iTunes passes Amazon to become third largest U.S. music retailer

[AppleInsider]

Apple Inc.'s iTunes Store recently cruised by online retailer Amazon.com to become third largest music retailer in the United States, according to a new study from market research firm NPD Group.

For the first quarter of 2007, the digital download service snagged nearly 10 percent (9.8 percent ) of overall retail music sales, placing it ahead of both Amazon.com and Target, which captured 6.7 percent and 6.6 percent, respectively.

Apple trails only industry leader Wal-Mart with 15.8 percent and runner-up Best Buy with 13.8 percent. By comparison, Best Buy's online music store, which is restricted to digital tracks like iTunes, garnered only a 1.1 percent market share.

NPD attributed Apple's gains to stellar iPod sales during the past holiday shopping season.

Upon last check in November of 2005, Apple ranked seventh on the list of leading U.S. music retailers, having then passed Tower Records, Sam Goody and Borders to crack the Top-10 for the first time.

According to NPD, digital music downloads during the first quarter of the year accounted for only 13.8 percent of all music purchases. The remaining 86.2 percent were sold in physical disc format.

[ View this article at AppleInsider.com ]

[filburt]

I think DRM-free tracks will help Apple take larger slice at faster rate (assuming more studios join the party).

With video rental and 720p video with subtitle and 5.1-channel audio, Apple should have no problem taking large slice out of DVD market as well.

[jonessodarally]

I'd be curious to see how many of the purchases are done using gift cards. I know I've noticed lately that there are a lot more people who casually throw out comments like "Oh, I've been meaning to buy that CD.. I got an iTunes gift card and I've been waiting to find something to use it on."

It's an easy gift to give, and it's hard to find someone who wouldn't want one.

[Dazabrit]

I think Apple are going to make a bigger effort with the physical retail. I remember two reports accompanied by patent filings from a 'long' time ago about iPod content being bundled on Blu-Ray discs and cheap 'throw-away' branded iPods. This will be a pretty big step to kicking some real ass accompanied by the 720p/5.1 video subscriptions and DRM-Free music as mentioned above.

[mark2005]

Originally Posted by AppleInsider

Upon last check in November of 2005, Apple ranked seventh on the list of leading U.S. music retailers, having then passed Tower Records, Sam Goody and Borders to crack the Top-10 for the first time.

Didn't Jobs say at MWSF in January that Apple was fifth? And that Apple was targeting Target?

[DaveGee]

Originally Posted by mark2005

Didn't Jobs say at MWSF in January that Apple was fifth? And that Apple was targeting Target?

Sounds (more than) vaguely familiar...

Dave

[addabox]

And remember, these numbers compare Apple selling mostly one track at a time against the big box retailers selling full CDs.

I think the shifting positions are at least as much a result of collapsing CD sales as it is increasing online sales.

[AISI]

Originally Posted by mark2005

Didn't Jobs say at MWSF in January that Apple was fifth? And that Apple was targeting Target?

Yep, it went like this.

- In November of 2005, Apple ranked seventh on the list of leading U.S. music retailers.

- It's Show Time Special Event Sept 2006: "iTunes is now the fifth largest legal reseller of music in the US. We're on a trajectory to surpass Amazon and become #4 in January."

- MWSF 2007: "We have now passed Amazon; we sell more music than Amazon and we are now #4. And you can guess who our next target might be."

- Today, the iTS is the third largest U.S. music retailer.

[TBaggins]

This is all good for giving Apple a stronger hand in negotiations with the idiot suits at the major labels.

I remember one of them complaining in an interview, only a year or two back, about how Apple was a "pygmy", and how Apple only controls 2 or 4 percent of music sales or whatever. His point was that the iTunes Store and online distribution in general didn't matter compared to CD sales, so the major labels should feel free to run roughshod over Apple in any negotiations.

Looking at how sales numbers are trending, if it wasn't obvious then that that guy was an idiot and emblematic of the lack of vision that's been afflicting the music industry, then these numbers ice it.

Apple/iTS will likely be the #1 seller of music within a couple of years. Wal-Mart and Best Buy don't even care about music that much, CDs are a loss leader for them, basically. It could just as easily be DVDs or video games, far as they're concerned (and already is, in some cases).

