PiperJaffray refutes claims of 'collapsing' iTunes sales

Posted:
in iPod + iTunes + AppleTV edited January 2014
Analysts for PiperJaffray are refuting claims recently made by Forrester Research that sales at Apple Computer's iTunes Store are declining rapidly, stating instead that their own analysis reveals strong growth.



"In light of recent media reports of slowing iTunes sales, we analyzed music sales data and saw strong year-over-year growth in 2005 and 2006," analyst Gene Munster informed his clients in a research note Wednesday.



In refuting claims made by Forrester Research that Apple's iTunes sales are 'collapsing,' the analyst used the iPod maker's announcements of iTunes sales milestones to interpolate weekly run-rate figures for the period between announcements, therefore accurately tracking iTunes sales growth.



Specifically, he compared total sales between January and September of 2005 and 2006 and saw 78 percent growth during that period. "From Jan. to Sept. in 2005 Apple sold 10.4m songs/week and in 2006 that number was up 78 percent to 18.5m songs/week," he wrote.



Munster acknowledged that with only two full years of iTunes Store data, he is able to identify several seasonal sales trends but not all.



"It is clear, for example, that iTunes sales spike upward in January," he wrote. "In the month of Jan-05 the store's songs-per-day average was up 58 percent sequentially and in Feb-06 (the closest data point year-over-year) the store's songs-per-day average was up 51 percent sequentially."



The analyst attributes the post-holiday growth to new iPod owners and iTunes gift card users, saying he expects another uptick in early 2007. In what he views as a "regular seasonal" trend, Munster noted that the iTunes weekly sales rate declined in both 2005 and 2006 (-5% in '05 and -27% in '06) post-holiday.



"While Apple does not release the financial details of the iTunes Store, the company has indicated that they run the store 'above break-even,'" he told clients. "The iTunes Store, therefore, is a supplement to the iPod as Apple's vehicle to monetize the free iTunes software."



Munster explained that the integration of iPod with the iTunes software along with some profitability from the iTunes Store represent the three ingredients of Apple's digital music ecosystem.



"We continue to believe the shift to online distribution of media is in its infancy," he said. "We estimate 5 percent of worldwide music sales were online in 2006."
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Comments

  • Reply 1 of 38
    Just to say first post woohoo!!



    Of course iTunes sales are going up! The more people see the advantage of buying songs instantly rather than waiting until the next day, when you've probably forgotten what you wanted, the more people use the service. I buy more songs on iTunes than ever, because I mostly don't want the whole album.
  • Reply 2 of 38
    I am glad to see this story come out. Now that we have more accurate numbers I changed my mind about what I said regarding the video iPod. With this impressive sales growth by iTunes, it now make perfect sense to transition into video. With iTV and a new video iPod combined with a larger selection of movies with improved quality, we should see similar results in video sales at iTunes. I will be one happy AAPL owner in two years
  • Reply 3 of 38
    macrrmacrr Posts: 488member
    Forrester should be sued- some poor trigger happy saps sold their stock yesterday based on that report, and now it ran up.



    Stock manipulation at its worst.
  • Reply 4 of 38
    Quote:

    The analyst attributes the post-holiday growth to new iPod owners and iTunes gift card users, saying he expects another uptick in early 2007. In what he views as a "regular seasonal" trend, Munster noted that the iTunes weekly sales rate declined in both 2005 and 2008 (-5% in '05 and -27% in '06) post-holiday.





    I didn't realize they released their 2008 figures yet.





    When I read the forrester report I figured it was shenanigans. It must have been nice for their friends who wanted to get in the stock on the cheap for the big run up. Market manipulation if I have ever seen it. I still don't understand how they can claim to have credit card data from the iTunes store. Apple doesn't even report quarterly sales numbers for the iTunes store and they claim to have analyzed all related credit card data. I don't know where they are getting it from, but I believe that would violate privacy policies. I believe the Forrester report was in the same paper who did the report awhile back which accused Apple of using 3rd world sweat shop labor.



