• by Lynn Russo Whylly , June 1, 2007

Advertisers need to figure out how to reach the audience

With more and more music available via digital downloads, it’s no surprise that consumers are embracing MP3 players. At last count, U.S. residents were toting around 37.7 million audio MP3 devices — and that number is expected to surge to 73.3 million by 2011, according to JupiterResearch.

All those earbud-wearers should make for an attractive audience to marketers. But will advertisers be able to tap into that group? So far, brands have yet to figure out how to reach those users with relevant messages that don’t make the recipient want to immediately tune out.

Michael Gartenberg, vice president and research director at JupiterResearch, says that might soon change. “There’s definitely going to be some opportunity for advertising going forward,” says Gartenberg, who served as one of the lead analysts on the report, “U.S. Portable Media Players Forecast, 2006 to 2011.” “People are still trying to figure out those models, so look for lots of experimentation in this area.”

The last three years have seen a meteoric rise in MP3 use. Apple, for instance, shipped 10.6 million iPods in the first three months of this year, marking a 24 percent growth over the same time period in 2006. iTunes revenue grew too: $653 million for the first three months of the year, up from $485 million for the same time in 2006. The number of iTunes transactions ballooned from April 2004 to January 2006, from 2-plus transactions per 1,000 households to nearly 17, according to the Forrester Research report “Few iPod Owners Are Big iTunes Buyers.”

Marketers also are watching closely to see whether other, newer all-in-one devices — such as Apple’s upcoming iPhone — will squeeze out portable music players.

JupiterResearch, for one, expects that those players without telephone service will continue to be the device of choice for music playback — though the research company reports that about 19 percent of portable music player owners have integrated devices, such as cell phone/music player combinations.

By 2011, Jupiter forecasts that the installed base of MP3-capable phones will approach that of dedicated music players, but the MP3 feature on cell phones will not be as widely used.

Apple’s upcoming iPhone is expected to raise the standards of media-enabled phones and will drive adoption of the category. Handset manufacturers, on the other hand, must improve the music playback functionality on mobile phones in order to effectively compete, Jupiter feels. Also, high price points of good quality music phones will slow down their adoption.

Meanwhile, multi-function media players will continue to diversify. The new phone-MP3 combos will offer marketers the opportunity to reach people not just with podcasts, but with all forms of mobile ads. But even stand-alone MP3s offer marketers several online paths to consumers, says Doug Powell, chief integrator of boutique agency Maiden Lane.

For iPod owners, one crucial touchpoint is the iTunes store. But there are the other sites where people go for downloadable content. eMarketer recently forecast that the U.S. market for podcast advertising will grow to $400 million by 2011, up from $80 million last year.

Gartenberg predicts that growth of ads aimed at MP3 listeners will come when marketers “start evangelizing the concept of free devices with subscription services.”

Powell forecasts that the most popular models for advertising will eventually be search and sponsored content. Gartenberg adds that the inevitable convergence between MP3s, the Web and cell phones might not bode as well for marketers as one would expect. “The things that make for a good experience with one device do not necessarily make for a good experience with another,” he says.