Suppliers Anticipate More MP3 Market Shifts

By Joseph Palenchar -- TWICE, 12/18/2006

New York — Sales of MP3 players might have risen at double-digit percentage rates this year, but suppliers are already thinking about market maturity and the potential impact of MP3-playing cellphones as they prepare for International CES.

Suppliers are split on whether carrier-subsidized MP3-playing cellphones will become the MP3 player of choice for many consumers or a casual-use backup (see roundtable, p. 97), but many suppliers expect sales growth to slow in 2007, following a steep rise in penetration rates during the past five years. Jupiter Research forecasts only 2.3 percent unit-sales growth in the U.S. to 31.1 million units, compared with a projected 16.9 percent increase in 2006, to 30.4 million.

During the first 10 months of the year, the NPD Group reported, retail-level unit sales soared almost 30 percent, to more than 13.6 million, with a 20 percent gain in dollar volume, to more than $2.5 billion.

With market maturity in mind, some suppliers will focus on simplicity, affordability and new functionality to expand the potential user base, in at least one case with a wireless stereo headset. Other suppliers will expand their selection of MP3 players with photo and video playback.

Also at the show, dealers can expect suppliers to expand their selections of flash-memory models as flash-memory prices continue to fall. Suppliers will also scale back their selections of music-oriented HDD models.

At least two companies will expand their selection of video-playing MP3 players, and another will show its first. One supplier will show its first MP3/satellite-radio headphone portable. And at least one MP3-player supplier will launch its first video-optimized portable media player (PMP).

The PMP market, although still a niche market, will ramp up in 2007 as authorized sources of downloaded movies and TV show begin to multiply, suppliers said. In 2006, GUBA and Amazon launched protected downloads of movies and TV shows in protected Windows Media Video (WMV) format for transfer to portable media players and video-playing MP3 players. Wal-Mart also offered its first authorized movie download of the latest Superman movie as a precursor to offering a beta version of a video download service in the coming months, a spokesman said. Superman is transferrable to PMPs in the WMV format.

Vongo's subscription- and pay-per-view downloads are also transferrable to PMPs based on Microsoft's portable media center (PMC) version 2 operating system.

Flash-Memory MP3 Player Sales
(RETAIL LEVEL, JAN.-OCT. 2006)

Price Points	Unit Volume Change	Dollar Volume Change
&$50	206%	186%
$50-$99.99	30%	4%
$100-$149.99	115%	130%
$150-$199.99	261%	268%
$200-$299.99	160%	158%
$300+	-98%	-98%
	Volume	% Change
Total Units	9.3+ million	109%
Total Dollars	$1.3+ billion	128%
Source: The NPD Group/Retail Tracking Service ©TWICE 2006

Hard Disc Drive MP3 Player Sales
(RETAIL LEVEL, JAN.-OCT. 2006)

Price Points	Unit Volume Change	Dollar Volume Change
&$100	82%	50%
$100-$149.99	-22%	-21%
$150- $99.99	-95%	-95%
$200-$299.99	22%	28%
$300-$399.99	28%	34%
$400+	-86%	-85%
	Volume	% Change
Total Units	4.3+ million	-30%
Total Dollars	$1.2+ billion	-17%
Source: The NPD Group/Retail Tracking Service ©TWICE 2006