Identifying Legitimately High Fidelity Loudspeakers: The Economics of Cost Cutting

Serious Sound vs Serious Profit

This article explores the economics behind the speaker business and some of the cost cutting approaches loudspeaker companies make to maximize profits while still keeping the products affordable to the consumer.  It is our goal to help the reader decide if loudspeakers from their favorite manufacturer are built for serious sound or serious profit.  Speaker building, especially during the design phase is, if nothing else, an effort in compromise for all but those most expensive systems.  A good designer must weigh every choice in light of its cost, as well as its relative contribution to the overall performance of the system.   It does so with a historical perspective, considering what has come before, and taking into account the changes which have occurred in the marketplace over the last three decades.  We will briefly delve into the shortcomings that arise resulting from these cost cutting techniques, especially when they are poorly applied. 

Is Your Favorite Loudspeaker Manufacturer Cutting Costs to Maximize Their Profits?

The short answer to that is a resounding YES.  For an engineer to create a loudspeaker without compromises, he or she would need an immense budget, and the resulting enclosure would likely require a great deal of real estate.  These requirements result in an extremely reduced potential customer base because of both how much the customer can pay, and how much space they can assign to the loudspeaker to do its job. Even high end manufacturers offer different models for different budgets in acknowledgment to this reality of the marketplace.  It is, after all, common sense. The small condo across from the strip mall costs less than the 5 bedroom home on the beach in Malibu, CA.  The Bugati Veyron with 1000 horsepower is going to cost more than the small Kia with a 150 horsepower engine.  The controversy comes when manufacturers either make foolish compromises, or take reasoned intelligent decisions that are required by their budget, and follow them up with ridiculous marketing campaigns. Such campaigns often suggest their budget systems sound just as good as the very expensive high end, well-engineered systems employing little-to-no compromise which sell for more than $10,000 per pair. There are at least three good ways to describe such claims:

• Lying
• Marketing
• Hyperbole

Differentiating between these three is sometimes like trying to find the difference between six, and 1/2 dozen.  If you read or hear such claims, and do not view them with the cynicism they deserve, you may find yourself in the group of people WC Fields spoke about when he famously said, “It's morally wrong to allow a sucker to keep his money.”  Of course, the man was also known to say. “If you can't dazzle them with brilliance, baffle them with bull.” (as well as the more famous “Never give a sucker an even break.”)  Seems like WC Fields was the creator of the modern day snake oil school of selling.

The relationship between cost and price breaks down completely in the uber-high-end market where the biggest expense is in marketing as well as creating and maintaining a story which contains both features and benefits.  Most folks with a great deal of cash are not audio experts.  (Sorry all you wanna-be audio engineers, if you want to make a million dollars in audio, the best way is to start with $2 million and cut your losses).  So, how do you get the consumers' money?  A trip to Vegas to the CES high end displays in the Venetian is a great lesson in this art.  Here is a world-wide collection of people who have made marketing BS into a full time art-form (not everyone there, mind you).  For every serious person here with a reasoned rational sales pitch, there are perhaps 99 counterparts who are basically snake oil salesmen.  This is not the same as claiming 99% of the efforts are poor engineering efforts.  That is another issue.  It is to say often the stories used in selling have little or anything to do with the physics or actual performance of the speakers themselves.

One time during lunch with a client during a CES show, he asked me if I heard the $100,000 loudspeaker by company “x”.  I told him I had, and he asked me almost shyly: "So, what did you think?"  (This speaker had used compound loading on top of compound loading, so where you saw 1 loudspeaker, there were another 3 behind it).  "I thought the smaller cheaper one sounded a lot better", was my reply.  The client perked up and chimed in with “So did I!”, sounding as if I had just told him the Emperor had no clothes. It was now apparently "safe" for us to talk. People have the expectation that if a speaker is bigger and more expensive, it is also better.  Not so fast... it is not always so.  In the ultra-high-end market, the relationship between cost and performance is not so obvious or linear.  This does not mean you cannot compete with a $100,000 speaker with a $10,000 one.  And it also does not mean a $250 speaker has a chance against the $100,000 or $10,000 speaker unless the engineer who put together the expensive unit really did an incredibly poor job of designing.

