Digital music awaits new wave of Rios

After leading the way with its Rio portable MP3 players, S3's Diamond plans to network your home and car. Will the market tune in?
Written by Richard Shim, Contributor

The hand-held MP3 music player market has only 1m users -- but don't expect it to stay stuck there, once a few thorny issues are resolved.

"That figure could grow as high as 3m overnight if digital rights management and codec (compressor-decompressor) issues clear up," said Dataquest analyst Van Baker.

Those are the barriers facing MP3-related devices right now, but a major player in the field, S3's Diamond Multimedia -- seller of 500,000 Rio players, or roughly half the current market -- remains undaunted.

The company has announced plans to expand its line of Rio players, in the face of other competitors entering the online music fray.

Expanded Rio line

In addition to a new version of its popular portable MP3 player, the Rio 600, Diamond will release two home components: the Rio Receiver and the Rio Jukebox, plus a Rio car player. The Rio 600 and the home and car players are due out later this year.

The strategy is to build off its existing base of a half-million Rio users.

"This is a logical transition from the player to the rest of the world," said Mike Reed, S3's director of marketing. "We realise that there's lots of room for participants, but with a first-mover advantage and a long-term strategy, we hope to give users what they want."

This early and aggressive stance and an expanding product line give Diamond a definite head start, said Dataquest's Baker. "Diamond is doing it right and leading by example."

Barriers to market growth

But the online market may have a ceiling because of the uncertainty surrounding digital files.

Since there aren't standards for devices on how to encode and decode the music, and record companies are still battling over security issues, consumers are not sure which player to buy. Once standards are set, the market should grow rapidly.

"The situation is similar to DVD and Divx. Once Divx died, DVD took off," Baker said. Napster's booming popularity is further evidence that the market is waiting for the floodgates to open.

Baker predicts that once these issues surrounding digital music -- MP3, Windows Media Audio and RealPlayer files and the like -- are cleared up, it could account for as much as 80 percent of the music industry within five years.

But that's a big "if." Without resolution, digital music is more likely to stay grounded at 5 to 25 percent of the total market.

Competitors and products

With such a huge potential, competitors are diving in. Voyetra Turtle Beach has already announced fall plans to ship the sub-$500 (£325) AudioTron, a home-networking device that connects to your PC and plays digital music remotely.

The AudioTron is similar to one of the two Rio home components, the Rio Receiver, which lets users play digital music on a PC and listen to music on networked receivers.

The Rio Jukebox is a standalone device with a hard drive and Internet connectivity, so users can download and manage music.

The Rio car device will be similar to a CD changer and include a removable hard drive that can be connected to a PC through a USB connection.

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