Could a pair of headphones save the music business?

Complaining about what young people today are listening to is not exactly original but you don’t expect it from the record executive behind Lady Gaga. Jimmy Iovine, his baseball cap incongruous in the stiff dining room at Manhattan’s St Regis hotel, is getting worked up not about noise or explicit lyrics but about the quality of sound coming through the iPod generation’s headphones.

The wiry 57-year-old producer began his career as a sound engineer, working with John Lennon on Rock ’n’ Roll and Bruce Springsteen on Born to Run, and is now chairman of Interscope-Geffen-A&M Records, home to Lady Gaga, Eminem and the Black Eyed Peas and one of the largest labels in the world’s largest record company.

“The people we work with spend hundreds of millions of dollars every year getting the sound exactly right.” But then, says Iovine, his emotions rising, much of what has been so carefully captured in the studio recording process has to be “dumbed down” or compressed by 20-25 per cent to be copied on to a CD, before being further compressed into an MP3 file format for playing on a computer or mobile phone with a sound processor likely to have cost just 50 cents. Sound quality is lost at every step of the process. “That’s like taking the Beatles master [recording] and playing it through a portable television,” he says with revulsion. Ramping up the similes, he points out that 80 per cent of 18- to 24-year-olds listen to music at home through computers whose speakers, typically, “make the helicopters in Apocalypse Now sound like mosquitoes”.

Bad sound, he warns, is destroying the music business.

But Iovine believes he has a solution and it’s hanging around his neck: a sleek set of grey and red high-performance headphones. “These are going to blow your mind,” he says, passing them over. I put on the headset and the polite midday murmur of the St Regis disappears, replaced by 50 Cent’s 2003 single “In Da Club”, a rolling rap with its basslines as potent and its details as clear as if we were, indeed, in a club.

Though other headphones can compete on quality, what sets these ones apart is that they are gaining mass market appeal, reaching beyond audio geeks, thanks in part to the heavyweight talent behind them.

The headphones are made by Beats by Dr Dre, a company controlled by Iovine and Andre Romelle Young, the rap producer better known as Dr Dre whose credits include 50 Cent’s hit, NWA’s Straight Outta Compton, and Eminem’s “The Real Slim Shady”. The venture sprang from a chance meeting between them on a beach, Iovine explains. “He said to me, ‘Man, my lawyer wants me to sell sneakers.’ And I said, ‘Dre, nobody cares what kind of sneakers you’re wearing, man. Screw sneakers, sell speakers,’” Iovine recalls.

That quip has grown into a business that has sold 1m pairs of headphones in two years. In January, the Los Angeles Times reported that Beats’ fourth quarter retail sales were $50m. Iovine is reluctant to confirm the figure, offering only the snapshot that on the day we meet revenues are up 7 per cent from the previous week.

Dr Dre says their idea was “to get the public to hear the music the way it was meant to be heard”. On every other set of headphones the famously exacting producer had used, “the entire sound was just wrong,” he says. “I go back and listen to my old records now like I’m listening to them for the first time. You’re able to hear what we’d hear in the studio.”

Last month the pair released Diddybeats, a $180 in-ear model with Sean “Diddy” Combs – rapper, producer, actor and men’s wear designer. According to the man with his name on the headphones, when he first tried on a pair, he was “blown away by the sound”. With characteristic bombast, Diddy likens the style of Beats’ products to the kind of detailing he enjoys in Porsches, Ferraris, and G4 jets.

He says: “Dr Dre’s one of my heroes as a producer, and Jimmy Iovine’s one of my heroes, so when they approached me I was really honoured,” he says. But the venture is also about making money. “At the same time, I’m still a businessman so, besides being flattered and honoured, for me to associate myself with those two great brands is only going to make my overall brand that much bigger.”

Beats’ founders have ambitions far beyond headphones. “This is only the beginning of something huge,” Dr Dre claims. Iovine concurs: “Beats is a headphone now but it’s [also] an idea to fix the ecosystem of music.” Together, they intend to develop music’s answer to the Blu-ray disc or 3D movie, a premium technology that helps a business hurt by illegal downloading.

