Bright Future Forecast for Digital Audio Downloads and Players

Judging from the e-mails we get, some folks wonder why Stereophile's website continues to cover the advance of such lo-fi formats as MP3 as well as the problems encountered by companies like Napster as they tangle with the music business. But consider this: a new study reports that the market for digital music players will grow to $6.4 billion in 2005—more than 34 times 1999 shipments—which is also nearly 80% of the $8 billion reported for sales of all audio products, including portables, from last year (see previous article).

At current industry growth rates, that would indicate that two out of every five dollars spent for audio equipment in 2005 will be for a device engineered to download audio files from a website. And chances are, those audio files will be compressed either as MP3s, or some future "CD-quality" format, and sold for pennies each.

In the short term, the report from Mercury Research forecasts that the market for digital audio players will nearly triple in 2000, to nearly $550 million. Unit shipments also will nearly triple, to 2.8 million units, from approximately 1 million units in 1999, according to the study. Similarly, shipments of chipsets used to build digital music players are expected to more than double in 2000, to nearly 3.5 million units.

Mercury Research analyst Dean McCarron says that "we are about to enter the second phase of the digital music revolution. In the first phase, MP3 players became popular. New products, such as MP3-enabled CD players for the car and home entertainment center, will fuel growth in the second phase."

But according to the report, the third phase, which has the largest growth potential, is where things get interesting. Mercury's Mike Feibus explains that "right now, digital audio is appealing only to those who are both computer-savvy and who are willing to dedicate time and effort to maintain their music collections in digital form. But most consumers either don't have the desire or the capability to manage their collections on a computer. When those consumers can easily buy and play digital music, then the market will really explode. That's what we forecast will happen in the third phase of the digital music revolution."

Certainly, all of this forecast growth is not assured. Indeed, there are several obstacles in the way of achieving such success. As examples, the report cites high flash-memory prices as constraining short-term market growth, and, in the long term, hardware suppliers' inability to satisfy the recording industry's demands for preventing illegal copying without alienating potential customers. And, as audiophiles know, that is no small matter.