    It surprises me that people like Forrester can get away with this. It was the perfect time to drop the stock after a decline in order to let people get in at a great price.
  • Reply 5 of 38
    Quote:
    Originally Posted by nutrix


    Just to say first post woohoo!!



    Of course iTunes sales are going up! The more people see the advantage of buying songs instantly rather than waiting until the next day, when you've probably forgotten what you wanted, the more people use the service. I buy more songs on iTunes than ever, because I mostly don't want the whole album.



    "Waiting until the next day", what are you talking about?? If I want a CD, I drive 5 minutes to the nearest Wal*Mart, Target or Best Buy. And since I'm fresh out of college and don't have a full-time job yet, I can't afford anything but dial-up. So in a race, a 15 minute trip to the nearest Big Box is quicker for me than the iTS. PLUS if I was a total audiophile, I could rip the music at a higher bitrate for better quality... something that the iTS doesn't offer.



    SECONDLY, this might be just me, but I am ALWAYS finding favorite songs on an album that I had never heard before and hadn't anticipated liking. Like, I'd buy an album for a certain song or two but end up LOVING three or four others even more. As a result, I am unwilling to settle for what the radio sh!ts out these days. It's all-or-nothing as far as albums are concerned.



    -Clive
  • Reply 6 of 38
    Quote:
    Originally Posted by AppleInsider


    "We continue to believe the shift to online distribution of media is in its infancy," he said. "We estimate 5 percent of worldwide music sales were online in 2006."



    Maybe it's me but once DRM is bullet proof I see CDs going the way of dinosaurs. I envision digital distribution as the ONLY way of purchasing music in the future.
  • Reply 7 of 38
    That would definately stop piracy but it would be hard to get bullet proof DRM.
  • Reply 8 of 38
    The amazing thing about the Forrester guy and their study is that in spite of Forrester's "research", Apple actually breaks out their iTunes sales numbers each quarter in their earnings report. Has this guy not seen or bothered to review these numbers before putting out this "report"?



    I suppose this isn't that surprising when you consider this is the same person who once upon a time predicted that a) consumers would reject HDTV because "people can't tell the difference when looking at it side-by-side with standard NTSC" and b) Tivo would take over the world and become a $100 stock or some such rubbish. Wow...people actually pay big money for this "insight"!



    At least the Forrester report provided a good chance to pick up a few $$$ on the stock...
  • Reply 9 of 38
    Because of privacy concerns (it's hard to see how a corporation or a

    bank would yield credit card transaction records), I wrote to Forrester

    about the data. It is indeed like a voluntary "Nielsen rating" system.



    From the report (Methodology section):



    The data for this report came from Forrester's Ultimate Consumer Panel (UCP), a nationally representative panel of more than 7,000 US online consumers. The UCP passively and continuously tracks statement and transaction activity for credit cards and debit cards used by panel households. To derive the iTunes data above, Forrester analyzed nearly 2 million credit card and debit card transactions for the 27-month period from April 2004 to June 2006. Transactional data is based on 2,791 iTunes purchases from this period.



    Data for iTunes households was aggregated over the past 12 months, from July 2005 to June 2006, and was restricted to include only the 5,580 households that were active members of our panel for all 12 months. The sample size for iTunes buyers is 181 households.
  • Reply 10 of 38
    jeffdmjeffdm Posts: 12,946member
    Quote:
    Originally Posted by backtomac


    Maybe it's me but once DRM is bullet proof I see CDs going the way of dinosaurs. I envision digital distribution as the ONLY way of purchasing music in the future.



    iTunes took three years to get to 5%. Even an additional 5% a year would mean about two decades.



