CEDIA’s research efforts are working to put hard numbers to the trends happening in the industry, and CEDIA emerging trends experts are reading between the lines to translate what it all means for your business plan.

With the latest CEDIA Benchmarking Survey reporting that electronic systems contractors (ESC/Ps) saw a revenue increase of 13 percent from 2009 to 2010, there is a whiff of cautious optimism in the air. What’s more, the survey results also indicated a rise in profit margin from 3.5 percent to 4.1 percent over the same period.

While stats like these tell us things are starting to look up, there’s no doubt that we are in a new normal. Beyond the havoc created by the housing market, factors both within and outside the industry are creating new long-term challenges, and ESC/Ps must be prepared to adapt.

CEDIA’s research efforts are working to put hard numbers to the trends happening in the industry, and CEDIA emerging trends experts are reading between the lines to translate what it all means for your business plan.

We talked with CEDIA’s Senior Director of Emerging Trends Dave Pedigo to shed light on some recent CEDIA research findings.

Q. Despite fears of decreasing profit margins as stated by many CEDIA members, the last few years of CEDIA’s Benchmarking Surveys show that profit margins are currently healthy. Do you expect this to continue?

A. According to our Benchmarking Survey, the actual margins on products are not as dismal as many are making them out to be. In fact, we’ve seen very little change in margins. With that said, we expect to see mild (and in some cases moderate) margin decreases across some of the traditional product offerings, mainly due to increased competition and consumer demand.

According to our data, many (ESC/Ps) whose businesses are unprofitable have unsustainable operating costs as a percentage of their gross revenues and instead of focusing on better business practices, chase increased sales, which often increases the work but not net profits. If, as we speculate, profit margins do end up decreasing, ESC/Ps who do not have efficient business practices with well-managed operating expenses may have a difficult time staying in business.

It’s not all doom-and-gloom, though. Despite the threat of commoditization and falling prices, there will always be plenty of high-performance products in our industry that will have healthy margins. Also, some of the newer products hitting the market have the opportunity for recurring monthly revenue, which can go a long way toward helping business stay profitable long-term.

Q. A recent CEDIA survey showed that 32 percent of manufacturers (with applicable products) said over half their products would be network-capable by 2016. What are the implications for ESC/Ps when it comes to increased emphasis on the networked home?

A. I was actually surprised to see this number at only 32 percent. We expect that networking and IP will become pervasive in most products, and mobile devices will become primary interfaces for electronics installed in the home.

One implication of this trend is that ESC/Ps must significantly improve their mastery in all forms of IP to open up new categories of business, such as data security. In the future, we’ll have to do more in the home from a network perspective than we have ever done before.

The move toward the networked home will also bring new categories for recurring monthly revenue. Not many CEDIA members are in this space right now, but it’s worth pursuing for the long-term health and profitability of your company.

Q. Between 2007 and 2010 home theaters and media rooms declined by 37 percent as a percentage of CEDIA members’ annual gross revenue*. What might be causing this decline? What does it mean for the future?

There are a few main points of pressure we’re seeing. One is the cost of video has plummeted over the last few years, and is now at a point where most products offer very little margin. A second reason is the decrease in new housing starts. Several less obvious factors may be saturation in the market and limited television-specific innovations over the last few years.

One trend to pay attention to is the potential shift away from dedicated home theaters in favor of more open media rooms. While clients may want the more social environment offered by media rooms, high performance shouldn’t be neglected. The skill set required to deliver these rooms will not vary greatly from the skills of today’s experts, but more engineering and design work will be required to deliver high performance in a less predictable space than the traditional home theater layout.

Q. According to the latest Benchmarking Survey, remodeling and retrofit work in existing homes continues to be the leading source of revenue for an ESC/P company, making up 63 percent of gross revenue. Will this reliance on retrofit continue into the foreseeable future?

The increased reliance on retrofit work has been one of the more visible effects of the struggling housing market on our industry. Retrofit work as a percentage of gross revenue increased by nearly 17 percent from 2009 to 2010, according to previous CEDIA Benchmarking Surveys. In the coming years, retrofit and remodel work will continue to be a mainstay of the ESC/P’s business as new housing construction is not expected to return to the all-time peak production levels seen in 2007 at any time in the next five years**.

