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Music players to get into growth groove

Sales of electronics gear that can play compressed audio files are set to rise by 30 percent a year as people continue to rip CDs to play elsewhere, says market researcher IDC.

After a fast start, sales of digital music gadgets will keep moving on up, but to a slower beat, according to a new report.

The market for electronics gear that can play MP3 files will enjoy strong growth in the next few years, as digital audio playback is included in more and more kinds of devices, according to an IDC report released Thursday.

The market researcher says the worldwide market for compressed audio devices will grow to $44 billion by 2007 from $11.8 billion in 2002--or an annual growth rate of roughly 30 percent. That growth is healthy, but not quite as strong as the increase seen in the past few years. Such devices accounted for $580 million in worldwide sales in 2000, primarily sales of flash memory-based portable music players.

While sales for portable music players such as Apple Computer's iPod will continue to increase, much of the growth will come from MP3-enabled video recorders, digital cameras and similar products as electronics makers add the ability to play digital music to these devices, IDC predicts.

In fact, the research company estimates flash-based and hard-drive based portable players will make up only a third of sales by 2007. IDC says that the "other" category of devices will account for $28 billion in sales by 2007, two-thirds of the overall market.

"It's been over the last few years we've seen the addition of MP3 to DVD players, game consoles and (also) more momentum in CD players--portable, home and car," said IDC analyst Susan Kevorkian.

The market for CD players that can play compressed audio--either MP3, Windows Media or other formats--is one of the fastest-growing areas, as electronics makers seek to differentiate their products in an increasingly crowded niche, Kevorkian said.

The automotive market is an important part of that growth, with U.S. sales of car stereos with digital audio rising from 3.1 million units last year to 14.6 million units by 2007. Part of the jump will come from carmakers themselves including CD players that can play compressed audio in their models.

"We expect to see more factory-installed car audio systems" with digital music features, Kevorkian said.

In the portable jukebox market, a category jump-started by the iPod, IDC is forecasting continued sales growth, but little drop in prices. Even in 2007, Kevorkian said that such devices are still likely to sell for $200 and up.

"That has everything to do with the dynamics of the hard-drive industry," Kevorkian said, noting that while capacity doubles every 12 to 18 months, prices remain relatively steady. That will lead to more-capable players, but not necessarily less-costly ones, she said.

Competition among makers of small hard drives is increasing, though. Toshiba's 1.8-inch drive is being followed by a similar in size product from Hitachi, while start-up Cornice is developing a 1-inch, 1.5GB hard drive.

As for the music tracks to fill these devices, IDC forecasts that most will still come from free file-swapping services or from consumers ripping tracks from their own CDs. However, the research firm says online digital music sales look likely to be aided by growth from outlets such as Apple's recently launched iTunes music store.