Why are Reviewers Paid So Poorly????

[mep]

John and Davey-You have to open your eyes a bit and look at both sides of this story. The thread here was started by Myles because of the other thread where Steve was questioning why reviewers should receive accommodation prices. I'm sure that Myles as a reviewer felt like he was under attack (and I can see that side of the story) and felt compelled to air out another bit of dirty laundry or "bitchfest" as John put it asking why reviewers are paid very poorly for their work.

And all of this opens up a whole can of worms about the entire business model of manufacturing, selling, purchasing, and reviewing audio equipment. I don't know the numbers, but I bet there are only a handful of professional reviewers in this country who derive 100% of their income from audio reviewing. And those are the guys at the top of the food chain. The vast majority of reviewers all have full-time jobs in order to put food on the table and review gear in their spare time. The real perk they receive is the ability to subsidize their stereo purchases.

We as a society like to bemoan the quality of education in this country and point the finger at our teachers. Since we don't want to pay them a decent salary, you get what you paid for. Same for the majority of "reviewers" now days in audio. As Jtinn said, everybody is a reviewer now. It's almost gotten to the point where it is just a cacophony of noise out there. We would all be better served in the audiophile community (I think) if we had a constant stable of great reviewers who are well known and have paid their dues that could earn a good living from just writing their reviews. However, that is never going to happen.


What we are stuck with is a distribution model where manufacturers sell their products to a dealer at "X" price and the dealers try to sell them for "2X" to us. We buy the products at somewhere close to "2X" and are lucky if we recoup half of our money when we sell. Meanwhile back at the ranch, manufacturers need to move product and reviews certainly can help them do that. Manufacturers advertise in magazines and zines and want their products favorably reviewed in order to increase sales. Reviewers want to write and they get to buy products for the most part at the same price as dealers pay (and we did hear some stories yesterday about some reviewers just paying a fraction of what the product cost). I think the field should be leveled. I don't think that dealers add enough value to increase the cost of a product by a factor of 2. When I order something from a dealer in another state, they are just an order taker who ships a product to my door. I know some dealers add value by providing loaners and maybe some set-up help. I just question whether that justifies a 2X cost increase to us the consumers. To me, the intrinsic worth of a product is what it costs for the manufacturer to make it including all of his costs and profit margin. The dealer is not making the product any more valuable after it leaves the factory, and yet the dealer doubles the cost to us without increasing the value of the product.

I think if given a choice, most of us would rather buy straight from the manufacturer at the same price he is happy to sell to the dealer plus shipping. I realize that I have taken a very complex set of issues and simplified them so the end solution makes me happy and it won't work in the real world. But at some point it might have to if dealers keep going out of business. The bottom line to my thinking is the products shouldn't cost 2x what the manufacturer is selling them to the dealer for. They are simply not worth that cost and we are all taking it in the shorts as a result. There should be a better distribution model that keeps the manufacturers happy and reduces the price to the consumers.

 

[Bruce B]

This really came to light for me about a couple of years ago. Now a dear friend of mine, he used to write for Stereophile ( I think) and now I've seen some of his writing on PFO. He has an amazing way with words, on paper and on the phone. I thought, though don't know why, this NY'er pretty much had it made. Over the years I found out he's struggling like every other American is out there. I am humbled every time I speak to him. You don't see the artistry in his writing everyday. I'd be the first to admit that I'm overpaid but could not even start to reach the heights of his pen. Reviewers of his and Myles' caliber should be able to make a decent living. It's not often you come across writers that can explain complicated terminology and technology to a layman and make them laugh when they're doing it. It's a dying breed that should be rewarded.

 

[naturephoto1]

I do not want to step on toes on either side of these questions or issues. But, in our hobby industry there are so many levels for mark up that prices have gotten inflated, just as they have in selling such things as photography as art. Everyone wants and needs a piece of the pie. The manufacturer and/or designer often can make less money on a product than ultimately the store or gallery selling the work. This is a problem for all concerned including the public. Just imagine how much would be saved by all concerned just by removing only 1 level at a 2X mark-up from the final selling price. Taking that to enough levels, you could see that as an example a $100,000 pair of speakers as an example may only cost $10,000 to $20,000 or less to manufacture.

