iTunes Store losing its shine?

Here is another article about this at Bloomberg.com (http://www.bloomberg.com/apps/news?pid=20601087&sid=aoZMUef6e_4k&refer=home):

Apple ITunes Sales Slid in First Half, Forrester Says (Update4)
By Dina Bass

Dec. 12 (Bloomberg) -- Apple Computer Inc.'s iTunes music store suffered a 65 percent slump in sales during the first six months of the year, reversing almost two years of gains, according to a Forrester Research Inc. report.

The number of iTunes transactions declined 58 percent between January and June of this year, while transaction size fell 17 percent, the Cambridge, Massachusetts-based market- research firm said today. ITunes spokesman Tom Neumayr said the report is ``simply incorrect.''

``ITunes won't save the music business, or Apple,'' analyst Josh Bernoff wrote in the report.

Forrester, which based its findings on analysis of 2,791 U.S. iTunes debit and credit purchases, said it is too soon to tell whether the decline is seasonal or if demand for digital music is falling. Apple got $452 million in sales last quarter from music sold through iTunes as well as accessories for its market-dominating iPod device, the company reported in October.

Shares of Cupertino, California-based Apple fell $2.61, or 2.9 percent, to $86.14 as of 4 p.m. New York time in Nasdaq Stock Market composite trading. Before today, the stock had gained 20 percent this year.

No Recovery

In 2005, iTunes sales dropped after Christmas before rising ``significantly' in May of that year. That recovery didn't materialize this year, Forrester said.

Steve Lidberg, an analyst at Pacific Crest Securities, said in a note today he doesn't see a slowdown in digital music sales. Lidberg, who's based in Portland, Oregon, and rates Apple ``outperform,'' cited other data from researcher SoundScan that show weekly digital album sales have more than doubled to date.

The Forrester report also found that most music stored on iPods isn't purchased from iTunes. Apple sells about 20 iTunes songs for each iPod purchased, even though the devices can store hundreds or thousands of songs.

Many iTunes buyers purchase a few songs at a time with the median size of transactions at $2.97, the report found. One- third of all purchases cost $1.08 or less.

The iTunes store had a profit in the quarter ended Sept. 30, according to Apple. ``Our view continues to be that selling music and TV shows and now movies helps us to sell iPods and accessories,'' Apple Chief Financial Officer Peter Oppenheimer told analysts on an Oct. 19 conference call.

Apple started iTunes in April 2003 to help broaden the iPod's appeal. The iTunes store offers more than 3.5 million songs, 250 TV shows, 9,000 music videos and 100 movies. Apple has sold more than 1.5 billion songs through the site and said it sells more than 1 million videos a week.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net .

Last Updated: December 12, 2006 17:24 EST

Note tat it's not just Apple. The numbers from the above article are from the first half of 2006, should be interesting to see how things pan out for the second half.

CDs, Albums, Tapes?

They need to liven things up by offering lossless tracks for $1.29.

What they need to do is up the bitrate, keep the songs at 0.99 with a special price for entire albums, get rid of DRM (not gonna happen if the RIAA has anything to say about it) and MAYBE sales will recover... provided this is not a seasonal slup, but a new consumer downward trend. IMHO (and I could be wrong) is that the introduction of the 5G brought in influx of new ipod customers. iTunes sales were high because people needed a way to fill their new ipods. Downloading from itunes was trendy and easy, and not especially expensive, so I, much like others i assume, bought some songs just to see what it was like to download music in a new way. Now that so many people have iPods, they have either already bought the old songs that they never had on a DAP already, and only buy when new disks are released, or they have become more economical in obtaining their music, and you can interpret that in any way you wish.

To be fair, I think there's also a question of "market saturation"... Sooner or later, people have bought enough music to fill their iPods with what they're looking for. Plus, many people come to the iPod with a large CD collection already in-hand, and are simply ripping those.

To look at the numbers properly, one would have to compare them to CD sales over the same time period... Maybe music sales are down in general, and it's not just music downloads. Maybe there is simply less interest in the latest releases.

