Skip to main content

Chinese fakes cash in on Dr. Dre's Beats headphones bonanza

By Johan Nylander, for CNN
October 14, 2013 -- Updated 0037 GMT (0837 HKT)
On the streets and down in the Shenzhen subway, in-ear fake Beats headphones are sold for as little as $1. On the streets and down in the Shenzhen subway, in-ear fake Beats headphones are sold for as little as $1.
HIDE CAPTION
China's fake Beats market
China's fake Beats market
China's fake Beats market
China's fake Beats market
China's fake Beats market
China's fake Beats market
China's fake Beats market
<<
<
1
2
3
4
5
6
7
>
>>
STORY HIGHLIGHTS
  • Popularity of high-priced headphones has led to a rise in fakes coming out of China
  • CNN goes behind the scenes of sales of counterfeit Beats by Dr. Dre in Shenzhen
  • Wholesalers sell knock-offs at $70 to global buyers who can resale as high as $400
  • Seller: "Buy cheap from me, you sell expensive in your home country, we all make a lot"

Shenzhen, China (CNN) -- Three weeks ago, hip-hop star Andre Young -- better known as Dr. Dre -- made news as his Beats Electronics line, a maker of premium headphones, was valued at more than $1 billion thanks to an investment from the Carlyle Group.

But the former N.W.A. rapper is not the only one profiting from his headphone line. Across the Pearl River Delta in southern China, counterfeit Beats are flowing out of factories, assembly workshops and shops, attracting businesspeople that sell the headphones on global markets.

A CNN reporter approached wholesale companies about buying in bulk in order to learn how the underground sale of knock-off headphones works. "Business is very good," said a woman, who, with her family, runs a wholesale company selling copied headphones in one of Shenzhen's many mega-malls. "You buy cheap from me, you sell expensive in your home country, we all make a lot of money," she added.

To prove her point, she shows an Excel spread sheet on her laptop listing customers from all over the world: Italy, Denmark, United States, Canada, Dubai, Russia and more. She said she recently sold a large amount of counterfeit Beats by Dr. Dre for $50,000 to a British businessman who sent them to the UK by jet -- which is considerably more expensive than container ship -- and sold them as originals.

While top-line Beats headphones retail for $400, the Shenzhen operators interviewed sell knock-off versions wholesale for $70. "A lot of people are making a lot of money on Beats right now," she said.

You buy cheap from me, you sell expensive in your home country, we all make a lot of money
Fake Beats wholesaler in China

Factory owners here have a nose for what's hot and what's not. Nearly 70% of all fake goods -- including DVDs, clothing, and electronics goods -- seized worldwide from 2008-2010 came from China, according to the World Customs Organization.

And looking at the shops in Shenzhen's Huaqiangbei commercial district -- a destination for buying electronics, especially fakes -- Beats by Dr. Dre are definitely hot, prominently displayed next to iPhones, Samsung gear and Nikon cameras. To look at them, some are clearly fakes with poor packaging and logo color schemes that are wildly different from those well-known products.

Rise of high-priced headphones

Behind the shops and inside small rooms around the district, workers in their early 20s can be seen busily assembling counterfeit goods, such as smartphones and iPads. The long corridors are filled with cigarette smoke that drifts out from the tiny workshops as deliverymen rush by with their arms full of electronic components. Everywhere you hear the sound of packing tape being wrapped around cardboard boxes.

The counterfeit boom is fed, these days, by the rise of high-end headphones that Dr. Dre's audio products helped kickstart with the launch of Beats in 2008, analysts say. Just a few years ago, few people would be ready to pay several hundred dollars for a pair of headphones. Now, with celebrities like Lady Gaga, Justin Bieber and P. Diddy putting their names to signature pairs, Beats is the hottest brand for stylish music lovers.

