The Cost of Cables

Chrisla, I just want to compliment you for that very thoughtful, well written piece. This was an excellent read!
jd

This is a truly remarkable thread. I believe you all have done an excellent job evaluating what is without question a very profitable market.

I want to make a few comments, both as a consumer of some of those very expensive cables, (Purist Dominus, Nordost Valhalla and Kubala-Sosna Emotion) and now an owner of a start up cable company. I am one of those who are freely ridiculed because I have owned cables more expensive than my system, but I must comment on why.

I have not owned these cables because of ego; I might buy a Porsche for ego, for I can think of no other “real” reason. (I once in a past life owned a Mercedes, and it turns out it was all about ego, but I was sure I deserved it!) The problem with owning cables for ego is you really need to have people around to understand what they are, and thus stroke said ego. Unfortunately, most people I know could care less about my system, its sound or what cables I use.

I bought these cables because they achieved things I could not achieve in any other fashion. Yes I could have bought a more expensive amp, but if I limit the performance with the cables, then what would I gain? The old standard of 10-20% of system cost comes from the days when there were very few high end cables, and at that time 20% would have bought the best MIT or whatever. Today there are so many cable choices; and in my opinion because we finally figured out cables matter. From the demand for better cables comes; R&D, marketing, advertising, patents, legal fees and of course construction costs.

Let’s take a look at the truly absurd. Tara Labs now has their latest greatest interconnect in a “true vacuum” and it comes in at a cool $15,000 for one meter! Ok, I buy the cost of development was high, but??? These guys do serve a purpose however; they push the envelope of what is possible. They help less creative manufactures to look outside the norm and possible they will then take the ball and move the performance even further.

I am (was) a competitive sailor. In the world of sailing the “audiophile” equivalent is America’s Cup. (Which is about to start the cutting down process as they approach the series) I remember about fifteen or twenty years ago when the trickle down from these boats hit our lake in the form of a carbon fiber mast. At that time masts were around $1000 for my boat. A carbon fiber mast, if it would have been legal in my class might have been $75,000. In some fleet, these types of developments are outlawed, where other fleets encourage the progress. (Imagine if we outlawed progress in audio)

The point is, today the entire hull of an America’s Cup boat, or the Volvo around the world race, and now many smaller fleets are constructed of 100% carbon fiber. The cost of course has come down a great deal, and we now see carbon fiber in most every boat made in some small applications where strength and weight are criteria.

Now I am sure the R&D was high to develop those early masts, but I am also sure the developers got paid quite nicely for their efforts. These developers (many from New Zealand) do not just walk away and retire on their one time discovery; they keep developing because that is who they are. For every success they discover, I would bet there is a land fill of failures.

Ok, I know our cables are not quite so extreme, but the point is made. I spent the winter testing speaker cable designs. The material is not cheap; it amounted to a few thousand dollars of “junk wire,” but this does not account for the big costs. Time is huge, if this was a business, and not my hobby, and I expected a reasonable return on my time, then I would need to factor this time into the R&D costs. Let’s say I have spent six months at five hours per day. Of course this is tine listening and to me not work, but I use this to make the point. 6 months x 30 days x 5 hours = 900 hours. Now if I am an entrepreneur, what is a reasonable fee for my risk taken to start a company to support my family???

Let’s say for the sake of argument I want $100/hour for my time, so I need to recover $90,000 in my product. Now I need to patent this great idea, this will cost about $6 – 10,000 in legal fees, not to mention my time (let’s say 40 more hors) so let’s just say this costs $10,000. Now how will I sell these? If I wish to stay low profile, I will just sell them here at Audiogon. In order to do this I must become a commercial member, and the lowest member category that I can be costs me $250/ month. Then we should consider the accountant and attorney who will advise us to spend great sums of money for their worldly advice. Therefore add $0.00 for the equivalent value.

Ok, all set for our upstart company, we need to recover $100,000 in time, $5000 in material consumed during the development and $250/ month. Now as a start up, what can I sell here at Audiogon? The first year I expect will be tough, but perhaps I can average ten cables/ month. (This would be very difficult, most upstart cable companies fail, but we are being optimistic here) If I want to recoup my time investment in two years, (paying myself $50,000/ year) I would need to charge $875 per cable set to cover my time and cash investment to develop the cable. Then I need to charge an additional $25 for Audiogon, and there we go, I can sell my cables for $1000 each set and come away with a cool $100 in profit!

Oops, I forgot to build these babies. So now I need to add the ten hours for a set of speaker cable, wire, cotton, connectors, shipping, insurance… For my cable, the cost of wire is quite high; an 8’ pair has over 400 feet of gold plated silver wire. This runs an average of $2.50 per foot (cost) or $1000; plus cotton sleeve at $70, jacket material, $50, spade connectors $50, misc. cotton and thread, $10 and my cost is $1180 for an 8’ cable. If I wanted to get $50 per hour, then we need to add $500, bringing my construction cost to $1680. This means if I was to cover the $900 in R&D and Audiogon, plus the actual material cost I need to charge $2080, and if I want to get $50/hour, I need to sell these for $2580!