Rich

 

[mep]

Rich-I don’t know how you came up with your numbers. I hope you are not confusing the raw cost of a product without including all of the overhead that a manufacturer has to pay which is very real and adds to the cost of the final product.

 

[naturephoto1]

Rich-I don’t know how you came up with your numbers. I hope you are not confusing the raw cost of a product without including all of the overhead that a manufacturer has to pay which is very real and adds to the cost of the final product.

I am just making an estimate based upon using a multiplier of 2X per level of the retail market taking into account somewhere around 3 or so levels in the selling of products. This is only a guess. From what I have seen elsewhere high end speakers frequently retail for between 5 and 10X the cost of the materials with or without the cost of labor. This does not take into account testing, overhead costs, etc.

In the case of artists such as photographers selling through galleries, it is not infrequent that a photographer makes half of the sale price while the gallery makes the other half. Using this example, and I have for many years, let us say that the framed photo in the gallery sells for $1,0000. The Gallery made/makes $500 on the sale, not taking into account marketing, retail space, labor, etc. The photographer on the other hand has all of the cost of his digital or film based media, the cost of the frame, glass (or acrylic), printing costs (if output through a great big digital machine added cost), mat boards, backing boards, points for framing, frame wire, dust cover material, etc. Taking all of this into account, the photographer may only ultimately from the $500 approximately $200 to $350 or so. If the photographer is a travel or outdoor photographer, this does not take into account the cost of the photographers gear, travel, food, lodging, autio expenses, etc.

Rich

 

[es347]

I have heard from a reliable source that a speaker mfr. typically establishes his msrp at 5X the cost to mfr. So Rich is spot on at least from my admittedly limited perspective.

 

[mep]

I have heard from a reliable source that a speaker mfr. typically establishes his msrp at 5X the cost to mfr. So Rich is spot on at least from my admittedly limited perspective.

I guess the bottom line is no matter what multiplier is used by the manufacturer to set the price to his dealers, the dealers just blew that up by a factor of 2X. I'm not looking for a government audit to determine price reasonableness from manufacturers. Hell, I would gladly pay what they are asking their dealers to pay. I just don't want to pay Joe Blow in Idaho 2X what he paid because he answered the damn phone and took my order and shipped me a product. And I think part of what put a burr in Steve's saddle yesterday was knowing that some snot-nosed reviewer who just started reviewing audio gear yesterday is paying half of what he has to pay and with no taxes to boot. And as I explained yesterday in the example I gave, we're not talking chump change here when you're talking about paying state tax on a product that costs over $100K. I think we would all like a better deal is the bottom line. That's why I usually buy my gear used so I can the let the first guy take it in the shorts for me.

 

[naturephoto1]

I guess the bottom line is no matter what multiplier is used by the manufacturer to set the price to his dealers, the dealers just blew that up by a factor of 2X. I'm not looking for a government audit to determine price reasonableness from manufacturers. Hell, I would gladly pay what they are asking their dealers to pay. I just don't want to pay Joe Blow in Idaho 2X what he paid because he answered the damn phone and took my order and shipped me a product. And I think part of what put a burr in Steve's saddle yesterday was knowing that some snot-nosed reviewer who just started reviewing audio gear yesterday is paying half of what he has to pay and with no taxes to boot. And as I explained yesterday in the example I gave, we're not talking chump change here when you're talking about paying state tax on a product that costs over $100K. I think we would all like a better deal is the bottom line. That's why I usually buy my gear used so I can the let the first guy take it in the shorts for me.

I quite understand your purchasing habit as well. I have been fortunate on some of my purchases directly from the manufacturer, but in geneal, I purchase either used components or demo units (frequently those that have just been replaced) to keep down the costs as well.

