An edited version of this interview apeared in the January 2004 issue of the UK Pro Audio magazine, Audio Pro. Mark Terry rarely gives interviews, so this was an unusual opportunity to peer into the workings of the world's pre-eminent Pro Audio company.
 

INTERVIEW: MARK TERRY, PRESIDENT OF HARMAN AUDIO, THE WORLD'S LARGEST PRO AUDIO MANUFACTURER

Asked how he manages the various brands under his control, Mark Terry, President of both the Harman Pro Group and JBL Professional, likens his role to that of an orchestral conductor. Plainly, it's not a bad analogy - and it's not a bad symphony orchestra either, comprising a clutch of the biggest names in the business: JBL Pro, dbx, DigiTech, Crown, Soundcraft, BSS, AKG, Studer, and Lexicon.

Our interview takes place on the eve of the 2004 Winter NAMM Show, where Mr. Terry and his team will be unveiling not just the usual bevy of product debutantes, but also an evolving strategy which, he predicts, will see not just new gear, but new gear which is designed to work together in ways unimaginable just a few years ago.

But more of that later. Still hot news in Europe is Harman's return to product distribution in the UK, following the withdrawal of Arbiter, hors de combat, after this year's PLASA show stunner, where rumour ran riot - only to come a poor second to even more incredible fact.

And yet, even as the dust was settling and Harman was announcing how it planned to distribute its products in the UK, whispers could be heard suggesting that the company had planned this all along. That, even though Harman had closed down its previous UK operation as recently as the 1990s, sooner or later it had always intended to re-group and take control again.

So that was our first question. Was the company just waiting in the wings for something like this to come along?

'I think that gives us far more strategic credit than is due,' he laughs. 'Absolutely not. The Harman organisation today is very different from what it was in the days of Harman UK Distribution and we're set up and operating in very different ways. It was by no means part of a bigger, longer term plan and, quite frankly, it wouldn't have made any sense if it had been. These kinds of changes to any organisation are disruptive and expensive, they cost us time and money and they cost the customer. There would have been no benefit if that had been our intention.

'In the past, Harman UK and the other Harman distribution companies were set up with a goal of distributing various types of audio products and they carried a number of brands that were not Harman brands - they even carried brands that conflicted with Harman brands and also did not carry all the Harman brands - they were really standalone businesses. As we exited that in the UK, we did so around the world, and we had similar distribution companies in German, France and elsewhere.

'The situation that has arisen in the UK today is as much a matter of circumstance as a matter of strategy, which is to say that as we've consolidated Harman Pro distribution around the world, the UK was one country where we hadn't finalised that consolidation. Unfortunately, Arbiter got into financial difficulties that led them to decide to exit Pro Audio distribution and, given the options we had in terms of other distribution companies and, most importantly, in the light of the fact that we already had substantial corporate infrastructure within the UK, in the form of Soundcraft and BSS, given all the options, setting up our own distribution made the most sense.

'This is the same model we have in the United States, where, when we looked at the options of who could distribute our products and we looked at the substantial infrastructure we already have in the USA, the clear business decision indicated that the wisest thing was to handle the distribution ourselves. So England and the United States are unique in the world in that respect.'

While industry insiders were furiously speculating about what Harman would do following the Arbiter collapse, another intriguing question was being raised. Was any single UK company actually large enough and backed by sufficient capital resources to undertake the job? The money required simply to stock sufficient quantities of such an overwhelming range of often highly expensive products would be considerable - possibly beyond the means of any existing third party outfit in the country. So had Harman been effectively forced to go it alone?

'I would strongly disagree with that. However, what I would say is that for any distributor to handle our portfolio, and it is a large, impressive, weighty portfolio, it takes a primary commitment. It's not something you can run as a sideline to an existing business, it's not something you can do part-time. It is a full-time, demanding job, because of the nature of the beast. These are the top brands in their categories and you cannot run a distribution business and have just this one corner of the office selling all that Harman kit. We have many successful businesses that are doing that. Most of our successful distributors are getting 80 to 90 per cent of their turnover from Harman and then they can add-on auxiliary gear supporting our products with things that we don't make: like cables, racking and so on.'