Reality to music industry: Adapt.

.

[eAi]

Originally Posted by TBaggins

CDs are a loss leader for them, basically. It could just as easily be DVDs or video games, far as they're concerned (and already is, in some cases).

Reality to music industry: Adapt.

.

Its not really that different for Apple - Music is a loss leader for them - they use it to sell iPods... If some new competition came along, Apple could seriously subsidise the music store.

[Danboy]

The further we move up the chart the more content we'll get, and the better the quality will be. I'm freaking stoked.

[Denton]

Originally Posted by eAi

Its not really that different for Apple - Music is a loss leader for them - they use it to sell iPods... If some new competition came along, Apple could seriously subsidise the music store.

Apple can't be a loss-leader when they're making money on each song: this was the latest break-down of the costs of each track that Apple sells.

However, Apple does use the iTS to sell iPods -- no argument there.

[TBaggins]

Yep, Apple does make a small profit off the iTunes Store. As you say though, the primary goal is to sell more iPods.

Therefore, its not a loss-leader business, nor is it a business that Apple will just walk away from or heavily deemphasize, any time soon.

.

[JeffDM]

I'm surprised by the poll results, so far, 80% favor the $0.99 version. I didn't think that it would be so decisive

[TBaggins]

Originally Posted by JeffDM

I'm surprised by the poll results, so far, 80% favor the $0.99 version. I didn't think that it would be so decisive

It's about what I would've expected.

.

[addabox]

Originally Posted by TBaggins

This is all good for giving Apple a stronger hand in negotiations with the idiot suits at the major labels.

I remember one of them complaining in an interview, only a year or two back, about how Apple was a "pygmy", and how Apple only controls 2 or 4 percent of music sales or whatever. His point was that the iTunes Store and online distribution in general didn't matter compared to CD sales, so the major labels should feel free to run roughshod over Apple in any negotiations.

Looking at how sales numbers are trending, if it wasn't obvious then that that guy was an idiot and emblematic of the lack of vision that's been afflicting the music industry, then these numbers ice it.

Apple/iTS will likely be the #1 seller of music within a couple of years. Wal-Mart and Best Buy don't even care about music that much, CDs are a loss leader for them, basically. It could just as easily be DVDs or video games, far as they're concerned (and already is, in some cases).

Reality to music industry: Adapt.

.

It's also striking to note the difference between the Apple music retail "experience" and the remaining brick and mortar vendors.

Time was, the speciallty music stores like Tower went out of their way to create a "music lovers" ambience, with instore graphics, extensive catalogues, accessories, albums being played over the store PA, etc.

Nowadays the CD buying experience at Best Buy or Walmart reduces that to nothing much better than the "cereal buying experience."

iTunes, on the other hand, has the luxury of maintaining a much more music-centric "place", with all kinds of info, samples, graphics, massive catalogue, easy and cross-linked browsing, etc.

Of course, that is potentially true of any on-line music store, but its domination of the market allows iTunes to most fully exploit the shift from the Tower and Virgin megastore music shopper world to the online music shopper world.

The Best Buy and Walmart music shopper world is already dead, they just don't know it yet.

[JeffDM]

Originally Posted by addabox

The Best Buy and Walmart music shopper world is already dead, they just don't know it yet.

To make that argument fly, I think you would have to explain why a "dead" reatail format still holds about three quarters of all music sales. It sounds anything but convincing to me until the numbers are fiipped around to close to 20%. In fact, the argument almost sounds quixotic, with the only difference being that it will eventually be true, in maybe under a decade, just not now. Keep in mind that Apple took five years to get to where it is now.

In the retail case, basically the market has spoken, that generally buyers would rather buy discs in a warehouse at loss leader prices than have a good shopping environment with a deep catalogue and pay near or at list price. The Internet world changes that mainly because retail "space" is far cheaper, so you can have decent prices and still offer a deep catalogue with easy sampling in the comfort of your own home.

