Apple said to turn up audio ambition with high-end headphones

The Cupertino, California-based technology giant is working on noise-cancelling, over-ear headphones that rival headsets from market leaders like Bose and even the company’s own Beats by Dre brand, according to people familiar with the product’s development.

The company plans to launch the headphones as early as the end of this year, but has faced development challenges that might push back the release, the people said.

Work on the Apple headset has been on-and-off over the past year. The company encountered similar problems with the HomePod during its development, including multiple redesigns, according to the people. It’s possible Apple will redesign the headphones again before launch, or scrap the project altogether, they warned, asking not to be identified discussing private development work.

An Apple spokesperson declined to comment.

The latest plans call for headphones targeting the high-end of the market, replicating Apple’s approach with the R4 000 HomePod speaker, released earlier this year. In addition to noise-cancelling capabilities, Apple plans to include similar wireless pairing functionality to the AirPods, according to the people familiar with the product’s development.

This would be the latest in a long line of music-focused products and services from Apple. The iPod and the iTunes Store revolutionised how music was consumed - as digital downloads rather than physical CD's.

The company’s largest ever acquisition was the $3bn purchase of Beats in 2014 - a deal that got Apple into high-end headphones and music streaming. The HomePod’s sound won glowing reviews this year and Apple is already preparing other audio accessories like upgrades to AirPods that add water-resistance and a new wireless chip that enables “Hey Siri” voice activation.

So far, the AirPods have been a key driver of newfound success for Apple’s Other Products segment. The category, which includes AirPods, Beats headphones, the Apple Watch, Apple TV and iPad accessories, generated more than R35.8m in revenue for the first time in the company’s fiscal first quarter, representing 36% year-over-year growth.

Within that category, wearable product sales, which include the Watch, AirPods, and Beats headphones, surged 70% last year, Apple said on a recent earnings call.

When the company acquired Beats Music and Beats Electronics in the 2014 deal, Apple executives said the successful Beats by Dre headphones business was one of the drivers.

Apple-branded headphones would seemingly cannibalise Beats headphones, although Beats also sells lower-priced wireless headphones that probably won’t directly compete with the new product. Athlete-oriented wireless Beats earphones still seem to be selling well despite the popularity of AirPods.

Apple previously discarded the Beats Music streaming name when it launched Apple Music in 2015. However, given the strength of the Beats headphone name, the company will likely keep that brand while developing a different new one for the new headphones.

Beats, Bose, Sennheiser, Sony and Skullcandy are the leading players in a headphone market that will generate R238m in annual revenue by 2023, nearly doubling this year’s projected sales, according to Research and Markets.

Researcher NPD Group said last year that sales of AirPods and Beats headphones gave Apple 27% of the wireless headphone market and almost half the dollars spent on the category.

Pricing will be key for the new Apple headphones. The HomePod is priced more than R1 100 higher than its main voice-activated competition from Sonos, and R2 300 more than an Amazon Echo, but R600 less than a competing Google Home Max. Beats and Bose both charge R4 100 for their high-end wireless headphones, while Sennheiser prices range from R1 100 all the way to R5 900.

Apple’s cost for each R4 100, HomePod is R2 500, resulting in thinner profit margins than typical Apple hardware products, according to TechInsights. AirPods have been tricky to assemble and use unusual design tricks, likely making them expensive to produce. The Apple headphones will likely use similar audio technology, driving up costs.