Despite the fact that this is common knowledge among engineers who practice their art in this business; and despite the fact it may seem like common sense to most of our readers, there does and will continue to exist in the online audiophile community outrageous claims. Claims that you cannot buy a better speaker at any cost at price points where budget is making decisions on what parts you can afford to put in the box.  Those who have “drunk the Kool-Aid”, especially when their budgets won't allow for champagne, are usually the biggest followers of such false profits.  The only real profits, are the ones the manufacturers deposit from the sale of a high margin product. (The holy grail of retail).

Loudspeakers have some of the biggest profit margins in consumer A/V. Most of the big brands operate on a 40 to 60 point margin, meaning their speakers retail for $1000/pair, and sell at $750/pair (street price) while dealer cost on them is usually around $400 to $600/pair.  For custom cabinet finishes, the margins are higher still.  (Just like the options on that new car, when you go premium, the profitability to the dealership goes up.)  Don't assume that simply buying an Internet direct brand lowers the margins by "cutting out the middle man".  This isn't always the case, which can be seen once you open up and explore some of these products and scratch your head in wonder at how they can command such a high asking price. Don't get us wrong, there is nothing wrong with a manufacturer making profit.  The problem however is when they make excessive profit off of amediocre product and use pseudo science to justify it.

We broach this topic in: Revealing the Flaws in a Loudspeaker Demo and Double Blind Test

Budgeting Your A/V System

So, how do we educate ourselves as consumers so that we may spend our budgeted dollars wisely?  At what point do we look inside the box for answers?  How much could we actually tell if we could look? Should we trust the manufacturer's advertising?  Does the advertising even have a basis in reality?  What about those online reviews from magazines that never have any criticism of the products they review?  Should we trust them?  Maybe we can only trust our own ears?  Can we be fooled by what we hear if we are not trained as critical listeners?  Those are all very good questions.

Well, fortunately for Audioholics readers, you are not out in the cold all alone.  We call it like we see it.  Sometimes that gives us negative backlash from readers who are avid fans of products we criticize, and even more often, it costs us advertising dollars, but we remember who it is we serve first... YOU our readers, without whom we do not have a mission.

All education comes at a price, however.  It requires us as consumers to learn about the physics behind the reproduction of sound, and know what can and will influence our evaluations in the listening space, the program materials, and the other components used in the reproduction chain. 

Unless you have made some monumental screw-up in the acquisition of the components for your AV system, the weakest link is the loudspeaker.  (The room is usually running a close second).  The hard reality is that speakers have the most difficult job of any components in the reproduction chain. They are, even in state of the art components, an order of magnitude worse when it comes to producing undistorted sound than even an inexpensive receiver.  Of course, that is just the point, neither the receiver nor the source device  have the job of making sound.  What they do is store or amplify one electronic signal and end up as another modified but still purely electronic signal.  (one can argue here that the media is optical, but the bits, when processed, are still an electronic signal.)  Sound, of course, requires us to move air in a way analogous (yes, it is an analog process) to the way in which the air was stimulated by the original artist, or more precisely, captured by the microphone (which has the second hardest job in audio).  So why, if it is the loudspeaker which has the hardest job in the reproduction chain, it is not getting more attention and more of the consumer's budget?  That is, in large part, a result of not only the changing marketplace, but the way we as consumers have been educated (or misled) in how to go about evaluating a loudspeaker. 

As a rule of thumb, while most speakers reveal frequency and polar issues at any level, the may hide their output limitation issues unless driven very hard, sometimes requiring they be abused for long periods of time before showing the signs of deteriorating performance.  That is something consumers rarely (if ever) do in practice, for obvious reasons.  The result of which is they go home with products that will sound very different in the home than they did in the store.  What doesn't help is most review magazines only measure loudspeakers at very low drive levels, so you never get to empirically see their misbehavior.