[addabox]

Originally Posted by JeffDM

To make that argument fly, I think you would have to explain why a "dead" reatail format still holds about three quarters of all music sales. It sounds anything but convincing to me until the numbers are fiipped around to close to 20%. In fact, the argument almost sounds quixotic, with the only difference being that it will eventually be true, in maybe under a decade, just not now. Keep in mind that Apple took five years to get to where it is now.

In the retail case, basically the market has spoken, that generally buyers would rather buy discs in a warehouse at loss leader prices than have a good shopping environment with a deep catalogue and pay near or at list price. The Internet world changes that mainly because retail "space" is far cheaper, so you can have decent prices and still offer a deep catalogue with easy sampling in the comfort of your own home.

The trend is plain and it is accelerating. Of course it is not true right now, but the writing is on the wall (hence, "dead but don't know it yet").

CD sales are dropping precipitously, and the decline is accelerating, so consumers appear to be voting, just not the way you think.

Meanwhile, online sales continue to explode (not to mention file sharing).

A decade? Not even close.

[JeffDM]

Originally Posted by addabox

The trend is plain and it is accelerating. Of course it is not true right now, but the writing is on the wall (hence, "dead but don't know it yet").

"Writing on the wall" is certainly not dead yet. It's not dead until it's dead.

CD sales are dropping precipitously, and the decline is accelerating, so consumers appear to be voting, just not the way you think.

With regard to the voting, I think you misunderstood the tense of my analogy.

A decade? Not even close.

I'm not convinced of that yet, there is not much, if anything that supports a significantly shorter timeline, such as if you mean to suggest five years or less. I need to play with some numbers, though I don't expect to be able to find nearly enough information to make anything better than a half-assed projection, but I think it would be better than an out of the ass projection. So far, the transition is relatively pokey in comparison to the VHS-DVD transition, which passed 50% in about five years. In the same relative time frame, CDs vs. paid downloads might be 12% at five years now since iTunes Store was opened.

[addabox]

"Dead bit doesn't know it yet" generally means something like "subject to irreversible trends that lead to its demise" AKA "the writing is on the wall".

If the point of contention is around "dead now" vs. "dead shortly" then we have none.

At any rate, according to this , digital surpasses physical in 3 years.

Yes, you're right, I mistook your point on the current preference for big box retail over the speciality brick and mortar outfits. The point you were actually making is absolutely correct.

[MacGregor]

Originally Posted by JeffDM

To make that argument fly, I think you would have to explain why a "dead" reatail format still holds about three quarters of all music sales. It sounds anything but convincing to me until the numbers are fiipped around to close to 20%.

Think vinyl, cassette tapes, eight tracks .... "dead" is relative. I can see WalMart still having lots of CD's for those not into computers and I see specialty stores thriving with as people are more able to explore music and they want to go beyond the iTunes Store.

I personally would be sad to see the market get too monotone, even under Apple, but the look of the independent stores that specialize in albums, tapes and CD's ... gives me hope that they will be still strong in the market for decades to come, just as people rediscover phonographs again.

Originally Posted by JeffDM

In fact, the argument almost sounds quixotic, with the only difference being that it will eventually be true, in maybe under a decade, just not now. Keep in mind that Apple took five years to get to where it is now.

Yes, under a decade is a faster shift than we had from vinyl to CD's. That isn't quixotic in the music business, it is seismic.

Originally Posted by JeffDM

In the retail case, basically the market has spoken,

No, the market is speakING. Not past tense. Present tense. And as the market changes, it continues to speak.

Originally Posted by JeffDM

that generally buyers would rather buy discs in a warehouse at loss leader prices than have a good shopping environment with a deep catalogue and pay near or at list price. The Internet world changes that mainly because retail "space" is far cheaper, so you can have decent prices and still offer a deep catalogue with easy sampling in the comfort of your own home.

Yes, that is the advantage of technology. Yet theaters and art museums are still doing well and even expanding in many cities and even smaller towns. Even the WalMart rural shoppers will eventually want more than cheap, they'll want quality and culture and I see technology allowing better music and theater experiences in smaller and smaller markets as long as the big corporations don't put a stop to it. Podcasts and YouTube are showing everyone the diversity of content that can be produced. Hopefully the post-iPod generation will actually start using the iMovie, iDVD software out there and find the desire to become more producers than consumers.

