by Christopher Walsh
Nashville (May 9, 2008)--Tutzing, Germany-based headphone manufacturer Ultrasone AG has established Ultrasone Inc. as its own U.S. subsidiary for North and South America. Ultrasone Inc. takes over sales, distribution, marketing and accounting from Nashville-based Ultrasone of America, an independently owned distributor that had handled Ultrasone products in the U.S. since its formation in 2004.
Paul Taylor has been appointed president of Ultrasone Inc. He is based in the subsidiary's new headquarters in Wildomar, CA, and reports directly to Ultrasone AG.
"The U.S. market is one of the most important markets for Ultrasone," Michael Willberg, CEO of Ultrasone AG, tells Pro Sound News. "There are many strategic decisions which are influenced by the U.S. market and the feedback we get from there. Therefore, it is important for us to have a direct connection into this major MI market to fulfill the needs of our customers in the best possible way."
Cathy Kelly, president of Ultrasone of America, takes a different view, however. Ultrasone of America, she tells Pro Sound News, had very successfully introduced the brand to the U.S. market. Ultrasone AG's decision to open a U.S. subsidiary, announced to Kelly at the Winter NAMM Show, was not only a surprise, she says, but came on the heels of her company's significant expenditures in inventory, travel, advertising and marketing.
"We took over distribution in 2005," says Kelly, "and by most measuring sticks, we have been wildly successful. We have four headphones in Guitar Center that are stocked on a regular basis; Sam Ash stocks five headphones. We have over 200 dealers in the U.S. We have rep firms covering the whole area. We have penetration of South America and Canada now."
Sales in the U.S. totaled approximately $2 million in 2007, up from around $250,000 in 2004, Kelly adds, and have grown each year since Ultrasone's introduction to the market. "It's only our third year, and we're one of the most expensive headphones out there. We not only made a splash in the pro audio market, but this past year, we have developed major relations in the consumer market."
The dollar's vastly diminished value relative to the Euro and other currencies, Kelly suspects, is behind Ultrasone AG's move, along with skyrocketing freight expenses. "The Euro/dollar situation, gas prices--in that freight cost increases hit everyone from manufacturers to distributors--and a shrinking profit margin either make it necessary or very tempting for European distributors to go direct to the U.S., the largest market in the world. However, many do not understand the U.S. customer service/relationship factor," she says.
"These aspects influence our business in general," says Willberg, "and they are as negative for us as they are for all European companies. But they did not influence this decision in a major way. The strategic decision of setting up [our] own subsidiary is not only influenced by financial or performance developments," he adds. "The step that we made has been a logical step and a necessary step at the present time. Ultrasone will set up a far bigger network in the U.S. than what it is right now and we will be present in the demanding consumer sector."
Kelly has not ruled out legal action against Ultrasone AG--Ultrasone of America's contract had three years remaining, she says--but considers it unlikely. "We're selling out the rest of our stock and then will move on to other endeavors," she states. "Steffenee Copley, Evan Doyle, Becca Sanders and all of our reps over the past few years have incredible talent. We have chosen to pursue other opportunities and use our energy positively."
But Kelly, along with Ultrasone of America, are themselves the target of a complaint filed in Chancery Court for Williamson County, TN. on January 11 by plaintiff Linda Albright. Albright's EARS Audio began North American distribution of Ultrasone AG products in 2002 and she subsequently brought in a partner and formed Ears Audio Distribution. Included in the complaint are assertions that financial commitments were not met and Albright's ownership interest was diminished while distribution was transferred to a new company, Ultrasone of America, and EAD was eventually dissolved.
"We have emphatically denied all of these claims in our reply," Kelly responds, maintaining that Ultrasone of America has more than satisfied its financial obligations to Albright.