Cetec Gauss Bets Standard Tape Can Survive Digital Threat

Getting to the top in business is often easier than staying there. Consider Cetec Gauss. For much of its 21-year history, Cetec Gauss has been a leading maker of the high-speed machines that record companies use to convert hit records into prerecorded audio-cassette tapes.

Cetec Gauss (it rhymes with house) gets about 70% of its revenue from selling duplicating machines, and it still controls about 60% of the world market. Overseas customers include the foreign production units of some major U.S. recording companies, such as CBS Records. Cetec Gauss also sells its gear in Japan, and maintains it is the dominant provider of tape-duplicating equipment in China, a market that it entered in 1979.

But Cetec Gauss’s sales dropped sharply in 1986. The problem was the threat of new technology in the audio recording business, making Cetec’s gear seem outdated.

A Unit of Cetec Corp.

Cetec Gauss is a unit of Cetec Corp., a diversified El Monte company with 1986 sales of $31 million. Cetec Corp. won’t break out the financial results of its subsidiaries, except to say that Cetec Gauss accounted for more than $5.3 million, or 17%, of its 1986 sales.

But Cetec Gauss’ sales slump last year helped drag down the parent company’s overall sales by 8% in 1986. James R. Williams, Cetec Gauss’ new president, admitted that “sales were down and profits were way down.”

The threat stems from digital audio tape (DAT), which reproduces sound with superb clarity and looms as a possible replacement for today’s ordinary tape cassettes--and the machines used to manufacture them.

Waiting to See

Music companies and recording producers, unsure how soon DAT might be embraced by the public, last year held off on buying more machines to make cassette tapes. And the pause took a bite out of the sales not only of Cetec Gauss, but also of Electrosound and the third major tape-duplicator maker, Otari Electric of Japan, which competes mostly overseas.

Today, however, “People are more skeptical” about the future of DAT, said Susan Nunziata. Nunziata follows the industry for Pro Sound News, a trade publication. Thus, she said, “people are not as hesitant” about buying new cassette equipment.

Whether DAT will become a mass-market item is still in doubt, and in the meantime, record companies have resumed purchases of cassette tape-duplicating machines from Cetec Gauss and its rivals this year.

It’s still a big market. Last year Americans spent $2.5 billion on prerecorded music cassette tapes, the Recording Industry Assn. of America estimates. The unit shipments were up 4.2% from the previous year but trailed the 30% and 40% annual gains recorded in 1983 and 1984.

“We’re looking fairly comfortable for a five- to seven-year period” of continued cassette demand, Williams said.

Cetec Gauss also met the resurgence in demand for tape duplicators early this year by rolling out its latest tape-duplicator, called the 2480 system, which can cost upwards of $300,000 and which spins out a cassette tape duplicate of an original 40-minute recording in less than 30 seconds.

As a result, Williams said that Cetec Gauss’ sales this year are running about 20% ahead of last year’s and that profits are up as well.

But if DAT does become the technology of choice, the question remains: Who will be take charge of that market?

Sony already has unveiled a prototype of a DAT duplicator, and Electrosound and Otari make no secret that they’re dabbling with the technology. “We have our own experiments going on in that area,” said Robert Barone, president of the equipment division at Cetec Gauss’ major domestic rival, Electrosound in Hauppauge, N.Y.

As for Cetec Gauss, it’s a bit more guarded. Williams would merely say, “We’re doing some homework in that area.”

Williams was named president recently, but he effectively has run the company since last October, when then-president Mort Fujii left to join Shape Inc., a Maine company whose products include the plastic shells that encase cassette tapes.

Williams, 44, is an affable Indianapolis native and 9-year Cetec Gauss veteran. He was named general manager when Fujii quit, and in a tradition of Cetec Corp., was given the next few months to prove he deserved the top spot.

Gauss was started in 1966 in Santa Monica and, three years later, was acquired by MCA. Gauss, incidentally, is a physics term describing a measure of magnetic flux, a term named after the 19th-Century German mathematician Karl F. Gauss. Cetec then bought the company in 1972.

But rivals say that Cetec Gauss faces more problems than just the threat of new technology. In the U.S. market, where Cetec Gauss does about 15% of its business, it “has not been aggressive enough in marketing to the big players” and has a reputation for being “very aloof and very non-service oriented,” said Barone.

“After their early dominant position technically in the marketplace, they rested back way too much,” Barone said.

Competitive carping? Perhaps. But, speaking of the U.S. market, Williams acknowledged, “We may not have paid as much attention on our ground as necessary, in terms of both marketing and support. Our marketing needs to be more aggressive and improved.”

Cetec Gauss’ other line of business is loudspeakers, and today its speakers are used in recording studios, sports arenas and by performers during live performances and accounts for about 30% of its sales. The company says Frank Sinatra, Bruce Springsteen and Elton John have used its speakers for concert tours.

In the professional speaker market, Cetec Gauss is not among the biggest players, but “is considered to be right up there with JBL and Electro-Voice in terms of quality and engineering,” said Marshall Buck, chief engineer of Cerwin-Vega, a speaker maker in Simi Valley.

But Cetec Gauss’ future will probably depend on the audio-cassette tape market.

One encouraging sign is the cassette industry’s fastest-growing market: “spoken word” tapes of books, how-to manuals, religious sermons and other non-musical recordings. The U.S. market has grown to $300 million a year.

“That’s the tip of an iceberg of demand for new equipment,” Williams said.

Producers of spoken-word tapes have little use for the feature that makes DAT so attractive--its superior musical clarity--and the lofty price that is likely to go with it.

Thus, Williams hopes, demand for old-technology cassettes could remain relatively strong even if DAT becomes a mainstream product.