Paul Budnitz is bemused by the falling fortunes of online retailers. For the 32-year-old president and founder of the minidisc e-tailer Minidisco in Berkeley, California, business has never been better.
Introduced by Sony almost eight years ago, the minidisc is about half the size of a compact disc and allows music lovers to record music and play it with near-CD-quality sound. With sales growing at a healthy 27 percent a month, Minidisco will have sales of $11 million in 2000, up 318 percent from sales of $3.45 million in 1999. With net profits of around 10 percent, the three-year-old venture is a rare species: an e-tailer with actual profits. And this with a product that seemed to be going nowhere just two years ago.
Mr. Budnitz has eschewed expensive advertising, hired part-timers, and focused on customer service. Of course, he has been helped by the growing popularity of the minidisc format among music lovers who download music from the Internet. Cheaper than memory cards and easy to carry around, the minidisc is the unlikely beneficiary of the MP3 madness sweeping the nation. For the first seven years of its existence, it failed to flourish in the United States, because the equipment was too expensive; a typical recorder/player cost more than $500.
In 1999, tumbling prices boosted minidisc device sales, and this year they have really taken off. A survey by the NPD Group, a market research firm in Port Washington, New York, shows that year-to-date U.S. sales of minidisc players are up 37 percent, grabbing 40.9 percent of the market, second only to CD recorders by a narrow margin. If this growth continues, the total number of minidisc devices will reach 22.9 million by year end. Sales in Europe and Japan have been very strong, and the United States is catching up fast.
What’s really driving sales is the availability of devices that allow consumers to transfer MP3 files from their PCs to minidisc recorders. For example, the Netlink adapter sold by San Mateo’s Voquette is bundled with Sharp Electronics ‘ minidisc recorder and allows the transfer not only of MP3 files, but also of other types of music files to minidiscs. Other companies, like Australia’s Xitel Multimedia , sell cheaper devices, like the MD-Port AN1, which can plug into a computer’s universal serial bus port and transfer music to any minidisc recorder.
These devices are selling briskly at Minidisco, according to Mr. Budnitz. “MP3 players are getting all the limelight,” he says, “even though they sell poorly compared to minidiscs.” A decent MP3 player can cost $250, and an additional 64-MB flash memory card costs around $140. That’s $400 for roughly two hours of music. Minidisc players cost around $225, and blank minidiscs can be had for $2.25 apiece. Result: Mr. Budnitz, a part-time filmmaker and video game writer, is cashing in on an old idea whose time has finally come.