Tuesday, December 13,2005 @ 8:20am
Is Apple holding back the music business?
Apple may be holding back the music business, according to a new BusinessWeek column that notes iPod sales--nearly 10 million or so expected this holiday season--have not driven sales of digital music. Apple's closed iPod/iTunes system may preventing the market from growing as fast it could because it limits buying choices--at least according to its competitors such as Napster and RealNetworks. Citing figures from Nielsen SoundScan, the report says that average weekly download sales as of Nov. 27 fell 0.44% vs. the third quarter. "As has been true since the start, iPod owners mostly fill up their players from their own CD collections or swipe tunes from file-sharing sites. Now legal downloads may be losing their luster. ...Says independent media analyst Richard Greenfield: 'We're not seeing the kind of dramatic growth we should given the surge in sales of iPods and other MP3 players.'"
However, the report notes that sales of iTunes gift cards, which BusinessWeek sources say are "off the charts" may be redeemed later this holiday season, thus pushing digital download numbers higher.
Noting that subscription services have begun to take off, BusinessWeek reports that online music competitor Napster is clamoring to offer its subscription music services to iPod users: "I have half a million subscribers who would love to use an iPod with my service," says Napster's Gorog. Industry watchers, however, say that Apple has best chance to popularize subscriptions, which are drawing digitally savvy music fans, but are a tough sell to mainstream consumers,
For now, Apple has no reason to change its iTunes pricing or offer alternative pricing models, because Apple's is making healthy margins on its iPods, which helps the company subsidize its iTunes music business.
"So will Jobs change his tune? Not unless he has to. Apple can barely keep up with demand for iPods, which reap as much as 25% gross margins, vs. minimal profits for each iTunes track. So right now there's no reason for the company to alter the way it sells music or make its player compatible with other services. But if download sales don't bounce back, music companies could start looking beyond Cupertino for answers."