Gearmakers Cash In

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Big record labels may be weeping these days, but consumers' desire to rip and burn their favorite songs is ringing up sales for gearmakers and retailers.

Americans bought 635,000 digital-audio players last year, up from just a few thousand in 1999, according to the market-research firm NPDTechworld. Electronics retailers sold 10.4 million CD burners (half of them installed in PCs), a 50% increase over 2000. Computer makers increasingly market their machines as rip-and-burn ready. Come June, you won't even need a PC to do the job. A firm called QPS is launching the first portable CD burner, called Que! 007, that copies directly from a CD player.

For manufacturers of blank CDs, the rip-and-burn trend has proved a windfall. Americans stocked up on 1.4 billion blank CDs last year. Memorex, stuck with decaying sales of cassettes and VHS tapes, deftly moved into the market for CD-Rs and now owns the top share, with 30%. By the end of the year, Memorex says, it will be completely out of the tape business.

In the digital-audio-player market, today's gadgets are smaller and lighter than their predecessors of just six months ago. The latest high-capacity units, like Archos' 20-gigabyte Jukebox Recorder, hold 4,000 tunes. The challenge for gearmakers like SONICblue, whose RioRiot is the nation's top-selling player, is to fend off Sony, Panasonic and Samsung. As these giants muscle in and as component costs fall, price wars will pressure smaller firms. "It remains to be seen if a SONICblue can sustain its brand," says analyst Susan Kevorkian of tech-research firm IDC.

One strategy that's working for Bantam Interactive is to operate under the biggies' radar. Bantam struck gold with its BA 350 player, launched in October. Sales of the $200 unit reached 10,000 through the holidays, and the company says it sells about 8,500 players a month. Bantam doesn't advertise or sell through retailers. Consumers shop on Bantam's website, bantamusa.com. A skeleton crew does design and engineering in St. Louis, Mo. Flash-memory chips and circuit boards come from Taiwan and South Korea. The units are assembled and packaged in China and sent directly to customers.

If Bantam's players go platinum, it will be because the company listened closely to hard-core music users — college kids. On campuses across the nation, Bantam employs student "gadget gurus," who test models and get feedback from peers. When students requested more volume capacity, lighter weight and color faceplates, Bantam delivered. "A lot of tech companies try to force the market," says president Santosh Petel. "We provide what customers demand." That's an approach big record labels haven't tried in quite a while.