Business Opportunities for High-Quality Music Cellphones

Extended value chains undoubtedly are cellphone companies’ and related supply chain companies’ strongest points. Because of the creation of the high-quality mobile music market, cellphone companies’ supply chains can expand from their original limited cellphone sales to the supply of peripheral merchandise and even create service platforms for music content.

Figure 1 is a simple display of value chains for mobile music. From the figure, it can be clearly seen that cellphone companies are the biggest winners in the mobile music market. This market not only maintains cellphone sales, but, at the same time, increases the market for peripheral merchandise for mobile music and even for operating content service platforms with even larger scopes.

Apple could be considered the main model for implementing a mobile music value chain. They successfully used the iPhone and iTunes to make up for declining revenue from the iPod and insisted on using their own connector specifications in order to maintain peripheral music sales and even create additional revenue. Furthermore, iTunes has already become the largest mobile music merchant with over US$23 billion in revenue in 2013.

Figure 1 : The value chain of mobile music market

In the near future, however, Sony will be the strongest competitor in the mobile music market. It has followed Apples’ model closely of simultaneously providing cellphones, peripherals, and a service platform. However, Sony is concentrating on supplying high-quality music and specializing in competing in the Audiophile and Heavy User markets.

Other cellphone companies are just beginning to gradually progress in peripheral market sales and are launching their own high-quality music models.

As for other value chain providers, they are both enjoying the benefits brought about by the mobile music market, including chipmakers, component suppliers, and audio brands, and also beginning to provide products aimed at mobile applications.

It is worth noting that chipmakers have been the group which has been slowest to respond to the music market. When observing chipsets used by cellphone companies, over 70% of cellphones use integrated chipsets, but they are just used as solutions for processor integration. For example, the Qualcomm Snapdragon and MediaTek programs do not yet have specific designs for playing music.

However with the situation of market segmentation and an increasing number of brands entering the market, audio chip suppliers are expected to have greater opportunities to enter the mobile music market and provide high efficiency, low cost, and small sized audio chips.

Figure 2 : The audio feature list of the major smartphone

ESS Technology was the earliest audio chip company to clearly understand opportunities in mobile. They had previously specialized in providing high-end chips for use in premium products, such as recording studios and high-end audio-visual projectors. However, as the demand for high-resolution mobile music rapidly increased, ESS Technology launched the ES9018K2M DAC chip in 2013, which was specially designed as an up-market solution for high-resolution mobile applications.

As a whole, the mobile music market will develop very similarly to the 4K2K television market. In the initial stages of its formation, it will require brand name companies and component businesses to collectively set it in motion; however, widespread popularity will depend on the support of content providers.

Observing the current state of its development, the mobile music market is at the end of its takeoff stage, and as more and more brand names, component manufacturers, and merchandisers enter into the market, it will quickly mature and enter its initial phase of growth. When the time comes, with the exception of stable profits from high-end products and content providing, other products will face severe price competitions.

Audio Chips and Music file formats

A audio chip is an integrated circuit designed to produce sound. It might be doing this through digital, analog or mixed-mode electronics. Audio chips normally contain things like oscillators, envelope controllers, samplers, filters and amplifiers. It's been widely used in arcade game system boards, video game consoles, home computers, PC sound cards, and smartphones.

“HD Audio” is currently no a standard, here to define what can or can't be considered “high definition”.

Generally speaking, HD Audio means anything higher than CD (16 bit/44.1 kHz) or DVD (16 bit/48 kHz) quality.

Figure 3 : Operation Classes of Audio Chips

Currently, the standard of sound quality is 24/96, while CD is 16/44 and DVD is 16/48. But HD Audio can theoretically go much further than that. The highest signal right now is 32/192, but there are all sorts of combinations that fall in between: 24/48, 32/96, 24/192, etc.

For audio files, this means FLAC (or ALAC for Apple users), which can be either CD quality (16/44) or master quality (24/96). For physical supports, it means DVD Audio or the near-extinct SACD. And the Pure Audio Blu-ray, whose specifications are very close to those of HD Audio components; it's 24/96, but standard Blu-ray can go higher than that.

Nowadays, consumers demand the best performance in their Audio products. They want crystal-clear sound wherever they are — in whatever format they want to use. We bought cassettes back in the 80s, then came the CDs of the 90s, the first flash drives and MP3 players of the 2000s, and starting from around 2010 with the mass adoption of smartphones, it seems that phone has finally taken over all other dedicated music storage devices.

Smartphone makers have been jumping on the “HD Audio” bandwagon and gearing their devices with 24 bit/96 kHz-compatible conversion chips. Samsung even made something of a splash at IFA 2013 when it announced that the Galaxy Note 3 would feature 24 bit/192 kHz music playback.

Moreover, LG's latest release, the G2, which boasts “Hi-Fi Playback” and “High Resolution Sound”. Even the world's leading smartphones in terms of sound quality, the iPhone series, don't do HD Audio. Same goes for the audio chipsets in home computers, the volume is usually louder than a smartphone's, but the background noise always prevents the dynamic range from reaching 90-95 dB.

