Fierce competition kills MP3-player inventor Rio

Westlake Village (CA) - Back in 1998 it seemed that Diamond Multimedia could do no wrong with their Rio line of MP3 players. The PMP300 was one of the first mass marketed players, so successful that it spawned an unsuccessful lawsuit by the Recording Industry Association of America (RIAA). Fortunes changed last week, when D&M Holdings, the current owner of Rio, announced that they will be exiting the small MP3 player market.

Rio has been a hot-potato, jumping around from owner to owner. Diamond Multimedia, known for their graphics cards, was the original owner. In 1998, S3 bought Diamond and as a result acquired Rio. S3 went bankrupt and changed their name, eventually selling Rio to D&M Holdings, who specializes in high-end MP3 players for the home.

About a month ago, D&M Holdings announced that they were selling the design and patents to Sigmatel, a company that manufacture IC processors for MP3 players. As part of the deal, D&M would retain rights to the technology, but would have to produce under the Sigmatel platform. On August 26, 2005, D & M Holdings threw in the towel and decided to exit the MP3 market completely.

An official from D&M holdings, says the sale of Rio was a two step process. They initially wanted to share the technology, but with MP3 players becoming a mass market item and margins dropping, D&M faced a major decision : Continue to invest or quit.

"The technology was a big investment and we didn’t want to shoulder it all. So we sold the rights to Sigmatel, yet still retained a grant-back license agreement. Then we made a decision to exit the business," said the spokesperson. The spokesperson also said that the Rio didn’t fit well into their product mix of high-end home audio systems.

Harry Wang, Senior Analyst for Parks Associates agrees that Rio couldn’t compete with the current competiton. "The iPod is definitely one reason [that Rio left]. Rio didn’t have the resources to manufacture and design new products," says Wang.

But did Rio’s trouble come from bad marketing or a bad product ? Wang seems to think that a single marketing misstep killed Rio. He says that their products were good and that they understood the market well, until the iPod took hold. "They were the inventors of MP3 players, but they just didn’t catch the right timing with harddrive players," says Wang.

For Sigmatel, the purchase of Rio appears to be a good fit. Sigmatel circuitry is found in most of the major flash MP3 players including Creative, Samsung and Oakley Thumps. Since Sigmatel had already been working with the engineers at Rio for some time, they knew exactly what was being purchased. Aaron De Lucia, Senior PR Manager for Sigmatel says, "We bought the design team and 15 patents. We wanted Rio’s expertise in the MP3s, since they basically invented the MP3 market."

Hector Marinez, a PR representative for Rio, says that customers who own Rio players will still get support and service. You will still see the players being sold as retailers go through their inventory. But don’t expect Rio to make a comeback : When asked if Rio will eventually be reanimated, Marinez said : "That’s it."