Innovation Series: Audio 2.0

You have to hand it to your ears. Not only do they hear everything, they're also the goal of every company looking to make waves in the audio sector.

Sure, your ears have gotten short shrift in the past. Their neighboring eyeballs were the metric of Internet success during the dot-com bubble. A few inches lower, the taste buds continue to dictate the success and failure of restaurant chains and grocery stores.

It's a new world. Let's hear it for eardrums!

The digital shot heard around the world
A generation ago, audio entertainment choices were few. We were limited by how many cassettes we could carry to use in our awkward Walkmans. We were tethered to terrestrial radio and its confining ad-saddled play lists. Even indulging in the simple pleasure of audiobooks consisted of working through several clunky tapes to get through a single novel.

Digital delivery and storage changed all that. You won't find many people constrained by the capacity of their iPods, save for, perhaps, Apple's (Nasdaq: AAPL  ) entry-level devices or the folks who load up their players with chunky video content. Now your entire music collection can fit in the palm of your hand.

Small players use lightweight flash memory, so it's no surprise to see niche flash maker SanDisk (Nasdaq: SNDK  ) as one of the leading players not named Apple in this space. 

Loading your players with fresh tunes used to be as simple as docking your player to your computer -- or reviving old vinyl and tapes with USB turntables and tape decks -- but even that approach is passe now. Thanks to the introduction of Wi-Fi functionality into some players, such as the iPod touch, music fans can now have singles delivered to their iPods, the way they would when they purchase a cell phone's ringtone.

Oh, and speaking of cell phones, good luck finding a wireless handset these days that doesn't offer some form of music file storage. Your favorite songs truly are portable, even if we look pretty goofy walking around with earbuds as we customize our own public experiences.

Music for a monthly ransom
Music subscription plans have also grown in popularity. If you need more control or portability than you can get from the countless Internet radio stations and music-discovery sites out there, including Pandora, Last.fm, and iLike, you can sign up with services such as RealNetworks' (Nasdaq: RNWK  ) Rhapsody America, which delivers unlimited streaming access to its millions-deep music catalog, as long as you remain a member.

The stakes are even higher in satellite radio, where XM (Nasdaq: XMSR  ) and Sirius (Nasdaq: SIRI  ) now combine for 17 million subscribers. XM and Sirius have burned through billions of dollars to get where they are today, but a pending merger may hold the key to eventual profitability.

The future of audio
So where do we go from here? Well, your ears are going to get even more attention in the future. Even a TiVo (Nasdaq: TIVO  ) digital video recorder can stream Internet radio stations and online podcasts. And despite its visual name, Apple TV lets you beam iTunes music selections and audio podcasts through your home entertainment system.

Sure, the convergence of audio and video in the living room was going to happen anyway. It's just a lot easier with the evolution of Wi-Fi-enabled homes that allow couch potatoes to sink into their potato chip bags and enjoy home theater with their eyes closed.

As for digital media, you can trust that the iPod will evolve just as surely as Steve Jobs steps up with a "one more thing" knockout blow at Macworld every year. The iPod and iPhone have added touchscreen functionality, but that's just the beginning. Systems will get even smaller with greater features.

The biggest advancements, though, will come from the way people customize their iPod experiences. Right now it's all about music. But you won't have to wait much longer before your iPod starts treating you to personalized news stories, your favorite teams' scores, your portfolio's stock quotes, local weather, route-specific traffic, travel deals pertinent to your interests, and even chat tidbits that your friends left overnight.

Customization will naturally lead to narrower music genres, too. If you think the major labels are smarting now after watching CD sales fall in recent years, it won't get any better when more bands carve out fewer fans apiece. Self-distribution -- now a novelty with bands such as Radiohead and Nine Inch Nails giving it a go -- will become far more common.

Don't believe me? Why do you think Amazon.com (Nasdaq: AMZN  ) is moving further into digital distribution? Whether it's selling MP3 tracks through its site or moving digitized audiobooks after recent acquisitions, the future is all about more aural choices, even if they serve thinner markets. 

My, what lucky ears you have. There is so much for them to hear. 


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