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Elizabeth Parks
Parks Associates
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Residential Security Revenues Continue Shift Toward RMR (Mass-Marketers Willing to Absorb Hardware and Labor Costs for Monitoring Contracts)

Dallas, May 21, 1999- Smaller security companies throughout the US are being forced to sell their monitored security accounts to larger providers in order to survive. This situation is a direct result of the mass-market security companies' continuing strategy to keep installation prices down by absorbing the hardware and labor costs in order to reach price sensitive consumers.

In the past few years, hardware prices have been decreasing between 1%-2% annually due to competitive pressures. At the same time, labor costs have been increasing at a rate of roughly 5% because of a tight labor market, causing the overall cost for residential security installations to increase (according to Parks Associates' newest security report, Residential Security: National Forecast). However, mass-marketers have continued a strategy of low-priced or free installations with 2-3+ year monitoring contracts, which has created fundamental changes in security pricing and revenues for the total residential industry.

In 1999 monitoring revenues are forecast to account for roughly 76% of the total residential security revenues (more than three times the hardware and labor revenues combined). By 2007, that number is expected to increase to almost 79%.

"Though the majority of security companies are typically small, local dealers/installers, the mass-market giants have really impacted prices and pushed the total industry toward a reliance on monitored security and its monthly recurring revenue to make a profit," said Steven Triolet, Parks Associates' residential security analyst. "This shift is making it harder and harder for small security companies to compete with their larger competitors, so many are joining dealer programs and selling off their monitoring accounts."

This change has largely been brought about by the transition of some of the larger security companies into regional and national mass-marketers (ADT, Brink's, SecurityLink from Ameritech, and Protection One are all strong examples). At current installation prices, mass-marketers typically take almost 30 months to recoup cost and make a profit. (See Figure 2 for details.) Small dealers can't operate on such an extended time scale and often have no choice but to sell their monitoring contracts through dealer programs.

Time Scenario for Profit for Mass-Market Providers

Note: Predictable Profit Month - 30 out of 36 month agreement
Source: Parks Associates' research, based on numbers from mass-marketers Protection One, Brink's, ADT, Chubb, and others.

To learn more about the residential security industry and its latest trends and changes, check out one of Parks Associates' newest reports, Residential Security: National Forecast. The National Forecast report gives comprehensive breakdowns for the residential security industry (including housing forecasts, average security prices for monitoring and hardware, revenue forecasts, and more). Details can be obtained on the Internet at: www.parkassociates.com .

About Parks Associates:
Parks Associates is a Dallas, Texas-based market research firm specializing in emerging technologies and services for the home. Founded in 1986, Parks Associates provides primary and secondary research on home systems, in-home networks, home security, consumer electronics, telecommunications, Internet service, energy utility, and subscription TV industries. Parks Associates' clients include both Fortune 500 companies and small start-ups. Parks Associates' services include syndicated reports, multi-client studies, custom consulting, workshops, and conferences.