Get on down

Get on downSecond only to sex as the most popular searched subject on the Internet, electronics companies have spotted a potentially huge market for the audio phenomenon MP3. Tom Foremski listened in
The audio format known as MP3 has shaken up the music industry with an explosion of content and electronics companies are hoping it will lead to new mass market electronics products.  
 
MP3 is the popular term for the audio format technically known as Motion Picture Experts Group (MPEG), Audio Layer 3 , a way to compress audio files. With MP3 digital audio files can be compressed with a 12:1 ratio (MiniDisc uses 5:1) and yet still retain almost CD-like audio quality.
This open standard has been embraced by hundreds of thousands of Internet users as a way to turn their PC systems into jukeboxes with thousands of MP3 converted CDs on their hard drives, and easily download MP3 encoded music over the Internet without having to wait hours to download the original music file.
Hundreds of online music sites have sprung up showcasing free MP3 content with the most popular one, MP3.com, hosting more than 4,000 artists and adding almost 100 new artists every day. Even larger, established musical artists such as the Beastie Boys and Dione Warwick, have released MP3 music.
With millions of downloads of MP3 music, electronics companies worldwide have spotted a potentially large market for electronics products that can decode and play MP3 music without necessarily requiring a computer. Diamond Multimedia was the first to enter the market late last year with its Rio player, a small, portable solid-state device that plays MP3 music downloaded from a PC.
Diamond, however, quickly became a target for the established music industry, alarmed at the potential for piracy that MP3 offers. The Recording Industry Association of America (RIAA) filed a lawsuit seeking to stop Diamond from selling the Rio, arguing that it was promoting piracy. Diamond counter-sued and managed to throw off the RIAA challenge and continues selling the Rio.
The recording industry, seeing the potential for MP3 as an online distribution medium decided to launch a similar initiative but focused on an audio compression technology that is secure and would not allow free distribution in the same way MP3 does. Major record companies formed the Secure Digital Music Initiative (SDMI) last December, with plans to introduce a secure audio compression technology by the end of this year.
But the SDMI initiative is far too late to make much impact on the huge momentum that has emerged behind MP3, a momentum that has not gone unnoticed by Silicon Valley’s venture capital firms which recently invested $11 million in MP3.com. This momentum is best illustrated by a simple fact: the term ‘MP3′ is the second most requested search term according to company Searchterms.com, second only to the search term ‘sex’.
US market research firm Semico is very bullish on prospects for MP3 players and predicts that 1.3 million units will be sold in 2000, rising to 7.8 million in 2001 and 14 million in 2002.
For electronics companies, the potential business opportunities are in MP3 decoding chips, flash memory data storage modules, and various types of MP3 players whether portable, designed for the living room, cars, and add-in boards for PCs. There are now more than 30 MP3 related electronics products either already launched or planned for launch later this year including European efforts such as German firm Pontis Electronic with its Mplayer3.
In addition to the Rio and Pontis players, electronics firms are trying to differentiate their MP3 players. For example, Korean firm VaroVision’s Clikman uses Iomega’s mini Click drive storing up to 40 Mbytes of MP3 files. And Korea Media’s Mp-Cap offers MP3 play with song lyrics on an LCD for a portable Karaoke system.
Several chip companies see MP3 popularity boosting their business. For example, Flash memory maker SanDisk expects that its flash memory products will be widely used as removable storage formats for MP3 files.
“I have been in the storage industry for 30 years and this portable digital music player application promises to sell as much flash storage capacity as any product application I’ve seen. We believe that much of this music will be stored on small-size CompactFlash cards, which Sandisk invented, and on MultiMedia Cards, which Siemens and SanDisk co-invented,” said Leon Malmed, senior vice-president of sales and marketing at SanDisk.
There are other chip opportunities. Earlier this year, ESS Technology introduced its ES4280 chipset which decodes MP3 audio files. ESS expects the chipset to be used in portable electronics devices and also in set-top TV boxes that offer Internet access.
While many electronics firms hope to carve out profitable businesses thanks to the popularity of MP3, the actual business model for selling MP3 music has not yet developed, threatening its future prospects. With Internet users accustomed to large amounts of free content whether it is text or in the case of MP3, CD-quality audio, it is difficult for MP3 supporters to create a profitable business model.
“MP3 is a great technology and it provides me and others with the ability to reach thousands of new listeners to my music, but it still has a ways to go,” says Tory Dixon, a music artist who is one of MP3.com’s most popular artists under his stage name Crack EMCEE.
Even though MP3.com sells CDs of artists featured on its Web site, sales are dismally small. “What we need is some big name acts that will come out in support of MP3 and attract the attention of millions of people that aren’t computer geeks,” says Dixon. But with major music artists closely controlled by large music labels who are hostile to MP3, the real breakthrough will have to come from the artists creating MP3 music and managing to cross over into the mainstream.


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