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More Senseless Ramblings

  With the Hi-Fi '99 show just around the corner, i felt it would be of benefit to the Enjoy the Music readership to reprint Gary Shapiro's, President of the Consumer Electronics Manufactures Association (C.E.M.A.), keynote address:


Suggestions for the Digital Age

Keynote Press Presentation

Hi Fi 1998

As Prepared For Delivery June 11, 1998

Gary Shapiro
Consumer Electronics Manufacturers Association

Several hundred years from now when historians study our era, they will not focus on Madonna, the Spice Girls, O.J. or even Bill Clinton. We have no great philosophers, religious leaders, poets or musicians which will leave a defining dent in the lengthy continuum we call history. Rather, our era will be remembered and defined as the time when we as a society shifted to the digital age.

Now I recognize that for some of you digital is not all its cracked up to be. For many, vacuum tubes, turntables and analog records are far superior to their digital brethren. I respect this view just as I understand that for many people, riding a horse is a far superior experience to driving a car.

But the fact remains that we are in the midst of the digital revolution. Indeed, it's fair to say we are about to start the third wave of this phenomenal revolution. The first wave was our entry into computers which relied on a digital stream of zeros and ones. It started slowly in the 1960s and '70s but today the person without a computer or even E mail defines himself as behind the times.

The second wave in the digital revolution was the move to digital audio. The introduction of the compact disk 15 years ago revolutionized our industry and changed the way Americans listen to and appreciate music. Today, two out of three Americans listen to music an a CD.

The third wave in the digital revolution will be the move to digital video. High definition television (HDTV) is the highest manifestation of digital television and will be introduced in limited quantities late this year. HDTV is glorious and I believe consumers will quickly embrace its wide screen, crisp picture and superior sound.

At the Consumer Electronics Manufacturers Association, we have spent a dozen years preparing for the launch of HDTV. This is consistent with our mission, which is a simple one: to grow the industry. We identified HDTV as a driver technology which will enhance and enrich the consumer experience and help drive the sale of TV sets and related products in the 2lst century. Accordingly we've invested over 10 million dollars to promote the concept of HDTV before policymakers and to test digital television to ensure we had the best system possible. We've undertaken many steps, including the creation of WHDTV, the model HDTV station based at the NBC affiliate in Washington DC, WHDTV was created with broadcasters to teach them and electronics manufacturers how to make HDTV work.

HDTV is the third wave of digital - but it is not the final wave. Digital electronics is also affecting telecommunications, medicine and scientific research, but those are areas for another day's discussion. I want to talk about consumer electronics products. For audio, video and computer products, I suspect we are still at the beginning of a long digital journey where products will continue to be introduced, improved and appreciated by the world's consumers.

Although we are in the midst of a digital revolution it may not seem that way. The industrial revolution, the introduction of the plane and even the automobile did not suddenly transform the daily lives of people - rather the lifestyle and societal changes they wrought took years to be felt by the average citizen.

You, as journalists, have a special role in the defining change of our times as you are chronicling our transformation in this revolution, both through reporting on the products which physically evidence the revolution, and through the ways they enhance our lives. Your words convey the psychic and life transforming benefits of our products - and help initiate the uninitiated.

Although I am obviously enthralled with the concept of the digital revolution I recognize that the phrase and concept may be getting as overused as Viagra - so I will shift from the philosophical to the practical I would like to offer the audio industry some specific suggestions to help it thrive and prosper in this digital age.


1. Focus on Home Theater

CEMA latched on to home theater in the early 1990s as something worth conveying to the American public. We used journalist Len Feldman as our spokesman at home shows across the country where we demonstrated home theater. We provided research on the value of home theater to the media, including how it supports a closer family. We worked with interior designers and home builders and we did everything possible to expand President Herbert Hoover's adage from, "a chicken in every pot" to "a theater in every home".

We have succeeded to a degree. One in seven American homes now has a home theater system.

To some in the two channel world, home theater, may be incompatible with good audio. Why let video distract you from the audio experience?

Well it certainly makes good business sense. The great untapped market for audio products has not been interested in audio for audio's sake. Virtually all new component stereo households formed in the last five years (now about 56 million) bought equipment to use with their home theaters - not as stand alone audio.

Indeed, the gradual willingness of the high end world to embrace home theater is reflected in this forum. I am speaking at "Hi Fi - The Home Theater and Specialty Audio Show."


2. The Experience Matters

Despite my strong belief in home theater, I with equal passion believe that audio provides a unique emotional experience which differentiates our products from those of any other industry. Music evokes emotion and music that sounds great enhances the experience.

Yet if you read many of our publications we are selling specifications and using a language and a secret handshake intimidating to all but the technical oriented. Let's put it in English!

The audio experience is more important than the video experience. Our research shows that a fair picture with great sound is preferred by consumers to a great picture with fair sound. Consumers may be price conscious, but they must experience our products to appreciate their value. So sell the experience, not the specs!


3. Prosper from HDTV

Today, the TV is typically the weakest link in the home theater. As soon as a consumer buys a HDTV set, that will immediately change. Consumers will be going in to stores just to see HDTV. This is an opportunity to share great sound!


4. Broaden the Audience

One audio industry executive told me that we shouldn't waste our time on any one other than rich older males as they buy all his products. Well our research shows that women are great influencers in 50% of CE purchase decisions. We are talking about products that some people view as furniture and as part of a lifestyle. I suspect marriages today are more of a partnership than 20 to 30 years ago and big purchase decisions are no longer made by just one spouse.

