Sales of Apple iPods and MP3 players from other manufacturers fell by almost $170 million or 22 percent this year compared with 2011, research company Mintel reported, predicting sales will drop to half by 2017.
When Apple launched its iPod in 2001, users were drawn to its small size and ability to hold 1,000 songs in compressed digital files.
Within a year a new version of the iPod could hold 4,000 songs, and other manufacturers jumped on the MP3 bandwagon.
But MP3 player sales have been hit by rising popularity of smartphones, which offer similar music capabilities but also allow users to make telephone calls and connect to the Internet.
The drop in MP3 sales is "unlikely to reverse," Samuel Gee, a technology analyst at Mintel, said.
"It is impossible to talk about the current PMP [Portable Media Player] market without extensive reference to smartphones. The devices have directly contributed to the sharp decline in the value of PMP sales," Gee told The Daily Telegraph.