Sony also announced its latest sound standard, Hi-Res Audio. BiBi, who is a Taiwanese singer and a radio DJ, said “high resolution is very important in listening, especially in persuit of clear and distinctive sound.”

At the same time, “Beats Audio” or “DTS” has kept sprouting up with like on the smartphones' box as brands partner up and try to ride the wave of one of the most rapidly growing sectors in the market.

Figure 4 : The “Beats Audio” can be seen in many handsets

Taiwanese Audio Chip Maker

Taiwanese sound chips maker Realtek has a HD audio chipset named ALC889, which is a high-performance multi-channel High Definition Audio Codec with Realtek proprietary loss-less content protection technology that protects pre-recorded content while still allowing full-rate audio enjoyment from DVD audio, Blue-ray DVD, or HD DVD discs.

According to Realtek, the ALC889 provides ten DAC channels that simultaneously support 7.1 sound playback, plus 2 channels of independent stereo sound output (multiple streaming) through the front panel stereo outputs. Three stereo ADCs and one stereo digital microphone converter are integrated and can support a microphone array with Acoustic Echo Cancellation (AEC), Beam Forming (BF), and Noise Suppression (NS) technologies.

The ALC889 incorporates Realtek proprietary converter technology to achieve 108dB Signal-to-Noise ratio (SNR) playback (DAC) quality and 104dB SNR recording (ADC) quality, and is designed for Windows Vista premium desktop and laptop systems.

All analog I/O are input and output capable, and headphone amplifiers are also integrated at six analog output ports (port-A to port-F). All analog I/Os can be re-tasked according to user’s definitions.

Support for 16/20/24-bit SPDIF input and output with up to 192kHz sample rate offers easy connection of PCs to consumer electronic products such as digital decoders and speakers. The ALC889 also features secondary SPDIF-OUT output and converter to transport digital audio output to a High Definition Media Interface (HDMI) transmitter.

The ALC889 supports host audio from the Intel chipsets, and also from any other HDA compatible audio controller. With various software utilities like environment sound emulation, multiple-band and independent software equalizer, dynamic range compressor and expander, optional Dolby Digital Live, Dolby PCEE program and DTS CONNECT, the ALC889 provides the highest sound quality, providing an excellent entertainment package and game experience for PC users.

Earphone Factors

To music lovers, earphones are the last mile for quality music and the most crucial influence on the musical experience. Nevertheless, this last mile is a complex road, and this is not only because of acoustic technology, but also because of the existence of factors related to brands and user experience.

For audio technology, the principal of how earphones give off sound is actually very simple. Any cellphone manufacturer can find a low-cost OEM or establish its own production line to manufacture them. However, if a company wishes to provide consumers with an up-market music experience, the degree of difficulty for production and design increases dramatically. From ergonomic design of earphones, to component procurement, to the use of transmission line materials, each entails the existence of extremely specialized know-how.

Consequently, cellphone manufacturers who intend to launch products with high quality audio functions are all actively seeking out partnership opportunities with high-end headphone brands in order to speed up development time and simultaneously strengthen their own brands’ influence. This includes the cooperation between HTC Butterfly 2 and JBL, the cooperation between the burgeoning Chinese OnePlus cellphone company and JBL, and the cooperation between LG and Harman Kardon. However, the most representative case is Apple’s investment in Beats.

Figure 5 : The market segments of music phone

However, another approach is for companies to pursue their own technologies. Although it is time-consuming and labor-intensive, for companies there is the cost advantage of vertical operations and at the same time the advantage of expanding the capacities of their product lines. Currently, a number of companies, including Samsung, Xiaomi, and Sony, are carrying out research and development on their own, and one after another they are launching High Resolution Audio headphone products.

Sony is currently the leader in developing its own high-quality audio cellphone. Sony not only provides good design on the chip end, but also is planning a series of Hi-Res Audio products, including software, several headphone products, and a platform for downloading music.

Furthermore, according to current consumer feedback, market segments have appeared for cellphone music, and there is a more and more of an obvious difference in the demands of high-end and low-end users. Therefore, how to attract users with different demands is an important consideration for cellphone companies when they establish strategies for product and business collaborations.

If cellphones and headphones have separate high-end and low-end specifications, four types of users can be defined, as in Figure 5: Audiophiles, Heavy Users, Transitional Users, and General Users.

For companies that aspire to develop high-quality musical cellphone products, Audiophiles and Heavy Users are the primary targets. Among them, the market scope for Heavy Users is the largest, while Audiophile users comprise the top of the pyramid. This group is not sensitive to product prices, but cares a lot about brand value.

As for Transitional Users, the potential for high-quality music cellphones lies with consumers. As cellphone companies begin to launch more high-quality music products, the scope of this group will gradually expand and the users will, one after another, become Heavy Users.

In 2015, the Transitional Users group is expected to take shape, and by the end of 2015 they are expected to become Heavy Users and buy more high-quality headphone products or up-market music cellphones.

(TD:Korbin Lan/ TR:Phil Sweeney)