For most people, high fidelity in music went out with the hi-fi, sacrificed for the portability of the Walkman, Apple’s desirable iPods and the tinny MP3 format used by countless peer-to-peer websites, mobile phones and also-ran digital music players.

A few devoted audiophiles, comfortable discussing bit rates and data compression, have kept alive the pursuit of “lossless” digital music. They’ve been sustained by brands such as Bose and Bang & Olufsen, creating a market for serious headphones, from Shure’s $500 SE530 model to Sennheiser’s HD800s at $1,400 a pair. With its models priced between $120 and $400, Beats is not short of competitors providing more affordable offerings to tempt teenage budgets. Skullcandy, for example, with prices from $15 to $150, has built the second largest headphone brand in the US after Sony but trades more on its snowboarder-favoured styling than on audio quality.

“You get what you pay for,” says Diddy. “We’re going to put the technology in it that the record deserves.”

Yet there is only so much good headphones can do with a poor quality music file or a cheap player. “We can make bad coffee warm but it’s still bad coffee,” Iovine acknowledges. He welcomes the 2007 decision by Apple, whose iTunes store commands 70 per cent of the US download market, to offer some premium-priced tracks encoded at double the previous 128kbps standard. But he says record labels also need to help by putting out higher quality rather than CD-compressed files, as Interscope has begun doing.

Paul McGuinness, U2’s manager, who 30 years ago used to advise the band to avoid television appearances because small TV speakers “diminished rock and roll”, is a strong supporter of “lossless” files. “I’m delighted to see a record company pushing that because it involves admitting that the existing files are inadequate,” he says. When MP3s first took off, he adds, “I thought there’d be more of an outcry from musicians, saying, ‘We spend all this time in the studio making this thing sound wonderful and then it gets compressed to nothing!’”

PCs and laptops form the next part of the Beats ecosystem. Iovine says good quality sound can be had for just $2 to $3 more per computer but cost-conscious manufacturers are using what he describes as “garbage”. Returning to his earlier metaphor, he says: “It’s like taking Avatar and playing it through a portable television. Would you do that? James Cameron would come to your house personally and strangle you.”

Few computer buyers ask about the speakers. But Beats hopes to change that and, last October, after months of work with Hewlett-Packard, announced a $2,300 laptop, the HP Envy 15 Beats, bundled with a pair of headphones and DJ-ing software. According to Iovine, HP has shipped “tens of thousands” of the shiny black laptops, and Beats has its technology in a further 1m HP computers, a figure he hopes will grow to 4m in two years. A docking station – speakers for iPods and iPhones – is almost ready for release: “When it comes out it’s going to kill, because our whole thing is we want to make one room a party. You have a dorm? You put that thing in there and you’re a nightclub,” he raves, hyperbole set to maximum.

Controlled by Iovine and Dr Dre, with only a handful of employees, Beats is a tiny company but it rides on the backs of far larger organisations. Among its bigger associates is the audio cables company Monster, which handles manufacturing and distribution. According to company founder Noel Lee, the technology put into Beats headphones had to be developed from scratch. Despite limited retail distribution, it has become the market leader in $300 headphones thanks in part to Dre’s reputation and connections, says Lee.

Next in the chain comes Best Buy, the largest US electronics retailer, which has given Beats a retail presence few companies of its scale could hope for. “I think this represents a renaissance in sound,” says Best Buy’s chief executive Brian Dunn, who adds that Beats could build a mass market for higher quality audio where there has been none. “There’s always been the niche great-performing headphones but they’ve never had broad populist appeal. Beats has made it hip.”

Over the past three years, unit sales of headphones have grown steadily in the US: their retail value dipped below $1bn between 2008 and 2009 during the recession but recovered to $1.1bn in the year to April 2010, according to Ross Rubin, director of industry analytics at the NPD Group, which tracks the consumer electronics market. The average price, however, is just $19, with many consumers buying cheap earbuds to replace lost or broken iPod accessories. The extent to which consumers are trading up is hard to tell from NPD’s data, Rubin says.