For more information about this topic, we suggest reading:  Audio Measurements: The Useful vs the Bogus

How one's budget is divided among components has always been a pet peeve of mine.  Consumers are quickly willing to pay nearly double for twice as many watts from a power amp (the price per watt calculation), yet ask them for 50% more on the price of the loudspeaker when you increase its sensitivity or power handling by 3db and you are likely to get looked at cross-eyed and with great suspicion (unless the product looks quite different from the outside!)  Despite this marketing reality, doubling your efficiency while increasing available excursion from your loudspeaker is a far more effective way to double your output than is doubling your electrical power from (for example) 400 to 800 watts.  Simply put, the loudspeaker may convert a smaller and smaller percentage of power into sound, and a greater percentage into heat as power input levels rise.  In order to get  higher efficiency, we  will require a larger box, better drivers, a better crossover, and all of these improvements cost more than their discount budget cousins.

The Costs of Production

So back to our 50 point retail “markup” speaker. (Remember too, the retailer is not buying the speaker for what it cost the manufacturer to produce it.  The manufacturer also has their mark-up to maintain a profitable business. Since it is often the case that the manufacturer has a relatively small percentage of the retail cost in driver parts invested in the speaker system, they must make critical decisions on what aspects of parts matter most to produce the best sounding speaker for the budget that they have to keep themselves within.

Assuming the manufacturer works off a 50% margin, (meaning it sells at 1.5 times his cost) and produces a speaker for $150.  From that, he has to take his profit, ($50) his cost of production, which includes labor (employees), overhead (rent), taxes (God help us all), the box it ships in, the warranty card, the returns allowance, insurance, and let us not forget that marketing budget which can go anywhere from 0% to 90% of the cost of the speaker system.  If the manufacturer sends it through distribution (meaning the product sells in a brick and mortar store), that adds another 50% to the final cost paid by the consumer.  By the time we have built a finished $600 retail box, the amount of money left over for actual components (drivers, crossover, etc) may be no more than 10% of the retail price.  In other words, that $600 retail speaker likely has no more than $60 in speaker components in the box.  (Even less, if the speaker is self-powered).  If your box is powered, the amp is often more expensive than your speakers by a factor of two or more. 

Most vendors have a product line which may include both profitable and profit losing items, and often they are unaware they are losing money on some of the product line.  What they do know, is that for every “X” number of dollars, the product costs them, after taking into account all their overhead and expenses, and leaving room for profit, they will calculate the retail price based on a multiplication factor.  (If the speaker costs me $100, it must sell for $499 retail in order for everyone to make a buck!)  It was my comprehension of this process combined with a lack of disposable income as a young college student which led me to the inevitable conclusion that I ought to build my own speakers, and thus began my career in audio as an amateur loudspeaker builder in the 1970's.

Since the average guy has no idea what compromises get made in the process of the creation of a loudspeaker system, we are left with the reality that what influences the purchase decision most is the image the buyer associates with the brand, and the perception of the consumer as it was influenced (by either advertising or what he has read on forums) prior to his trip to the store. 

Recently while getting a haircut, my barber proclaimed his new Bose speakers to be the greatest thing since slice bread (OK, I am paraphrasing here).  When I asked him why, he told me because you no longer have to put loudspeakers all over the room to get surround sound, because he gets it with the speakers included inside his new TV.  Some months ago I visited Tom Holman at the Verterbi School of engineering at USC.  Dr. Holman was using 14 speakers for surround, and was thinking of proposing 10 in the next surround standard.  After some discussion, he left me with the distinct impression he believed if you want it to sound like surround sound, the best way is to add another channel and another speaker (within reason of course).  Yet, here is my barber (local audiophile and scissors expert) who bought the Kool Aid the local salesman offered him (no offense to the good folks who make their money selling sugar mixed with a great deal of dye of course, but since the Jonestown suicides, it is my expression of choice).

