Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco. Read more opinion LISTEN TO ARTICLE 2:48 SHARE THIS ARTICLE Share Tweet Post Email

Photographer: Krisztian Bocsi/Bloomberg Photographer: Krisztian Bocsi/Bloomberg

Don’t blame the slowing Chinese economy, the rise of smart speakers or an ill-advised push into high-end television sets. The slow demise of deluxe speaker-maker Bang & Olufsen A/S is really about one thing: The way people listen to music has changed.

When you stream your favorite beats from Spotify Technology SA, the highest audio quality you get is 320 kilobits per second. Apple Inc.’s competing service offers much the same. That’s less than a third of a CD’s 1,411 kbps, let alone the pristine audio quality of a vinyl record.

So the more that people sign up for streaming services — and Spotify added 57 million users over the past year alone — the less likely they are to spend $3,000 on a Bang & Olufsen sound system. It would be like trying to drive a Ferrari through central London at rush hour: You’re just not getting what you paid for.

That’s why things look far from rosy at the Danish company, which issued its fourth profit warning inside a year on Wednesday. It now expects sales to fall as much as 18%, as well as lower profitability and negative free cash flow, where it previously anticipated sales growth, higher profitability and positive free cash flow. The shares tumbled by as much as 25% on the news, valuing the firm at about $200 million. At its 2018 peak, it had a market capitalization of $1.2 billion.

B&O Stinks Shares in the Danish company have lost three quarters of their value over the past 12 months Source: Bloomberg

Of course, there’s still some demand for top-of-the-range speakers from the audiophile cognoscenti, but the search for growth has gotten harder as China’s economy decelerates. And competition increasingly comes from upscale headphones, as Bang & Olufsen acknowledged on Wednesday.

The broader market struggles have been compounded by missteps from the previous management team — former BlackBerry Ltd. executive Kristian Tear took over as chief executive officer in October. His predecessor, Henrik Clausen, tried to branch out into $15,000 television sets, a challenging proposition when the average global price of TVs has fallen to below $400, and the production was outsourced to LG Electronics Inc. anyway. Clausen was asking customers to pay a huge premium for what was essentially an LG television in a box designed by B&O and accompanied by fancy speakers.

Given that Tear has only just taken over, the latest profit warning could offer an opportunity for a reset. But it’s hard to see how he can change the downward trajectory. Although an acquisition might offer investors a shot at redemption, it’s difficult to identify a prospective buyer when the environment is this tough and the barriers to entry so low. Apple, Amazon.com Inc. and Alphabet Inc.’s Google are all charging into the speaker market, albeit at the lower end — that’s some formidable competition.

Tear urgently needs to find a way to make B&O appealing to a buyer before the music stops completely.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.