MP3s Could Become Extinct

The research group expects the digital audio player market will slide to 52 million users by 2010, down from 60 million in 2007. But the decline won't stop there.

As the U.S. market for digital audio players becomes saturated, manufacturers will increasingly depend on replacement cycles to drive sales. According to the study, 43 percent of U.S. digital audio player sales will be first-time purchases in 2006. This number will fall to less than 10 percent in 2008, and less than 5 percent in 2010.

Connectivity, not video features, will drive replacement cycles. The top three functions in one portable entertainment device are phone, internet access, and digital audio player, the Yankee Group report said. Only 30 percent of online respondents age 12 and up said they were interested in portable video.

Only 8 percent of those interested in portable video ranked it as the most important feature, and 19 percent included it in their top three. The ability to make phone calls remains the top function consumers.

The addition of Wi-Fi and Bluetooth connectivity will open new possibilities for content acquisition and distribution. Companies such as MusicGremlin are developing Wi-Fi-enabled digital audio players that can download content directly from an online store without the need for a PC. Online music services also can automatically push out content to the device removing the consumer's responsibility to update content on the digital audio player. By subscribing to periodically updated play lists, consumers can have the spontaneity of radio without the commercials, Yankee Group said.

Mobile music phones, such as the Nokia N93, which includes Wi-Fi connectivity and 3G network capabilities, could offer similar services by leveraging the fixed-wireless and wide-area networks (WAN).

Forty-eight percent of both broadband and dialup respondents to the Yankee Group survey indicated that they use a portable CD player to listen to music. Eleven percent of dialup users use a digital audio player, compared with 26 percent of broadband users. As broadband penetration continues to rise and consumers increase their comfort level with digital media, digital audio players and mobile music phones will replace portable CD players.

Expect the cost for digital audio player costs in mobile phones to fall. As costs to include the music function in mobile phones decline, mobile handset manufacturers will offer mobile music phones without requiring deep subsidies from wireless network operators, the Yankee Group said. The most expensive component needed to bring this function to phones is memory. Yankee Group estimates as of April 2006, a 2-GB memory card retails for less than $80. By comparison, a 2-GB Apple Computer Inc. iPod costs $199.

More telecommunication carriers will distribute content as the shift to one device continues, too. The two largest wireless carriers, Cingular and Verizon, offer mobile handsets that let users transfer music from their computer. Consumers could rip music from CDs or download from online music services such as the iTunes Music Store.