By Richard Menta 2/16/10
Apple is offering a $10,000 prize for the person who downloads the 10 billionth track on iTunes, but what is more interesting this week is what that milestone says about the state of the paid download market.
First of all, Apple owns this market about as thoroughly as anyone can. Rhapsody, which Real and MTV are presently attempting to spin off, offers the next largest competitior (according to research I did for Digital Music News over a year ago), but it is way behind iTunes in market share. As much as Amazon is touted as a big competitor to iTunes, the research shows that it's growth was much slower and market share much smaller than record execs were chiming. Despite its well known branding, Napster has held steady at about 3% market share for the past few years. Nothing since those series of reports appeared suggest that the share of the business in 2010 is more than modestly different. For all intents and purposes, iTunes IS the paid download market.
10 Billion sounds like a big number and it is, but figures need to be placed in perspective. iTunes opened in 2003, but taking a seven year average does not accurately reflect where iTunes is right now. The picture is much clearer if you look at last year's milestone of 6 billion tracks sold, which at $0.99 a track effectively comes to $6 billion. This means iTunes moved 4 billion tracks this past year alone. I hesitate to say for certain that means $4 billion dollars since iTunes hiked prices to $1.29, though Warner CEO Edgar Bronfman did confirm that the new price point has slowed sales. His comment suggest the $0.99 price point still makes up the bulk of sales. Yes, iTunes also offers a $0.69 price point, but songs set at that price point are nearly non-existent.
According to the RIAA total revenue from US music sales plunged to $6.3 billion dollars. In that light iTunes digital sales of $4 billion last year - sales that while not truly worldwide include several European and Asian countries - looms quite large. If we assume half of sales are US generated, then iTunes makes up about a third of total RIAA member revenues.
The love/hate relationship between iTunes and the major labels is well documented. The labels don't like anything that has such control over their industry, but these figures underscore the fact that iTunes has indeed rescued the record industry from even more precipitous revenue drops. The conflict between the two started in 2006 when some label execs tried to push Apple to raise prices to as much as $2.50 a track. Apple refused to raise fees, drawing a Steve Jobs rebuke of "greedy" to the labels. Bronfman's notes above confirm that Apple was right.
Now with the iPad coming out and Apple making a run to raise up the iPhone OS into a genuine Windows competitor it will be interesting to see how the new device will elevate Apple's role in digital music even further.