Also, the recent release of movie and TV Show sales on iTunes doesn't seem to factor into these numbers. It's entirely possible that people are taking their hard-earned money and putting more of it toward video content than music.

Personally, I've bought a lot of music on the iTunes Store over the past two years, but I've done so with my eyes open to what it is I'm doing... In my case, 128kbps is more than sufficient, so I don't care about the bit-rate, and the DRM is not truly all that restrictive for my needs. Since I'm only going to listen to the music on the iPod anyway (and through iTunes itself), the DRM is actually far less inconvenient than having to rip and store a physical CD.

In essence, I decided some time ago that I was willing to live with a little bit of DRM in exchange for the much greater convenience of the iTunes Store. As long as I can burn those tracks to a CD, the iTunes Store content is as future-proof as it needs to be for my purposes (and if I were paranoid, I could just burn EVERY song/album I purchase to an audio CD as soon as I download them and it would actually be less trouble then ripping from an original CD if you think about it).

The bottom line is that I don't think the iTunes Store itself is losing it's shine, nor that people are being scared away from it. The only people I really see avoiding the iTunes Store are those who either don't trust/understand the digital download concept, people who are rabidly anti-DRM, or those who are concerned about bit-rates.

Personally, I've bought a lot of music on the iTunes Store over the past two years, but I've done so with my eyes open to what it is I'm doing... In my case, 128kbps is more than sufficient, so I don't care about the bit-rate, and the DRM is not truly all that restrictive for my needs. Since I'm only going to listen to the music on the iPod anyway (and through iTunes itself), the DRM is actually far less inconvenient than having to rip and store a physical CD.

I tried that, ripping to 128 AAC burning a CD and ripping to a 128 MP3, I could hear the compression artifacts. But that's just me, if Apple opened up it's DRM to allow other players access to them I would probably buy some iTunes tracks.

TV intrested me for a while until I saw the price and quality. The quality is viewable, but the price is only about $20 cheaper then buying the DVDs, and at least when I looked I couldn't burn it to a DVD for archiving. Now if Apple and the companies offered some deal where I can pay for the reason and get the DVDs sent to me at the end of the season (say for $70, $50 for the DVD set, and the season at a discounted $20 rate) I would gladly jump on it, as I don't have cable, but there are shows that I would like to watch.

But I have to agree about saturation, not only is Apple seeing it but the music industry as a whole. Personally I think a lot of the recent decline in sales probably comes from everyone buying any old music that they like, and a vast majority of the sales coming from newer releases which of course is going to be much smaller.

Their decision to force a 400 dollar buy rather than maybe get 200 from the store is pretty obvious in my opinion. Opening it would mean less iPod sales and I doubt the new iTunes sales they got from it would compensate for the loss.

That's going to be their loss because someone is going to eventually figure out the magic that makes the iPod's such hot potatos and since the only major DRM format out there other then AAC is WMA which has a much wider support base it's going to be bad news for Apple.

This is the same mistake they made with Mac OS, Apple is just as greedy as Microsoft, but they don't have the same market position to expliot that greed. IMO if they stay this course it's likely that they will loose.

While WMA does have a wider base, other players, including the Zune, support non DRM'd AAC.Non-DRM'ed AAC (or non-DRMed anything for that matter) doesn't really apply to these online stores. WMA doesn't have a wider base, since iPods have the lion's share of the portable market (and PCs can play either).

The problem is WMA is fragmented right now. MS has the Zune marketplace DRM which is NOT the same as the Fairplay used by other music stores (Napster, Wal-Mart etc) that won't play on the Zune (and vice-versa). That would be PlaysForSure, not Fairplay. Funny, the only ones I ever hear complaining about this are people who don't like the Zune, and who wouldn't be caught dead with any DRMed WMA to begin with. Still, it was a rather bizarre move on Microsoft's part, and virtually eliminates the possibility of a multiple-device owner paying for downloads.

