IDC: MP3 players to sell like hotcakes

Music fans will trade in their portable CD players for MP3- and other compression-technology players ... eventually, according to market research from International Data Corp. released Thursday. But new devices will probably rely on something other than flash memory to store the music.

"When most people think of MP3 players, they think of Rio-type devices," said Brian Ma, senior analyst for IDC's consumer devices program. SonicBlue's Rio 600 retails for less than US$200, but it carries only 32M-bytes of memory, about half an hour of music, he said, noting that the cost and capacity constraints of flash memory will turn consumers and vendors to cheaper alternative media.

One likely cheaper alternative is recordable CDs, which music fans can use to store MP3 files. While a CD bought from a record store contains about 75 minutes of music, a CD full of MP3s compressed to 128K bps could carry about 11 hours, according to Ma. MP3 decoding capabilities are increasingly being added into traditional portable CD players, according to the report, predicting these hybrid players will outship devices designed to play only MP3-type files in the U.S. by 2003.

Another alternative may be the use of emerging wireless technologies to access music files over the Internet. This technology would allow for the devices to shrink from a CD-player size to that of a cellular phone, but it would entail wireless-connection costs.

IDC predicts that worldwide shipments of compressed audio players -- that is, MP3 players as well as devices for other formats from RealNetworks or Microsoft -- will continue to grow "at a torrid pace," increasing at a compound annual growth rate of 51 percent between 2000 and 2005. "MP3 is the defacto standard, but WMA (Windows Media Audio) is gaining ground, and from a manufacturer's standpoint, you have to support both formats," said Ma.

Manufacturers shipped 3.3 million compressed-audio players worldwide last year; in 2005 they will ship nearly 26 million, according to the study. Most of those shipments will still be in the US, jumping to 18 million in 2005 from 2.8 million in 2000. But by 2005, US shipments will account for 69 percent of global shipments, down from 85 percent in 2000, IDC said.

Most compressed-audio players sold will be portable, but most people in the near future will continue to use their home computers to store and play MP3s -- so far, the trick for consumers has been to find a way to take those music files on the road, Ma said.

Music fans have faced two stumbling blocks on the path to portable MP3s. The first one is that the ratio of hours of music storage to cost of flash memory is expensive. A 32M-byte SanDisk Corp. CompactFlash chip typically retails for around US$50 -- a lot of money to store 90 minutes of music in MP3 format at 64K bps compression, currently the maximum compression possible for CD-quality sound. Windows Media Audio 8 permits compression to 48K bps, but quality begins to suffer, Ma said.

Relatively high memory prices could be tolerated if the music storage capacity were greater, but at about $0.55 per minute of storage on a 32M-byte chip, it compares poorly to standard CDs at retail in record store for $15 -- about $0.20 per minute on an hour-long disc. It's worse compared to the cost of burning MP3s at home. A $2 CD-R filled with standard-compression MP3s costs two-tenths of a cent per minute of storage, plus the cost of the CD-R drive, the time to burn the CD ... and the cost of the music in the first place.

But music has essentially been free for almost two years, courtesy of Napster and other file-swapping services. Consumers are swimming in a huge pool of pirated music, and the music industry hates that. This leads to what some observers consider a second significant barrier to portable MP3 players: the competing interests of record companies, retailers, artists and electronic device manufacturers in developing effective digital-rights management for protecting music copyrights.

"Keep in mind, from the hardware perspective, manufacturers are covered by the (Audio) Home Recording Act," he said, referring to laws and US Supreme Court rulings protecting device makers from lawsuits for building devices which can be used to reproduce copyrighted material. Ma said much of the onus falls on record labels to protect their revenue from piracy.

Still some say that even if record companies develop effective encryption technology for music, even if record companies and retailers work out a plan to distribute protected music online, even if a way is found to pay artists for every copy of protected music made under a new system ... device manufacturers will still want to make MP3 players that can play all of the unencrypted music currently stored on the world's hard drives, potentially spoiling the whole deal.

Ma doesn't consider the industry war over digital rights management an impediment. His predictions presume music files will remain ubiquitously available. "Software is inherently hackable. Even though DVDs are protected, they got cracked. Nothing is going to be bulletproof," he said. "Right now it's not a question of (protection) being cracked, it's a question of a standard emerging."

The music and electronics industry will overcome these barriers, but it's not yet to clear to IDC how this will be accomplished, Ma said.

IDC is a subsidiary of International Data Group the parent company of IDG News Service.

IDC Corp., in Framingham, Massachusetts, can be reached at +1-508-872-8200 or at http://www.idc.com/.

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