New York — The Anti-Defamation League’s National Consumer Technology Industry divisio
The flash you see during the Christmas season won't be the star of Bethlehem but the star of the portable audio industry: MP3 players, flash-memory models in particular.
Flash-memory models are gaining share on HDD models, thanks to the introduction this year of multiple 1GB, 2GB and 4GB models, particularly the first iPod flash models in those capacities with color screen and click wheel, marketers said.
In fact, Panasonic product manager Yong Lee expects flash-memory models to outsell HDD models in units in 2006, two years after Consumer Electronics Association (CEA) statistics showed factory-level HDD unit sales outpaced flash-model sales for the first time.
Suppliers also expect the share of video-capable MP3 players, offering screen sizes up to 2.5 inches, to continue their surge in the second half. The share held by full-fledged HDD-equipped portable media players, which feature screens of 3.5 inches or more, will also grow, encouraged by a proliferation of models from major CE suppliers and the first model expected from Apple. To support sales, Apple is expected at some point to offer movie downloads to accompany downloads of TV shows, music videos and other short-form video.
The NPD Group sell-through statistics illustrate the flash-memory shift. Retail-level sales of HDD players fell 25.9 percent in units and 11.8 percent in dollars from January through May, but sales of flash-memory models rose 140.5% in units and 214% in dollars during the period, NPD reports.
HDD-equipped players with 4GB to 8GB capacities “are drying up” as consumers opt for more 4GB flash-memory models that hit the 1,000-song sweet spot, Yong noted.
The sales shift is occurring as growth slows appreciably from 2005 levels but remains healthy in comparison to other CES sectors. Factory-level MP3 sales rose 228 percent in dollars in 2005 to $4.23 billion, but factory-level growth slowed to about 100 percent in the first quarter, down from about 200 percent during the year-ago quarter, CEA statistics show.
Sell-in growth has slipped because of last year's explosive growth, a more mature market and swollen retail inventories of 512MB models, Lee said. Retailers' open to buy “is more constrained than in the past,” she noted. The inventory buildup occurred because the price disparity between 512MB and 1GB models has shrunk to about $20, with 1GB models priced mainly from $69 to $129 and 512MB models starting at $49 to $59.
Marketers attributed much of the industry's 2005 gains to sales of the first flash-memory iPods with color screens and click wheels to emulate such HDD iPods as the 4GB iPod Mini but at lower prices, smaller sizes and longer battery lives. Industrywide sales gains will slow in 2006, in part because sales will come off an exceptionally strong 2005 and because of expected market maturation, suppliers said. In January 2006, 28 percent of all U.S. households used MP3 portables, up from 8 percent in January 2003, CEA consumer surveys show.
Sales growth in 2006 will be driven in part by replacement sales as the selection of video-capable music portables grows. In 2005, video-playing MP3 portables accounted for only 6.3 percent of unit MP3 shipments in the United States, but in 2006, IDC analyst Susan Kevorkian forecasts factory-level unit sales of 19.8 million video-capable MP3 portables, up 895 percent from 2005's 1.99 million. Those numbers exclude U.S. PMP sales, which in 2010 will hit 25 million, representing a five-year compound annual growth rate of 65.9 percent, IDC said.
In part, percentage-share growth of video-capable MP3 players will be supply-driven, not necessarily demand-driven, because of falling chip and display costs that enable suppliers to add value, IDC said.
A maturing market also means more consumers will opt to own more than one MP3 player, IDC noted. A consumer might own a smaller flash player for use in the gym or hiking while opting for a more fully featured unit that might support video, HD radio or satellite radio, IDC analyst Susan Kevorkian noted.
In only a few years, however, U.S. sales of MP3 players may begin to decline. Shipments to dealers are expected to climb through 2008 to 46.1 million units, up from 31.8 million in 2005, but unit shipments will decline slightly to 43.7 million units by 2010, according to IDC's Kevorkian.
Music-capable cellphones may be a small factor in the market's leveling, but they are not considered a “category killer,” she said. “Multimedia enabled cellphones will be a factor to some extent, but not to the point that has been hypothesized elsewhere,” said Kevorkian noting that some consumers prefer a simple device that performs one function. She speculates that consumers may own both music-enabled cellphones and iPods and use them at different times.MP3 Players Sales Shift
|Unit Volume (% change)||Dollar Volume (% change)|
|Hard Disk Drive||-25.9%||-11.8%|
|Source: The NPD Group © TWICE 2006|
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.