Paul McCartney as Pitchman May Lift Sales of Harman Audio Gear

It was 20 years ago today, plus about 25 years, that the Beatles recorded one of the most acclaimed albums in music history, “Sgt. Pepper’s Lonely Hearts Club Band,” and they did it on Harman recording gear.

As a reminder of that heritage, Harman International Industries Inc. (HAR) Chief Executive Officer Dinesh Paliwal keeps the Studer tape deck used on “Sgt. Pepper’s” in his office, in Stamford, Connecticut, Bloomberg Businessweek reports in its Feb. 20 issue.

After making much of the studio equipment and touring gear used from “Abbey Road” to Kanye West, Harman is in the midst of an identity crisis. Today’s buyers of consumer electronics are moving to Apple Inc. (AAPL) or to celebrity-endorsed brands such as those of Beats Electronics LLC, which in three years has won half the U.S. market for high-end ($100-plus) headphones.

While Paliwal denies he is responding to Beats’ advance, he is boosting Harman’s marketing budget 50 percent, to an estimated $50 million this year, to challenge Beats at its star- driven game. Paliwal recruited ex-Beatle Paul McCartney to pitch JBL, a Harman brand of studio and concert gear that the musician has used since his Fab Four days. The ad, which aired during the Grammy Awards telecast this month, represents the first time that McCartney has endorsed a brand in a commercial, according to Harman.

Photographer: Peter Foley/Bloomberg

As a reminder of that heritage, Harman International Industries Inc. Chief Executive Officer Dinesh Paliwal keeps the Studer tape deck used on “Sgt. Pepper’s” in his office, in Stamford, Connecticut, Bloomberg Businessweek reports in its Feb. 20 issue. Close

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Photographer: Peter Foley/Bloomberg

As a reminder of that heritage, Harman International Industries Inc. Chief Executive Officer Dinesh Paliwal keeps the Studer tape deck used on “Sgt. Pepper’s” in his office, in Stamford, Connecticut, Bloomberg Businessweek reports in its Feb. 20 issue.

Other ads, focused on headphones, iPod docks, and stereo systems, will feature Jennifer Lopez, Maroon 5, and Tim McGraw in the U.S., as well as Mandopop singer Liu Huan in China and Indian composer A.R. Rahman, who wrote the score for the film “Slumdog Millionaire.”

Artists’ ‘Passion’

In 2010, Harman introduced one line of AKG studio headphones designed by producer Quincy Jones. Another, from country star McGraw, will be available this year. Rapper West also is helping develop a line, Paliwal says.

“These artists have passion about what they use,” he says. “They are the best ambassadors for the marketplace. Why shouldn’t we be taking advantage of the great visionaries out there?”

Celebrity branding has worked well for Beats, whose pricey Beats by Dr. Dre headphones -- endorsed by the hip-hop producer Dr. Dre, who is co-owner of the brand -- have helped transform headphones from functional accessories to symbols of urban cool. Beats also markets Justin Bieber and Lady Gaga audio lines.

High-end headphones are a $600 million market, one that doubled in each of the past two years, according to NPD Group Inc., a research company based in Port Washington, New York. Beats, started in 2008 by Dre and Jimmy Iovine, chairman of Universal Music Group’s Interscope Geffen A&M record label, has a 55 percent share. No Harman brand is in the top five.

‘Trendy Aspect’

Harman’s more-credentialed audio brands -- besides JBL, it makes AKG headphones and microphones, Harman Kardon stereo gear, Infinity speakers, Studer mixing consoles, and Crown Audio amps -- are well-known to music professionals, and less so to consumers, says Ben Arnold, NPD’s director of industry analysis.

“There’s a trendy aspect to this stuff,” he says. “A brand has to have a certain amount of visibility with consumers.”

That may be more crucial for Harman now that Beats is expanding. A partnership with Fiat SpA’s majority-owned Chrysler Group LLC lets buyers add Beats speakers to the 300S Chrysler sedan. Beats also has begun supplying its branded speakers, amps, and headphone jacks for Hewlett-Packard Co. (HPQ) computers and HTC Corp. (2498) smartphones. Taiwan-based HTC agreed last August to acquire a 51 percent stake in Beats for $300 million.

Beats’ moves put the upstart further onto the turf of Harman, which supplies stereo and infotainment systems for Porsche SE, Daimler AG’s Mercedes-Benz, and Bayerische Motoren Werke AG’s BMW vehicles. Its gear is in 25 million cars, including 80 percent of luxury vehicles.

‘Great Vision’

Paliwal says Harman’s history of producing audio systems -- used everywhere from Applebee’s International Inc. (APPB) restaurants to Radio City Music Hall to the Sydney Opera House -- gives the company a leg up against Beats, whose headphones are made by Monster Cable Products Inc.

“Dr. Dre had a great vision but who makes it? Monster Cable,” Paliwal says. “They’re a damn-good cable company, but they don’t know much about digital sound processing. We have a 60-year heritage of sound and acoustics. Putting that together with the star power, that’s a game changer.”

To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net.

To contact the editor responsible for this story: James Ellis at Jellis27@bloomberg.net

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