• New music sources are competing with established physical-media and broadcast sources to get heard.
• Combined home and portable audio sales rose 40 percent in 2005 to a record $7.68 billion.
• U.S. factory-level sales of portable audio products exceeded sales of home audio equipment for the first time in history.
• Consumers have expressed a clear preference for buying products that let them listen to music where they want and when they want.
• Compressed music is king.
• Compressed-music portables expand.
• MP3 is crowned king of portable audio.
• Home audio sales resumed their decline in 2005.
• Home audio products are connecting to the home network to reproduce music stored on a networked PC.
• Digital royalties rile music industry.
• Satellite radio roars.
• Satellite radio’s home and portable options grow.
• MP3/satellite-radio hybrids let loose.
• AM/FM broadcasters get serious about digital.
• Systems still king of home-audio hill.
• Custom-installed multi-room-audio systems unstoppable.

If the audio industry promoted itself with a national ad campaign, it might adapt the “Can you hear me now?” slogan used by of one of the country’s biggest cellular carriers. The new tagline would be, “Can you hear your music anywhere, anytime?”

Consumers have expressed a clear preference for buying products that let them enjoy music where they want and when they want, thanks to such new technologies as compressed digital music files (often called MP3 files) and new music-delivery vehicles, including MP3-type headphone stereos, MP3-playing cellphones, and headphone stereos that receive live satellite-radio broadcasts. As a result, in an unprecedented shift, U.S. factory-level sales of portable audio products exceeded sales of home audio equipment in 2005 for the first time in history. Also for the first time, portable audio products outsold combined sales of home and aftermarket car audio.

It was a record-breaking year for the audio industry in 2005 – if your company was well-positioned in portable audio.

Factory-level home audio sales suffered an unprecedented 16 percent decline to $2.68 billion in 2005, but because of portable audio’s surge, combined home and portable audio sales grew 40 percent to an historic high of $7.68 billion. It was the second consecutive year for combined portable/home growth following three consecutive years of decline.

Surging portable sales also drove up the volume of the greater audio industry, which includes aftermarket car stereo products, by 29 percent to a record $10.2 billion in 2005. Sales easily exceeded their previous peak of $8.59 billion in 2000.

CEA’s forecast for combined 2006 home/portable sales is positive, again because rising portable sales will outweigh still another year of declining home audio sales.

Compressed music is the driving force behind portable audio’s newfound market dominance. Hundreds and thousands of songs in any number of compressed-music formats – from MP3 to Windows Media Audio (WMA) and Advanced Audio Coding (AAC) – can be stored on a home PC’s hard disk drive (HDD). From there, consumers can select songs for playback by song title, artist or genre and listen through their PC speakers. Or they can stream the music through a home network for playback anywhere in the house. Consumers also can transfer the music from their PCs to headphone MP3 stereos that store thousands of songs for instant playback on the go. Music can be transferred to new MP3 boomboxes or MP3 car stereo systems.

 

New Audio Sources

Meanwhile, an explosion of new music sources is rocking the “old” audio industry and competing with established physical-media (such as CDs) and with analog broadcast-radio stations. Digital satellite and Internet radio are flourishing. Authorized music-download sites are proliferating on the Web. Terrestrial radio stations are converting to digital and simulcasting multiple digital programs simultaneously to deliver more variety to consumers.

On top of that, cellular carriers in 2005 began to stream music channels over their broadband-speed wireless networks to subscribers’ cellular phones, some of which also began that year to download music over the cellular airwaves into flash memory for on-demand, on-the-go playback. In 2006, at least three cellular carriers will offer over-the-air music downloads.

Eventually, according to some pundits, music CDs – or any form of music-bearing physical media for that matter -- will go the way of Edison’s wax cylinder. With so much content available to consumers anywhere, anytime, is there a future selling packaged media or for the products that play them?

Some visionaries foresee the day when packaged media are replaced by banks of interactive music servers operated by media companies. Consumers will stream individual songs from these servers through Internet-connected home stereo systems. Car stereo systems and headphone stereos will access the songs through high-speed wireless connections, either through cellular networks or through wireless networks based on such new technologies as mobile WiMAX (worldwide interoperability for microwave access).