FDA: Many online pharmacies sell fake Rx
Rats sold as beef in China
50,000 lbs. of counterfeit ketchup found

"Today, the premium headphone market is defined by fashion and brands as much as it is by sound quality," Ben Arnold, director of industry analysis at market research firm NPD Group said in a recent report. "One third of premium headphone buyers are under the age of 25 and many of these consumers view headphones as equal parts listening device and fashion accessory."

Richard Kramer, analyst at Arete Research, added that better audio quality in smartphones is also one of the main driving forces behind making high-end headphones viable.

In the U.S., sales of headphones rose by a third last year to $2.4 billion, with Beats by Dr. Dre making up almost 70% of all high-end headphones during the Christmas period, according to market research firm NPD. In Europe, sales of headphones hit an all-time high in the first quarter of the year, figures from market research group GfK show, with premium headphones leading the way. Total sales increased by 9% during Q1 on Europe's 17 main markets to 304 million euro (US$410 million), according to GfK.

Real or fake headphones?

At another Shenzhen store, a sales executive at a factory and trading company, connects a pair of fake Beats Pro to her iPhone and puts them on the reporter's head. The sound quality is surprisingly good. In the U.S., an original pair would cost $400. She offers her best quality headphones for the wholesale price of $70, medium quality for $45 and "so-so quality" for $30.

"Medium quality is most popular, but the trend is going towards high-end. Consumers want good sound," she said, adding that she can deliver 100 units of any Beats product by the following day. For 1,000 items it will take a week. "Since it's copies, we don't want to have too much in stock," she said.

On the streets and down in the subway, in-ear Beats headphones are sold for as little as $1. According to the company website, real in-ear Beats sell for $100 and up.

Beats Electronics, the company behind the Beats by Dr. Dre brand, said in an email to CNN that the company shows "a fierce commitment" to fight piracy and that it works in close collaboration with anti-counterfeiting organizations, police and customs authorities to identify counterfeit sellers, distributors and manufacturers on key markets. They also scan online marketplaces for unauthorized use of Beats trademarks.

Counterfeit parts in military equipment
Phony 'red sole' shoes seized
Sen. Levin talks counterfeit part risk
China's Apple black market

"Since efforts began, Beats has seized hundreds of thousands of counterfeit products in more than 50 countries," the company said.

The U.S. government has long complained about the theft of intellectual property in China. CNN reached out to authorities in Shenzhen to ask about counterfeit sales activities, but they have not yet responded. However it appears that Chinese officials are moving to crack down on counterfeit trade. A month-long joint operation with U.S. Customs in July resulted in the seizure of more than 243,000 counterfeit products using trademarks from Beats by Dr. Dre., Apple, Blackberry and Samsung. U.S. Customs and Border Protection said the operation was the biggest bilateral customs enforcement effort ever conducted by the U.S.

As a result, a man in New Orleans was arrested for allegedly importing counterfeit Dr. Dre headphones and selling them on Craigslist.

Evading the police

But in Shenzhen, the counterfeiters are working hard, too.

CNN spoke with another woman involved in the trade -- a "copy brand exports professional" according to her business card -- who helps companies to transport counterfeit goods from Shenzhen to other countries. She said she advises her customers to avoid Chinese logistic companies and always use European or American shipping companies since "customs usually trusts these brands better."

Storeowners reveal other tricks to bypass customs. They send all Beats in two boxes; the outer box has a made-up name to hide the real goods. "We got the idea from a European customer," she said.

Precautions aside, in the Huaqiangbei commercial district few seem to have any moral objections about the pirating of goods.

Outside the Huaqiangbei Police Station, a friendly officer in sunglasses points down the street when asked where the best fake mobile phones can be found. Asked if such purchases are legal, he just breaks out in loud laughter.

