Portable Audio - US - December 2004

SUMMARY

In a mature consumer electronics market, consumers drive growth by upgrading from functional products. To persuade consumers to upgrade from working products, the industry must offer new step-up features, or a new playback medium.

The portable audio market flourishes in the presence of a mainstreaming new medium, but declines in the absence of a new medium. Between 1995 and 2002, the market declined every year except for 1998 and 2000. During this period, the market lacked its key ingredient-a new playback medium to propel upgrades from older products. From 2002 to 2004, sales have been driven by the uptake of a new playback medium, the MP3 player. Eventually the MP3 player became a mainstream product, and sales quadrupled between 2002 and 2004.

The last time the industry carried a product from early adoption into mainstream uptake was between 1987 and 1994. During this period of uptake for the CD headset, the market advanced 11% per year on average. Similar strong growth may be seen during the mainstreaming of MP3 products in the years ahead. Driven by MP3 sales, the market may break its record sales of $2.3 billion (in 1994) in the year 2005.

Critical to this growth is a thorough understanding of changing demographics and consumer preferences. For example, between 2005 and 2010, the population of Asians and Hispanics will increase by 7.5 million, a growth of nearly 15%. Simultaneously, millions of first-generation Asian and Americans and Hispanic Americans will be entering the 12 to 24 year old bracket. Mintels research finds that Asians and Hispanics show a particular affinity for market products, with Asian teens carrying a 28% penetration for MP3 players (compared to 17% for all teens), and adult Hispanics showing 9% ownership of MP3 players (compared to 6% for all adults).

Mintels original consumer research reveals important trends and opportunities in portable audio. Market size, drivers, segmentation and distribution are all explored in depth, and a five-year market forecast prepares you for the future of portable audio.

Mintel defines the portable audio player market as consisting of electronic hardware capable of playing pre-recorded media via battery operation.

Products covered in this report include:

• cassette tape players
• MP3 players
• CD players
• boom boxes
• headset radios

The report excludes sales of the following:

• used products
• niche markets including mini-disc, digital audio tape, compact cassette players, digital compact cassette
• clock radios, watches, computers, cellular telephones, and other devices whose primary function is not the playback of pre-purchased audio products
• CDs, cassette tapes, and other audio content products, whether pre-recorded or blank
• mobile audio (car stereos)
• home audio equipment, including compact and mini (single piece) stereo systems

TABLE OF CONTENTS

INTRODUCTION AND ABBREVIATIONS

• Introduction
• Other relevant reports
• Definition
• Abbreviations & Terms
• Abbreviations
• Terms

EXECUTIVE SUMMARY

• New technology is the key driver
• A mature market
• The market returns to growth through sales of MP3 players
• MP3 players to present majority of sales by value in 2005
• Premium prices for premium products
• Shake-up of brand leadership under way via MP3 player sales
• Software, content, and cross-marketing used to promote hardware
• Apple supports iPod with extensive advertising
• TV ad buys may be ineffective, other buys more cost-efficient
• Asians and Hispanics to drive sales
• Desire for products driven by lifestyle
• Interest declines with age
• The Future

MARKET DRIVERS

NEW PLAYBACK MEDIA

• Figure 1: Total U.S. manufacturer sales of MP3 players and otherportable audio hardware, at current prices, 1999-2004
• Graph 1: Total U.S. manufacturer sales of MP3 players and other portableaudio hardware, at current prices, 1999-2004

DEMOGRAPHICS

• Household income
• Figure 2: Penetration of portable audio, by household income, May2003-April 2004
• Figure 3: Number of households per income group, 2000 and 2003
• Graph 2: households per income group in 2003 and change from 2000
• Age
• Figure 4: U.S. population projections by age, 2000, 2005, 2010
• Race/ethnicity
• Figure 5: American households, by race/ethnicity, 2000-2010

