Return of MP3 Insider

According to CEA's 2005 Market Potential Study, about 15 percent of American households owned an MP3 player. To most, that's a shockingly low figure, considering all the hype surrounding digital music and its poster child, the Apple iPod, which in a city such as San Francisco comes a dime a dozen. But today, that percentage is without a doubt higher, thanks to a holiday season during which the MP3 player overtook the digital camera (the tech gift for the past couple of years) as the hottest tech gift. Seemingly everybody and their mother got an iPod or a Creative or SanDisk portable music player, and these same folks downloaded more songs legitimately (20 million) in the week after Christmas than any week before it. According to Jupitermedia, U.S. shipments of MP3 players should increase 35 percent in 2006, and the online music market should reach $1 billion. So, after a hiatus, it's an ideal time to kick MP3 Insider back into gear--and this time into high gear, as this column will be published bimonthly, covering the products, the technology, and the culture driving digital audio and video.

The party's just getting started
Nearly a year ago, experts predicted that MP3 players would hit critical mass in late 2005--meaning there would be enough portable devices in circulation to drive demand for online music stores and services. With a record holiday season behind us, only time will tell if we've hit this so-called critical mass, but MP3 players have shifted from being computer- to consumer oriented, and that can mean only good things for the industry as a whole.

We already know that the iPod, which holds a healthy 69 percent of the U.S. market, drives enough users to buy music and video from the iTunes Music Store--a total of more than 850 milion music downloads so far. Apple's video offerings, which should grow to the point that has Apple considering updating the name of its music store, will no doubt fuel interest for its video iPod, including the speculative next-gen video iPod. Although Steve Jobs has railed against the usefulness of a subscription-based music or video service (similar things were said about an Apple flash player and a video player), look for iTunes to add an all-you-can-eat service in 2006.

Things are also looking up for the Windows Media side of the equation, which is driven by the mantra of choices of players and stores. Legitimate hardware competitors such as Creative's Zen Vision:M and SanDisk's e200 seek to prove to the masses that the iPod isn't the only portable multimedia gadget out there.

The more intuitive Windows Media Player 11, which features a new and refined music store/subscription service called Urge, will become the anti-iTunes, and it should give Windows users a bragging point. Video services such as Starz Vongo, which is $10 a month for all-you-can-eat downloading of decent movies, will add to the Windows Media appeal. And if rumors are true about a Microsoft WinPod MP3 player--in which Microsoft can control the look, feel, and relationship with Windows Media Player to the extent Apple does with the iPod--then, at the very least, we're in for an entertaining battle royale.

We're not so sure about Sony and its ATRAC3 audio format, however. We'll have to wait and see if Sony's revamped Connect service, due in March and reportedly more in tune with the PSP, will offer anything extraordinary.

So, if the numbers experts are correct, and there are enough consumers of digital media to keep virtual stores out of the red, then this year, we should see plenty of MP3 action that's truly beneficial to the average consumer. If we have indeed hit critical MP3 mass, we should see a shift in the way most people acquire and consume digital media.

But will things really change?
Let's stop and learn from our readers, who range from novices looking to purchase their first MP3 player to seasoned MP3 veterans who may have multiple portables and quite often use esoteric formats such as OGG and FLAC. One of the most efficient methods for characterizing and learning from our enthusiastic audience is to share some results from past Music Center polls. For example, when asked what their audio format of choice was, our readers answered:

The universal MP3 format dominates, just as the iPod dominates the MP3 market, so it's easy to recognize that most users (still) download a lot of their music using P2P software such as LimeWire; are owners of legacy MP3 collections via the original Napster or friends who quantify their music collection in gigabytes; or still rip their CDs in the MP3 format. Despite the fact that WMA, AAC, and other modern formats are more efficient, most users, including me, prefer MP3, mostly due to its openness. I know that if I rip CDs into iTunes AAC, my beloved tracks are destined to play on the iPod only. And given the fact that I have a new MP3 player every day, I want music that plays on every device.

So are users ready to shop online for music en masse, as critical mass would have it? One of our recent polls asked: "How much cash have you dropped on online music stores and/or subscription services?"

I've personally spent about $500 on iTunes FairPlay AAC tracks, so that puts me into the minority group. Of course, I've also spent a fair amount of virtual money (read: press accounts) on Yahoo Music Unlimited, Napster To Go, Virgin Digital, Rhapsody To Go, and others. Renting music is effective but still a bit unnatural. And I get ticked off every time I have to burn my iTunes tracks, then rip them into MP3 so that I can listen to my tracks on my Creative Zen. One has to assume that of the 49.2 percent of users who don't buy their digital audio, most probably download their tracks from P2P sources and that the tracks themselves are MP3. I'd say a fair amount of the 49.2 percent also rip their CD collection into MP3 (or WMA or AAC), which is probably how most users get started in digital audio. In fact, Big Champagne estimates that more than 250 million tracks are downloaded via P2P each week. It seems users are not ready to spend money on music just yet.

What will it take for these results to shift? Will it take better stores and services? Better prices? More format flexibility? Does the RIAA need to do a better job of shoring up all those pesky little P2P holes? After you add video to the mix (the number of people that don't buy their digital video is sure to be a whole lot more than 49.2 percent), you're dealing with the same copyright issues that haunted music just five years ago, despite DRM.

Finally, we asked readers about hardware:

This poll came out in October, when the 20GB iPod was still in rotation and well before WMA hopefuls such as the Creative Zen Vision:M were released. Although more than a third of our readers chose a 20GB iPod from this group, the average user rating for this product ended up being a 6.8. One thing we've learned from our users is that they are passionate about their players and their brands, particularly those who prefer Cowon and iRiver products. Even though non-iPod owners make up about 30 percent of the U.S. MP3 market, the energy generated from this group is plentiful.

Despite the fact that people like to trash the iPod and that other players offer different features, lower prices, and arguably better sound quality, the iPod still rules--thanks to marketing, hype, and ease of use, as well as the player's seamless relationship with dual-platform iTunes. The subscriber base for PlaysForSure subscription services will surely grow with the release of the new Windows Media Player 11, but more has to be done on the hardware side to chip away at the iPod's dominance (think Toshiba Gigabeat S and Creative Zen Vision:M). I think users are just dying for a bona fide iPod killer, and whoever builds one will be rewarded. What do you think? TalkBack to me below.