EXPERT ADVICE
When the Home Entertainment Systems Market Rebounds

Sales and revenues for the home systems channel will decline in 2009, just as they did in 2008. Many projects will be postponed or canceled this year. There will a decline in revenues of over 5 percent from 2008 to 2009. That's the bad news.

However, integrators and manufacturers should not build their strategic plans based on "doom-and-gloom" headlines. Parks Associates expects the market will start to recover in 2010.

In 2010, pent-up demand for home systems will push residential sales for home systems up for a nearly 12 percent increase -- and it will continue to grow over the next few years.

Serving the Market

However, there is one important question to ask: How do we get to that point?

For one, integrators and manufacturers should pursue projects in existing homes and multifamily residences. In 2008, over 30 percent of new home starts were multifamily construction. There are integrators already capable of serving this market, but they require systems designed specifically for this segment -- low interference, simple, no-new-wires installation, etc.

Beyond the specific units, MDU owners and managers are adding theaters, sound systems, and gaming rooms in common areas in order to enhance their properties and attract more residents, so there are opportunities for a variety of different systems and technologies.

To serve this market, integrators and manufacturers can form unique partnerships -- manufacturers should consult with dealers serving this market so they can design their offerings accordingly, and they in turn can recommend these dealers to new clients. This synergistic relationship would build off their common interests to create a larger market for home systems overall.

Energy Management

Secondly, integrators and manufacturers should both be very familiar with the options and consumer demands in energy management -- and if they are not familiar with this service area, they need to learn quickly.

Big players -- from AT&T (NYSE: T) to Zilog with GE, Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG) and Verizon, among many others -- are getting into the energy management business. These companies offer significant coverage for this application, but integrators have a unique role -- that of a consultant to their customers -- which gives them a strong advantage in this space.

The consultant role is a very different relationship than what people get from employees at a walk-in retail store or even customer support agents at a massive service provider. Integrators should leverage their unique role in the residential market to provide their customers with the best advice on how to get the most out of an energy management solution.

The "best advice" goes beyond knowledge of current solutions to include knowledge of a specific construction, the vagaries of its local environment and power policies, and the needs and wants of individual customers. If the power frequently goes out on one residential block -- but not at another row of houses two blocks over -- who is in the best position to know and use that information? Integrators are in an excellent position to handle such specialized needs.

Watch the Trends

Finally, integrators should be familiar with new technologies and the options they enable. New wireless and power line technologies make possible many of today's retrofit and MDU projects, including many low-power, data-centric approaches (e.g., ZigBee, Z-Wave, Echelon). However, there are also many new technologies serving no-new-wires A/V (audio/visual) distribution systems.

In-home entertainment is another key area for integrators. With consumers overall spending less on outside entertainment, their in-home options become much more important. Parks Associates' recent findings in this market show dealers are well ahead of the curve in this area.

Of the networking technologies designed for A/V distribution -- most notably 802.11n WiFi technology -- the vast majority of U.S. dealers are familiar with this technology and nearly one-third claim to be very knowledgeable about it. They certainly view this version as an improvement over current WiFi technology.

Manufacturers should keep their focus on the dealer channel to watch these trends. This channel is a good bellwether for adoption of specific residential technologies and a guide for future technologies that have mass-market potential. In 2007, many felt that the success of wireless systems would be in the distant future, but now with dealers in the mainstream A/V market more open to adopting wirelessly enabled systems, these technologies will likely see a rapidly increasing market share, especially as they can enable retrofit installations in locations where walls would block new wires or renters would otherwise forgo an entertainment system.

In the end, achieving recovery requires vigilance, not pessimism. 2009 will be a long and difficult year, but on the other side is a home systems market that will reward solid, long-term business strategies.