So did Harman seriously consider taking on an independent UK distributor?

'We did a review of the options. As you know, Harman Pro is very connected to the UK and many of our senior staff have had a lot of experience in England, in the industry, so we know who the players are and we sat down, evaluated the situation, had some discussions. And again, it requires a big full-time commitment. And part of that commitment requires a level of exclusivity and we can't have our distribution in a country as important as the UK being handled by somebody who is carrying, say, a competitive amplifier or speaker line.'

Having said that the UK and US are unique in having Harman distribute its own products, where does that leave the currently fashionable pan-European distribution model, where for example, fellow former Arbiterite, Fender, has decided its future lies?

'We don't have any plans at this point to spread outside the UK and US. This is a big philosophical debate about how to handle distribution and on paper, financially, there is some merit in handling our own distribution once you get to a certain size - and that is one side of the coin. The other side is the fact that independent third parties are closer to the market, have a better feel of the market and are better able to operate within markets than large multinationals. And so you have to weight those two aspects. An independent distributor is a very successful business model - they eat what they kill and they are very motivated to sell product and move product in the market - and they are very close to the street. You set up a business in one country that's reporting to some other division in another part of the world, you lose a lot of that closeness. So we believe in supporting pour independent distributors and will continue to do so. Will we tweak how that operates in the future? For sure. Do we want to get out supply-chain streamlined? Absolutel - but having those independent partners in each country, who have worked with us hand in hand and have the same goals as we have to sell our products and know the turf like no other, is a tremendous asset.'

Which, uncomfortable as it may be, raises the apparently anomalous position in the UK, where one major Harman brand, Crown, remains distributed by an independen: Fuzion. How does that fit into the plan?

'We have a stated long-term objective of consolidating our pro distribution on a worldwide basis and we are doing that at different rates in different timeframes around the world with different brands, so I can't comment on any specific country or any specific brand, other than to say that we do have a stated goal, which is to consolidate our distribution.'

This, it turns out, is more than just a desire to be in control of sales, either in its own right, or via single territory third-party distributors - it is actually part of a broader strategy with manifest technical implications, Mr. Terry explains.

'The reason we're doing this is because the market is more and more turning to vendors that can supply complete system solutions and we are uniquely positioned with the broadest options of system solutions of anybody in the Pro Audio business. We want to make sure we can offer that to the customer, be they the end-user, the facility owner, the contractor or the dealer. We want to be able to offer one-stop shopping for complete system solutions and packages, because they're asking for it - they want that. The day of the boutique, "let's go shop each component of the system and hotchpotch together a quilted patchwork of a sound system" is going away. People are looking to one-stop shopping for technical performance, reliability, product support - and we are in the best position to offer that.'

So was this the strategy that motivated Harman's massive buying spree, when it snapped-up all those industry legends? Has this been a strategic masterplan, long in the making?

'I think, initially, the idea was to become a major player in the Pro Audio business. Over the past few years I have endeavoured to streamline that, so we can offer complete systems and not have a lot of overlapping. For many years we had multiple console companies and yet we only had one relatively small power amp company, so with moves like the divestiture of Allen & Heath and the acquisition of Crown, it put us in place with the top brands and centres of excellence in each of the categories. And that absolutely has been the strategy and that strategy only really pays off if we can deliver that complete solution through a consolidated distribution pipeline.'

In practical terms, what does Mark Terry feel this offers the end-user?

'I think the customer is going to get better access to products. One of the advantages of being direct is that there's not an issue of did the distributor buy enough? If the customer needs something and we've got it anywhere in the world in our warehouses, we're going to be able to get it to him right away.'

It's with his next comment that Mark Terry begins to reveal the underlying strategy of current Harman Pro policy - and it's intriguing.

'Going direct also means that there's going to be a lot more synergy between the brands from a contractor or user's standpoint. The people he's going to be speaking to will have direct links with each other. Issues about using a BSS controller with a Crown amp and JBL speakers are going to be a lot easier to resolve, due to the collective co-operation.'

