September 23, 1999 6:50 AM PDT

MP3 player market heats up with new Rio

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Diamond Multimedia has started shipping its latest portable digital music player, but the company's grip on the market may be loosening.

One significant challenge could come from consumer electronics giant Sony. The company today will announce a new Walkman personal stereo that will be capable of downloading music from the Internet.

Diamond said yesterday it has begun shipping the Rio 500, its latest follow-up to the popular Rio portable MP3 player. When first introduced last October, the Rio was the first device widely available to play music files saved in the MP3 format.

At the time, MP3 was just beginning to gain popularity among college students and other early adopters who were attracted by the legions of pirated songs available on the Internet for free download.

As MP3's popularity grew, so did MP3: Sound and fury the controversy surrounding online music. Recording industry trade group the Recording Industry Association of America hit Diamond with a lawsuit, alleging that the Rio infringed upon intellectual property rights from record labels and individual artists. The suit was dismissed, and the groups have since started working to create filtering technology which will cut down on the amount of illegal music available online.

Since then, many big-name artists such as Alanis Morissette and David Bowie have embraced downloadable tunes.

With more portable players coming from major consumer electronics companies and music download technology alternatives in the works, the market is up for grabs. And the market is promising to be big: Worldwide shipments of portable music devices are expected to top 155 million in 2000, according to market research firm Dataquest.

Diamond's latest, the Rio 500, features 64MB of memory, which can be expanded to 96MB. That translates to up to two hours of music, the company says. The $269 device also connects to the PC via the USB port, which is a simpler and faster connection.

Since the release of the first Rio, the digital music market has drastically expanded, gaining the attention of industry giants such as Microsoft, Sony, RealNetworks, Philips, and Toshiba. Recently, major PC makers have jumped on the bandwagon, pushing MP3 players with their fancier and more expensive computers. Dell, for instance, announced yesterday that it would bundle Diamond's Rio with its Dimension PCs.

But with that popularity has come concern by some over how to protect artists and record labels from the spread of illegal music on the Web. One possibility, the Secure Digital Music Initiative, is currently being offered as a compromise between content providers and digital device manufacturers, who are skittish about the effect that filtering out illegal content might have on initial hardware sales.

Diamond declined to specify how many units have shipped to date, but many of the company's competitors, like Creative Labs, have only recently started shipping their devices. A more accurate view of the market will not be available until holiday sales are totaled, analysts say.

The Rio 500 does not offer all the bells and whistles of some devices which have hit the market since its release. Creative's Nomad, for instance, offers add-on adapters for car stereos and FM stereo capability.

A company called Pine Technology soon will introduce a portable player that reads MP3 files stored on CD-ROMs, which is a boon to those who "burn" rewritable CDs with digital music. In addition, many handheld computers makers, including start-up Handspring, are adding MP3 capability to their devices.

The new Rio sports an updated look, including a back-lit LCD display, and will be available in silver as well as translucent blue and teal models. The Rio 500 ships with Diamond's Audio Manager software, which helps users download and play music and design play-lists.

"Consumers have told us they want to manage and store more music on their MP3 player," said Mike Reed, director of product marketing for Diamond. "We've delivered that and more in our second-generation player."

 

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