So Far, Consumers Don't Want Their MP3 (Players)

Just one year after their introduction to the marketplace, holiday sales of portable MP3 players (dubbed electronic music devices, or EMDs, by retailers) are sure to show strong gains for 1999. But the hand-held devices, which could do for MP3 what the Walkman did for cassettes -- make the format portable -- still have a long way to go before they become the gadget of choice for mainstream consumers.

The good news is that, according to projections made earlier this year by Forrester Research, EMD sales are expected to hit 32 million units in America by 2003. The bad news is that EMDs are unlikely to achieve the one-million mark that Forrester had set for 1999. "The reality is a bit more conservative than what our projections were," senior analyst Jeremy Schwartz, who now suggests roughly 600,000 or 700,000 EMDs will be purchased by year's end.

Considering the EMD market barely existed one year ago, that's an impressive showing. But, to put that number in some perspective, the entertainment electronics item that is really flying off store shelves this shopping season is home DVD movie players. And they're selling at a clip of nearly 600,000 units per month, according to the Consumer Electronics Association.

Schwartz suggests EMD manufacturers, such as RCA, Diamond Multimedia, Lya and Creative Labs, may have been a bit late getting product to stores this year.

More importantly, for EMD's to truly become mainstream hits, and to broaden beyond the tech-savvy early adopters, prices need to come down dramatically. "They're not cheap," notes Schwartz. Most models today hover around $200, at a time when established portable cassette recorder brands (i.e. Sony's Walkman) retail for less than $50. Gary Arnold, vice-president of marketing for the Best Buy electronics store chain, says EMD's "have got to be under $100." Best Buy is one of the largest EMD retailers in the country, and Arnold expects the chain will have sold 12,000 during the month of December. Last quarter, Best Buy's 347 stores already sold more EMDs than they did mini-disc players, another Walkman competitor that has been around for years.

The other hurdle EMDs must overcome is the question of content. Right now, as Schwartz points out, consumers can download all sorts of MP3 files off the Web, "but a lot of MP3 content is not mainstream music. It's pretty obscure stuff." When the major labels start allowing their best-selling recordings to be downloaded, like Virgin did with David Bowie's hours..., that's when consumers will likely make the move to EMDs. "That will accelerate the growth," says the analyst, "because it's going to be driven by content."

The price and content wrinkles will be ironed out, and sooner rather than later, stresses Arnold. "This is clearly the Walkman for the next generation," he says. As for that changing of the guard? "It's not a questions of if, but when."

ERIC BOEHLERT
(December 20, 1999)