In retrospect, perhaps I should not start a company, at least if the goal is to make money. If the goal is to share the hobby, well then…

Now this is me, a guy trying to build a cable to sell. If I am Nordost, Purist, Kubala-Sosna I have a different level of issues. These guys sell in magazines, they build demo cables to leave for dealers to audition, they travel to establish a sales force, and they??? Add to this the FACT that a dealer network is filled with greed. If I hope to sell in the Far East, I need an agent, a distributor and dealerships. Each of these entities takes a 100% mark up (this is the standard in audio, but true in many other industries as well) as they pass the product on. This covers their exposure (they buy bulk up front) time, travel … So going back to my example cable, that I decided I was going to charge $2580. Let’s say $2500 for ease of math. Now I am going to use a distributor and dealerships, but I am going to try and go without the agent. So my cable now retails for $7500, but that is my cable. If I am Nordost, or the like, what does my business cost if I advertise nationally, have a sales force, travel…. I assume at least another 100% so my little cable that has an actual material cost of $1180 would be selling for at least $10,000!!!

Now my costs are much higher than most cables, because I use a custom 99.99% pure gold plate over a 99.99% pure silver wire. If my cables were copper for instance; I would guess my cable cost might drop to $300 or so. The $2580 I had above might be more like $1700 for copper. Then the 400% mark up and the copper cable is $6800.

These are just examples to try and help illustrate how $300 in copper can grow to $6800.

If you consider the above analogy, anyone who thought this was going to be a cake walk is seriously disillusioned. Yes you can build your own copper speaker cable for $300, and if you happen to hit the right formula right out of the gate, then you will have one great deal. If you have a lot of spare time, then you can invest the hours needed to find the right combination to make a great cable. If however you do not have the time or inclination, and want the latest thinking in cable design, then it does cost money.

I agree that the costs are completely out of control, and yet I demand the best possible. I am one of the consumers who have demanded the R&D, and I have been willing to pay for it. Can you imagine an America’s Cup boat from twenty years ago, (steel hull and aluminum spars) racing against today’s all carbon fiber hull and spars? If we all simply stayed where we were, well the world would be a very different place. Perhaps the Scott receiver I had was good enough. Surly the zip wire from the hardware store is good enough too.

I am sorry, but pushing performance in audio, sailing, skiing, car racing… is something we choose to endorse, or not. I choose to be involved with the elite portion of the hobby. No one is forcing me to strive for the best, but if I want to be in the elite of any sport or hobby, then I will be the one who supports the R&D. The mass market enjoys the fruits of this labor, to a lesser degree. My Mazda is no Mercedes, but a lot of what makes it a good car comes as a direct result of the Mercedes $250,000 racing prototype. I want the best I can get, and therefore I buy the silly expensive cables. But are the prices silly, or simply the result of furthering performance that we the consumer demand?

jd

PS, please understand I wrote this to add insight and not promote a product.

Brian, I do hope to keep this discussion on track, so I will very briefly comment on the $$$ amounts in my analogy. I used the numbers as an illustration, not a formula. Your friend opened a restaurant and expected to recoup his cost over time. For the sake of argument I put a dollar value to a person’s time, and spread the re-cooped time over two years. The amount could be $50 an hour, and spread out over four years, the point is the same however.

For real life application, I expect a person in the business of audio, which owns his company and feeds his family from the income; $50 would not be worth the effort. Perhaps I am wrong, I am sure my idea of what time is worth is not necessarily accurate, but with attorneys charging $400-500 an hour, and accountants at $300-400 I think $100 was a reasonable number.

Anyway, let us not let the discussion fall to factious numbers. Instead, you asked some very good questions regarding R&D and pushing the level of performance of our equipment. I do not believe cables are the only area advancing; it just happens that cables are the topic here. Cables have however made strides that have resulted in quantum leaps at times, where the components may have been less impressive. The research money and time has gone into power conditioning and cables, because these have been the least understood, and have hardly received any attention until fifteen years ago. They therefore had a lot of ground to make up.

But if we want to look at components, LAMM introduced a new amp at CES this year. It was $250,000. I doubt they expect these to sell too fast, I assume this is more a statement of the time and materials that have gone into pushing the design beyond what was possible before. Wilson Audio has poured copious amounts of money into design of cones, and into resonance research with materials. This has led to new cabinet materials that are completely non resonant, and these materials show up in their $75,000 speakers.

We could find countless examples of multi-hundred thousand dollar components that have pushed the industry to continue to develop. Audio Note for example not only have amps well over $100,000, but they sell quite a few of them! So if the top of the top is $100,000 plus amps, $50,000 pre-amps, $100,000 front ends and $100,000 plus speakers, than the top of the top system must be nearly $500,000. If this is true, and these components represent “The America’s Cup” development, or the F-1 circuit, or… then $100,000 in cables is not out of the range of believability.

I think the problem we quasi audiophiles have is a $5,000 cable is almost in reach, where a $100,000 component is not. It is possible to hear how the best of the best sound in our systems through cables, so we stretch to buy them. Later we are ridiculed for having as much money in cables as we do equipment.

All of this needs to be kept in perspective. To some, money is either spent or used as toilet paper. For others we can get into serious debt trying to chase our passions. I know more than a few people who have taken out large second mortgages to pay for a boat, a car, you name it, is it so crazy to expect some might want to try the best possible in audio too?

Yes it all costs a lot of money, yes the amounts are staggering, but to simply claim it’s all profit and these guys are making a fortune is wrong. This trend is in every passion I know of, why are we so critical? I recommend if the prices do not make sense, then do not pay the price. But please do not criticizes those who what the best they can afford, and please be insightful of how these great advancements have come about.

Jd

Tvad, you had me going, then I look to see who it was. Good one ;-)