THE AUDIO EXOTICS WAY!


Take a look at very interesting, emotional and in depth essay by Chris Leung of Audio Exotics. He speaks about this unique ultra high-end audio venture and AE Super Hi End Audio Gala show...

"In 1995, Steve Job highlighted the usual cause behind consequential failure of a monopoly stems from the deterioration of product quality.  Because sales people run the show.  Then, innovation halts. Numerous modifications of the same architecture repeat.  Sadly, this is fact of life.   It is costly to innovate.  But if you don’t invest, there is no future income.  If you do, one becomes slavery of uncertainty.

In the internet age, things change at lightning speed.  Even if you do well, people forget easily.  But if you fail once, people always remember.  To become successful, one must hit the jackpot all the time.  Then attention arises.  History begins to form.  The birth of a brand follows.  The next challenge is to advance and protect it.  

The connectivity power of the internet unites the “abnormal people”.  Never had I imagined the longevity of their shared experiences on AE forum captured many cult followers worldwide.  That was what triggered me to host the 1st AE Super Hi End Audio Show in 2013. Frankly, the first show was a failure to my standard.   The cost-no-object Chouku mono amplifiers could not function stably upon arriving HK.  Yamada of Zanden was apologetic but he was never discouraged.  But I was discouraged.  I even told JLam to forget about the next show.  Yamada had not charged me an extra dime on the research/development cost in spite of an overblowing budget.  His integrity and spirit inspired me to continue.   The Chouku mono amplifiers finally performed in the 2nd AE Super Hi End Show in 2014 driving Cessaro Carmen in partnership with Robert Koda’s K15 reference preamp, Trinity phono stage and Hartvig Signature Turntable.  That was a good show.  I was contended. 

The show expanded from 1 room to 2 rooms in 2015 and subsequently 3 rooms in 2016/2017.   Physical expansion is a function of labor and capital.  But what matters is the tremendous improvement of sound quality over the years.  The value-added of AE is to push the envelope on the manufacturers’ side, and to translate their works into your musical enjoyment.  This requires education.  I have to exemplify the merits of our approach.  In this business model, the biggest cost is time and human resources.  There are tremendous know-hows behind audio reproduction.   Analog set up requires dexterity and patience.  Digital technology requires constant adaptations to the leading edge.  On the human resources front, I am blessed with Chung Wong on logistics, Master Chik on Analog Science, and Edison Wong on computer related matter.  However, the mounting burden on my shoulder remain as heavy as ever.  

There are many questions marks over my business model.  My shop in Sheung Wan is closed from Monday to Friday unless there is an appointment.  I only work on Saturday.  The horn speakers are gigantic.  They cannot possibly get into majority of apartments in Hong Kong.  The pricing of them also put many people out of reach.  Yet AE is clearly growing steadily.  The reasons I can walk this far is because of two factors: (1) absence in the China market, (2) refusal to follow the norm.  And (2) is related to (1) because everyone goes to China nowadays.  The upside is huge market size. The downside is commoditisation of Hi End Audio.  The industrial structure of the audio industry is fragmented without order.  The strategy of “cash acquisition of distributorship, quick disposal by low price, and eventual dumping at cost or below (counterfeiting also happened in some cases)” has been the unspoken axiom for too long.   My intelligence is too fragile to embrace the opportunities in China.  They are changing the world much more than the rest of the world changing them.  Size matters.  And I always want to be myself.  

China is a market for high volume low margin business.  The institutional  and regulatory environments are built for this purpose.  Investors behind Engstrom in Sweden previously working in multi-billion oil business couldn’t understand why it is so hard to increase audio sales in China.  One of them asked me, “Chris, are you telling me audio business is difficult than the capital intensive oil business?  China has the population of 1.4 billion. Just one percent is equal to xxx etc.”   I replied YES, much more difficult.  At least there is order in the oil market.  

The nature of Hi End audio is meant for the niche.  New product developments have to satisfy my intellectual curiosity first.  Supply subsequently creates demand.  And many don’t understand why I have been financing the development of crazy projects few can afford.  For example, I sold 6 sets of Chouku amplifiers between 2014-2018. 5 pairs in 5 years, including a pair as permanent demo in AE.  The statement Eric amplifier by Engstrom - 3 pairs in 3 years.  Is this a good investment?  It is pathetic from the lens of modern finance.  Frankly speaking, manufacturers could not survive based on such quantity.  And I better put my money in Tencent, Alibaba, or properties anywhere in HK.  What do I get in return? Only a pristine clear market positioning so that AE always rings a bell as an “cost no object” den.  

Then I have to convince everyone all products under AE are extraordinary.  In order to achieve this, I have to prepare systems that always shock incoming listeners playing their own recordings at free will.  The impression must be soufully tremendous. They remember.  Good memories bring them back to AE.  That requires the cleansing of: (1) AC Noises, (2) Ground noises, (3) Mechanical noises, (4) EMI noises and (5) Room noises.  Dedicated solutions are required to tackle each of them independently.  Without getting rid of noises correctly, the real potential of the underlying electronics is always undermined.  

The number of AE showroom increases from 1 to 3 in the past 2 years.  But revenue remains broadly constant. That means return on capital has been falling. It is a SELL story.  But AE is not a listed company.  I don’t report to shareholders.  The satisfaction rather comes from growing recognition and respect at all levels alongside strengthening capability to project influence. As of today, we have over 9,000 followers on our facebook page.  Many people told me the market for Hi End Audio in Hong Kong has reached its limit.  I disagree.  The limit is created by the absence of drive and scarcity of knowledge to educate the next generation of customers.  My job is to enrich your musical life via technological means.  Without this value added proposition, audio business is no different from trading super market items. 

Moving tons of heavy electronics and speakers around for the AE Super Hi End Show is hell of a physical job for my crew.  But I have to keep doing it and I have to do it better with each passing year.  In the forthcoming gala on Jul 7-8, I will be showcasing four different type of speakers in 4 different rooms: Panel, Conventional Dynamic Speakers, Horn Speakers, and Professional Monitor.  The idea is to enrich diversity in the transducer space to accommodate different listening tastes.    

The audio world has been running a chronic deficit of inspiration for too long.  I have to uphold my belief.  This is the source of all stimulus and intellectual vigour. "