Universal, Interscope’s owner, is betting on that growth continuing, taking a stake in Beats and supporting Iovine’s efforts. “Beats helps Interscope,” he says: “You want as much cool in the building as possible. That’s what the popular culture business is about.”

Iovine and Dre’s connections to that culture have given Beats credibility with partners and customers. They have distributed them to artist friends from MIA to Timbaland and are similarly using sports stars to promote the brand. LeBron James, the Cleveland Cavaliers star, has modelled a pair in a National Basketball Association commercial, the Boston Red Sox baseball team has its own edition, and some England footballers flew into South Africa for the World Cup wearing them.

There is a (RED) version of Beats with the Bono-backed initiative that raises money to help eliminate Aids in Africa. Susan Smith Ellis, (RED)’s chief executive and the mother of two teenagers whose old headphones were cranked up “way too loud”, says Beats is “tiny but powerful”, Iovine and Dre being unusually savvy collaborators.

As well as Diddybeats, the company has launched Heartbeats, a $120 pair of in-ear headphones designed by Lady Gaga. Iovine, who signed the savviest businesswoman in music since Madonna “when she still had brown hair”, says Beats decided early to work with her “because she’s going to be really big in fashion, she’s going to bring a lot of credibility and she’s going to bring women, which we need.” Most importantly, as a record producer herself, “she knows the difference”.

These partnerships benefit both sides according to Diddy, a one-man marketing machine with his own fragrance, vodka, clothing range and million-strong Twitter following, who says “Beats is jumping on the train of my life.”

But can Beats help the ailing music business? “It helps the overall experience,” says Diddy. “I can’t say it’s going to have a major effect because the reasons why the music business is not doing well don’t have to do with sound quality.”

Iovine does not claim to be saving his industry. But, reaching for a recording-studio image, he says: “[Don’t] you think every musician in the world is on my side? And when every musician in the world gets on something’s side, what happens? The needle moves. We’re going to move the needle here.”

Andrew Edgecliffe-Johnson is the FT’s media editor

Gadget guru Paul Taylor on his favourite headphones

The earbuds bundled in the box with most portable digital music players and smartphones should perhaps be called “earduds” due to the poor sound quality they generally deliver.

But it need not be that way. Even a moderately-priced set of replacement earbuds or wired headphones can transform the audio experience when listening to “lossless” digital files or those recorded at higher bit rates.

Today, almost a decade after Apple launched the iPod, consumers and audiophiles can choose from an array of headphones and earbuds priced from as little as $20 to $1,500.

The traditional way to compare the performance of different headsets is to look at their specifications, particularly the frequency response and total harmonic distortion. Unfortunately, manufacturers routinely exaggerate these figures rendering them all but useless. In addition, music appreciation is highly subjective. In my experience, there is no real substitute for listening to your favourite music on a set of headphones before you buy.

Monster Cable’s Beats by Dr Dre headphones deliver high performance audio technology and active noise cancellation in a marketing package endorsed by artists including Dr Dre, Lady Gaga and Diddy.

The $300 Beats by Dr Dre Studio model have won plaudits from users for their comfortable and cool design, clear, clean audio and value for money, though I prefer the base performance of the Phiaton Moderna MS 400, which, like the Beats, fold up for easier transport.

Bose’s QuietComfort 15s, which cost $300, are also worth considering. Like the Beats, they are lightweight and comfortable, and use sophisticated technology to cancel out annoying background sound.

But there are downsides to these active noise cancelling headphones. They require batteries (which run down when left on) and, from an audiophile’s perspective, can affect sound quality and never sound as good as “open” headphones, such as the Sennheiser HD800 headphones that sit on the ear rather than over it. The sound these hand-built headphones produce is both full and natural, but such quality does not come cheap – the HD800s cost $1,400.

Paul Taylor is the FT’s personal technology columnist

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