To what extent does this imply that way back in the design stages, Harman group products are now designed to work together?

'Absolutely! You're seeing it every day and you're going to see it more and more in the future. It's in many of our products now, for example the dbx DriveRack PA, which is a speaker processor, and already comes pre-loaded and pre-configured for all the various combinations of JBL speakers and Crown amplifiers. All of our product development across the Pro group is part of a master plan with a master synergy. We don't just develop a power amp, we develop a power amp that is going to be in-line with the speakers that we're developing, so that we're matching the power and performance of the speakers with the amplifiers. Every aspect of the Pro group is working in conjunction with all the other aspects of the Pro group.

'And this is absolutely what is going to be required in the future. For far too long the business has been about people building modules and putting them out for sale on the market and leaving it up to the poor customer to figure-out how to make them work together. Our benefit is that we can develop all those modules so that they work together and are optimised together - and that is why the market is going to system solutions and system integration and it is really the only way to achieve it properly.'

Has this been driven by the shift from analogue to software-driven digital technlogy?

'I think so, but I also think while some aspects of it are driven by that, some aspects are driven by economics - for example the fact that the contractor doesn't want to have to spend endless amounts of time trying to figure-out what could be a very simple solution if done at the manufacturing level. Years ago in the sound business, you'd go out and buy some drivers from one vendor and some horns from another vendor. Then you'd buy some boxes and a network, but today most speakers are supplied as a package and that's an analogue to this discussion.

'Now, people want to know that they've got an amplifier and a controller that they can plug and play and that will be optimised for their speaker system. And if you're not really in the amplifier business and you're not really in the speaker business and you're not really in the controller business, you're not going to be able to supply that level of optimisation - the level of integration that's required.'

It's a theme we explored in more detail later, but immediately it prompted the more personal question of how he manages such a diverse range of very distinct companies.

'How you handle them is really relatively easy. Our model is to have centres of excellence, where each business unit has a fantastic leadership team. These teams are leaders in their areas of expertise, so when we bring them together and we work on our planning and strategies jointly, we're able to assemble a group of experts that I dare to say nobody else can even come close to, all in one room. So when we talk about plans and systems and strategies, I've got experts in the field of microphones and experts in the field of amplifiers and not wannabe sort-of experts, but the top guys. It's that collective management team that gives us our strength. My job is just to orchestrate it, to be the conductor, to bring it together and to tweak it so that everybody's in good harmony - but it's the players that really make it work.'

The strategy even works when a company has been forced to face what could have been virtual annihilation by the march of progress - Studer. 'Studer's a great example. Studer is obviously one of the most pre-eminent names in the industry, with a heritage you can touch. Studer was a company that, many years ago, was king of a category that has all but disappeared - tape machines. What we've done with Studer is make a magnificent transformation from a company where 90 per cent of its revenue came from two reels on a platform, to a company that is one of the world's leading suppliers of large-frame digital consoles. Our sales of digital consoles at Studer are fantastic and that has been a tremendous transformation, which comes from being able to leverage resources from the rest of the group. Studer is a tremendous example of a company that used to make buggy whips - king of a category that's just gone away - and which is now very successful in a new category.'

Mr. Terry goes on to say that at one stage Harman had actually considered selling Studer but that the transformation has been so successful (particularly its success with live digital consoles) that its position in the Harman heavens is now secure. So, assuming that the sale of Allen & Heath was a tidying-up exercise and that the portfolio seems pretty complete, does that mean we can assume Harman has reached the end of the acquisition trail? Or are there still potential takeover targets out there. How about in software, for example?

'Let me put it this way. We're not out looking for companies to buy strictly from a growth perspective. Any acquisition that we would look at would need to be significant and strategic. So we haven't stopped and I'm not going to say we're not going to acquire any more companies, but we've got most of the elements of the sound chain under our portfolio today and we're not interested in buying another speaker company or another amplifier company.

