Digital gives Linn a new lease of life For most 40-somethings, trying to keep up with the latest in audio technology soon becomes a forlorn hope. Bewildered by each new development, many cling to the old, familiar formats of their youth. But for the 41-year-old Linn - a company that sold its first eye-wateringly expensive hi-fi system back in 1972 - the digital age has provided a new lease of life. The Glasgow-based manufacturer still sells that first product - the Sondek LP12 record deck which, at its launch, won plaudits for deriving superior quality audio from 12-inch vinyl albums. However, this year, about half of Linn's revenue will come from the sale of digital downloads from its recorded music division, and from its recently added line of digital streaming players, which access music files online from a remote computer server. As Linn's managing director, Gilad Tiefenbrun, puts it: "Digital streaming is where it's at." "What it does is give you a completely new format," he says. Linn first set up a recorded music business in 1982 when Mr Tiefenbrun's father, Ivor, bought a record-cutting lathe. "The vinyl pressings we were using to test the LP12 turntable weren't good enough," Gilad explains. Within two years, Linn had cut its first commercial disc, A Walk Across The Rooftops - the debut album by Glasgow-based synthesiser band The Blue Nile. Some 20-odd years later, in 2007, Linn Records added a function to its website allowing customers to download its own recordings, including studio master copies, and enjoy superior audio quality to that provided by CDs. Despite the high cost of its hardware - Linn's range of DS network music players starts at £1,000, while its higher performance Klimax system costs around £46,000 - the company increased its turnover to £17.3m last year, from £16.4m the year before. Pre-tax profits rose to £2.2m in the period, from £1.8m, and Linn added £2.3m to its cash reserves after £961,000 of capital expenditure. It represented a significant recovery from the losses incurred in 2006, which resulted from failed attempts to sell hi-fi systems for Aston Martin cars and act as a distributor for upmarket televisions. At that time, Ivor Tiefenbrun had been forced to more than halve his 350-strong workforce and cut unprofitable new business lines. When his son took over and announced that the company would cease making CD players, to focus solely on digital streaming devices, eyebrows were raised. However, the response of customers has surprised even Gilad. Linn gives its customers the choice of downloading music from the website of Linn Records, its music arm, at three quality levels: MP3, CD quality, or studio master. At first, Gilad Tiefenbrun had assumed that only 5 per cent of sales would be at the very top level. In fact, even though Studio Master albums cost £18 compared with £5 for an MP3 version, these highest-quality recordings account for more than half of all downloads. That proportion rises to 90 per cent for classical recordings. Downloads now account for the majority of revenues at the Linn Records division: 54 per cent of the £910,000 in sales achieved last year. "We reckon that we will grow [music download revenues] by about 20 per cent this year," Mr Tiefenbrun says. He notes that Linn has, in effect, a similar advantage to Apple with its iPhone and iPad, in that it supplies both the music and the equipment to play it on. "We are seeing the whole end-to-end process of music, which means we can learn very fast about what people want," he says. That is how we stay ahead. Linn's continuing quest for innovation is demonstrated by the fact that 30 of its 175 staff are employed in research and development. In total, the company will spend £2m on research and development this year, as well as boosting its marketing spend in the fast-growing economies of China, Taiwan and South Korea, which currently account for less than 10 per cent of sales. Mr Tiefenbrun says his aim is to double the volume of sales to China in the next five years, although he admits that would still only make it 5 per cent of the total. "It takes time for people to realise why Linn is different," he says. On that basis, China should be perfect for us because everything I read about it says that long-term relationships are critical. But Asia, as a region, is not new to Linn. Japan is Linn's third-largest market after continental Europe and the UK, accounting for 15 per cent of sales. Mr Tiefenbrun even recalls being taken to Singapore on sales trips with his father 30 years ago when he was a boy. "It is all about finding the right business partners," he says. We don't want to be on racks of shelving next to other consumer products. We are looking for commitment to the brand.