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MP3 Players Reaching Critical Mass

Apple's iPod may be hot - supernova hot with the hipster set - but the supernova's got a ways to go before it burns out, according to a study published this week.

That's because the growing MP3 market in United States households had only reached the 12 percent saturation point by the end of 2004, leaving the portable music industry plenty of places left in which to shine. The results are part of a JupiterResearch survey of the MP3 device market. JupiterResearch is also owned by the parent company of this site.

The study said shipments of MP3 players will grow 35 percent to 18.2 million in 2005. The research group also predicted the market would maintain a compound annual growth rate of over 10 percent through 2010, reaching an installed base of 56.1 million by then, up from 16.2 million in 2004.

In the JupiterResearch consumer survey of online adults, six percent said they intended to purchase an iPod in the next 12 months, while four percent said they would buy a hard drive model from another vendor, such as Creative or Dell .

The news for the portable music market came just as Apple announced that it shipped 5.3 million iPod's during the quarter ending March 31st. That's up 58 percent increase in iPods over the year-ago quarter.

"Apple shows no signs of losing momentum," Michael Gartenberg, vice president and research director at JupiterResearch, said in statement. "The iPod is a consumer phenomenon. Apple dominates this sector and will dominate portable MP3 player growth over the medium term."

Profits for Apple's fiscal second quarter ending March 26th totaled $290 million, dwarfing the figure of $46 million a year earlier, according to the company's financial filings.

But the survey also found iPod can count on plenty of company in the burgeoning market within the next few years, as heavyweights like Microsoft and AOL continue to fight, along with dozens of smaller players, to gain a foothold in the market.

AOL plans to make its inroads through space, as the company announced this week an agreement to team with XM Satellite Radio. The move could mean the future of satellite radio includes interoperability with MP3 players.

Traditional radio power Viacom said it is planning to leverage its MTV Networks to start its music downloading service this year in an effort to compete with Apple's iTunes.

In China, a huge untapped market, Shanda Interactive Entertainment , the largest operator of online games in China, recently announced its partnership with Universal Music that would give the Chinese outfit will access to Universal Music's online music selection.

The increase growth in fee-based digital music and continued strong sales of portable MP3 players, combined with the launch of a new generation of portable online music subscription payment methods may require substantial incentives to encourage broad consumer adoption, according to new research from global marketing research firm Ipsos-Insight.

"Many downloader's still prefer a transactional payment structure over one that is subscription-based," Matt Kleinschmit, vice president with Ipsos-Insight, said in a statement. "This suggests that recently launched portable online subscription services may need to encourage broader adoption through ambitious pricing and promotional or incentive-based acquisition strategies.