NAMM is the time when a company President gets together in a huddle with his distributors and reveals the gameplan for the coming year. What is Mark Terry going to be saying that he'd be willing to let us eavesdrop on?

'Going forward, you can expect to see some dramatic innovations from a number of our brands in terms of specific new products, but you're also going to see in 2004 and the next few years, a level of integration that you've never had from any pro Audio company - a level of complete system integration on a number of levels. And that's where our future is: in complete systems and complete packages.'

But hang on a minute. All this talk of one-shop systems and packages and synergies is fine for the midi-tower Hi-Fi market or home cinema, but isn't the core of the Pro Audio business made of several generations of golden-eared geeks, who have elevated the auditioning and selection of individual components to the status of a mystery religion? Isn't the industry's priesthood built on the way an engineer or contractor manages to blend a hundred different items into a system that sounds better than Joe-down-the-road's? Isn't this heresy from Harman?

'No, I don't think so and the reason is on two fronts. One is when you say that people like to be geeks and to pick and choose, well, as one very large contractor said to me the other day: "when I started out in the business, I enjoyed nothing more than taking the latest horn design from some vendor and staying up till three in the morning trying to figure out how I could incorporate it into my newest system design. Today, I'm concerned about putting out a good product, satisfying my customer and making a profit." And with the business pressures that are out there today, I think the idea of being a hobbyist doesn't make sense. If you can optimise a system for your customer, you should always do that and our approach is that if you feel there is an element of our system that could be better suited by a product from one of our competitors, then you can buy a system that's got JBL speakers and Crown amplifiers and a Soundcraft mixer but maybe use somebody else's effects, or amp or mixer. You can optimise any part of a system if you feel it's better, but tinkering for tinkering's sake is a luxury, I feel, that people can't afford any more.

'The value today and in the future is in the system integration, in the programming, in the system design and so the mechanics of the connections and how things talk to one another - that stuff isn't where the big value is. The value for the contractor is the uniqueness of his software design and implementation - how you can configure the room in eight different modes in 10 minutes. That's the value the contractor really brings to the party today. They are less interested in spending hours poring through catalogues, shopping for individual components.'

And, anyway, who says the archetypal sound engineer with his road warrior tales and a reputation for being an acoustic alchemist is going to constitute the biggest part of the future Pro Audio market? Harman sees the market changing and developing in all sorts of interesting ways, says Mark Terry.

'As we're going forward, the Pro Audio industry, which has a lot of roots in recording and club-style and concert-style entertainment, has expanded dramatically and that world now encompasses all forms of commercial and public entertainment and public and commercial information exchange. We see the Harman Pro business moving forward into a world of what we call "infotainment" - which really is what it sounds like: information and entertainment at all different levels, in all different venues.

'The sophistication of a pub sound system today is astounding compared to a number of years ago and the integration of communication of information along with entertainment, be it safety, the multiple uses of theatres, it's all integrating into a world of infotainment. I really think that's one of the biggest changes we're seeing. We're putting high-end sound systems and information transmission systems into all kinds of markets that would never have had them before: million dollar sound systems into churches, multi-million dollar sound systems into schools, hotels, restaurants, all of whom are spending money and putting in systems which even a few years ago would have boggled people's minds. We think we're uniquely positioned to take advantage of that. Indeed, we are taking advantage of that today - and that's where we see the future going.

'As these markets expand, this stuff all needs to work together - system integration gets more and more crucial where you have clubs that have multiple uses and need to be configured many different ways, for example. Somebody puts up a $50 or $100 million sports arena and if that system goes down that is an incredible financial disaster. You've got to be able to look to one large company to support this key element of the success of that multi-million dollar facility - it's no longer this guy sitting in his garage rehearsing his band. If you've got 50,000 people watching a world championship, the sound system has got to work. If it fails because one little component came from some tweaky little outfit that went out of business, but the sound system designer thought it was the coolest piece in town, nobody's going to care how good he thought it was.

'That's it - we see a future of infotainment and we see us uniquely positioned to take advantage of that.'

Ends.

2005 Gary Cooper