That is the basis of the optimism behind Jobs' vision of the computer still being the digital hub. Not to over-romanticize it, but I think people will find more inspiration to be creative by exploring iTunes than wandering WalMart and in the end we all want to be inspired and creative.

[meh 2]

As for "being dead and not knowing it", such is a continuum that is highly specific to the nature of the beast presently being considered.

I plainly remember when CNN began broadcasting in the early 80's - 24 hr. coverage. I believe it was William S. Paley (founder of CBS) - who was interviewed at the time - who piously said "We aren't concerned about cable network TV. There's not a single cable network that wouldn't give up their future to have what we have today."

I believe this was the same "visionary" who had previously sold the New York Yankees to Steinbrenner in the early 70's for less than ten million dollars! I remember Forbes running an article last year, mentioning that the Yankees were presently worth something like one and a quarter BILLION dollars.

[caliminius]

Originally Posted by addabox

The trend is plain and it is accelerating. Of course it is not true right now, but the writing is on the wall (hence, "dead but don't know it yet").

CD sales are dropping precipitously, and the decline is accelerating, so consumers appear to be voting, just not the way you think.

Meanwhile, online sales continue to explode (not to mention file sharing).

A decade? Not even close.

Honestly, I don't think the fate of the CD (or any other physical format that may try to replace it) is nearly as bleak as most perceive. I think what were seeing is that the "bubble" of CD growth has finally reached its limit and is now starting to shrink down to its realistic size. When the CD format was first introduced, people needed to replace their records, cassettes, 8-tracks with CD's. Thus CD sales were huge and have been huge as that continued. Now that people have mostly completed their music collection, sales are naturally dropping off and no format has come along to force another upgrade cycle (despite the efforts of the minidisc, DVD-Audio and SACD).

The same trend can be seen in DVDs; now that most of the major films are out on the format, sales have started to taper off because there's basically only new films left for consumers to purchase. Music and film industries keep trying to tap into that market by reissuing CD's and DVD's with new content, but unlike the first release only a small percentage are going to upgrade. The movie industry is trying to create another upgrade cycle (and thus a growth buble) via HD, but have already screwed up by having 2 competing formats with HD-DVD and Blu-Ray. The hardware manufacturers have likewise screwed this conversion up by rushing hardware out the door with incomplete specs (HD-DVD players that can only output 720p vs. the full 1080p and Blu-Ray players that don't conform to the format's complete specificiations [because those specs weren't complete when the device was manufactured]).

It would be interesting to see a breakdown on how sales of catalog titles are selling versus new releases, both on the digital and the physical formats. If there was historical data on the matter, I'd imagine you would see that as more purchases have transitioned from catalog to new releases, it also matches the decline in music sales.

Also, I wonder if iTunes "sales" include the 2-3 free tracks that iTunes gives away each week. These are primarily the only purchases I make from iTunes with everything else being physical.

It should also be noted that both vinyl and SACD are still very much alive in Europe.

[Louzer]

Originally Posted by jonessodarally

I'd be curious to see how many of the purchases are done using gift cards. I know I've noticed lately that there are a lot more people who casually throw out comments like "Oh, I've been meaning to buy that CD.. I got an iTunes gift card and I've been waiting to find something to use it on."

It's an easy gift to give, and it's hard to find someone who wouldn't want one.

More people would rather have an Amazon gift card then an iTunes one. Not everyone has an iPod or want to buy DRM'd music.

Originally Posted by TBaggins

This is all good for giving Apple a stronger hand in negotiations with the idiot suits at the major labels.

Sorry. But major labels are headstrong stubborn beasts. Plus, if people want music, they'll buy music. They've got lot's of other outlets to make sales. They still sell many more orders of magnitude of CDs then they do of digital music.

Plus, umm, how do I put this nicely....the label heads have not been feted for their superior intelligence.

