By Richard Menta 12/13/06
We tend to rely on research reports when estimating the health of an industry, but do we assume too much about their accuracy? Statisticians will tell you that as long as the sample size is large enough a properly mined cross-section of whatever can be quite accurate. But what happens when reports significantly contradict each others?
Just the other day Forrester Research released some dismal news on sales of digital downloads on iTunes. In their ongoing analysis of over 2,700 US iTunes debit and credit transactions over a 27 month period (a pool that in theory is statistically large enough) Forrester found that sales of digital tracks plummeted 65% in 2006. Overall, the average iTunes shopper only makes about three transactions per year with an average purchase of under three dollars. The average iPod carries only 20 paid tracks.
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But wait, analyst Gene Munster of Piper Jaffray says that Forrester is all wrong. Munster says that his data, compiled from Apple company data, says that sales went up 78% for the year!
For the record Apple responded to the Forrester numbers by announcing "the conclusion that iTunes sales are slowing is simply incorrect." Apple's statement could be correct, but are not unbiased.
The more honest answer is that the paid download market is very young serving only a fraction of US households - about 10% presently have a digital portable player in the house. For now the best thing to do is throw out all of these research reports and then look to Apple's quarterly stock reports. Under the Sarbanes-Oxley law Apple, as a public traded company, has to clarify such matters to investors. Thanks to this conflict, come the next call stock-holders will request more detailed information from Apple to settle this matter. Apple will comply to preserve the value of its shares.
Then we can get a better idea of where this market is truly going. Just remember a down year doesn't mean prospects overall are not promising. It does mean that the record companies - the folks who agree to the price and terms of this stuff - will have to take another look at what they can do to stimulate sales. They have to answer to investors too and right now the street questions if digital media can offset declining CD sales.
One more note, Forrester's announcement that the average iPod only carries 20 paid downloads has appeared in the research of others. That's not very much if the average iPod has over 1,000 tracks on it. If that figure doesn't increase over the next few years it suggests that people only dabble in paid downloads. That has more dire implications as this market matures.
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