June 2011
How to run a company: a modest proposal
Oppo Digital is a fascinating company that should serve as a model for how to run a business in these ever-changing times. In my other job, of writing about wine and food, I see so many companies doing things exactly the wrong way that having the opportunity to watch Oppo gives me a little bit of professional joy.
To help you understand why Oppo’s philosophy is so successful in the audio/video business, here are two examples of how to fail in the wine business. A glance at these numbers will quickly reveal the genius of Oppo’s strategy.
The posh price strategy: attack the high end
Wine company A is owned by a successful physician who is tired of medicine and loves drinking wine. He (this type of financial brinksmanship is almost exclusively a male pursuit) invests $1 million in establishing a small, 20-acre vineyard, another million to build a tiny but functional winery, and a third million to build a flash tasting room that his other doctor friends will ooh and ah over. Five years or so later, if he’s lucky, he’ll start to get about 2500 pounds of grapes per acre. That will give him 3000 cases, or 36,000 bottles. The basic costs for bottles, corks, and labels for 36,000 bottles run just under $75,000. The annual debt retirement on $3 million is about $300,000, with another $150,000 in annual operating costs. That means that just the basic costs of filling each of those 36,000 bottles with wine is $14.58. Add 30% for marketing, and the per-bottle price jumps to $19. Add the profits to the distributor and the retail store, and you end up with a minimum shelf cost of $54 per bottle. If the winemaker wants to make $10 profit on each bottle, the shelf cost jumps to $80.
But who will pay the luxury price of $80 for a bottle of unknown wine? The doctor and his overpaid PR firm will pursue reviewers with a vengeance trying to get someone to write that his wine is a bargain at $80. But I, one of those reviewers, got calls from ten other wineries that day (as I do every day) with “bargain” $80 wines. Which is how we end up with a doctor who, after five years of effort, has poured $5.25 million down the drain. He’s probably now divorced, with a winery he’s trying to sell to another silly doctor, and still stuck working in a job he’s sick of for the rest of his life.
Lest you think this an uncommon tale, I assure you: Based on my 15 years of writing about wine, it happens at least five times more often than do the establishments of successful wineries. We call our doctor and his friends “gentlemen farmers.” It’s the winemakers’ version of a very old joke: How do you make a small fortune in the wine business? Start with a large fortune.
The “we’ll sell ’em to Walmart!” strategy: attack the low end
The fictional Australian wine company Blue Wallaby has a successful, family-owned winery. They also know other folks all over Australia who grow grapes, and they know a custom crush company that will make and bottle wine from your grapes for just $2.50 a bottle. But money talks, and Blue Wallaby can get that price down to less than $1 if they contract for more than 100,000,000 bottles. Their neighbors are getting big crops this year, and are selling thousands of tons of excess grapes at $250 a ton -- even less if you guarantee a big buy. Shipping costs are a problem, but with a big enough guarantee, those prices drop fast, too. Best of all, the Australian dollar is cheap -- exporters are in a winning position.
By taking care with costs, Blue Wallaby can flood the world with drinkable wine for under $5/bottle. The profit margin will be only 32¢ each, but every hundred million bottles sold means $32 million added to the bottom line. And because Blue Wallaby is buying the grapes, the winemaking, the bottling, the sales, the distribution, and the shipping, their infrastructure costs are low; basically, all they need to finance are their operating costs.
Then other winemakers see what Blue Wallaby has done and start to copy it, even going so far as to put a cute little character, like that Blue Wallaby, on their labels. Soon, the world’s wine markets are flooded with drinkable $5 wines.
Then, in Blue Wallaby’s No.1 market, the US, the American dollar starts to have problems and the Australian dollar gets more valuable. Suddenly, Blue Wallaby can no longer make a profit at $5/bottle. Increasing sales won’t help -- the package costs are already as low as they can be. Raise the price to $6? Well, Blue Wallaby can’t, because their competition will sink them. Start buying worse grapes? Cut corners in manufacturing? Use less sturdy shipping? Give up and close down?
The consumer-electronics business
Implicit in the Attack the Low End strategy is that drinkers will continue to buy Blue Wallaby wine, bottle after bottle. Of course, an empty bottle is a powerful reminder that it’s time to rebuy. The same strategy is employed in consumer electronics, but there’s a problem: The first product the consumer has bought probably still works. Thus the annual upgrade model, in which the company’s advertising agency works diligently to convince you that last year’s model is crap and that you simply must buy this year’s model.
The Attack the High End strategy includes the same supposition, but since high-end audio companies tend to be smaller, with tighter R&D budgets, they offer major upgrades less frequently. Many of these companies end up concentrating only on items that don’t change so often -- such as preamplifiers, power amplifiers, cables, etc. -- and cede the market for silver-disc players and processors to the companies that are willing to ride the endless merry-go-round of upgrades.
