January 2019

The Long View
Are audio systems too expensive?
Article By David Schwartz, Member Of Gotham Audio

  Is audio equipment too expensive? I've always thought so, but then, I grew up with a 1950s mentality. In 1958 my first (mono) system cost me about two hundred bucks to assemble. The only new items were pre-amp and power amp kits, purchased at a discount on Cortlandt Street, New York City's famous "Radio Row". The rest were either used or discontinued components. Although that may seem cheap, it's really not. $200 in 1958 is the equivalent of over $1600 today. For that price now, I could easily put together a stereo system using with only new factory assembled components purchased at list price, which would sound a lot better than that first system.

The fact is audio gear was never inexpensive. My Eico HF-61 preamplifier kit pictured above cost me only $20 discounted. This was the cheap version of the pre-amp. Lacking a power supply, it had an umbilical cord to be plugged into an octal tube socket on the back of a power amp. The assembled unit with its own power supply listed for $45. The discounted cost of my Acrosound 60 Watt Ultralinear II power amp pictured below was $60, $100 list assembled. Those prices may not sound expensive, but consider that in 1958, $15 bought you a five tube AM radio, and a decent phonograph could be purchased for under $100.

Most consumer electronic products have a history of decreasing prices. My 1966 19" Panasonic color TV sold for $400. Today a 42" hi-definition flat screen smart TV goes for half that price. VCRs and DVD players, once expensive, became disposable as the price dropped. A new iMac costs about the same as my original Apple IIe with monitor and floppy drives. Unfortunately, this has not been the case with high end audio gear. Compared with other electronics, hi-fi is expensive. Why is this so?

One reason is economy of scale. For any product the costs of R&D, tooling and promotion must be repaid to make a profit. That's why Klipschorns, manufactured since 1946, sell for only $6000 each today. The more you sell, the less those costs add to the product's price. In addition, your manufacturing supplies cost less when purchased in greater amounts. Thus large manufacturers such as KEF or ELAC can produce good sounding affordable low priced equipment. Unfortunately, no audio manufacturer can reach the volume of mass electronic items like flat screen TVs or Amazon Echos.

Another reason is that our hobby is no longer popular. When demand for a product decreases, the manufacturer can either reduce prices requiring him to increase sales, or sell less units of more expensive products. If you are having trouble staying in business with a $2000 product, selling less of a $5000 product is easier than trying to sell more of a reduced price item. Prices were quietly raised by introducing new improved models. This happened with most with most audio gear. For example, as CDs replaced LPs, turntables, arms, cartridges and phono preamps all became more expensive. Now that LPs are enjoying a revival, more affordable turntables are available.

Also, audio playback equipment is based on mature technology. The few advances that can reduce prices, such as switching amplifiers and digital signal processing, have been around for at least ten years, and are beginning gain acceptance. We have no Moore's Law resulting in continuing advances. Improvements have been slow and costly to attain. The law of diminishing returns applies. As products improve, further improvements become more difficult to obtain and costlier to produce. Consider the improvements gained by tenfold price increases in an amplifiers. Going from $5 to a $50 one will produce a major improvement, going to $500 will produce a smaller but substantial improvement, $5000 a small noticeable change and $50,000 even smaller. Getting that last bit of performance isn't cheap.

Finally, retailers found it was easier selling costlier equipment to more affluent customers, than less expensive products. I learned this the hard way. In the early 1990s I sold compact audio systems out of my Manhattan apartment. These systems featured 11" tall three-way ITC One compact loudspeakers selling for, a then expensive, $1200 a pair. I decided to expand and also sell less expensive Fried betas, a three box system with a woofer cabinet, costing $700. The ITC buyers, liked what they heard, could afford to buy them and did. The people who heard the Frieds needed assurance that these were the best speakers they could get for that price and wanted to know how big a discount I could offer them.

What we think of as price increases, are really expansions of the market into higher price categories, while still maintaining the lower ones. It seems that if you're just starting out, prices are pretty reasonable. It's when you really get into the hobby that prices can enter the stratosphere. Phono cartridges used to cost a penny when you bought a turntable, but in reality it was just an attractive way to offer a discount. That so-called free $25 cartridge can be bought for under $50 today, yet top of the line cartridges cost thousands of dollars. Similarly, decent sounding loudspeakers can be bought for less than $500, yet there are many speakers costing over $100,000. The same holds true for just about all types of components.

Audio magazines further add to our conception of expense by featuring reviews of the most costly devices. Although their readers possess far more moderately priced equipment, the publishers claim it sells more magazines. They're probably right. We love reading about what I call aspirational systems. We line up to hear them at audio shows, even though they most of us don't have rooms big enough to accommodate those systems that cost more than our houses.

So, are audio systems too expensive? They really never were cheap and, yes, quality costs. There will always be ultra-luxury systems available to the fortunate few. They are outliers and should not be considered in judging the value of audio equipment. Low priced components offer great value, and sound better, than ever. Yet, compared with other consumer electronics, they are expensive. Better, more costly to produce components have to deal with the law of diminishing returns and decreased demand.

Much of this equipment, though more expensive, is still affordable. Although we are seeing some price relief due to manufacturers selling direct over the internet and through Amazon, we will never reach the low prices of mass market items.

-- David Schwartz
Member Of Gotham Audio