The bottom line is that while we do feel there is some light at the end of the housing market tunnel, the rebound is nowhere near as elastic as we’d like to have seen. In next decade, we expect steady but slow growth in new home construction. ESC/P’s might expect to do primarily retrofit work for rest of the decade.

*Source: CEDIA 2011 Benchmarking Survey®

**Source: Harvard Joint Center for Housing; November 1st, 2011

As if LED and 3D TV weren’t confusing enough, 2012 and beyond will bring an HDTV technology called 4K. It’s being heralded as the next high-def, and manufacturers are already lining up to bring you products.

But just as was the case with 3D, it’s the hardware chicken before the software egg: there’s no consumer 4K content available. Still, if you listen to the industry, it’ll tell you it’s the last resolution you’ll ever need. So what is 4K anyway, and what makes it different from high definition?

Digital resolutions: A primer

The latest in a line of broadcast and media resolutions, 4K is due to replace 1080i/p (1,920×1,080 pixels) as the highest-resolution signal available for movies and, perhaps, television.

JVC’s newest D-ILA projectors – the X30, X70, and X90 – represent a remarkable advancement in both technology and value. They offer improved contrast ratios, improved 3D capability (including built-in 2D-3D conversion), and JVC’s 4k e-Shift technology in the X70 and X90. And, a new price structure makes it easier than ever for consumers to step up to JVC quality.

I’d like to take this opportunity to invite you to sign up with Gencom as a JVC reseller. The attached PDF includes a printable version of this letter, “Stockist” and “Non-Stockist” price lists, and a Credit Account form, for your review.

Product literature can be provided on request, and additional information about the X series can be found at:

http://www.jvc.com.au/x-series/index.html

• Len Wallis (Len Wallis Audio)
• Steven Hill (Technology in Design)
• Clare Ward (AVARNTI)
• Alexis Caldwell (Leisure Tech Electronics)
• Nathan Gil (Automated Innovation)
• Doug Isaac (Sydney HiFi ASV)
• David Rybicki (Clipsal by Schneider)

“CEDIA created the ESC/P of 2016 white paper to serve as a tentative road map illustrating potential opportunities and threats for our members that will emerge over the next four to five years.” said CEDIA Senior Director of Emerging Trends, Dave Pedigo. “Some companies will be able to continue working in their core competencies, others will diversify. The end goal is to provide our members with information that they can use to remain competitive and successful.”

The white paper is organized into multiple sections focusing on major shifts in the market place, traditional sources of revenue, and emerging market opportunities.

One major shift outlined in the white paper is the arrival of the truly “connected home” by 2016. Homes will require very sophisticated, robust, and secure networks within the home that move data and content seamlessly from permanent and mobile devices. Many current ESC/Ps do not have the in-depth knowledge of Internet Protocol (IP) required to design the connected home and thus are not ready for their clients’ needs in five years.

Integration and control, a traditional source of revenue for ESC/Ps, will change dramatically over the next five years, with touch-panel and mobile devices supporting new modes of interaction with home electronics. The ESC of 2016 will see a new era of user interaction as touch interfaces will no longer be necessary.

An emerging market opportunity for the ESC of 2016 will be leveraging energy-monitoring solutions and smart meters. The ESC of 2016 will present integrated whole-house technology proposals for clients that give them not only the total initial installation costs but also the annual operating costs of systems.

We have all seen those science fiction movies set in the future where robots are smarter than humans and don’t need humanity to survive. But are we getting any closer to that vision? Are humanoid machines with greater intelligence in our near future?

The proof is in the pudding with IBM’s Watson. Watson is a distributed parallel computing system that won against all-time Jeopardy champions and is being put to use in drug discovery, law research and customer service. In addition to Watson, various Kinect powered robots and robots to take care of the elderly are also emerging.

We can see from these examples that although robots have gotten smarter, they are still not anywhere near human intelligence. I believe we are at an inflection point though, and in the next decade we will see smart robots that will help with household chores (we already have iRobot, which can vaccum) and perform menial tasks, allowing us to focus on more important ones.

Currently, there is a lot of research going in the labs at Google and other research institutes where scientists such as Andrew Ng are applying neuroscience principles to artificial intelligence to teach robots and machines to operate like humans. What do you think? Will there be a plethora of robots in our homes in the near future?