Rich

 

[FrantzM]

And you do it because???? --- you enjoy it, you get to listen to top quality gear in your home at no cost, you get to purchase that gear at accommodation prices if you so choose and then sell it and lose little of any money and get great seats at the audio shows so you can actually hear what you are supposed to.

I tried to get a reviewers job at one of the two top magazines years ago for all of those reasons. And I had all of the credentials I needed ---- except the ability to write

I haven't read ALL the posts but this to me is very realistic.. Why would somene go into reviewing if there is no compelling reasons. Of course not everything is free but ..but ... Why if reviewers are paid so poorly we see such a plethora of "reviewers" and e-zines on the internet? There must be a reason ...

This tsunami of reviewers and the relative ease with which one can blog or set-up an e-zine/web site has had the unfortunate corollary of a dilution of the quality level of the magazines and the reviews themselves... So we are left with an Industry where there is a clamor but really no clearly heard voice .. Not a good state of affair I must say ..

 

[Steve williams]

Frantz, my friend you always make such great points

 

[Orb]

I guess the bottom line is no matter what multiplier is used by the manufacturer to set the price to his dealers, the dealers just blew that up by a factor of 2X. I'm not looking for a government audit to determine price reasonableness from manufacturers. Hell, I would gladly pay what they are asking their dealers to pay. I just don't want to pay Joe Blow in Idaho 2X what he paid because he answered the damn phone and took my order and shipped me a product. And I think part of what put a burr in Steve's saddle yesterday was knowing that some snot-nosed reviewer who just started reviewing audio gear yesterday is paying half of what he has to pay and with no taxes to boot. And as I explained yesterday in the example I gave, we're not talking chump change here when you're talking about paying state tax on a product that costs over $100K. I think we would all like a better deal is the bottom line. That's why I usually buy my gear used so I can the let the first guy take it in the shorts for me.

This is why it would be interesting if audio manufacturers communicated the gross profit margin for each model and the net profit after all costs, and whether they dictate the rrp to dealers (they may do this so they can use business model to calculate a products value in terms of overall profit margins).
2X a price is not unusual for many manufacturers in other businesses for their own gross profit margin, as an example I can mention technology manufacturers for high end telecomms have over a 50% gross profit margin (so over 2x) before reseller-sales channel added price, however net profit after operating costs-bills-debts-etc drops down to anywhere between 7%-15%.
And think from a dealer perspective, consider who they employ (includes themself say hoping for £40,000+), using new products for demo and then eventually selling them, part/x, insurance,business tax,etc and these will eat into a 50% gross profit margin (their own margins and not the manufacturer) pretty quickly.

Yes the returns for a high end product that has 50%gpm is nice, but then you do not sell as many.

The only time this situation can be truly clarified is if the audio manufacturers explain their business costs (gross-net profit margins per model, operating costs,etc,rrp), until then we have to be open minded about how much value this is for dealers,reviewers, etc.

Cheers
Orb

 

[FrantzM]

Orb

We will never see this ... It would become impossible for many manufacturers to explain the MSRP of their products... In some instances (cables) the ratio of cost (including marketing) are squarely in the gouging level... 10 to over 20 times x is not uncommon .. That a few people post on the Internet that the total cost of many 100K speakers doesn't approach 10 K is heard, read and ultimately dismissed but if the manufacturers itself were to declare such ..

 

[Orb]

Orb

We will never see this ... It would become impossible for many manufacturers to explain the MSRP of their products... In some instances (cables) the ratio of cost (including marketing) are squarely in the gouging level... 10 to over 20 times x is not uncommon .. That a few people post on the Internet that the total cost of many 100K speakers doesn't approach 10 K is heard, read and ultimately dismissed but if the manufacturers itself were to declare such ..

It happens in other manufacturing businesses already Frantz, and to run a good business this type of information is pretty critical because without it your guessing whether a production line is going to run you into serious debt.
I appreciate there will be an unknown number that may just think of a design without considering the business model cost, i.e. how many needs to be sold at x price to hit a nice ratio or their operating costs.
Every manufacturer I have worked for know these values (including the consultants-managers in that business) and are available as part of information given for financial/stock market reports.

