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Designer headphones: Dr Dre’s creation of a market for costly cans may herald the return of true hi-fi; In America the company now has almost half the market for premium-priced cans, compared with 21% for Bose, a longer-established maker

Designer headphones: The sound of music

Dr Dre’s creation of a market for costly cans may herald the return of true hi-fi

Aug 24th 2013 |From the print edition

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FOR decades the market for expensive headphones was mainly limited to hi-fi buffs. But now that the boxy stereo system in the corner of the bedroom is largely a thing of the past, and young music fans listen mostly on portable devices, headphones have become as much of a fashion statement as the music player itself. Among the first to spot the potential of this market was Dr Dre, an American rapper-cum-tycoon. In 2008 he and Jimmy Iovine, a record producer, launched their Beats range of headphones, to great success. They have all but created a new product category: premium-priced ($100-plus) cans whose sound quality is good enough, but which mainly sell on their brand image.Beats Electronics and its founders have proved adept at using celebrity endorsements and product placement to plug their headphones. In America the company now has almost half the market for premium-priced cans, compared with 21% for Bose, a longer-established maker. Beats headphones are bassy: that’s what hip-hop fans want, but might not suit opera lovers. Overall, though, they are a lot better than the earbuds that come free with most portable devices.

There is in any case a limit to how good music will sound through even the best headphones. Most of the music tracks on portable music players are in the form of mp3 audio files, in which the music has been compressed to make the files smaller and thus fit more of them into a given amount of storage capacity. Jim Anderson, a sound engineer who teaches at New York University, first plays his students an mp3 music file through good speakers, and then an uncompressed master recording of the same song: they are amazed at how much they have been missing, he says.

Since consumers have been persuaded, largely by Beats, that it is worth paying a fair whack for some half-decent headphones that look nice, perhaps they could be persuaded—especially since the storage capacity of many portable devices is now huge—to turn their backs on cheap mp3s and seek out recordings in true high fidelity. Linn Records, an online distributor of high-resolution music files, sold around 60,000 songs between April and June of this year, most of them in the FLAC format, which compresses the music lightly, saving a bit of storage space, without any loss of quality. Apple’s iTunes has a similar, though slightly lower-quality offering.

If sales of these hi-fi recordings take off it may boost the market for really top-notch cans like those of Grado Labs, another American firm. Grado has for decades relied on reviews in specialist magazines, and word-of-mouth recommendations from fans, to spread news of its headphones’ faithful reproduction. In contrast to Beats, it has eschewed image-making: it has not advertised since 1964. Unlike Dr Dre, then, its fortunes are less tied to the fickle tastes and fast-changing fashions of the young.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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