Filed under: Analysis / Opinion, iTS, Retail
On declining iTunes Store sales
The Register rang the town bell this week, pouncing on a report from Forrester Research which declared that iTunes Store sales are on the decline. Forrester analyzed 27 months of credit card transactions to conclude that revenue has fallen 65 percent since January 2006, and the size of the average transaction has dropped 17 percent. These numbers, however, don't take into account transactions like gift cards and gifted music, and I have a sneaking suspicion they might also have omitted other popular services like PayPal, which can be tied directly to a customer's banking account, bypassing credit cards altogether.Apple is notoriously tight-lipped about the performance of their 800 lb gorilla iTS, but MacNN notes that Apple reported 'above-break-even' profits for the store during last September's earnings conference call. Considering the iTS has long been known as a paper-thin profit loss-leader to sell iPods, as well as the possibility that the neglected portions of iTS transactions could shift Forrester's findings, I'm a bit skeptical of these reports.
Of course, The Macalope asks 'who cares?' to all this worry of how the iTS is doing, but Geoff Duncan at Digital Trends reminds us of some interesting potential shifts in the digital distribution model that could depend directly on how well present offerings fair. Microsoft opened a Pandora's box by agreeing to pay the labels $1 for each Zune sold, and there are rumors that the jackass labels might be using this to pressure Apple into a similar deal. On an even broader scale though, Geoff also mentions something called 'blanket licensing' where said jackass labels could apply a tax to broadband subscriptions, allowing users to continue to freely download content over any network or service they use.
We will undoubtedly receive an updated performance report on the iTunes Store from Stevie at next month's Macworld. If anything, Forrester's report and the resulting discussion might signify a new wave of interestingness in the sea of DRM and digital distribution. Stay tuned.
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Reader Comments (Page 1 of 1)
matthew said 10:56AM on 12-13-2006
The report also said that the other music stores have been experiencing the same slump, so I doubt this is just because people are using Paypal or gift cards. It brings up a good point: maybe people are starting to realize that DRM sucks.
Also, what the hell is a "paper-thin profit loss-leader?" :p
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Dave said 11:01AM on 12-13-2006
Better yet, lets talk about the online media as a whole pouncing on information that is, at best, speculative...
Hi, my name is Dave, I claim that Apple only sold 4 computers last quarter, could this be the end of the fruit wave? Begin speculation, bashing, and claims of "you heard it here first" and "x.com exclusive:"
Seriously, my RSS reader had nothing but "iTunes sales dropping!!!!" from literally dozens of sites that don't know jack about what they are doing (many of which are sourced here from time to time).
This is how it works... company x wants to buy up some apple stock, they see the price is too high so they do something about it... put out that there is a problem, get together some data (and mine it to make it look right - as in ONLY looking at CC and Debit card purchases) to back up their claim and release it. The result, the stock price dips, they buy in and then the stock price recovers when the company announces that it was bogus. This happens all the time, it's wrong, and the online media perpetuates the situation by speculating even more on things they don't understand.
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Trevor said 11:33AM on 12-13-2006
RE:
Also, what the hell is a "paper-thin profit loss-leader?" :p
iTMS was always a vehicle to sell the iPod experience.
With the addition of Movies (Cars sold like 5 million copies ) and all the TV shows, etc., etc. I find it hard to believe that the profits are plummeting?
I personally slowed down as I've pretty much got all the songs I wanted to get on my iPod but still buy the odd album or song in a month ... so can see why some people have slowed down ... but for all the others recently purchasing an iPOD, and for sure after christmas, there's got to be a peak????
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Ashley said 11:50AM on 12-13-2006
part of the reason - the store isn't working! it wouldn't accept any of my credit cards last night because the security code was "wrong." it wasn't!
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GadgetGav said 11:54AM on 12-13-2006
It's not true. It's rampant mis-reporting by The Register which was then picked up and repeated ad nausiam by other outlets who hadn't read the report themselves.
Check the author's blog if you don't believe me...
http://forrester.typepad.com/devicesmedia/
And here's Forrester's own chart of ongoing sales of iTunes and iPods. Don't see any 65% drop here...
http://blogs.forrester.com/.shared/image.html?/photos/uncategorized/itunes_and_ipods_1.jpg
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Bob S. said 11:56AM on 12-13-2006
"Geoff also mentions something called 'blanket licensing' where said jackass labels could apply a tax to broadband subscriptions [...]"
"Tax" is a popular word with corporations that want money because it makes consumers feel something's mandatory. But only governments can tax, and legislation has to be passed.
If the RIAA is making deals with broadband ISPs, it's for fees, not taxes. And strictly speaking, there has to be a mechanism by which consumers can opt out of paying the fee; despite the RIAA's fervent, sweaty nightmares, not everyone downloads music.
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narco said 12:21PM on 12-13-2006
Maybe after that guy got divorced from his wife for purchasing $40,000 in iTunes songs in one month, he gave it up cold turkey and now the iTS is showing a loss.
I don't quite understand why credit card companies would review online music stores in the first place. Obviously they're trying to find something bad if this is the case.
Either way, I don't really trust it. I also don't think Paypal charges and Gift Cards make up "65% losses." I'll believe Steve with his numbers of sneaky credit card companies any day.
Fishes,
narco.
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Tom said 4:00PM on 12-13-2006
Why not December to December? January's sales figures would have been grossly inflated because of the millions of people buying songs for their brand-new Christmas iPods.
I'd think that *every* month would be a decline from January's sales figures -- any growth over a January number is real growth indeed.
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Dave said 2:17PM on 12-13-2006
Oh look, after reading my comment (#2), look at this that came up in my RSS reader a few minutes ago:
http://www.macnn.com/articles/06/12/13/itunes.sales.growth/
Headline - iTunes Sales Show Strong Growth Trend
Wouldn't you know, the stock dipped, and now it's recovering, just like I figured it would. It happens all the time and online media outlets help it along because they are too blind and inexperienced to see when they are getting played.
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Carl said 4:16PM on 12-13-2006
As the author of one of the rebuttals to the Forrester article, I have to agree with most of the comments here. And you can compare Josh's outlook with mine graphically at
http://www.blackfriarsinc.com/blog/2006/12/looking-at-forresters-side-of-itunes.html
Comment #9 is particularly important, in my opinion. The bigger iTunes gets, the more it looks like a regular retailer, and therefore you have to look at complete years, not seven month segments. Measuring without the Christmas peak just isn't representative of the actual business being done by Apple.
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Will said 11:31PM on 12-13-2006
Well I for one stopped buying from ITMS when it stopped accepting purchases from iTunes v5 (for JHymn). I'm just not gonna pay to put up with DRM on my files. If I can remove the DRM, then yes, I really like buying bunches of individual tracks that I like. That's quite nice, and far more convenient than buying whole CDs. But if there's no way to remove the DRM .. then I'm just not gonna mess with it. It's CDs, or other means, at that point.. Sorry Apple. *shrug* Your DRM is losing you money from me. :\
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