Cheers
Orb

 

[garylkoh]

I guess the bottom line is no matter what multiplier is used by the manufacturer to set the price to his dealers, the dealers just blew that up by a factor of 2X. I'm not looking for a government audit to determine price reasonableness from manufacturers. Hell, I would gladly pay what they are asking their dealers to pay. I just don't want to pay Joe Blow in Idaho 2X what he paid because he answered the damn phone and took my order and shipped me a product. And I think part of what put a burr in Steve's saddle yesterday was knowing that some snot-nosed reviewer who just started reviewing audio gear yesterday is paying half of what he has to pay and with no taxes to boot. And as I explained yesterday in the example I gave, we're not talking chump change here when you're talking about paying state tax on a product that costs over $100K. I think we would all like a better deal is the bottom line. That's why I usually buy my gear used so I can the let the first guy take it in the shorts for me.

Let's look at some numbers here, and may be we will all understand better why reviewers get paid so poorly, and the high-end industry is in the sad state of affairs it is in.

Say you want to set-up as a the dealer and you want to demo a $100k (retail) pair of loudspeakers. You will probably have to pay the manufacturer $45k plus shipping (may be $2k) for them. The manufacturer is unlikely to let you just buy one pair of loudspeakers, so you may need to invest may be in his $10k loudspeaker, and his $30k loudspeaker. For his $10k loudspeaker, you will need to have "one to go and one to show". Your outlay for loudspeakers is probably $70k.

To demo properly, you might need to partner the $100k loudspeaker with a $200k system (electronics plus cables), to partner the $30k loudspeaker may be $50k, and the $10k loudspeaker may be another $10k (his entry loudspeakers are very efficient). So, total outlay for the store's demo equipment is $190k - just for one speaker line and one electronics line.

Bear with me here - if the store is somewhere people will visit, retail rental isn't cheap either. Let's say you have a nice 1,500 sq.ft. store in a retail mall, utilities, etc. in a large metro area $150k to set up and furnish the store, $10k a month rental. Accounting, business services, etc. $2k a month. Advertising - a 1/4 page ad in one of the major magazines so that Joe Audiophile can find you - $2k a month.

If you are lucky, you will sell a $10k piece a week, a $30k piece a month, and a $100k piece every 6 months - $1million a year at retail prices. Joe Audiophile (you know who you are) expects a minimum of 20% discount, $800k revenue - but Joe Audiophile also trades in his old item, and expects you to take his old gear at 30% of the price of the new gear - say $550k cash revenue, $250k in traded-in gear..... of which you manage to sell 80% at the traded-in price but the other 20% are dogs that sit in your stockroom taking up space for years. So, realistically $750k in revenue. Since manufacturers sell to dealers at 50% of MSRP, you have $250k gross profit.

Your annual cost was $168k, netting you $82k pre-tax no health insurance, no vacations working 40-hour weeks with a $340k investment. It goes downhill from there because after the first year, the manufacturer updates his line with a new loudspeaker that is $120k, and you have to sell the old $100k loudspeaker at a deeper discount because it's now obsolete.

For a manufacturer, it's slightly worse - more overheads (people to screw together loudspeakers), more inventory, more marketing and advertising, lower margins than the dealers.

 

[Orb]

Thanks Gary,
that ties in with what I am saying, but I missed out the critical stock management-logistics distribution type of costs.

Cheers
Orb

 

[mep]

Gary-All good points so what is the solution? You should have mentioned the dealers that have to put up with "customers' that stop by to hear a product and then go buy it on line someplace cheaper. I live outside of Bloomington, IN and Bloomington can't support a high-end dealer. Even mid-fi shops have all closed in Bloomington because they weren't supported either.

