Those magazines are long gone, partly as victims of being too early to market and partly because the publisher, Primedia, was in the process of imploding—it is out of the consumer magazine business now. Not too long after their demise, I took up with BIG BUILDER and began writing this column, which, at its onset, was dedicated to all things digital home. We expanded its scope to cover technology in general, but from time to time—like now—it jumps back into the digital space.
The Custom Electronics Design & Installation Association (CEDIA) recently held its annual convention and trade show in Denver, which drew more than 25,000 attendees despite the struggling economy and housing downturn. So, I decided to take the temperature of this business segment with the notion that, despite the downturn, there still must be demand for all things digital.
Indeed there is, but it's not quite the same demand that existed two or three years ago. Ray Lepper, president of Richmond, Va.-based Home Media Systems and chair of CEDIA's Industry Best Practices Committee, says that his business is down about 20 percent, which he believes would be a good estimate for the industry as a whole. “The small stuff —the simple stuff —is gone,” he says. That would include “the two guys with a truck” who specialized in doing flat-panel TV and surround-sound installations in lower-priced homes.
At the higher end, however, Lepper says demand remains strong. “The expectation for built-in electronics systems is as high as it has ever been,” he explains. “But nobody is in a hurry to sign a contract. If they can delay it for a month, that's what they do.”
According to CEDIA's annual benchmarking survey, home builders remain a chief source of business, tied with existing customer referrals for the top position with 75 percent of builder contacts turning into contracts. However, the mix in demand for services offered by CEDIA members has changed, with home theater/media room projects now tied with distributed audio/video systems at 26 percent apiece. The home theater/media room category used to sit alone at the top of that heap.
Systems integration has crept into third place with a 13 percent share of projects. Lighting control is at 7 percent, security/CCTV at 6 percent, home networking at 4 percent, and telephone systems at 2 percent.
Interestingly, in an increasingly wireless world, structured wiring came in at 12 percent. Lepper says that is as it should be. Wireless still suffers from interference problems and is not 100 percent reliable, particularly for video and audio. “If it ain't gonna move, get a wire there,” he says. However, he adds, “Some people made too much about too little and kind of overcooked the thing. You don't need as much wire, as many phone jacks and TV jacks [as was once thought].”
When the new-home market comes back, builders should find good revenue growth in the digital space—at least in the move-up and upper segments. According to the CEDIA survey, on average, cost of goods sold represents 68 percent of its members' revenues, with equipment and materials—the primary component—at about 40 percent of revenues.
That's a pretty strong margin, and with digital home systems typically running between 3 percent and 15 percent of the purchase price, the dollars can add up fast.