It's What's Inside the Loudspeaker that Counts

So what can you do as consumers?  How do you know when you are buying the right speaker?  Can you tell anything from looking inside the box?  Yes, a great deal can be determined by looking inside the box IF you can appreciate what is value and what is for show.  A shiny high polish nickel or chrome plated backplate or gold push button terminals on the frame might be pretty, but gives you little clue as to the actual components value.  Still, you have about as much chance getting a car dealer to let you remove and examine the spark plugs from a new car as you have getting an audio dealer to let you take apart his speaker system.  A reviewer, trained and knowledgeable in his art, with the right equipment, can take apart a system and appreciate the strengths and weaknesses.  If that reviewer gets better treatment by the manufacturer for a good rather than a bad review, he/she may have compromised objectivity.  He may be overly emphasizing product positives, and neglect to point out a products weaknesses despite seeing them.  It's a fine balancing act all A/V publications must manage to avoid becoming blacklisted and never receive subsequent samples from the manufacturer under review.

What Can We Tell and Not Tell Looking Inside the Box?

What are some of the things we can tell from looking at the speaker parts inside the cabinet that can give us a clue about how much the company has spent on the drivers inside the box?

Besides the frame, which can usually be seen outside the box (but only if you examine the edge of the woofer frame which circles the gasket), if you can remove or peek behind the grille cloth, opening up the speaker will give you a good idea of how much time it took the manufacturer to put together your speaker system.

• Does the crossover use Magnetic core inductors? (Iron, or steel or ferrite cores)
• Are the capacitors Film or Electrolytic? (Often both are used)

• How many parts are used in the crossover? (More does not necessarily = better, but a 2 part crossover is absolutely a cost compromise, and not a no holds barred approach.)

• Is the low and mid frequency driver using machined or stamped or forged metal parts?
• How big is the voice coil? (height and diameter both count)
  
• How big is the magnet?  (You cannot tell from looking if it is high or low quality, only size)
• What gauge (size) wire is being used to connect the drivers to the crossover board?
• Are the connectors on the speaker high quality ones capable of handling high currents or a pull force on the connectors without dislodging the terminal board?
• Did the manufacturer use screws or t-nuts to mount the driver, and how many?
• What kind of insulation is being used, and how much?  Where is it used, and would the box benefit from more of it?
• Is the motor using a high energy magnet like Neodymium or a larger heavier magnet like Ceramic 5 or 8? (Ferrite)
• Is the motor of the loudspeaker vented?  How is it vented?
• Is the central pole (inside the voice coil) vented?
• Is the backplate vented? (The backplate is the large diameter metal plate on the bottom of the speaker, and is sometimes vented in addition to the hole in the central pole, sometimes called the pole piece).
• Does the frame (basket) actually do its job in helping to dissipate heat from the motor structure?
• Does this woofer (LF only) use double or single spiders? (Double spiders offer appreciably more resistance to the voice coil or cone rocking, making for less chance the VC will destroy itself)
• Is the port in the right place and unobstructed by bracing or box stuffing?
• Is the port flared, or does it have sharp corners which can increase distortion?

Now while there are literally hundreds of tick marks we could use to see if our speaker should go into the serious sound, or serious profit category, we must remember there are a whole lot of things we as consumers cannot see when looking inside the box also.

• What kind of parts are used on the voice coil? (The heart of your loudspeaker).
• Was the glue line applied by machine (usually straight and constant) or by hand?
• What kind of glue is used to hold all the disparate parts together?
• What kind of internal clearances are allowed for the moving parts?
• How much overhang (Xmax) and maximum available travel (Xlim) does the product have?
• How concentric is the voice coil gap? (important for multiple reasons)
  
• Are the voice coil windings laid down perfectly, or are there unintentional skips and wiggles in the wire?
• Was the motor designed compromised so the manufacturer could use and stock fewer parts than would be ideal had those choices been performance based only?
• Did the designer leave adequate clearances so that all parts in tolerance when assembled will make a working unit? (you may be shocked to know, this is actually less common that you might think.  Often success is due as much to luck, as anything else with poorly designed products).
• Are the parts that are supposed to be oriented in parallel, parallel, and those parts that are to be perpendicular, perpendicular, or is there an angular error caused by or allowed in the production of the product? (one of those ills which may reveal itself ONLY at very high drive levels).
• Did the factory use a sophisticated quality control process as a final test before boxing and shipping, or did they simply plug it in and made sure it made some noise before clearing it as OK?

