this month’s Absolute Sound they review Gayle Sanders’ (founding partner of Martin Logan, his middle name is Martin) new all-in-one speaker-amp-DAC-DSP system. I guess there are people who just love building audiophile gear as much as we love listening to it..

Perhaps a couple of factors that contribute are that there is no way to objectively measure the quality or utility of audio gear and the difficulty of making direct comparisons. Seems to me it’s similar to the wine market in that case. 

If you’re in the market for a new car and live in any medium sized city you can test drive every car you can afford, compare specs measured by independent agencies and read reviews of the ones that appeal to you in dozens of online sites and magazines. Almost no one can replicate that when comparing audio gear.

With wine, as in audio, there are both huge corporations with huge advertising budgets and boutique wineries that depend on an appealing label and word of mouth, or word of online forum. As in audio, the big companies keep chugging along, mostly, as do some of the small ones that develop a great reputation and/or cult following, but many of the little companies don’t.

I will be up all night thinking about this.

I'll go out on a limb and say there is just the right amount of consolidation that occurs all the time.

When I look at most product lines, there were once many companies that produced the items, but over time some became financially insolvent and closed, or they were bought up by better-positioned competitors.  This was true with beer.  This was true for soft drinks.  This was true with automobiles.  This was true with gems and jewelry.  This has been true with all sorts of food manufacturers.  We had many more options before and now we have few options.

 
That's a lot of examples. But the premise, that this happened because,  "some became financially insolvent and closed, or they were bought up by better-positioned competitors" is undermined by the examples.

In beer, from the beginning, the brewers were so small every town had one, big cities had several, and if a brewer shipped out of the town that was big. Beer was a craft product with many distinctive styles. Pilseners for example are a style characteristic of the water sourced in the town of Pilsen. IPA stands for India Pale Ale, a style originally deliberately brewed with a lot of hops because hops are a natural preservative and this beer being destined for troops in India needed to endure long ship times.

Prohibition came along and outlawed all brewing in the USA. After prohibition, the many small brewers having had their working capital destroyed, the market was open for mass dominance by whoever had capital. It was no longer about craft.

This is simply the history. But notice carefully, the human desire for quality and variety never left the market. The years since prohibition have seen tremendous growth in craft breweries, to the point where today once again we have a situation where every city has its own brewery, with the smaller ones being local while the larger ones ship within a region.

So it was government action, and not competition, that created the situation described- a situation which isn't even accurate since it actually is the reverse, there are more choices, not fewer.

A similar analysis could be done on the other examples. Beer was picked because we know it best. Slightly better than cars even.

In contrast, there never was any governmental regulation in audio. The closest we get was RMS/THD/THX. Before RMS & THD manufacturers were free to claim just about any number. THX is a variation on that theme, creating a defacto industry standard. Any time anything artificial like this comes along it disrupts the market, and so we had the power wars, the low distortion wars, the amps that measure good but sound bad. That was long enough ago a lot of audionoobs won't remember. But it happened. The market has since returned to the norm of naturally seeking greater value and quality as determined by the buyers own senses right there on the spot at the time of purchase.

So this did happen in audio, but only to a very small degree as mentioned. All the rest can be laid at the door of basic economics: the bigger you are the lower your unit cost thanks to economies of scale. Yet thanks to the inherent desire for quality this will never be enough for total dominance. Those for whom quality matters most will always seek out the smaller manufacturers of high quality components.

Which do by the way represent very high value. Once again, it is simple economics. Everything no matter what it is has to be packaged and shipped. The lower the price the greater the share of cost is wasted on the box it comes in. Even when price goes very high, still a large share of the cost is in basic items like the chassis, face plate, connections, and power supply. Only when price goes really sky high do we reach the point where it becomes economic to start using the very highest quality caps, transformers, etc.

So until and unless regulatory meddling comes along we can expect the trend to greater and greater diversity in quality high end audio to continue.

Incidentally, can't resist, the details are different but the results in cars exactly the same. The huge secular trend is to greater diversity in quality and performance. Porsche, once a micro niche marque has sailed on this tide to become the worlds most profitable carmaker precisely because, offering more high quality choices, it exemplifies this trend. To pick just one model, the 911, it is offered in something like 23 different versions! Not colors- versions! Add in options, the variety goes positively astronomical! Yet at the same time there is room for Singer, and Koenigsegg, and McLaren, and others.