If DRM is hurting iTunes' sales, that'd be a good thing in the long run. I doubt it is, but hey if Forrester wants to say that, all the better. Blanket licensing would never stand a chance in the US with its powerful labels (and lobbies), but eliminating DRM would benefit paying customers more than anyone.

Forrester says iTunes sales are NOT plummeting ( http://www.tuaw.com/2006/12/13/forrester-blog-responds-to-itunes-kerfluffle/)

The Register had an interesting write up on the report (http://www.theregister.co.uk/2006/12/13/itunes_sales_forrester_replies/).

The aftermath was far more interesting than the report itself. Yes, iTunes sales plummeted 65%, between a post-holiday period and mid-year, when sales typically are slow anyway (for many tech companies). That was really non-news...but any mention of Apple seems to get the press, bloggers, and a lot of other people worked up these days.

More on how this was apparently blown WAY out of proportion ( http://blogs.forrester.com/devicesmedia/2006/12/itunes_sales_ar.html) by The Register and Bloomberg...

I for one have not, did not, and will not ever purchase DRM music via iTunes or any other related site. Purchasing encoded, compromised, and manipulated music is simply not worth it.

Now excuse me while I look at my wall of CDs. ;)

Unfortunately, as far as the RIAA is concerned, I don't think it matters, and I don't think they really care...

If people are buying CDs instead of downloading from iTunes, it doesn't affect the RIAA's bottom line in any realistic way, so refusing to download DRM music and buying CDs instead is sending the wrong message (if it's even sending one at all). After all, it still proves that DRM works in their favour (you've still bought the music instead of getting a pirated copy from somewhere - they don't care what form you bought it in).

Unless a non-DRMed major label music service ever became legally available (unlikely), there's really no easy way to send the message that consumers prefer their music not be DRMed. At the moment, the most you can do if you're going to buy major-label music online is to at least but it from a service with very non-restrictive DRM such as iTunes. This at least sends a subtle message in the right direction. For instance, aside from subscription services not being worth my while, I am somewhat philosophically opposed to paying any amount of money to rent music. I also avoided most WMA-based DRM services prior to iTunes, since the restrictions were too severe (usually a maximum of 1-3 CD burns per track, for instance).

Of course, ultimately, buying from independent labels, and buying from places like eMusic makes the most sense as a form of anti-DRM protest. If you're completely opposed to the RIAA's insistence on DRM, the only way to legitimately protest is to refuse to buy music from any RIAA label, in any form. Otherwise, every RIAA-label track you buy is really just playing into their agenda.

(And let's not start any trite nonsense about downloading illegally as a form of protest either... That's also playing into their agenda in the other direction... You just end up making the case for why they need DRM).

When I said "lease", I was talking about the iTunes store. It really seems more like an open-ended lease rather than an actual purchase - not only does Apple still retain the right to set limits on how you can use your music, they retain the right to change those restrictions at any time, or to cancel your service altogether at their discretion...and you sign away the right to any legal recourse when you agree to the terms of service. That doesn't sound much like ownership to me.

If its the RIAA you're concerned about (but you still want their music), buying used CDs seems like the way to go. The RIAA gets nothing from used CD sales (of course the artist gets nothing either).

Of course if you want to show your support to the artist then go to thier shows. That's where the Artist actually makes money.Yeah, that's the going rumor. I've never heard of any artists saying whether its true or not.

As for me, refusing to purchase DRM music has nothing to do with the RIAA. What matters to me most is the quality of music I purchase. There is no quality higher than CD music. From that I can encode it to any type of format I want, including lossless music if I so desire. Purchases of music online is usually restricted to 128K or 192K encoded musoc.

I found a good alternative, which saves a whole lot of money, is this site:
http://www.yourmusic.com/enroll/enroll_200605_cdstacks.html
***Disclaimer: I have no financial interest in this company.***

All CDs in their inventory is only $5.99, which is not only a better format to purchase, but is less expensive also.

I just got an email regarding my yourmusic subscription. Prices are going up to $6.99 in January...

YourMusic.com is fantastic. I've been buying CDs from them for nearly two years. :D

Remember kids, CDs = lossless!