Poor Design Execution

Aside from just physically examining the parts inside the box, it is also important to understand the design philosophy and goals the manufacturer has for its products.  We have actually reviewed speaker systems utilizing very high end drivers and exotic parts with superb cabinetry which on paper should have all added up to an excellent sounding system only to be sorely disappointed in design execution mistakes.

Example of a quality loudspeaker driver not meant to be used as a bass driver

One particular example that recently comes to mind is from a high end online loudspeaker company utilizing a fabulous SEAS mid woofer as a bass driver in a tower speaker that was tuned too low causing the driver to bottom out if played at output levels exceeding 75dB 10 ft away from the speaker in a moderately large theater room.  In our opinion, the woofers in a well engineered system should never bottom out, nor should they ever try to reach beyond their designed bandwidth.   The driver shown above is a wonderful midrange driver, but its not well-suited for bass frequencies based on its limited Xmax and Xlim characteristics.  Yet, this didn't stop the manufacturer from employing it in a floorstanding speaker tuned to play full-range.

Part of the reason this happens, is because frequently the requirements for a good midrange, are opposed to the requirements for good low frequency performance from the same size driver.  Mass, cone geometry and depth, cone flare, voice coil length and inductance, moving mass, all of these parameters of the speaker designed are going to influence its ability to reproduce accurately either mid or low frequency sounds.  Expecting one speaker to do both optimally is an unrealistic expectation, and the employment of a speaker optimized for one purpose in a box too large reaching too low is asking the driver to do more than its designer had envisioned.

Editorial Note about Xmax & Xlim for Driver Mechanics
The maximum amount of usable excursion before unacceptable levels of distortion are reached is known as Xmax, and is measured typically in millimeters.  This is based mostly on the height of the voice coil, and the thickness of the top plate. Xlim, however, is how far the speaker can travel mechanically before it ends up creating damage to itself.

Was the crossover designed correctly?  Did the manufacturer avoid extremely low impedance dips (under 3 ohms, especially at low frequencies) where amp power would be gobbled up needlessly?  Did they make the mistake of running a midrange driver full-range which causes it to exceed its excursion capabilities and allows it to play audibly into its break up mode, (high and audible distortion), while also dropping low frequency system impedance?

Example of a Poorly Designed Budget Crossover Network (Left Pic) & a High Quality Crossover (Right Pic)

The crossover (above left pic) is from a two-way bookshelf speaker system costing in excess of $350/pair.  The speaker system employs a stiff cone driver which has no crossover circuit (namely a Low Pass Filter) on the woofer to limit its bandwidth and reduce its audible break up mode.  We've even seen variants that employ electrolytic capacitors in series with the tweeter which, in our opinion,  is done solely for cost savings as these parts have higher resistance and performance variances than quality and more costly poly designs.  This is the type of network you'd expect in a $150/pair of speakers at Walmart and should not, in our opinion, be part of any serious high fidelity loudspeaker.   The crossover (above right pic) utilizes high quality air core inductors and polypropylene capacitors.  The midrange drivers are correctly bandwidth limited to ensure the breakup modes won't be audible even at high drive levels.  Notice this crossover (right pic) uses multiple poly caps stacked in parallel which gives an equivalently larger value needed for the proper roll off characteristics, but also greatly reduced ESR (Effective Series Resistance) to further reduce losses. 

