As the current console generation comes to an end, the video game industry is struggling to adapt to an increasingly mobile-friendly market of consumers hesitant to spend money on new gadgets and games when they already have smartphones and tablets at their disposal. Much has been made about the commercial prospects of the major console developers like Nintendo (PINK:NTODY) and Sony (NYSE:SNE), but what about all the other company that have clustered around the hardware to build businesses of their own?
It was jarring to see Turtle Beach, a company best known for producing the highest of high-end gaming headsets, dive headfirst into mobile tech at this year’s Consumer Electronics Show, or CES. But Juergen Stark, the CEO who took the reins to the company last summer, comes from a strong tradition in mobile consumer electronics, given his background as the COO of Motorola (NYSE:MSI). We caught up with Stark to discuss the changing nature of hardware in the game industry today and hear how he plans to keep his company on top of any emerging technology.
Since you already have more than 50 percent of the market share for gaming headsets, where do you still see areas for growth?
We will continue to lead the market, and part of leading the market is expanding it. The majority of gamers still don’t use headsets and are missing the benefit that an immersive audio experience adds to a game. So job one for us is to educate gamers and the market about the benefits a good quality headset with all the unique features we’ve developed can offer. That should continue to help grow the market.
You have such a strong brand identity among gamers. But the game industry itself is going through a series of upheavals -- rebranding consoles as home entertainment devices, facing steeper competition from the mobile market, things like that. Given that, I wonder what’s going to happen with gaming-specific hardware. A lot of games journalists have wondered if this is going to be the last generation of dedicated video game consoles, for instance. Do you think that headsets are facing a similar challenge? And how does Turtle Beach plan to deal with it?
There are probably two core axes to what we do. One is gaming, and one is audio. All of our products are in the sweet spot in between those two. As the consoles become more of a living room type of entertainment device -- Xbox has done a really good job bringing movies in, for example -- the audio still fits into that perfectly. We’re gonna stay focused on being able to move as the consoles move. As they increase what they’re used for, we’re gonna keep doing the same things. We’re not getting into keyboards and mice and all the other gaming things; we’re gonna stick to our knitting and not spread ourselves too thin. And then we’re continuing to look at other opportunities in and around audio including mobile gaming and things like movie presets so people can use a Turtle Beach headset to watch Netflix on the Xbox. That’s the kind of technology expansion, which isn’t de-focusing the company. I’m a strong believer of doing what you’re doing and doing it extremely well and not chasing everything all over the place. And I think the culture of the company is well aligned with this.
So I don’t know that that question -- what platforms people will use for gaming -- will have a direct effect on us. At the end of the day, our business is about creating a richer gaming experience by improving the audio from a quality standpoint and from a feature standpoint so that the gamer has a competitive advantage and a more immersive experience in the game. Features are the things we’re familiar with: dynamic chat boosts by being able to separate the different audio signals, for example, being able to highlight certain things like footsteps or shell casings.
If you start there, it doesn’t matter to us what platform the gaming is happening on as long as those platforms allow us to add those kinds of benefits to the audio experience. The consoles and PCs have done the best so far in terms of producing games that output in surround sound in separate channels, having high quality chat integrated into the game. Since it’s a big benefit to the game developers to have an immersive, rich experience, I would expect that those new kinds of platforms -- the OUYAs and all that -- if they really want to compete with the consoles, they would have to make sure that their experience is really rich and immersive.
OUYA may be different, since it's still developed with the living room in mind, but in my own experience with mobile gaming, audio always seems to be the first thing that goes out the window. Usually when you’re playing “Angry Birds” or “Temple Run” on the subway, you turn the audio off just to avoid bothering other people. Do you think there needs to be a cultural shift in how people perceive mobile gaming for a company like Turtle Beach to enter into that market?
I would say two things. First, we have intentionally added mobile capability to our headsets. That was a key new feature, partially because our headsets are also very good headphones. Our standard audio quality, fit, comfort and finish is very high. There’s no reason why our headsets can’t outperform a music headphone, so now anybody that spends money on a Turtle Beach headset is going to get a pair of high-quality headphones. That’s kind of a no-brainer, right?