Oppo Digital follows neither strategy. Instead, they charge a price that’s neither low enough for the Walmart wars nor high enough for the independent audio salons. The component reviewed here, the Oppo BDP-93 Blu-ray player, costs $499 USD, a price far above the BD players made by the warring companies from Japan, Korea, and China -- Panasonic, Sony, Toshiba, etc. But compared to the newest players from Ayre Acoustics ($9950) or Lexicon ($3500), $499 seems like a bargain.
Oppo is in an enviable position. They can offer something new when it is warranted -- not yearly, which sends the implicit message that your Blu-ray player is disposable and not worth much, but more frequently than the many high-end companies that can’t afford to play the annual-new-model game. Oppo seems to choose opportunities to offer something that is truly better than the previous model, instead of letting their decisions be driven solely by marketing forces.
This philosophy implies an honorable company. I believe that Oppo Digital makes decisions based on what’s good for the consumer. How many high-end companies roll out a new product and then let the early adopters sort out the problems? With each new model, Oppo first offers it to a select list of folks who know they are getting a prototype and have signed up to be beta testers, if you will, then solicits their feedback to help improve the model before its launch. This not only ensures a superior product, it builds customer loyalty among early adopters.
I like Oppo’s business model, and I know more about it than what’s visible from the outside. When reviewing a component, I usually try to make an anonymous call asking for help. I have no interest in getting the white-gloves treatment reserved for VIPs -- I want to know what kind of treatment any customer would get. I called Oppo with a problem that might very well have been caused by any of three other components. The tech stayed on the line with me for over an hour, until we’d traced the problem. And although it turned out to be the fault of the processor, not the Oppo BDP-93, the tech tracked down how to fix the processor as well! The techs of each of the other companies had just given up and blamed the other guys.
Companies with this sort of moral sense are rare. The Oppo tech’s boss could have told him to avoid long calls, and to not even bother with them if it appears that the problem might be caused by another company’s gear. Instead, the Oppo tech felt free to help until it was fixed. Try that with a company that makes $129 Blu-ray players. Hell, try that with a company that makes $5000 Blu-ray players.
Shit rolls downhill, the old saying goes. This means that you can tell the philosophy of the people at the top by what happens with the people at the bottom. And since we end up dealing with the people at the bottom, we are the final stopping point for the philosophy handed down from the top. That’s how I know Oppo is an honorable company, and it’s why, as a student of business, I like them. Oppo products are properly priced to keep the company afloat and offer good service. They upgrade their models when that actually needs to be done, not just to convince consumers that the products they already own are now worthless and must be replaced. Each Oppo model has been rated at the top of its niche. And how about a company that, even in the face of a weakening dollar, offers a substantial upgrade in usability and performance from the preceding model, the BDP-83, but leaves the price untouched at $499? To me, that fact alone speaks volumes about Oppo’s ethics.
Oppo’s new BDP-93 Blu-ray player
Why has Oppo upgraded the BDP-83 Blu-ray player to the BDP-93? Blame it on Avatar. The new player is all set to deliver a 3D signal, as long as your display can show it and you have 3D glasses. They have also made some other meaningful additions. For instance, if you live in the US, the BDP-93 can stream films from Netflix or Blockbuster (if the latter is still in business).
Oppo has also replaced the BDP-83’s video processor, which was already very good, with the Qdeo by Marvell, a processor optimized not only for Blu-ray, but for upconverting DVDs and maximizing the quality of network streaming. The ’93 has two HDMI v1.4a outputs, both of which are freely optimizable and support both 3D and Deep Color modes. Why two HDMI outputs? Perhaps you have a 3D-ready display, but your processor won’t accept the signal. You can set one HDMI output to work with 3D, and the other to output a signal without 3D. Or perhaps you’d like one to output video only, and the other audio only. Or, like me, you’d like to send the signal directly to your main projector, with a secondary signal going to a whole-house feed. But for your most important signals, use the BDP-93’s HDMI 1 output -- that’s where the Qdeo is working.
Folks with media stored on hard drives can now choose between a USB port or a much faster eSATA port. And if you must use a wireless signal to install the Oppo in your network (wired is always preferred), the BDP-93 is already set up for it. Keeping the BDP-93 hooked up to the network also assures you of getting Oppo’s quite useful upgrades. Finally, for those of us who download high-resolution audio files, the ’93 can play high-resolution FLAC files and is DLNA capable.
Oppo has also intelligently retained the best of the BDP-83’s features, such as the versatile and easy-to-use remote control. The ’93 still plays every type of silver disc, something that should please those with collections of DVD-As and/or SACDs.
How well does it work?
Superbly. I’ll start with the installation and setup.
The BDP-93 arrived double-boxed and protected by a reusable, recyclable carrying bag. The front panel is much classier looking and far simpler than the BDP-83 and the setup is so simple that it might as well be automatic. Just answer a few questions about your system and the BDP-93 does all the rest. Of course, you can fiddle with it as deeply as you like -- all the controls are readily available. But if you choose to have your processor and/or display do the heavy lifting of processing, then just the initial setup will give you almost everything you need.
