|Tuesday, December 12, 2006
23:02 - A sinking tide lowers all ships
Apparently iTunes sales are tanking, if you believe the forensic techniques of credit-card-snooping analysts:
Secretive Apple doesn't break out revenues from iTunes, but Forrester conducted an analysis of credit card transactions over a 27-month period. And this year's numbers aren't good.
While the iTunes service saw healthy growth for much of the period, since January the monthly revenue has fallen by 65 per cent, with the average transaction size falling 17 per cent. The previous spring's rebound wasn't repeated this year.
Wuh-oh! But then...
And it isn't just Apple's problem. Nielsen Soundscan has grimmer news for prospective digital download services, indicating three consecutive quarters of flat or declining revenues for the sector as a whole.
That's the real story: somehow the tide has turned against digital downloading in general, not against iTunes specifically. According to G4 TV's The Feed, the problem is that people are getting fed up with DRM; I think that's a load of rich creamery butter, myself, and it's notable that just like everyone else, G4 manages to misconstrue just what iTunes' DRM does to your music:
Personally, I don't mind paying a buck a song, but I don't like the idea that I can only copy it a couple times. Not as a pirating thing, but because I have a couple MP3 players and sometimes like to burn CDs for myself... so I rarely buy tracks online.
Yeah, because iTunes doesn't allow you to burn your tracks to CD or put them on multiple iPods. Right. That grinding rattle you hear is my eyes rolling.
The commenters on the G4 post (in between the predictable bitching about "proprietary" Apple and "open" Microsoft, and the usual litany of creative misspellings of I-Tunes/Itunes/Eye Toons) cite things like a lack of certain artists in the store and the limitations of dial-up Net access as their reasons for staying away from iTunes' content. A couple of people rightly point out that any digital format is dangerous if you want to be able to access your music forty years from now, and that compressed digital tracks—while plenty good enough for casual use—aren't exactly archival-quality; but people whose criteria include sound fidelity and format openness aren't people who used to buy from iTunes and have suddenly stopped.
I have this sneaking feeling that, despite the story's citation that iPod sales have quadrupled in the same period as online sales have declined so precipitously, people have reached a certain level of digital-download saturation. People are apparently realizing that you don't have to buy from iTunes to fill your iPods, and are buying CDs online more hungrily than ever. So even though downloaded tracks can be had á la carte and come with embedded album art and all, the concept has become passé. I guess buyers are making the decision that buying physical CDs still makes sense after all. Especially once you've bought a hard drive full of iTunes tracks and then found yourself faced with the onerous prospect of backing them up. At least if you buy CDs, that task is done for you. Plus the album art is nicely printed and all, and you can get the band to autograph it at a concert.
That doesn't mean I'm likely to change my buying habits. I've spent some $1500 on iTunes music thus far, including an increasing number of TV shows; but then my situation is such that backups aren't a problem for me, and I have an affinity for a medium that doesn't take up any space versus one that requires a shelf. I'm a tailor-made fit for Apple's download-to-own model, but I sort of doubt I'm representative of the general buying public. And even I'm getting lukewarm over the idea now that its reductio ad absurdum expression has arrived in the form of feature-length movies, which I am not embarrassed to say I'd love to rent for $5 a download that gives me a week or three viewings or whatever, but am not anywhere near so eager to buy them for $15 each, watch them once, and then grumblingly use up a gigabyte of backup space for each one on the off chance that I'll want to see it again in the foreseeable future. Music I can handle in that model; movies, not so much.
So I think people are just sort of waving their hands at the iTunes Store and going "ehh". It's not revolutionary like it was in 2003; music-download stores are a dime a dozen now, and the very concept has become tawdry and grimy, thanks in no small part to the proliferation of discount-feeling PlaysForSure stores jostling for mindshare in the chaotic and anonymous world of the non-Apple music player sector, not to mention the dilution of the market by music-playing cell phones that edge closer to iPod-level functionality every day. Now that even Cingular is selling a $50 iTunes-like sync-your-music-to-your-phone utility, iTunes itself is looking decidedly ordinary.
It may be that digital downloads are one of those technological flashes in the pan that seems like a brilliant revolution when it arrives, but eventually everyone realizes is not a materially better solution than what we already had—in this case, in the form of jewel-cased CDs and Amazon.com. I don't think DRM will disappear, like The Register and various countercultural malcontents seem to hope; but it may well become irrelevant. The numbers might be based on conjecture at this point, but they do seem to reflect the general sentiment I keep picking up in candid discussions, particularly where Apple fanboyism isn't the prevailing tenor of the forum.
iTunes is still a damned good MP3/AAC organizer/CD ripper. Maybe it'll be returning to its "Rip. Mix. Burn" roots. And if so, the also-rans will discover that they don't have such roots to fall back on. I wouldn't go counting Apple out of the game just yet. Nor will I be selling my stock before the holiday numbers are in...
UPDATE: Also note that the iTunes Store, with its razor-thin margins, has never been a profit center for Apple—it exists to sell iPods, as Steve has often happily said. Which just means that the other music stores that don't have iPod sales to draw on are just at that much more of a disadvantage. If iPod sales are up 400%, and people aren't abandoning iTunes in favor of other forms of digital downloads, then Apple has no reason to worry.
They win in an up market, and they win in a down market. It's good to be the Steve.
Pointed out by Damien Del Russo, whose theory suggests to me that a lot of those new iPods are probably being bought as replacements for old iPods, and don't necessarily represent new blood for the iTunes store:
Also, it may be that many people have "enough" music now. Wherever they got it, someone like me, my computer has all the old music I want - now I just buy new stuff. And new stuff is not bought nearly as quickly as when iTunes was new and I had a huge backload of artists I wanted to check out. It's not that it isn't cool, I just already have "most" of what I want. The rush was in attaining that "most" in the first place.
As for movies, you just can't beat the Netflix model. The thing that Netflix needs to do to update their model is allow for downloads instead of mailing DVDs. That is the model though - $18 a month, watch what you want from your queue, and your queue auto-updates after you watch (and confirm deletion). It is funny because it is the OPPOSITE model of what works for music. In short, renting music sucks, renting movies rocks.
I hope Apple comes to realize that, because I'd love to use iTunes for my movie-watching.
UPDATE: Depending on how you slice the numbers, the picture that emerges can vary quite a lot. Blackfriars' Carl Howe posted a rebuttal with graphs, and then an expansion, which only serve to muddle the story. As does Forrester's new response, which essentially says "Whoa, whoa, don't jump to conclusions here".
I still think my suspicions hold, and we pretty much have to wait until Steve breaks out the Keynote slides next month before we know for sure. Though I doubt he'll be calling that much attention to it if the news is bad.
Of course, "bad" is a relative term.