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Analysis: last ditty for the iPod?

Digital music player market in trouble

A 'ditty' is a short and simple song, and Dell's DJ Ditty music player lived up to its name this week when the company announced that it's short life had come to an end. The Ditty's demise could also be a portent for the wider music player market, including the iPod, if mobile phone makers get their way.

The Ditty, the iPod and other music players made headlines on Wall Street this week, causing some major stock moves.

First, Singapore-listed shares in Creative surged as high as 27.3 percent on Thursday after rival Apple agreed to pay $100m (about £53m) to settle a long-running digital music player patent dispute with the company.

Despite the payout, Apple's stock rose 0.7 percent to $67.81 (£36) in Nasdaq trading on Thursday. In a research note that day, Standard & Poor's analyst Richard Stice said the end of the case eliminates uncertainty as well as related administrative costs for Apple. He retained his 'buy' rating on Apple shares and raised his price target to $83 (£44) per share from $75 (£40), adding that a number of catalysts could boost its shares over the next year.

However, in a more cryptic take on the MP3 market, the analyst did not change his view on Creative, reiterating a 'sell.'

"We remain concerned about the competitive landscape of the MP3 market and believe upcoming products by other players are likely to intensify this impact," wrote Stice.

The main difference between Apple and Creative is that Apple can rely on a number of products for a boost, while Creative's mainstay is digital music players, at least in the eyes of investors. But a large part of Apple's share price increases over the past few years have been attributed to the iPod, and the belief in a bright future for digital music and multimedia.

In fact, a number of analysts have voiced concerns over the iPod recently, in part as a response to Nokia's purchase of Loudeye earlier this month. The $60m (£32m) deal puts Nokia in a position to challenge iTunes with an online music service of its own. And the world's largest mobile phone maker may have already topped Apple in the sale of personal digital music devices, depending on how the devices are defined. Most market researchers don't count music phones in their tallies of the music player market.

Still, Nokia says it sold 15 million music-enabled mobile phones between April and the end of June, compared to 8.11 million iPods for Apple. The Finnish company's N-series handsets, such as the Nokia N91, put digital music functions in the hands of users via their mobile phone, the one device most people don't leave home without these days.

And that's where the main argument for the demise of stand-alone music players comes from. In their book, "Communities Dominate Brands," Tomi Ahonen and Alan Moore argue that the people will eschew iPods for music phones once handsets offer similar performance, because pocket space is limited.

Dell's withdrawal of the DJ Ditty may be a sign that the decline has already started for digital music players. It's too early to tell which way the battle will turn, but analysts say the music player market will clearly lose some more share to music phones.

In the end, consumers will decide the outcome based on their pockets - the money in them and the amount of space they have for digital devices.


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