SanDisk, defying downloads, debuts CD replacement
NEW YORK, Sept 22
NEW YORK, Sept 22 (Reuters) - In an age when consumers are buying more and more songs by downloading to their portable music player, SanDisk is betting that people still want to actually grasp their tunes in the palms of their hands.
That wager might be a long-shot.
SanDisk Corp (SNDK.O), the world's No. 1 supplier of flash memory-based data storage cards, on Monday unveiled a new music format called "slotMusic" -- a memory card smaller than a postage stamp, preloaded with MP3-format music.
The format has been embraced by the four major music companies -- EMI Music, Sony BMG (6758.T), Universal Music Group (VIV.PA) and Warner Music Group WMG.N -- and new tunes from popular artists are expected to be on store shelves in this format in time for the holiday shopping season.
With the blessing of the music companies, as well as leading retailers Best Buy (BBY.N) and Wal-Mart (WMT.N), "slotMusic" appears to be the best-backed new music format since the compact disc debuted in 1982.
SanDisk's format will take advantage of the fact that new mobile phones are built to play music, and millions of phones -- as well as many MP3 players and notebook computers -- have a slot into which a card can be inserted. Missing from the group, however, are Apple Inc's (AAPL.O) products, including the more than 150 million iPods and iPhones that have been sold.
"Most non-iPod MP3 players already have card slots in them ... and music-capable phones with card slots are selling at a rate of 750 million a year," said Daniel Schreiber, a senior vice president at SanDisk.
The introduction comes as more and more consumers, particularly younger shoppers, buy songs online, downloading them directly from Web stores like Apple's iTunes or Amazon.com. In fact, Apple boasts that since 2003, the iTunes Store has sold more than 4 billion songs.
Meanwhile, the sparsely trafficked CD aisles in retailers like Best Buy have shrunk to make way for more popular items like cameras, mobile phones and music players. What is more, the Internet has made it simple for many to share and exchange music via online services -- some illegal -- for free.
SERVING THE NON-IPOD CROWD?
SanDisk, which counts itself as the No. 2 maker of portable digital music players, says putting songs free of digital-rights-management restrictions on the 1.1 gigabyte card in a high-fidelity rate of up to 320 kilobytes-per-second (kbps) makes the music instantly available to users without high-speed Internet connection or a PC.
It also eases access to those who can get on the Internet but do not have a credit card to purchase music online.
The conundrum for SanDisk is that the very audience it would most love to endorse this format -- young people who use their mobile phones and portable computers as social and educational lifelines -- are already comfortable buying songs online, eschewing physical CDs, according to Danielle Levitas, an analyst at research firm IDC.
Also, the growing trend among that demographic is to purchase only the songs they like, one at a time, for about $1 -- shunning albums.
Indeed, it is older music lovers who may still prize the tactile experience of owning physical music. But they are not likely to be the catalyst for "slotMusic's" growth.
"Internet-based distribution is not for everyone. But the (demographic) segment that values physical media the most isn't the one that spends the most on music," Levitas said. "I get why they (SanDisk) are doing this, but I just don't know that it adds up into a compelling business."
Levitas suggests that at best "slotMusic" may help slow slumping sales of physical music media.
During the first six months of 2008, unit sales of CDs in the United States plunged 16.3 percent, according to Billboard magazine. Total albums sold declined only 11 percent from the same period a year ago, to 204.6 million units, helped by a 34.4 percent jump in digital albums. At 31.6 million units sold, they accounted for 15.4 percent of album sales.
SanDisk's Schreiber insists that there is still plenty of opportunity in the sales of physical music, adding that the predicted disappearance of the CD echoes the false notion that networked computers would someday create a "paperless office."
"The CD is dying, but rumors of its death are perhaps somewhat premature," he said. "People are spending more money on CDs than any other format. There are hundreds of millions of music CDs shipping every year."
Details of slotMusic albums' availability and pricing will be announced in coming weeks. A similar launch is expected in Europe, but not until next year, Schreiber says. (Editing by Gary Hill)
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