Digital Music Sales "Collapsing?"

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.]


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