PiperJaffray refutes claims of 'collapsing' iTunes sales
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."
"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."
Comments
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.
Stock manipulation at its worst.
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.
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
"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."
[ View this article at AppleInsider.com ]
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 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...
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.
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.
"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.
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.
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.
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.
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.
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/)
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.
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.
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.
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.