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Portable Audio Gets MP3 In All Flavors At CES

1/08/2002 02:00:00 AM Eastern

Portable-audio suppliers will continue to upgrade the features and storage capacity of their solid-state music portables at CES, but they'll turn increasingly to 3-inch and 5-inch MP3-CD portables and hard-drive portables to capitalize on the growth of file-sharing services.

In part, suppliers attribute the shift to dealer and vendor concern over rapid price and margin erosion in the 2001 solid-state market. Numerous closeouts by vendors that overestimated solid-state demand resulted in falling retail-level dollar volume. Unit sales were estimated by various vendors as being flat or up.

Sales of MP3-CD and hard-drive portables, on the other hand, grew solidly in 2001 despite the economy, given their greater storage capacity and, in the case of MP3-CD portables, significantly lower media costs.

Some marketers also attributed their shift in part to solid-state sales that didn't meet some retailers' expectations.

"Retailers expect MP3-CD to take off," said Philips portable marketing director Daan Renssen, portable audio marketing director. Most retailers plan to offer bigger selections in 2002, possibly due in part to solid-state closeouts and markdowns that have eroded solid-state margins, he said. Demand, however, is playing a big role.

MP3-CD demand is growing, he noted, because of "the availability of [MP3] content as well as PC burner sales, with a worldwide installed base of 100 million by year-end 2001."

Other major reasons for MP3-CD growth, said RCA are the "near-zero" cost and greater storage capacity of CD-R/RW discs compared to flash memory cards, which started at about $79 during promotions for 64MB cards in late 2001.

In 2000, MP3-CD portable sales at retail hit only 100,000 industrywide, Philips research shows, but the company forecast 2001 sales of 1.2 million, accounting for 6.5 percent of expected headphone CD player sales of 18.4 million. In 2002, MP3-CD sales will more than double to 2.5 million, accounting for 13 percent of 19.4 million headphone-CD sales, Philips forecasts.

The premium for MP3 playback in CD portables, meantime, is expected to fall from about $50 in 2001 to $20-$30 in 2002, some suppliers said, with new 5-inch models at CES starting at suggested retails of $99 and 3-inch models starting at an everyday $119.

By the end of 2001, MP3-CD portables launched by well-known companies in the second half of 2001 fell to $99-$129 from an initial $169-$179 for reductions up to 30 percent, said Creative Labs brand manager Kevin Brangan. Less familiar brands were offered for as little as $59, he said.

Hard drive prices fell about 13 percent at retail for the year, mainly because of falling hard-drive-mechanism prices, although dollar sales quadrupled, he contended. Creative's 6GB Jukebox retailed for $199 by the end of the year after a $50 rebate, and its 20GB model hit $299 after a $50 rebate, he noted.

Solid-state prices fell 20 percent to 40 percent, driven by oversupplies of flash memory and closeouts by some companies, Brangan said. That brought most 64MB solid-state models to $129-$149, most 128MB models to $149-$159, and unbranded 32MB models down to $49-$59 during promotions.

In 2002, Brangan expects to see most 64MB portables retailing for $99, most 128MB models at $149, and 256MB models at $199.

That day is near, given that in December, RadioShack promoted a First International iRock MP3 64MB portable at $99.

"Once you hit $99 with 64MB from known brands, that's the moment the mass market takes off," Philips' Renssen said.

In 2001, however, "national mass retailers feel they jumped on it too early and that it took longer to take off than expected," he added.

Even if solid-state sales didn't meet some dealers' or suppliers' expectations, solid-state sales at retail were forecast by Philips to grow 28 percent to 750,000 units, although dollar sales were off 20 percent to $112 million.

Philips forecasts 2002 unit-sales growth of 53 percent to 1.15 million.

Two other suppliers — Creative and Samsung — estimated flat solid-state sales in 2001, with Samsung estimating sales at about 813,000.

Hard-drive sales, Creative said, increased fourfold in dollars despite price reductions. Samsung estimated hard-drive share at 15 percent of all Internet audio portables (solid-state and hard drive combined.

New features: However solid-state fared in 2001, suppliers will try to advance solid-state's fortunes by expanding embedded memory capacity to 128MB or, in the case of Samsung, employing proprietary compression technology on top of MP3 and WMA to double capacity.

Suppliers such as Audiovox, Samsung and Zenith will also launch their first multicodec solid-state models. They will join a growing list of companies with solid-state portables that support Windows Media Audio.

Also at the show:

  • Dlink, e.Digital, and RCA will display their first hard-drive MP3 portables, and Samsung said it will follow later in the year but probably won't show its model at CES.

  • Audio portables will converge with other devices. Panasonic, for example, plans to show a solid-state audio portable that also takes digital and moving pictures. Philips will show a 5-inch MP3-CD portable that reads Kodak Picture CDs and jpeg-encoded CDs for display on TV sets. Also, Bantam will show a model that also displays still images on a color LCD.

  • mp3PRO will appear in the first solid-state portables from RCA, and Philips plans to offer an mp3PRO upgrade for new programmable solid-state portables and a new upgradable 3-inch MP3-CD portable.

  • Aiwa will launch its first 3-inch MP3-CD portable, joining Philips, Compaq, Imation, and Teac's data-storage division in this segment. (Imation's product is also a portable CD burner.)

In other developments, Samsung will announce plans to make and market Nike-brand Internet portables, three of them due from March to May. Previously, SONICblue made Nike devices, which Nike marketed itself. Samsung will confine distribution to athletic outlets, which was Nike's original target before expanding to CE outlets, said marketing manager Russell Bleeker.