ADVERTISEMENT
Part of complete coverage on
See CNN's complete coverage on China.
July 18, 2014 -- Updated 0230 GMT (1030 HKT)
Some savvy individuals in China are claiming naming rights to valuable foreign brands. Here's how companies can combat them.
July 16, 2014 -- Updated 0911 GMT (1711 HKT)
Is Xi Jinping a true reformist or merely a "dictator" in disguise? CNN's Beijing bureau chief Jaime FlorCruz dissects the leader's policies
July 8, 2014 -- Updated 0344 GMT (1144 HKT)
With a population of 1.3 billion, you'd think that there would be 11 people in China who are good enough to put up a fight on the football pitch.
July 4, 2014 -- Updated 0631 GMT (1431 HKT)
26-year-old Ji Cheng is the first rider from China to compete for competitive cycling's highest honor.
July 7, 2014 -- Updated 1124 GMT (1924 HKT)
China's richest man, Wang Jianlin, may not yet be a household name outside of China, but that could be about to change.
July 4, 2014 -- Updated 0414 GMT (1214 HKT)
Hong Kong's narrow streets were once a dazzling gallery of neon, where banks and even bordellos plied their trade under sizzling tubular signs.
July 3, 2014 -- Updated 2357 GMT (0757 HKT)
When President Xi Jinping arrives in Seoul this week, the Chinese leader will have passed over North Korea in favor of its arch rival.
July 3, 2014 -- Updated 1159 GMT (1959 HKT)
Three more officials have been given the chop as part of China's anti-corruption drive, including former aides to the retired security chief.
July 1, 2014 -- Updated 1305 GMT (2105 HKT)
As thousands of Hong Kongers prepare for an annual protest, voices in China's press warn pro-democracy activism is a bad idea.
June 30, 2014 -- Updated 0437 GMT (1237 HKT)
Hong Kongers are demanding the right to directly elect their next leader, setting up a face-off with Beijing.
July 1, 2014 -- Updated 0656 GMT (1456 HKT)
The push for democratic reform in Hong Kong is testing China's "one country, two systems" model.
June 30, 2014 -- Updated 1156 GMT (1956 HKT)
Along a winding Chinese mountain road dotted with inns and restaurants is Jinan Orphanage, a place of refuge and site for troubled parents to dump unwanted children.
June 26, 2014 -- Updated 0836 GMT (1636 HKT)
CNN's Kristie Lu Stout invites Isaac Mao, Han Dongfang, and James Miles to discuss the rise of civil society in China and social media's crucial role.
June 26, 2014 -- Updated 0334 GMT (1134 HKT)
Chen Guangbiao wants rich people to give more to charity and he'll do anything to get their attention, including buying lunch for poor New Yorkers.
June 26, 2014 -- Updated 1144 GMT (1944 HKT)
Architects are planning to build the future world's tallest towers in China. They're going to come in pretty colors.
June 23, 2014 -- Updated 1147 GMT (1947 HKT)
Anna Coren visits Yulin's annual dog meat festival. Dogs are part of the daily diet here, with an estimated 10,000 dogs killed for the festival alone.
June 19, 2014 -- Updated 0638 GMT (1438 HKT)
People know little about sex, but are having plenty of it. We take a look at the ramifications of a lack of sex education in China.
June 13, 2014 -- Updated 0812 GMT (1612 HKT)
Hong Kongers have reacted angrily to a Chinese government white paper affirming Beijing's control over the territory.
The emphasis on national glory -- rather than purely personal achievement -- is key.
June 16, 2014 -- Updated 1614 GMT (0014 HKT)
A replica of the Effel Tower in Tianducheng, a luxury real estate development located in Hangzhou, east China's Zhejiang province.
What's the Eiffel Tower doing in China? Replica towns of the world's most famous monuments spring up all over China.
June 11, 2014 -- Updated 0013 GMT (0813 HKT)
Rapid development hasn't just boosted the economy -- it has opened up vast swathes of the country, says a man who has spent much of his life exploring it.
June 10, 2014 -- Updated 0654 GMT (1454 HKT)
The World Cup is apparently making a lot of people "ill" in China.
ADVERTISEMENT