Is iTunes Singing Its Swan Song?

    December 12, 2006

A study conducted by Forrester Research shows that iPod owners are spending increasingly less at the iTunes store, indicating that Apple’s digital music download service perhaps has reached the peak of its growth. Do these figures signal an eminent decline for the iTunes music store?

Last week, I wrote about Digital Rights Management (DRM) and the negative publicity that the practice has wrought upon the iTunes download service. It seems now that the metrics are beginning to support the notion that DRM, at least in part, is actually driving people away from Apple’s music store.

I’m not one to say I told you so… err, wait a minute.

Who am I kidding, of course I’m one to say I told you so.

The following is an excerpt from the Forrester report of findings:

Forrester’s recent analysis of more than 2,700 US iTunes debit and credit card transactions reveals that 3% of online households made an iTunes purchase in the past year. Apple’s iTunes proves that $0.99 micropayments for digital music can lead to substantial revenue; buyers spent an average of $35 at iTunes over the past year. With half of all transactions costing $3 or less, though, transaction fees threaten to make iTunes unprofitable. Since the introduction of the iTunes Music Store, Apple has been steadily selling just 20 iTunes tracks for each iPod sold, suggesting that even at $0.99, most consumers still aren’t sold on the value of digital music.

Forrester research analyst Josh Bernoff notes, “iPods are not sitting around generating dozens and dozens of transactions every quarter, People buy a certain number of songs, and then they stop.”

Another blogger weighs in with this perspective:

Apprently fewer and fewer people are being sucked into buying the DRM crippled songs on iTunes for .99 cents a pop, but folks are still flocking to the iPods. The good folks at the Reg pin the blame for iTunes stumbling on Apple’s use of DRM in the music store. Andrew Orlowski goes so far as to say that we have entered the “final days” of DRM’d music.

There’s no denying that people love their iPods. Filling the portable devices with content, however, seems to find users looking more toward unprotected formats and pirated tracks, rather than dealing with the hassle of paying for content with little to no device portability.

Bernoff puts it this way, “There’s a problem here. CD sales have fallen 20 percent over five years. The message here is not that CD sales are coming back, the ability to obtain pirated music is now so widespread the DRM looks to consumers more like a problem than a benefit.”

How long has the handwriting been on the wall when it comes to DRM and iTunes?

“Maybe piracy is just too big in the end, maybe DRM won’t matter either way, maybe iTunes sales are collapsing. My gut says either way, the big money knows (knew) this today and yesterday,” comments Howard Lindzon.

Whether or not so-called “industry insiders” could have predicted such a trend can perhaps be called into question. What cannot be questioned, however, is the tremendous opportunity that figures like these present to competing services like eMusic, Rhapsody, and so forth.

If digital music aficionados are becoming disillusioned with iTunes, then other services need to step up to the plate and offer a viable alternative.

Nick Carr shares a similar viewpoint, putting the ball in the recording industry’s court:

“The upshot of the study is clear. Online sales of digital music continue to be relatively modest, and if music companies want to increase them they’ll probably need to look beyond Apple’s iTunes store, which may well be tapped out as a source of growth. I’d be surprised if we don’t see record companies make a concerted effort to open more online retailing channels in 2007, probably selling songs in unprotected MP3 format.”

People want easy access to their music, and once purchased, they want the ability to do anything they want with it. This is the nature of the portable media beast. If the choice is between DRM and piracy, you can bank on the fact that piracy is going to win that battle every day of the week (and twice on Sunday). And if other music services can offer a lower cost, DRM-free alternative, iTunes is in for some serious trouble.

My suggestion to Apple is simple: Do away with DRM before it’s too late.

Otherwise, tell the fat lady that she’s on in five.

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Joe is a staff writer for WebProNews. Visit WebProNews for the latest ebusiness news.