Portable Player Competition Sizzles

New York— A trio of MP3 player introductions this month from Apple, Microsoft, and SanDisk are expected to ratchet up the competition in portable audio players for Christmas.

A new sharing feature announced on the Microsoft Zune and a preloaded music feature on the SanDisk e280, are upping the ante in the portable category, but it remains to be seen if the players can chip away at Apple's 75 percent market share, said industry executives.

Microsoft will likely win only a 3 percent share of the MP3 player market this season, forecasts principal analyst Rob Enderle of the Enderle group, San Jose, Calif.

Some retailers say Apple's market stronghold will not easily be dislodged. Tweeter VP GM merchandising Jonathan Magasanik noted that many households have already invested in Apple docking products. “In my home, if you don't have an Apple iPod, you are shut out of the opportunity to play it on anything but headphones because all the sound docks and the integration accessory into my car are built around the iPod. When we get into the car, the question is which iPod will we play, mine or my two kids.”

As a retailer, he is pleased with the greater choice in players. “Microsoft has stated they will have sharing capability, we think that is really neat ... One could imagine a day where one company's strength is tethered music, one is wireless music and another's is tethered video.”

Crutchfield buyer Scott Anderson, said, “I think it will be a good season for MP3. The category certainly needed to be refreshed with some new ideas and technology. With Apple, the changes are not as significant as some of the other players, but it should be a good season.”

Spokesmen for Best Buy and Circuit City said that the Zune would be carried by the chains this holiday. Amazon also expects to carry the player and is taking pre-orders. Wal-Mart.com is also claiming it will offer the Zune when available.

Stephen Baker, The NPD Group's industry analysis director, noted that while Microsoft is “clearly going to spend a lot of money to make the Zune ecosystem work, I think, in general, we're likely to see the same kind of trends for the holiday [as last year].” He continued, “If you are not an iPod, you'll be priced aggressively… the wild card then becomes where does Microsoft take share. It is from a potential iPod buyer or a SanDisk or Samsung or iRiver?”

Microsoft announced this month that its new Zune “iPod killer” will be a 30GB portable audio player that can share music wirelessly, Zune-to-Zune. Recipients can keep the songs for up to three days and listen to each up to three times during that time. After that, a song may be flagged for purchase from a “Zune Marketplace,” online music service. The Zune also has a built in FM tuner and 3-inch screen. No price has been announced. Originally retailers were briefed on a $299 price tag with a target date of mid-November. But some reports question if Microsoft will retain that price, based on Apple's newly announced 30GB iPod at $249.

Apple's iPod introductions were seen by analysts as incremental rather than as market-share grabbers. The biggest news came in the preview of a product for the living room, rather than an iPod. The company unveiled a wireless video streaming set-top box planned for early next year at $299. (See sidebar). Further the company launched the iTunes 7 online media site to include 75 movies available for downloading from a handful of studios. The Walt Disney company said it sold more than 125,000 feature film downloads on the service within the first week on iTunes and predicts sales of $50 million in movie revenue during its first year working with iTunes.

A third MP3 player supplier, SanDisk, along with RealNetworks, took the industry by surprise announcing a new line of MP3 players that will ship with 32 hours of preloaded music from top record labels, starting this fall. Whenever one of the new SanDisk players is synchronized with the Rhapsody subscription music service, the preloaded music is refreshed with new music selected based on the user's tastes and history of music preferences.

“We're trying to make music discovery as effortless as possible,” said a RealNetworks spokesman.

When asked if the features were aimed to differentiate the Rhapsody subscription music service from Apple iTunes, the spokesman said, “It's not so much about differentiating ourselves from Apple, as doing something entirely new.”

The first SanDisk players to work with the new Rhapsody service will be select eSansa 200 series models to be available this fall.

In addition, SanDisk and RealNetworks plan to produce a broad line of portable, mobile and in-home devices that will work with the new Rhapsody platform.

One of the first new eSansa models with the 32-hour buffer is an 8GB Sansa e280 with 2GB of additional music through a microSD card, FM tuner and rechargeable 20-hour lithium-ion battery at $249.

RealNetworks said new in-home streaming music devices from Sonos will also work with the new service. Rhapsody will also continue to support all PlaysForSure devices.

“In a way, this is doing the Zune one better because RealNetworks is picking the leading vendor competing with Apple and they are really showing the benefits of flat rate subscription, said Enderle. “The problem with flat rate is you have access to millions of songs, but how do you manage it? This could be brilliant. This is the way it should be done.”

SanDisk's media players have tripled in market share recently from 3 percent to more than 9 percent, making SanDisk the No. 2 MP3 player vendor, to Apple's formidable 75.6 percent share, according to NPD.

Apple's new iPods include a new shuffle, billed as “the world's smallest MP3 player,” at about half the size of the previous model, with 1GB of flash memory at $79 suggested retail price. It is joined by a 30GB iPod with a 2.5-inch screen that is 60 percent brighter than earlier models for $249, and an 80GB version, which holds up to 20,000 songs or 100 hours of video for $349. Also introduced was a new nano in five colors with 24 hours of battery life and 8GB of memory at $249 or 2GB and 4GB at $149 and $199 respectively.