In the past few years, a number of ingredients have coalesced to bring about dramatic change in the home audio market. Take, for example, the concept of multi-room audio systems. Until recently, these were only possible by running wires to in-wall or in-ceiling speakers and fed through an A/V receiver. In other words, they weren't the purview of the mass-market.
Several factors have significantly changed this paradigm.
- Wireless networking, including Wi-Fi and Bluetooth - have become both incredibly affordable and reliable;
- Chipsets that brought together networking, advanced audio processing, and SDKs to allow lower-cost devices to connect to a growing number of online music sources (in addition to centrally stored audio) became increasingly available; and
- Consumers who first digitized their audio collections for central access became increasingly reliant on music streaming services such as Pandora, Spotify, and Rhapsody.Since 2011, we have published two reports that cover the evolution of networked audio products and digital music services (Networked Audio Products: Market Update and Evolution of Digital Music on Connected Devices). In our 2013 report, we found that music subscriptions were growing at a rapid pace (from 22 million worldwide at the end of 2012 to approximately 36 million at the end of 2013) and that partnerships between music services and manufacturers were also gaining steam.
At the 2014 International Consumer Electronics Show (CES), we were interested to see what new technologies and trends would shape the music space in this and coming years. We weren't disappointed with the wide range of activity.
Although CES isn't necessarily a show where music services are launched, the timing of the show coincided with the long-expected announcement of a new entrant. Beats Electronics (Dr. Dre's company that has outfitted pretty much every major athlete and celebrity with its headphones) announced that its service will launch on January 21. This was widely expected following the company’s acquisition of the on-demand music provider MOG in June 2012. Company officials tout the service's curated channel line-ups and its flat-rate and family/device-friendly pricing ($14.99 per month that will allow up to five family members with up to ten devices to use the service) as key differentiators.
Although the Beats service enters an incredibly crowded field of music services, there is significant evidence to support the continued strong growth of online music streaming. For example, Nielsen reports that U.S. consumers listened to 118.1 billion streams in 2013, up 32%. Although the vast majority of music streamers take advantage of the freemium offerings available, music provider Pandora notes that its subscription revenues have grown nearly four-fold since the third quarter of 2011. For the first half of its fiscal 2014, Pandora reports more than $56 million in subscriber revenue, an increase of 135% since last year. Further, company officials note that the service accounts for 8.4% of all radio listening hours in the U.S., beating satellite radio and all other Internet radio services combined.
Apple's AirPlay and the technology from the Digital Living Network Alliance (DLNA) are two key solutions aimed at bridging music from devices like smartphones and tablets and home audio equipment. Although there is no official listing of AirPlay-certified products, Amazon lists 760 speakers and 248 A/V receivers. DLNA reports that there are now 786 certified A/V receivers and speakers, a 20% increase from just April 2013.
Streaming music services themselves have also developed their own solutions to link mobile devices to in-home speakers. In September 2013, Spotify announced its own music connection technology called Spotify Connect. Like AirPlay or DLNA, consumers are simply able to designate which speakers should play music from mobile devices. Early hardware partners for Spotify Connect include Argon, Bang & Olufsen, Denon, Hama, Marantz, Philips, Pioneer, Revo, Teufel and Yamaha.
DTS introduced its solution to bridge mobile devices to speakers over standard Wi-Fi networks in 2012 (Play-Fi), and is an example of another type of company - in this case one involved in advanced audio processing formats - entering a burgeoning field. DTS announced a number of new partners implementing the Play-Fi solution at CES, including Phorus, vivo, Eastech Electronics Inc., Fenda Technology Co., Ltd., LiteOn Technology Corporation, Meiloon Industrial Co. Ltd., Solidex Audio Corporation, Tymphany Corporation, Wistron Corporation, Zylux Acoustic Corp. (all announced in this release), and Songza.
In an interview at CES, Pandora's CTO indicated that his company could consider developing a homegrown solution to bring a consistent app experience to connected music products. Pandora did the same thing in addressing the wide platform and operating system fragmentation in the smart TV product space, and it may build an HTML5 rendering engine so that Pandora's app and all of its features - such as integrated metadata - can be fully implemented on networked audio equipment.
There were several key announcements in the connected audio module space at the 2014 CES. These platforms combine advanced audio processing, network connectivity, and software development kits (SDKs) to which streaming music services can be ported, and they are sold to hardware manufacturers as a "one-stop-shop" for music connectivity. Companies like Frontier Silcon, Microchip, and Analog Devices provide these modules, and they have been joined by a number of companies who announced products at the show:
- Qualcomm announced the commercial availability of its AllPlay smart media platform, as a way for audio manufacturers to more quickly build whole-home audio equipment that can access both locally-stored and streaming music services. The company said that its early partners include Altec Lansing, iHeartRadio, Panasonic Corporation and Rhapsody, which have all committed to the commercial release of AllPlay-powered products this year.
- Broadcom introduced a new software development kit (SDK) to its Wireless Internet Connectivity for Embedded Devices (WICED™) portfolio to enable HD audio streaming over Wi-Fi networks.
- CSR plc launched its VibeHub platform that brings multi-room capabilities through Bluetooth and Wi-Fi connections and delivers a synchronous experience.
- Texas Instruments' integrated solution for networked audio was unveiled at CES. TI's AM335x processor enables implementation of multiple streaming protocols like AirPlay and DLNA as well as proprietary audio post-processing protocols on a single chip.
Networked Audio Products
The CES aisles were brimming with wireless speakers featuring Bluetooth, Wi-Fi, and other wireless technologies. Data from the Wi-Fi Alliance points to the tremendous growth that has been experienced in its certified wireless speakers. When Parks Associates first began tracking certified Wi-Fi speakers in 2011, there were 18. In our 2013 report, this figure had grown to 62. The most-recent count is 103! The number of Bluetooth speakers is also huge - a recent Amazon search reveals more than 3,400 products.
One of the biggest takeaways from the show was the introduction of additional products into the multi-room digital music system category. Unlike Bluetooth or Wi-Fi speakers, these systems bring music content to the listener without the use of a smartphone or tablet to stream the audio. These systems connect listeners to streaming music services via app libraries, and their self-contained speakers allow consumers to grow their multi-room systems as their budget allows. In 2013, we predicted that the market for these and other networked audio systems would grow from $10.2 billion to $16.4 billion between 2012, a compound annual growth rate (CAGR) of 15%.
To date, Sonos has dominated the market, and we estimate that the company has achieved annual revenues of around $500 million, more than double the amount that was estimated in 2011. For years, companies have attempted to compete with Sonos' offering, and some recent entrants include Bose, Olive Media, CasaTunes, and Teufel.
The 2014 International Consumer Electronics Show was a showcase for a wide number of new multi-room digital music systems. They varied in price from the Bang & Olufsen BeoSound Essence ($995) to around $180 for individual components Pure’s Jongo Wireless Music System. Consumer electronics giants LG Electronics, Panasonic, and Samsung each introduced their own products into this category.
The digital music space promises to be quite active in 2014, as evidenced by these announcement from last week. A key element that all players will be pushing will be the affordability of both the services and the consumer electronics that create new listening experiences for the end-user. Parks Associates continues to track the growth of this industry with both primary consumer research and industry analysis, so look for more updates throughout the year.