It is important to remember as consumers, there is a big difference between an engineer getting a few samples correct versus designing a product with all the tolerances calculated so that everything assembled turns into a working unit.  Making a good pair of speakers is one thing.  Designing a process where every speaker is a clone of its prior unit is something else again.  One of the most important things we can do as consumers to protect ourselves, is getting that money-back guarantee.  If we know nothing technical, at least we know when we get the speakers home, if they are not performing to our delight that we can return them. Before you buy, ask, and be sure to ask if they also charge a re-stocking fee.  In our opinion, a liberal return policy is a valuable asset that is a must when buying loudspeakers.

Small is the new BIG

You might have spent $1000 for that new computer, which includes "speakers” which were likely made in China for less than 50 cents each.  Despite this, there is no shortage of people claiming that 24 bit 96 Khz digital audio is always far superior to the old 44.1 Khz 16 bit audio, making this judgment while listening to speakers which may be far less in quality than even a $30 sound card or $400 receiver.

How could this have happened?  Many years ago when audio engineering was in its infancy, a 10 watt amplifier was a big deal, and a 10 cubic foot box was no big deal, it was the norm.  Audio engineers had to fill that theater with people, all willing to pay their nickel to see the talkies (talking movies) on Saturday, and have the sound loud enough for everyone to hear over their own laughter.  The speaker boxes were HUGE, and incredibly efficient.  With the advent of higher powered receivers, and “air-suspension” loudspeakers, (which became popular in the 60's and 70's) we could suddenly get high fidelity sound into smaller and smaller places.  Suddenly, the big boxes were ugly and unpopular.  After the 1980's when “what happened to audio was video” - (Greg Timbers, Sr Transducer Engineer JBL- 1984), and small and thin were in.  With a smaller box, you will need a smaller lighter cone.  With this, you need less magnet force to move the speaker about.  When we decided to allocate most of the living room space for the big screen TV, the big block boxes of the 70's went out of favor, and slim was now very much in.  The loss of cabinet volumes meant efficiency had to drop, and with it we lost the ability to create moderately priced systems which could play very loudly.  While the advent of home theater systems brought new customers into the market, it also put pressure on the designers to come up with boxes that could “fit” above the TV or to the side of the entertainment center without taking up real estate.  So, how do you fit a 15 inch woofer into a box 10” wide by 12 inches deep?  You don't unless you mount the driver on the side of the cabinet which of course increases cabinet depth and raises yet another issue, a box sticking out further than the furniture it's supposed to blend in with.

With Asian vendors having very low overhead and labor costs entering the loudspeaker market, this destroyed a great deal of American manufacturing by undercutting prices and profitability.  China devalued their currency in the early 90's, nearly halving its value, so at this point in time it became less expensive for a loudspeaker manufacturer to buy the finished unit rather than build it himself from US sourced parts, hence the death of the loudspeaker business in the USA.) Actually, the State controlled reduction in the value of the Chinese currency destroyed much manufacturing, not just the audio business. 

The business model has changed.  Engineering is now mostly concerned with making sure what we get from Asia is repeatable and reliable.  The budget for speakers has been reduced substantially, as costs have been driven down repeatedly over the last three decades.  So, why then, with a speaker which cost $280 in 1983 dollars, and only $200 in 2011 dollars do we see this reduction in quality over the past 30 years?  Would not high quality then cost less, making it more accessible to all?   It does, but because the public has continued to drop the bar on its expectations, the reverse has happened.

Urbanization and maturation of the population (meaning we guys got older and married) has resulted in a buying public which wants a slender tall and pretty box, that looks good next to the Hi Def TV.  Looking good is surely more important than sounding good! This means the actual investment in parts inside the box keeps steadily declining as a percentage of what the consumer spends on the sound system, while engineering is expected to do more and more with fewer and fewer dollars.  The value of the sound has been reduced while the value of the appearance has been elevated.  The speaker business has gone from the science of manufacturing to the science of understanding consumer perceptions. 

What's Next?

In part II of Identifying a Legitimately High Fidelity Loudspeaker we will examine some of the common marketing myths surrounding loudspeakers.  In Part III we have a more in-depth discussion of driver mechanics and how they relate to overall performance as well as wrapping up everything we discussed in this article series.