US headphones market dominated by Beats by Dre

Profits within the US headphones market is rising as retailers pay lower wages per unit sold due to more e-commerce sales and diversification of products. This nature is especially the case for mass merchandisers and e-tailers like Walmart and Amazon, which have increased the variety of headphones they carry in the past five years.

Profit, as measured by earnings before interest and taxes (EBIT), is estimated to expand from 16.5% of revenue in 2007 to 18.2% in 2012.

US sales of headphones that cost $100 or more increased 73% year-over-year in 2012, far outpacing sales in the headphone market overall. Premium headphones now make up 43% of all headphone sales, and consumers who make the leap to high-end headphones don't seem to be regretting the decision.

Marketing has been a powerful driver of sales, with branded headphones such as the Jay-Z/Roc Nation endorsed line of Skullcandy products, 50 Cent's SYNC by 50, and of course, the near-ubquitous Beats by Dre are all successful co-branding efforts of note.

The biggest player in the US headphones market is Beats by Dre. The company captured 64% of the $100-and-up headphone market in 2012 (as Dre earned a reported $110 million, thanks mostly to Beats) by ushering in a new way of thinking about music marketing and consumer preferences.

The quality of sound is the greatest determining factor in influencing consumer sales, with 73% stating that it is the top influencer in their purchases. This is telling in how listening culture has shifted since the start of the mp3 revolution.

Earbuds, while certainly convenient, are not reputed for their high-quality sound. Most in-ear headphones do a poor job of blocking outside noise, muddling the listening experience. The drivers and speakers in earbuds, the things actually making the sound you hear, are constrained in size by design.

Finally, most consumer's exposure to earbuds comes from the products that come bundled with whichever mp3 player they purchase, complementary accessories made on the cheap compared to premium headphones.

Apple's iconic earbuds, for example, have received mixed reviews from critics and consumers in the past. Even the updated EarPods released alongside the iPhone 5 still have their flaws.

Continued growth in the use of mobile devices and increasing disposable income are projected to drive industry revenue growth in the next five years. As a result, revenue is forecast to rise 3% annually on average to $14.9 billion in 2017.

For more information on the US headphones market, see the latest research: US Headphones Market

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