MARKET LIMITATIONS

• Declining interest in music
• Figure 6: Total U.S. sales of pre-recorded music, and sales of homeaudio hardware, at current prices, 1999-2004
• Figure 7: Consumer annual hours spent with media, 1999, 2001 & 2003
• Interest in audio by age group
• Figure 8: Consumption of 10 CDs or more per year and downloading of MP3files, by age, May 2003-April 2004
• Graph 3: Consumption of 10 CDs or more per year and downloading of MP3files, by age, May 2003-April 2004
• Source: Mintel/Simmons NCS Spring 2004
• Impact of broadband Internet on acquisition of MP3 audio files
• Figure 9: Total high-speed Internet penetration and forecast, 2002-2007
• Comfort with technology
• Figure 10: Portable audio ownership and purchase in last 12 months, byattitudes regarding computers, May 2003-April 2004
• Figure 11: Comfort with computer technology, May 2003-April 2004
• Ease of acquisition of legal MP3 audio files
• Figure 12: Digital audio download services, August 2004
• Obstacles limiting access to MP3 content
• Figure 13: Internet access, music downloading in last 30 days, andownership of portable audio hardware, may 2003-April 2004
• Figure 14: Use of other A/V equipment to listen to CDs, July 2004
• Active lifestyles
• Figure 15: Ownership and purchase of portable audio equipment in past 12months, by demographic sub-sets and lifestyle attributes, May 2003-April2004
• Music listening habits
• Figure 16: Portable and mobile audio sales, 1999-2004

MARKET SIZE & TRENDS

• Market Size
• Figure 17: Total U.S. manufacturer sales of portable audio hardware, atcurrent and constant prices, 1999-2004
• Graph 4: Total U.S. manufacturer sales of portable audio hardware, atcurrent and constant prices, 1999-2004
• Continual advancement in MP3 players

MARKET SEGMENTATION

• Overview
• Figure 18: Sales of portable audio hardware, segmented by product type,2002 & 2004
• Headset MP3 players
• Figure 19: Total U.S. manufacturer sales of MP3 players, at current andconstant prices, 1999-2004
• Traditional headsets
• Figure 20: Total U.S. manufacturer sales of traditional headsetproducts, at current and constant prices, 1999-2004
• Speaker-based products
• Figure 21: Total U.S. manufacturer sales of speaker-based products, atcurrent and constant prices, 1999-2004

SUPPLY STRUCTURE

COMPANIES AND BRANDS

• Impact of MP3 players on brand positioning
• Battle for hardware purchases via online music stores
• Brand share by volume
• Figure 22: Brand of portable audio products purchased in last 12 months,July 2004
• Figure 23: Brand of portable audio products purchased in last 12 months,by gender, July 2004
• Figure 24: Brand of portable audio products purchased in last 12 months,by presence of children under 18, July 2004

COMPANY PROFILES

• Sony Corporation of America (Sony)
• Sony Connect
• Sony products
• Aiwa
• Apple
• Matsushita Electric Corporation (Panasonic, JVC)
• Emerson Radio Corporation (Emerson)
• Philips Electronics North America (Philips)
• RCA
• Other brands