    I don't understand why you think that DRM would encourage the decline of CDs. There's nothing that can be put on a CD and still play, but cannot be broken.
  • Reply 11 of 38
    Quote:
    Originally Posted by Clive At Five


    "Waiting until the next day", what are you talking about?? If I want a CD, I drive 5 minutes to the nearest Wal*Mart, Target or Best Buy. And since I'm fresh out of college and don't have a full-time job yet, I can't afford anything but dial-up. So in a race, a 15 minute trip to the nearest Big Box is quicker for me than the iTS. PLUS if I was a total audiophile, I could rip the music at a higher bitrate for better quality... something that the iTS doesn't offer.



    SECONDLY, this might be just me, but I am ALWAYS finding favorite songs on an album that I had never heard before and hadn't anticipated liking. Like, I'd buy an album for a certain song or two but end up LOVING three or four others even more. As a result, I am unwilling to settle for what the radio sh!ts out these days. It's all-or-nothing as far as albums are concerned.



    -Clive



    Clive,

    The iTunes Store was not designed to "maximize profits form Clive".

    The iTunes Store is geared toward the needs of the average consumer.

    The average person (unfortunately) hears a song on the radio 10 times in 1 day.

    They want just that one song and they buy just that song on iTunes.



    Exhibit A:

    iTunes Top Songs

    1) Irreplaceable

    Beyoncé



    2)Say It Right

    Nelly Furtado



    3)Fergalicious

    Fergie



    4)All I Want for Christmas Is You

    Mariah Carey



    5)You Don?t Know

    50 Cent, Cashis, Eminem & Lloyd...



    6)I Wanna Love You

    Akon featuring Snoop Dogg



    7)Keep Holding On (From ?Eragon?)

    Avril Lavigne



    8)My Love (Single Version)

    Justin Timberlake featuring T.I.



    9)Smack That (Dirty)

    Akon



    10)It Ends Tonight

    The All-American Rejects



    I rest my case.
  • Reply 12 of 38
    Quote:
    Originally Posted by MacSuperiority


    That would definately stop piracy but it would be hard to get bullet proof DRM.



    It doesn't have to be bullet proof.

    Just inconvenient enough that the vast majority won't bother.
  • Reply 13 of 38
    feynmanfeynman Posts: 1,087member
    Quote:
    Originally Posted by backtomac


    Maybe it's me but once DRM is bullet proof I see CDs going the way of dinosaurs. I envision digital distribution as the ONLY way of purchasing music in the future.



    I for one will never purchase digital media. Heck I prefer vinyl rather than CD though both my collections are well over 1500 each (LPs 7"s and CDs). Why? Because I like to see the liner notes and the cover art. Not to mention you could do some pretty cool things with CDs and records such as color vinyl, picture discs, shaped discs.
  • Reply 14 of 38
    Quote:
    Originally Posted by Johnny Mozzarella


    Clive,

    The iTunes Store was not designed to "maximize profits form Clive".

    The iTunes Store is geared toward the needs of the average consumer.



    And Clive's original response was to refute the claim which had been made that iTunes had the benefit of being able to "(buy) songs instantly rather than waiting until the next day..." (my emphasis added).



    Clive pointed out the sheer nonsense of the statement that a bricks-and-mortar CD run could cost you 24 hours of waiting. Not true. At least, not in most (sub)urban areas, where the majority of iPod consumers probably live.



    He then went on to mention another charm about buying a whole CD, namely, the ability to discover other tracks which, despite not being the original purpose of the purchase, may end up being just as well appreciated.



    You can agree with his second point or not... but it doesn't do anything to refute his first.
  • Reply 15 of 38
    Quote:
    Originally Posted by MacSuperiority


    That would definately stop piracy but it would be hard to get bullet proof DRM.



    Quote:
    Originally Posted by Johnny Mozzarella


    It doesn't have to be bullet proof.

    Just inconvenient enough that the vast majority won't bother.



    Music will never be copy protected enough - as soon as it goes from digital to analog (i.e. when played) any DRM is lost. Therefore it will always be a relative easy task to avoid any DRM.

