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Monday, October 18, 2004
Is MP3 losing steam?

After years as the unrivaled king of the digital-media world, the venerable MP3 music format is losing ground to rival technologies from Microsoft and Apple Computer.

MP3 is still the overwhelming favorite of file traders, but the once-universal format's popularity has been going quietly but steadily down in personal music collections for the last year. According to researchers at The NPD Group's MusicWatch Digital who track the contents of people's hard drives, the percentage of MP3-formatted songs in digital-music collections has slid steadily in recent months, down to about 72 percent of people's collections from about 82 percent a year ago.

"People are still getting MP3s and putting them on hard drives but are deleting them at a rate faster than they're acquiring them," said Isaac Josephson, a researcher at NPD MusicWatch Digital. "People tend to think that downloads are more disposable than rips (copies from a CD), and currently, the lion's share (of MP3s) are downloads."

The slow shift in MP3's role is part of an ongoing change in the digital-music industry, with the focus moving slowly away from the anarchic file-swapping networks and toward money-making stores and services such as Apple's iTunes Music Store.

Indeed, the big winners over the past year have been the two formats backed by Microsoft and Apple, each of which has gained about 5 percent "hard-drive share" in the past year, according to the ongoing study by NPD MusicWatch Digital. The project surveys the hard-drive contents of 40,000 different people to track Internet and software trends.

Researchers say the data does not show that MP3 is losing much of its popularity--files encoded in the format are just more disposable than rivals. People are still downloading boatloads of MP3 files--but they are discarding them at an even faster rate, the researchers said.

NPD researchers estimate that there was a net loss of about 742 million MP3 files from U.S. hard drives between August 2003 and July 2004, despite people acquiring billions of songs from file-trading networks and their own CDs. By contrast, Windows Media files showed a net gain of 537 million files on U.S. hard drives, Josephson said.

Some analysts say MP3 is evolving into a different role as a format many people use to sample music or keep temporarily, while the rival formats from Apple and Microsoft are being used for permanent digital-music collections.

A separate study, by Net-monitoring company CacheLogic, early this month showed that MP3 still dominates song trading on file-swapping networks.

The company tracked two major ISP networks for two days last weekend and found that MP3 files made up more than 88 percent of all audio files traded, with just 5 percent in Microsoft's format.

Maturing digital-music market
Analysts say the changing patterns of music consumption are a sign that the digital-music market is maturing beyond its Wild West beginnings.

In the years since the rise of Napster, millions of people have swapped billions of songs online, mostly in the MP3 format; though most of that time, the most popular music players also "ripped" music from CDs into the MP3 format.

The rise of music stores such as iTunes has been contributing in part to the growth of these alternative formats--but this trend is still muted.

The sum total of purchases from these stores remain low, compared with the overall consumption of digital music, making up about 3.5 percent of all digital music on hard drives, according to NPD. But iTunes and other services do help push hardware makers to support alternative music formats in their portable music players.

The bigger shift has come as more people have begun building their own digital-music collections by ripping their CDs into files on their computer, analysts say. Many mainstream users, who are less tech-savvy than the early adopters of digital music, use whatever format is built in as the default option in their music software, instead of selecting MP3.

For Microsoft Windows Media Player users, this has helped create Windows Media Audio (WMA) files, leading to a steady increase from 10 percent of the market in March 2003 to about 20 percent today. Apple's iTunes software was released into the Windows market in late 2003, and its default format, AAC, has gained nearly 5 percent of the hard-drive share in just seven months.

"Many consumers ripping (WMA or AAC) may actually think they're ripping into MP3," said Jupiter Research analyst Michael Gartenberg.

Analysts say that for the most part, consumers often don't care what format they're using--or even know--as long as it works with their hardware.

Indeed, a March 2004 Jupiter Research study on portable devices found that MP3 remained far more important in consumers' minds than any other format but that most weren't thinking about formats at all.

About 20 percent of people in the study said MP3 support was important to them when selecting a portable media device, while just 7 percent said support for Microsoft's WMA was important. Close to zero percent said AAC, the file format supported by Apple's iPod and iTunes, was essential to them.

One thing remains clear, however: Even if its usage patterns are changing, MP3 remains the one necessary format for hardware and software companies.

Some big companies that have resisted this notion for years are finally adapting to the MP3 world.

Last month, Sony confirmed that it would at last let its digital music players support the MP3 format directly, instead of making consumers convert their files into Sony's own proprietary ATRAC format.

Microsoft also recently added the ability to rip CDs into the MP3 format to its new Windows Media Player, after years of sending users to third-party plug-ins if they wanted to make MP3s.

Analysts say those moves are recognition that consumers demand MP3 support,even as they're experimenting with other options.

"As far as we can see, there are no devices without MP3 support," said Henri Linde, vice president of new business and licensing for Thomson, which oversees MP3 patents. "I've been told for 10 years that MP3 is going to die in six months. We're still waiting."


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