Of course, our country is rapidly changing its demographics. If you ignore large groups of Americans you do so at your peril.

Indeed next week CEMA is hosting an event in Atlantic City focusing on high quality sound for tens of thousands of younger Americans. FUSE is aimed at Gen X and will include live bands, in line skating and a truck give away surrounding an exhibit floor where scores of companies will demonstrate their hottest car audio products. We are trying to focus these younger consumers on the fact that music can and should sound great in cars.


5. Data Delivers

CEMA's job of increasing industry sales relies heavily on getting the general media to focus on our products. We do pitch lifestyle stories, but many publications want hard data to identify trends or create graphs. That's why we are proud of CEMA's effort to measure the high end industry. Based on actual reported data from manufacturers we estimate the high end market grew seven percent last year to over $1.1 billion. Exports of high end audio grew ten percent and reflect some 40 percent of the sales of the companies we surveyed. We will be collecting data again this year from companies and will report to you on the results.

Our research in this area along with our financial operating ratios study is important in establishing high end as an industry worthy of investment by bankers, retailers and the media. An industry cannot be considered growing and healthy unless it is capable of being measured.


6. Computers Count

While many of us suspect that the intense enthusiasm expressed by many "geeks" for computers has displaced some of the enthusiasm for high end audio, we must accept the reality that computers are a related and potentially symbiotic part of the consumer spending mix.

Our research shows that at least 15 million adults do most of their audio listening through their computers. The audio industry must press to keep audio components sold in conjunction with computers branded. The fact is that more than eight in ten people who listen to a CD-ROM drive in their computer use the CD-ROM to listen to music.


7. Pay Attention to Policy

Last Friday I testified before Congress on legislation which could affect our ability to make and sell audio products. The legislation responds to concerns from the music and movie industry that new digital technologies allow an individual to ship zillions of perfect copies around the Internet with a flick of a computer key. These are well-founded fears and should be addressed.

Unfortunately, the legislation addressing these concerns gives copyright owners new rights so that they can sell products which are incapable of being accessed or copied. In other words, makers of hardware would have to build products which respond to any copyright protection scheme. This means we are moving to a pay per use world. This legislation cleared the Senate and an important House Committee. Sometime next week the House Commerce Committee is expected to vote on this legislation. If you want to know more, the Digital Future Coalition web site is offline so check out what Wikipedia has to say.

How many in the audio industry know their legislators, invite him or her to visit a store or factory? If we are not part of the process we get hurt and we are getting hurt in this Congress as we can not match the extraordinary campaign contributions made by the copyright interests.


8. Digital Radio Rocks

CEMA has spent many years investing in digital radio research and testing as we have the view that consumers want high quality sound on their radio. Research of DSS owners in 1997 revealed that they didn't buy DSS for the digital music, but 69% were listening to the music an average of 10.5 hours per week. Sound quality was the most important reason (52%) they preferred the music, ranking ahead of " no commercials" (31%).

I will spare you the history of seven years of digital radio research and political wrangling. Suffice to say that two companies have spent millions of dollars to buy spectrum for a satellite-delivered national digital radio service. We had questions as to whether this spectrum would work but the FCC relied on the fact that these companies wanted to put hard dollars up on the belief they would. A year later, I am not aware of any radio manufacturer who is committed to building radios for this service.

Local digital radio service is an equally complex debate. A successful service would equalize AM and FM sound quality and, absent a new grant of spectrum, must be able to coexist for some time with the existing analog service. While creative technologies have recently been proposed, we are concerned that they no longer purport to be "CD quality" but something more vague like "near CD quality" or "digital quality".


9. Trade Shows Make a Difference

This show, the CES and most other trade shows serve to expand the market by bringing buyers, sellers and media together. They are efficient and essential parts of any company's integrated marketing program.

In 1981 I attended my first CEMA Board meeting. The Board Chairman Ray Gates of Panasonic opposed increasing exhibit space costs as he said it was not an issue for his company - but he argued we must keep the CES low cost and affordable so anyone with a good idea can inexpensively exhibit at the show and potentially attract press, retailers and investors. He said the best ideas come from the garages of America.

We have tried to follow this philosophy in terms of how we produce the show. Our staff has been inspired by this mission, especially when industry reminds us of how we make a difference. Recently Thiel's Kathy Gornik captivated our staff with her story of Thiel's first CES where they had an idea and a prototype but no money for food and they got enough orders at the CES to successfully launch the company.

We have just entered a long term contract with the Alexis Park and the hotel will continue to make improvements so that by the 2000 CES we will have a new building available to us. Larry Archibald called the Alexis Park "a world class venue" and I am pleased that we continue to improve our services to the specialty audio industry.


10. Get Involved

Our Specialty Audio Subdivision has grown from a handful of members in 1993 to 178 members today. We have several active subcommittees and recently held a Audio Industry Summit which had 48 executives from 36 companies. The participants agreed that we would focus on expanding the industry in some non-traditional ways which may be announced shortly.

Our association is owned by and exists for the industry. As we shift in to the digital age, every industry participant has the opportunity to prosper and make a difference.

There will be winners and losers in the digital revolution. What will separate them may be their awareness, their openness and their involvement.

I have offered my suggestions for success in this revolution. I wish you well and I look forward to any questions you may have.

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