Philips Enters the MP3 Fray : Joins more than a dozen players in the Internet digital recording market

Electronic News, August 16, 1999 by Peter Brown

Philips Electronics N.V. has thrown its hat into the Internet digital music arena, saying it would develop a MP3 digital music player for release in the first quarter of 2000.

Philips joins a growing list of major consumer electronics manufacturers who have announced they will introduce products for the MP3 market, which has taken off to become one of the hottest consumer appliances on the shelves. Philips would not give many details about its MP3 player but said it would be compliant with the Secure Digital Music Initiative (SDMI) proposal when the products are introduced. Philips added that the player would be based on flash memory technology

Philips also recently signed a software agreement with Real Networks that would incorporate the RealPlayer, RealJukebox, and RealJukebox Plus into the Philips player so that the player would be able to record, play and manage the digital MP3 music files.

"There is an enormous potential in the market for portable digital music players and we see a lot of potential in the MP3 market in particular and we fully intend to have a player out by the first quarter of 2000," a Philips spokesman said.

Philips will have a lot of competition from products from smaller companies, including S3 Inc.'s Diamond Multimedia Systems' Rio player and Creative Labs Inc.'s Nomad. There are also at least a dozen other smaller companies that are developing MP3 players for the market.

In addition, top-tier consumer companies have also announced plans to enter the MP3 player market, including Samsung Electronics; LG Electronics, which will have its product out in the third quarter; and Thomson Consumer Electronics' RCA division, which will offer the Lyra player that will be based on solid state flash technology.

"Most of the other consumer companies are waiting for the SDMI standard to come out before they enter this market," said Mike Paxton, industry analyst at Cahners In-Stat Group, Scottsdale, Ariz. "In the long term, these major consumer players will replace the second-tier players but for now the ball is in these smaller companies' court and they need to take advantage of that."

And that could be a big money maker for these small companies in the immediate future. Recently, Media Metrix Technology Group, a market research firm in New York, said that in June of this year there were approximately 4 million users of digital music, including MP3 files, in U.S. households. That is up from just a few hundred thousand less than one year ago and represents a 400 percent growth increase from year-to-year, the company said.

Paxton feels some of the heat from the MP3 market is being generated by pure hype. Last month, there were reports that the word "MP3" was typed into Internet search engines more than the word "sex."

In other MP3 news, S3 has made plans to acquire OneStep Inc., a company that develops software used to download, create and organize MP3 digital music. The move is the second acquisition by S3 for MP3 music since it made its bid to buy Diamond Multimedia Systems earlier this year.

The acquisition shows that although this is still an emerging market companies are already positioning themselves against the mounting competition. The more intellectual property a company possesses may be the deciding factors between the winners and losers in the market.

The big question is how will these companies differentiate themselves from the dozen or so companies that will be in the market. That has yet to be seen as many of these planned MP3 players have not made it to market.