Digital Music Sales "Collapsing?"

December 12, 2006 By Geoff Duncan

U.K.'s The Register reports data from Forrester Research showing iTunes have declined significantly in 2006, with other studies finding flat or declining sales.

Apple maybe have moved almost 40 million iPod music players in the last quarter, but the market for digital music downloads may sputter out before it ever takes off.

According to the U.K.’s The Register, Apple’s iTunes Music Store has experienced a “collapse” in music sales revenue, according to credit card sales data analyzed by Forrester Research. Forrester reportedly analyzed 2,791 U.S. credit credit card transactions with the iTunes Store over a 27-month period, and while it found transactions for iTunes grew steadily for much of the study period, since January 2006 revenue has reportedly fallen by 65 percent, with the size of the average transaction declining by 17 percent.

Although the data doesn’t include purchases made via iTunes gift cards or “gifted” music, Forrester reportedly found iTunes buyers dip a finger into iTunes but mainly use it to supplement purchase of standard audio CDs, not to replace standard CDs. iTunes buyers, on average, made a 5. transactions, with the median household making just three purchases a year. (Median means half the households made fewer than 3 transactions, and half made more than three.) Similarly, the median transaction was for just under $3.

According to multiple sources, data from Nielsen Soundscan shows sales at non-iTunes music services have been flat or declining for three consecutive quarters.

If the revenue analysis for Apple’s market-leading iTunes Music Store is accurate, it will undoubtedly provide leverage to music labels to obliterate Apple’s $.99-per-song download price in favor of differential pricing and/or a royalty on every iPod device sold. The Register’s article also speculates about the possibility of blanket licensing, whereby, say, all broadband subscribers would be required to pay a mandatory license fee to music publishers in exchange for the right to share music freely without violating copyright law.

For its part, Apple characterizes Forrester’s analysis of iTunes sales as “simply incorrect;” however,the company does not release separate financial data detailing iTunes Music Store sales.

[Updated: 13-Dec-06 to include Apple response and number of transactions analyzed.]

Showing 4 comments

Tim Stevens at 4:18pm 14th December 2006 @matt: hahahaha

@stu: sounds like double taxation almost!

I just can't imagine music sales declining. If anything I'd think it would be going up as more of the general public discover and get comfortable finding and buying music online, and as more and more people buy portable media players.

People like to buy one or two songs from an album instead of buying the whole album, and buying online lets them do that easily.

I dont think people will go and replace their CD collections with all online music purchases for the following reasons:
1) People like to own something physical. With a CD you get the CD, case, liner (sp?) notes, etc. It feels like you actually got something for your money
2) People like to show off their collections
3) Having a CD is less worrisome. You dont have to worry about your computer blowing up and losing some vast library of music you purchased.
Peter at 11:41am 13th December 2006 Maybe 0.99 per song is a bit much.
Another industry pricing itself out of business.
Stu at 10:17am 13th December 2006 That's interesting. If digital music is used to supplement standard CD sales and not replace them, why should anyone need to pay a fee to music publishers for digital sales? If they're making money off of physical CD sales already, as well as getting royalties from online sales which supplement the physical sales, they really shouldn't be getting another revenue stream from player sales or broadband providers. Most people with players put their entire CD collection on their computer and transfer them to their device. Since they've already paid royalties to the music companies to for the physical CDs, why should they need to pay a royalty fee to be able to play them digitally? You don't need to pay labels when you purchase a CD player. Also, major labels shoudn't be receiving a cut from players if independant artists aren't also receiving a percentage. With how easy it is to produce and market independant music online I'd assume that a large percentage of sales are from independant artists and not from major labels. Also, with how easy it is to find new artists online, major labels don't have the same control over the market that they used to, which allows smaller artists to take a bigger chunk of total sales.
Matt at 4:20pm 12th December 2006 Maybe they are losing money because the Zune is doing so well...

Ok, probably not.