    (http://www.ambrosiasw.com/utilities/wiretap/)
  • Reply 16 of 38
    Quote:
    Originally Posted by lfmorrison


    And Clive's original response was to refute the claim which had been made that iTunes had the benefit of being able to "(buy) songs instantly rather than waiting until the next day..." (my emphasis added).



    Clive pointed out the sheer nonsense of the statement that a bricks-and-mortar CD run could cost you 24 hours of waiting. Not true. At least, not in most (sub)urban areas, where the majority of iPod consumers probably live.



    He then went on to mention another charm about buying a whole CD, namely, the ability to discover other tracks which, despite not being the original purpose of the purchase, may end up being just as well appreciated.



    You can agree with his second point or not... but it doesn't do anything to refute his first.



    Even if you have a one minute walk to the nearest store, I'll have my download faster.

    Again the average consumer is lazy and wants convenience more than non-DRM CDs.

    Until you can teleport CDs to people's homes, downloads will be quicker and will win in the end.
  • Reply 17 of 38
    Quote:
    Originally Posted by Kendoka


    Music will never be copy protected enough - as soon as it goes from digital to analog (i.e. when played) any DRM is lost. Therefore it will always be a relative easy task to avoid any DRM.

    (http://www.ambrosiasw.com/utilities/wiretap/)



    I think you missed my point.

    I agree the DRM can always be circumvented.

    There are lots of tools that have come and gone like Hymn to circumvent FairPlay.

    Does everyone use these tools to circumvent iTunes DRM?

    No.

    Why?

    Because the average person doesn't care or is too lazy to do it.



    The point is:

    selling music with DRM is a viable business model

    because not enough people will circumvent it to be detrimental to profits.
  • Reply 18 of 38
    Sorry for the dumb question ... why does Apple not have to disclose data for the iTunes store, considering it's a publiclly traded company ?¿?
  • Reply 19 of 38
    I have this theory that if it was not for the iPod and iTunes Store success, the good old non-DRM "Red Book Audio" CDs would have been gone already.



    Why? Because WMA and its DRM would have become ubiquitous, and by now 95%+ of digital music player sold would be WMA compatible, including CD/DVD players. In an effort to combat piracy, the RIAA would have forced the industry to move to WMA only CDs, and obviously, with DRM. No need for rootkits to hide the unprotected audio, as there would be none.



    Speaking of rootkits CDs, remember that Sony's rigged-up discs included WMA, and no ATRAC for some reason... As for including Fairplay tunes, Sony complained in its rootkit-CD FAQ that Apple wouldn't give them the license.



    The clash between audio DRM standards is what prevent the RIAA to move toward phasing out conventional CDs.



    The RIAA cannot make the move to Fairplay CDs because:



    1. Fairplay only works with the iPod (and iTunes phones).

    2. Apple doesn't want to.

    3. The RIAA wouldn't want to give Apple (more) control over audio DRM. (They had bigger plans with MS)



    I'm sure Apple plans to license Fairplay someday, but in the right context. For now, the more songs and iPods they sell, the more leverage and power they'll have when it comes to licensing, to ensure that Fairplay doesn't become a legacy format aimed at helping the transition toward WMA standardization.
  • Reply 20 of 38
    Quote:
    Originally Posted by panamajack


    Sorry for the dumb question ... why does Apple not have to disclose data for the iTunes store, considering it's a publiclly traded company ?¿?



    It does disclose data, just not detailed enough to satisfy the curiosity of rabid fans and analysts.

    Apple does this primarily as a competitive advantage



    Apple used to give exact figures for almost every model of computer they sold.

    Now they just lump all desktop sales and all portable sales together.

    Same thing with iPods.

    Apple never gives a breakdown such as

    25% shuffles

    45% nanos

    30% video



    Analysts and Apple's competitors must guesstimate.
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