So even where governments try everything they can to stamp out individuality, the innate human desire to just plain have fun is stronger. This in the end is the answer to your question.

We're telling you, they're not paying us enough for this.

Interesting question and one that deserves a long and thoughtful answer. But not from me.

But seriously, I have been a an audio dealer and worked with an audio distributor. Many people (me included) would say that there are too many manufacturers of high end audio gear for the size of the market. How many speaker manufacturers do we really need? (the correct answer, of course, if as many as I personally like)

High end audio is largely a hobbyist business. There are a few large companies producing gear but there are more small outfits that produce some some great and unusual gear. Not all audio hobbyist forms stay small but very few get gobbled up by large corporations.Why? Because most smaller audio manufacturers are barely profitable and don't have stable business models. One bad season or the principal passing on shutters the company. We've all see that recently.

But the audio hobbyists are also innovative and willing to be different. Without them we probably wouldn't have products such as modern tube amps, discreet DACs or any speaker that doesn't resemble a JBL studio monitor. But large corporation are only interested in gross profit margins. If they can make make a decent ROI by acquiring a unique brand, great. But most audio businesses do not show the kind of balance sheet that would attract investors or invite an M&A.

And that's probably the way it should be, IMO

High End Audio has, in my mind, always been seeded by the DIYer. The innovator. The team in a garage with an idea and a passion.

Also, they are emotional and financial masochists who will continue to brave the HE market regardless of outcome.

I believe jond basically covered it.

Consolidation happens when larger companies see profit in buying smaller companies or to eliminate competition. This is such a tiny niche market there's really not much of a point except for a few bigger brands. 

HE exists for the same reason (or rationale) that fine wine, watches, cars, residences, clothing, and all the other trappings of 'taste' or just sheer "... I've got the $ to indulge myself upon 'X'..."

There is a point where true 'performance' and the means and (perhaps unconscious desire) to impress oneself or others....

Now, I'm not a 'shrink', nor do I claim to be one.

All I'm involved with is making myself Happy.

What and how 'others' are up to and about is their business. *G*

As for 'what happens' with the current uproar....my jury is still Out.

I'll CMA for the time being; suggest you do the same.

Don't believe everything you hear or read for the moment.

Keep your head, let others lose theirs...;)

Some very good responses.  Since posing these questions, I happened upon a site that lists now-defunct electronics companies. There are many more than I realized, and few that I ever knew about.  So, as others said, the history of audio businesses is extensive.  I had thought this proliferation was a more recent trend, but it goes back quite a ways.  I will probably get around to visiting some high-end audio/video showrooms, where I will likely “discover” more names I didn’t know about.  Seems like an area of interest for those with capability for encyclopedic knowledge.

$1000. That's "high-end audio" to most people. There has been and will be consolidation in the consumer audio market. As you go up in price, naturally things become boutique. 

(There's an elephant in the room with expensive gear. Unique to this niche, this subset of the audio industry is an uncontrollable element, THE ROOM.)

I think we are going to see many audio manufacturers go out of business due to the Corona Virus.  People are unemployed and they are going to choose to eat rather than buy stereo gear.  Hope this does not happen.

This industry was barely alive before the Corona Virus.

I have received hundreds of real estate listings for homes listed for sale within a 10 mile radius to keep an eye on the real estate market and I have yet to see one picture showing a pair of speakers in any room of the home listed.  I even see people with $5,000 to $10,000 entertainment center furniture with a wide screen TV and not a single speaker in sight to include built in surround sound speakers.  Are you kidding me?  People are spending that kind of money on furniture and are willing to listen to their TV speakers.  No wonder why the audio industry is hurting.  

When is the last time you viewed a TV commercial from Wilson Audio, Focal, Bowers & Wilkins, ARCAM, Yamaha, Rotel, MacIntosh, Bluesound, etc.?  Then you hear audio manufacturers complain about their business.

Right now, watch for a lot of audio store closings and for audio manufacturers to close their doors.  If people have to choose between eating and a high end stereo system, what do you think they will choose first.