ADVERTISING & PROMOTION

• Introduction
• Apple
• Sony
• Panasonic
• Emerson

THE CONSUMER

• Introduction
• Trends in portable audio ownership
• Adult audio ownership trends
• Figure 25: Ownership of portable audio equipment, by product type,2002-2004
• Teen ownership trends
• Figure 26: Teen ownership of audio equipment, by product type, 2002-2004
• Kids ownership trends
• Figure 27: Childrens ownership of portable audio equipment, by producttype, 2002-2004
• Portable audio equipment penetration among adults
• Figure 28: Penetration of portable audio, by gender, May 2003-April 2004
• Figure 29: Penetration of portable audio, by age, May 2003-April 2004
• Figure 30: Penetration of portable audio, by race/ethnicity, May2003-April 2004
• Figure 31: Penetration of portable audio, by household income, May2003-April 2004
• Figure 32: Penetration of portable audio, by population density, May2003-April 2004
• Figure 33: Penetration of portable audio, by presence of children under18, May 2003-April 2004
• Teens ownership of portable audio equipment
• Figure 34: Teen ownership of portable audio, by gender, May 2003-April2004
• Figure 35: Teen ownership of portable audio, by age, May 2003-April 2004
• Figure 36: Teen ownership of portable audio, by race/ethnicity, May2003-April 2004
• Kids portable audio ownership
• Figure 37: Kids portable audio ownership, May 2003-April 2004
• Figure 38: Kids portable audio ownership, by gender, May 2003-April2004
• Figure 39: Kids portable audio ownership, by age, May 2003-April 2004
• Figure 40: Kids portable audio ownership, by race/ethnicity, May2003-April 2004
• Recent purchase of portable audio among adults
• Figure 41: Purchase of portable audio equipment in past 12 months, May2003-April 2004
• Portable audio ownership and purchase in relation to lifestylecharacteristics
• Figure 42: Ownership and purchase of portable audio equipment in past 12months, by demographic sub-sets and lifestyle attributes, May 2003-April2004
• Portable audio ownership and purchase in relation to music, television,and Internet consumption and usage
• Figure 43: Portable audio ownership and CD consumption in last 12months, May 2003-April 2004
• Figure 44: Portable audio ownership and online music consumption in last12 months, May 2003-April 2004
• Attitudes about entertainment and the Internet
• Figure 45: Portable audio ownership and purchase in last 12 months, byattitudes regarding television, May 2003-April 2004
• Figure 46: Portable audio ownership and purchase in last 12 months, byattitudes regarding television, May 2003-April 2004
• Figure 47: Portable audio ownership and purchase in last 12 months, byattitudes regarding radio, May 2003-April 2004
• Figure 48: Portable audio ownership and purchase in last 12 months, byattitudes regarding the Internet, May 2003-April 2004
• Attitudes about comfort with technology
• Figure 49: Portable audio ownership and purchase in last 12 months, byattitudes regarding computer and high-tech, May 2003-April 2004
• Figure 50: Portable audio ownership and purchase in last 12 months, byattitudes regarding computers, May 2003-April 2004
• Figure 51: Portable audio ownership and purchase in last 12 months, byattitudes regarding electronic products, May 2003-April 2004
• Figure 52: Portable audio ownership and purchase in last 12 months, byattitudes regarding electronic products, May 2003-April 2004
• Conclusions

FUTURE & FORECAST

FUTURE TRENDS

• Portable audio becomes portable audio/video
• Competition from other CE products
• Figure 53: Integrated MP3 playing capability with non-MP3 playerproducts
• Satellite radio may energize sales
• Wi-Fi equipped MP3 players?
• Access to MP3 content
• Demographic shifts

MARKET FORECAST

• Portable audio hardware
• Figure 54: Forecast of total U.S. manufacturer sales of portable audiohardware, at current and constant prices, 2004-2009
• Graph 5: Forecast of total U.S. manufacturer sales of portable audiohardware, at current and constant prices, 2004-2009
• MP3 Players
• Figure 55: Forecast of U.S. manufacturer sales of MP3 players, atcurrent and constant prices, 2004-2009
• Traditional headset products
• Figure 56: Forecast of U.S. manufacturer sales of traditional headsetproducts, at current and constant prices, 2004-2009
• Speaker-based products
• Figure 57: Forecast of U.S. manufacturer sales of speaker-basedproducts, at current and constant prices, 2004-2009
• Forecast Factors

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APPENDIX: RESEARCH METHODOLOGY

• Consumer Research
• Sampling & Weighting
• Presentation & Definition
• Further Analysis
• Trade Research
• Informal trade research
• Formal trade research
• Desk & Internet Research
• Sources
• Definitions
• Forecasts

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