Kudos to whoever wrote the instruction manual. There is never a hint of someone using Google Translate to convert a Chinese manual to American English. It’s well written by someone who is either American or perfectly fluent in US English.
Sadly for fans of Region 3 DVDs (count me in), there is no known hack to get around the BDP-93’s internal systems. Guess you’ll have to keep your old Oppo DVD players.
I got the first hint that the BDP-93 is something special the first time I inserted a Blu-ray Disc. While its load time was unimpressive, its navigation time was the quickest I’ve encountered. But it was the quiet purr from the transport itself, instead of the usual flying-saucer liftoff heard from so many cheaper players, that confirmed the BDP-93 transport’s quality.
Because the BDP-93 plays every known silver disc, choosing where to start took a little imagination. I decided to blow off all of them and try Netflix streaming instead. The Thai film Ong bak 2: The Beginning looks spectacular in its Blu-ray version. It’s a typical martial-arts revenge story -- You killed my pa/ma/brother/teacher and now I will kill all thousand of you!! -- but they take care to give the truly thrilling action sequences reasons for existing. As usual with Netflix, you get a picture that’s just barely above what you’d expect from a clean DVD. The BDP-93 didn’t do anything appreciably better than the Sony PS3 I usually use for Netflix streaming.
After using the BDP-93 to play Blu-rays for several weeks, I found myself choosing the Oppo over the PS3. This choice required no thought -- whenever I slipped a BD out of its Netflix envelope, I instinctively headed for the Oppo. But when I wanted to play a game, use Hulu Plus, or connect to the home network, I gravitated toward the PS3. Obviously, the Oppo can’t play Call of Duty or stream Hulu Plus. But to resolve why I decided to use the PS3’s networking, I’d just say that I’m used to the PS3’s way with the network.
Perhaps more important was why I automatically reached for the Oppo. When I thought about it, I came up with two reasons. First, the Oppo’s operating system seems more adept at getting the disc in and on the screen quickly. The other reason, one I couldn’t quantify but did notice, was that the Oppo was more gentle and pleasing to the eyes. Colors seem more integrated, edges more natural, the picture more real. It wasn’t a huge difference, but it was real enough to consistently steer me toward the Oppo.
I watched Inception and was bored out of my mind. Sure, those tricks with dimensionality were fun to watch -- once -- but the story itself was a snooze. Sometimes, the least expensive productions show their video quality the best. The best film of 2010, Winter’s Bone, is a low-budget production shot in snowy settings and dreary circumstances that only occasionally strays from shades of gray and beige. The picture has the kind of coherence you get when a skilled cinematographer (Michael McDonough) does his work on location instead of in postproduction. The Oppo immersed me in the picture.
With DVDs, the Oppo again scored. Its ability to pass all my reference-disc torture tests showed that it’s a BD player that pays attention to DVDs. Chapter 10 of the DVD of Austin Powers: The Spy Who Shagged Me showed no problems as the camera panned across the staircase’s vertical balusters -- and offered another opportunity to stare at Felicity Shagwell (Heather Graham).
As for music discs, Pink Floyd’s Dark Side of the Moon (SACD/CD, Capitol CDP 582136 2) had percussive life, while Paul Daniel’s reading of Vaughan Williams’ A Sea Symphony (DVD-A, Naxos 8.557059) showed the mighty Bournemouth Symphony Orchestra and Chorus to full effect. The Oppo showed its stuff even with plain old CDs. Danny Elfman’s score for Mission: Impossible (CD, PolyGram 454525), one of the best test discs I own, came through with both power and poise -- the BDP-93 provided a model for how this music should sound.
For all discs, I used only the Oppo’s HDMI output. I’m very happy with the D/A converters in the A/V processor I currently use, the Marantz AV-7005, and I like having the Audyssey circuitry in the loop, so I use the Oppo for digital signals only. As for the Oppo’s ability with 3D discs, I sadly am stuck with a JVC projector that can’t play them. That comes next.
Conclusions
Oppo has created another front-runner. When I reviewed the BDP-83, I wrote, “Oppo has come up with so many winners over the last five years that it’s starting to resemble a dynasty.” Let’s just go ahead and affirm that the transformation is now complete: Oppo is a dynasty. Staying on top of any field has been tough for other companies. And what is Oppo to do with the arrival of HD streaming? Sure, there will be legacy users of discs. But where do they go next?
I can’t wait to see.
. . . Wes Marshall
wesm@soundstagenetwork.com
Oppo Digital BDP-93 Blu-ray Player
Price: $499 USD.
Warranty: One year parts and labor.
Oppo Digital, Inc.
2629B Terminal Blvd.
Mountain View, CA 94043
Phone: (650) 961-1118
E-mail: service@oppodigital.com
Website: www.oppodigital.com