 

[Gregadd]

Gary 10% discount is more likely. Only real experienced a--h----s like me might get 20%. That's not likely since I'll usually be wanting a hot item like the Wilson Sasha or the Martin Logan CLX. My dealer also knows I'm an addict. I've gotta have it and will usually cave in. Then factor in those high mark up cables that more than compensate for the system discount. Throw in the occasional custom installation or room treatment that really is a wild card. Most knowledgeable guys like me sell their used equipment on Audiogon because we know we might as well give it to the kid down the block than take the low trade in price. Add to that most dealers make you chose between a deep discount or fair trade in price. Rarely will you get both. That's for those savvy enough to know about it. Discounts are more likely in a system than an individual item. The better the deal the fewer the services. I routinely forfeit my right to return and dealer assisted set up. I can only return a defective product for replacement or store credit. I have to know what I want when I walk in the store.

That's the consumer's point of view.

 

[mep]

I used to have a really good relationship with the manager of an A/V store that had a few good lines. And I say “used to” because he retired recently. He always gave me great discounts and I used to send a fair amount of business his way. The last pair of speakers I bought from him, I told him I was cashing in all my chips and he gave them to me at his price which was 50% of MSRP. I called the other day to talk to him about a subwoofer and found out from the new store manager that my friend had retired. The new manager told me he would continue to treat me like the old manager, but the price he gave me on the subwoofer wasn’t very good in my opinion. I’m back to a bone sandwich.

 

[garylkoh]

Gary 10% discount is more likely. Only real experienced a--h----s like me might get 20%. That's not likely since I'll usually be wanting a hot item like the Wilson Sasha or the Martin Logan CLX. My dealer also knows I'm an addict. I've gotta have it and will usually cave in. Then factor in those high mark up cables that more than compensate for the system discount. Throw in the occasional custom installation or room treatment that really is a wild card. Most knowledgeable guys like me sell their used equipment on Audiogon because we know we might as well give it to the kid down the block than take the low trade in price. Add to that most dealers make you chose between a deep discount or fair trade in price. Rarely will you get both. That's for those savvy enough to know about it. Discounts are more likely in a system than an individual item. The better the deal the fewer the services. I routinely forfeit my right to return and dealer assisted set up. I can only return a defective product for replacement or store credit. I have to know what I want when I walk in the store.

That's the consumer's point of view.

Greg, that is actually very reasonable if you have a relationship with a dealer. I tell everyone that when you run a business (in any market sector) you can have good, cheap, or fast. Cheap won't be good, fast won't be cheap. If you want something good, you'll usually have to pay for it. The dealers have a right to earn a decent living just like you and I.

Now, reviewers, on the other hand are providing to the consumer the service of a trained ear (albeit sometimes biased) and earn far less than a dealer. I don't doubt for a second that Myles spends 200 hours writing a 4,000 word review and earns $100. That's 50 cents an hour, or 2.5 cents a word. I couldn't pay a monkey to work that hard for those peanuts.

For the audiophile who lives in a town where the nearest dealer is 500 miles away, the review might be the only way for him to make a decision to buy - not a demo. That being the case, if he buys a $100k loudspeaker because of a glowing review by Myles, IMHO he should send Myles a check.

 

[MylesBAstor]

Greg, that is actually very reasonable if you have a relationship with a dealer. I tell everyone that when you run a business (in any market sector) you can have good, cheap, or fast. Cheap won't be good, fast won't be cheap. If you want something good, you'll usually have to pay for it. The dealers have a right to earn a decent living just like you and I.

Now, reviewers, on the other hand are providing to the consumer the service of a trained ear (albeit sometimes biased) and earn far less than a dealer. I don't doubt for a second that Myles spends 200 hours writing a 4,000 word review and earns $100. That's 50 cents an hour, or 2.5 cents a word. I couldn't pay a monkey to work that hard for those peanuts.

For the audiophile who lives in a town where the nearest dealer is 500 miles away, the review might be the only way for him to make a decision to buy - not a demo. That being the case, if he buys a $100k loudspeaker because of a glowing review by Myles, IMHO he should send Myles a check.

A nice letter to the editor telling me he/she really enjoyed the review and now own the speakers is suffiicient