Is iTunes Over?

You mean, has it peaked and are we all eventually going to stop buying music online, if current trends continue? Maybe.

Despite the release of a study by Josh Bernoff of Forrester Research which suggests that the number of purchases per iPod sold of songs from Apple's iTunes Store (for it's no longer only music; there are films, TV episodes and music videos there too) are not accelerating, there are some indicators that there's still room at the top for digital music.

After analysing thousands of credit and debit card transactions of 4,000 people (a statistically valid sample) over 27 months, Bernoff concluded that people do not, over time, accelerate their purchase of online music. Instead, the number of songs sold per iPod (which might be a good approximation - although you don't need an iPod to buy from the iTunes Store) has held steady, averaging about 20 per player.

"The iPod is not necessarily a machine for generating revenue for the music industry," Bernoff noted in his report. "If iPod owners continued to purchase music tracks throughout the lifetime of their ownership, one would expect to see iTunes sales growing at a faster rate than iPods," he concluded.

The problem with his negative conclusion is that accelerating growth in downloads does seem to be what's happening. Says who? Says Michael Constantinos, a graduate at Johns Hopkins university, who has graphed the growth of music downloads from the iTunes Store using publicly-available data from Apple. It shows a remarkable exponential trend (see http://cmichae.acm.jhu.edu). His estimates, made in February, suggest that Apple will pass the 2bn songs mark some time next February, and that the announcement of 1.5bn downloads, made in September, was "pretty much on schedule".

But Bernoff says sales from the store have slowed since January. Can both be right? Perhaps. January is traditionally a time when downloads from the store leap, because everyone is taking advantage of the iTunes gift vouchers that they got for Christmas. Thus downloads (from all music sites) first exceeded physical singles sales in the last week of 2004 - the end of the first year that the iTunes Music Store (as it was) was open in the UK. Expect more of the same this year; for 2006 also saw the first song to reach No.1 purely through digital downloads (Gnarls Barkley's Crazy).

But Bernoff's analysis couldn't spot voucher purchases, which bump up the January downloads volume. That makes the rest of the year look quieter, followed by a leap at the end as more people get broadband and vouchers, and download songs. Recorded music is a seasonal business, as the rash of TV adverts for dire "Best Of" CDs indicates.

No, the iTunes Store isn't going away, and nor are its customers. But Bernoff's research does indicate consumer reluctance to commit to downloads. Perhaps that's because one can often buy the physical CD for the same, or even less, on Amazon than the iTunes Store. In which case the problem is simply one of price. But that's not a problem for Apple - it's one for the record labels. Will they ease their pricing to encourage us online? The signs sure ain't encouraging.

http://technology.guardian.co.uk/weekly/story/0,,1971024,00.html