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Headphone makers battle over form and function

MarketWatch

Published: Tuesday, March 6, 2012

Updated: Wednesday, March 7, 2012 11:03

Entertainment

Illustration by Katie Miller/MCT


SAN FRANCISCO -

High-end headphones used to be the domain of sound engineers and stereo purists with spare cash. The market was dominated by well-known brands such as Sony, Bose and Sennheiser and represented a tiny slice of the overall headphone business.

The sharp growth of portable media devices changed the business; Apple Inc. alone shipped more than 172 million portable media devices last year. This has provided an opportunity for new players with different approaches. The first of these was hip-hop artist Dr. Dre, who teamed with record-producing legend Jimmy Iovine to introduce the Beats by Dr. Dre line in 2008.

Other hip-hop artists, such as Ludacris and Curtis "50-Cent" Jackson have since gotten into the game by endorsing headphone products that typically sell in the $100-to-$300 range. The Marley family, record producer Quincy Jones and pop star Lady Gaga jumped into the mix this year with a co-branded product in the Beats family.

This category is growing - rapidly. According to the NPD Group, sales of headphones priced above $100 in the U.S. more than doubled last year, though it still only makes up about 6 percent of total industry sales, according to NPD data.

Iconic, eye-catching design has been a big selling point for the new brands, along with their associations with popular artists. But experts say even those factors do not allow products in this price range to skimp on sound quality.

The headphone market has been fueled by booming demand for portable electronic devices. Smartphones and tablets - as well as portable gaming devices such as the Nintendo 3DS and the recently launched PlayStation Vita from Sony - have grown in popularity and are used primarily for media consumption.

And users find that they quickly tire of the free, low-quality earbud products that often ship with those devices.

"As we start to consume more media in a portable format, there is a greater focus on quality," Ben Arnold, an analyst with the NPD Group, said. "That has sort of fueled this focus on the higher-end headphones."

Still, the bulk of the headphone market sits at the lower end. Arnold said about 72 percent of headphone sales take place in the $25-and-under category, with another 22 percent in the midrange, between $25 and $100. Those price brackets are dominated by brands such as Sony Corp., Phillips, JVC and the newly public Skullcandy Inc.

The higher end was once led by specialty brands such as Bose, Sennheiser and Klipsch. But the new, celebrity-branded lines have made a splash. According to NPD, the Beats brand is now the leader in the category and has brought in a younger customer drawn to the brand's image and design.

"We've had a lot of the high-end brands around for a long time. But when Dre attached his name to these headphones, the category really took off," Arnold said. "For a high-price headphone to be taken up by a younger consumer who is not that affluent is pretty amazing."

Beats Electronics, which runs the headphone business, debuted a new line of products at this year's CES, including items co-endorsed by pop star Lady Gaga and British DJ David Guetta. The company is also in discussions with manufacturing partner Monster Cable over the future of their five-year-old relationship, though a Beats representative said the company could not make further comments at this time.

Soul Electronics makes a rival line of high-end headphones under a partnership with rapper Ludacris. Soul CEO Bob Bonefant said the market has developed into a "fashion business," explaining that Soul's brand is designed to be an extension of a lifestyle, but that the company and its namesake rap artist didn't lose focus on quality of sound.

"Ludacris has an amazing ear, and he just wasn't impressed with the products out there," Bonefant said in an interview. "We don't like to have ourselves perceived as an artist brand, but he really thought we could do better."

Rapper 50 Cent also got into the game at this year's CES, debuting a line under the name of his own SMS Audio brand. The company acquired audio accessory maker KonoAudio last year to build its products. Producing legend Quincy Jones also sells a line of high-end headphone products in partnership with Harman International's AKG business.

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