[addabox]

Originally Posted by caliminius

Honestly, I don't think the fate of the CD (or any other physical format that may try to replace it) is nearly as bleak as most perceive. I think what were seeing is that the "bubble" of CD growth has finally reached its limit and is now starting to shrink down to its realistic size. When the CD format was first introduced, people needed to replace their records, cassettes, 8-tracks with CD's. Thus CD sales were huge and have been huge as that continued. Now that people have mostly completed their music collection, sales are naturally dropping off and no format has come along to force another upgrade cycle (despite the efforts of the minidisc, DVD-Audio and SACD).

The same trend can be seen in DVDs; now that most of the major films are out on the format, sales have started to taper off because there's basically only new films left for consumers to purchase. Music and film industries keep trying to tap into that market by reissuing CD's and DVD's with new content, but unlike the first release only a small percentage are going to upgrade. The movie industry is trying to create another upgrade cycle (and thus a growth buble) via HD, but have already screwed up by having 2 competing formats with HD-DVD and Blu-Ray. The hardware manufacturers have likewise screwed this conversion up by rushing hardware out the door with incomplete specs (HD-DVD players that can only output 720p vs. the full 1080p and Blu-Ray players that don't conform to the format's complete specificiations [because those specs weren't complete when the device was manufactured]).

It would be interesting to see a breakdown on how sales of catalog titles are selling versus new releases, both on the digital and the physical formats. If there was historical data on the matter, I'd imagine you would see that as more purchases have transitioned from catalog to new releases, it also matches the decline in music sales.

Also, I wonder if iTunes "sales" include the 2-3 free tracks that iTunes gives away each week. These are primarily the only purchases I make from iTunes with everything else being physical.

It should also be noted that both vinyl and SACD are still very much alive in Europe.

The idea that CD sales are taking a hit because people are just now finishing up replacing cassettes or 8 tracks is kinda...... unlikely.

CD sales overtook vinyl over 15 years ago, and vinyl has been essentially dead for the last 10 (the occasional effusions of analogue fans notwithstanding), so I also think the idea that CD sales are just now collapsing due to the far edge of a "bubble" doesn't hold much water. The top music consuming demographic didn't even start buying music until after CDs were firmly entrenched as the format of choice.

DVD sales don't tell us much because movies are such a different animal than music, typically purchased as part of a "collection" rather than something that will be viewed many many times and with far slower "turn-over" in demand.

Sure, vinyl will hang in there as a specialized fetish-- every few years you see articles about the "resurgence of the LP" among hip young analogue fans-- but that only means a slight up-tick of a tiny segment of the market.

We're way past the analogue conversion phase and well into the no-physical media phase; now that the specialty CD retailers are fading from the scene I expect to see the steady shrinking of floor space given over to CDs at the big box retailers in favor of DVDs, which in time will also succumb to digital downloads.

[caliminius]

Originally Posted by addabox

The idea that CD sales are taking a hit because people are just now finishing up replacing cassettes or 8 tracks is kinda...... unlikely.

CD sales overtook vinyl over 15 years ago, and vinyl has been essentially dead for the last 10 (the occasional effusions of analogue fans notwithstanding), so I also think the idea that CD sales are just now collapsing due to the far edge of a "bubble" doesn't hold much water. The top music consuming demographic didn't even start buying music until after CDs were firmly entrenched as the format of choice.

You sort of proved my point. The top music consuming demographic is also the one with the smallest catalog of music to buy. Newer artists have fewer albums for younger generations and thus less CD's to buy in order to complete the catalog. I'm just over the 30 year old mark, and for the past few years have really lacked the resources to invest in music. Now that I have the resources, I've purchased over 50 CD's this year (I think I purchased maybe 6 all last year for comparison). I can easily say that most of the music I've purchased predates the tastes of the top music demographic. If I had the resources to create the music collection I have now years ago, I would maybe have bought 10 CD's this year. Maybe this helps to more clearly illustrate the bubble I'm referring to. Ten years isn't really all that much time to complete a large music collection if you think about them buying maybe 2-4 CD's a month.

It's also not simply about having to replace vinyl and cassettes, it's also about filling in the gaps of that music collection for the albums that never got purchased in the first place.

And personally I can't see the potential replacement of CDs (or DVDs) with digital downloads as some great step forward, not when even with "iTunes Plus" there is a serious lack in quality. Or how much of a step back iTunes videos are in comparison to DVD.