Now I do think there’s a question of how to make mobile games more successful. There’s casual gaming like “Angry Birds,” and I don’t know that I would expect a huge change there. But as more, let’s call them, “serious games” come out of the mobile platforms ... you know, you’ve got two senses working: You’ve got your sight, and you’ve got your hearing. I do think very much so that game developers who are trying to put good, rich gaming experiences onto mobile will up their game on audio and allow the experience to be better. Otherwise, it’s not going to be very competitive as a platform.
How can you transform your product without losing that core audience? In my experience, gamers can be a very loyal audience, but they’re savage when provoked. I can’t imagine people reacting positively to an “Angry Birds”-branded Turtle Beach headset, for instance.
We make a full line of headsets down to $29 ones, so I think the company has done a good job of keeping the balance. And we don’t penny-pinch. If we’re making a high-end gaming headset, we make sure it’s going to deliver. Companies, over time, have a tendency to take advantage of their brand -- we know that people are going to buy the next product, so you can shave off pieces here and there. That’s a short-term thing; I like the long game. You satisfy the customer every single time, and they keep coming back for your products again and again.
I spoke with PowerA last year about its MOGA console, and the company said that consumers think of mobile games as simplistic, “casual” games, whether by technological limitations or a sense of the marketplace that then inspires developers to create even more simplistic content that doesn’t offer the complexity of something built for a gamepad.
Yeah, I think that’s probably right. You’d still want the audio to be rich and immersive, though, and that really hasn’t happened much in the mobile games space yet. But I think it will.
The other side of this is that other headphone makers are seeing the advantage of having a rapt and loyal audience like “core” gamers as esports become increasingly prominent culturally and commercially. Monster announced its own partnership with Electronic Arts (NASDAQ:EA) at CES to start making gaming headsets, for instance.
All of that category of headsets -- Beats, Monster, Skullcandy -- they’re in a completely different business than we are. They’re all about marketing, making you buy the headset because it’s cool. The way they sell more of their product is to market more. And, by the way, if you do too good of a job and everybody has it, then you’re not cool anymore. So it’s a fashion thing.
I think some of the classic headphone guys have made forays in the past into the gaming headset space. Fortunately for us, it’s not that simple. The Monster headset has 30 mm drivers; it’s got none of the gaming features that we know gamers want. Just because you put an EA sticker on it doesn’t mean that gamers are gonna fall for the trick! I look at it almost as a marketing play. They trick consumers into buying their products. Every time companies like that try to do what we do, we know that it’s not going to work. We’ve had people come into the space; nobody’s taking any share. We still grew share this year.
But like you were saying about Turtle Beach being recognized for making overall high-quality headphones, does that work the other way? If other audio equipment developers are trying to move into gaming headsets but don’t have the talent or experience to do so yet, are you positioned to start making general interest consumer electronics? Is there a challenge that you would face trying to make headphones for the average music listener rather than the “Counter Strike” or “Call of Duty” player?
Well, we’re not in that business; we don’t create headphones. We’re gonna stay focused on what we do very well, which is gaming audio. When you buy one of our headsets, you get the headphone and mobile capabilities with it. Maybe this is a bad analogy, but the way I’ve been thinking about it is if you buy a high-performance car and then you buy a different car to drive more slowly. Well, you can drive more slowly in the high-performance car too; nobody does that. If you buy a high-performance headset, great audio and other capabilities ... you just get those with it.
Right, but there’s a lot to be said for a brand like Beats being the first to really convince average consumers to spend $200-$300 on headphones. There are a lot of gaming specific companies that build their brands in the most arcane, alienating ways for anyone outside of that community. When you hear about something like Gamer Grub, you have to wonder who thought it was a good idea to call something “Gamer Grub.”
Well you could say that about most consumer products out there -- “what idiot came up with this idea?” And, by the way, I’m not taking anything away from what a company like Monster or Skullcandy is doing. In fact, Beats has done a great job of building a product and a market. But the core driver of success is branding and marketing; it’s not technology. Beats headsets aren’t that good from an audio-quality perspective. If you think about Monster ... Monster’s main claim to fame was getting people to pay $40 for a cable that you could get for $9 or $5. Anybody who knows electronics knows there’s no difference. So that’s just: Yhey built a brand, they make you feel like “I just paid $1,000 for a TV; I better pay $99 for an HDMI cable.” There’s nothing wrong with that; that’s just a different business than what we’re in.
This Q&A was edited from two separate interviews for clarity and brevity.