Can iTunes help music sales sprout higher?
Analyst's report shows business at iTunes taking a dive, as consumers are opting to download single tunes instead of entire albums, adding pressure to declining sales in the music industry

By Eric Benderoff
Tribune staff reporter
Published December 13, 2006

A new report on digital music sales casts doubt on the power of Apple Computer Inc. to reshape the music industry and turn around a long-term slump in music sales.

The report, from Forrester Research analyst Josh Bernoff, showed that sales at Apple's iTunes Music Store dropped dramatically in the first six months of 2006. Since January, the number of monthly transactions declined 58 percent, while the number of songs purchased each time fell 17 percent, leading to a 65 percent overall drop in monthly iTunes revenue, according to Bernoff.

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The first-of-its-kind analysis of iTunes, by far the leading retailer of legal music downloads, shows that it "is not the engine that will restore the music business," Bernoff said in an interview Tuesday.

Yet the iTunes store is successful, selling more than 1.5 billion songs since its inception in 2003, making it the fourth-largest music retailer in the country, said Natalie Kerris, a spokeswoman for Apple.

"The conclusion that iTunes sales are slowing is simply incorrect," she said in reaction to the Forrester study. Sales at iTunes "account for 6 percent of all music sold in the U.S." Kerris declined to disclose detailed sales data.

Aside from the issue of iTunes' sales trend, Bernoff's research spotlights a significant shift in how people are buying music online: They want singles more than albums. That trend is putting further pressure on overall music sales, which continue to drop steadily year after year.

Indeed, according to data released in October from the Recording Industry Association of America, sales of digital singles increased 71.3 percent in the first half of 2006, with 286.3 million singles sold. That's up from 167.1 million digital singles during the first six months of 2005.

But sales of digital singles are not picking up the music market. According to the RIAA, the overall estimated retail value of the music industry--including both digital and physical sales--declined 6.1 percent in the first half of the year.

Shipments of CDs and music DVDs to retailers fell 15.7 percent in the first six months of 2006. That continues a free fall of music sales that began in 2000, when CD shipments reached 942 million. By 2005, CD shipments were only 705 million.

The shift in buying habits is only part of the problem for the music industry.

Accurate figures are hard to determine, but piracy continues to plague the industry as people swap music at illegal file-sharing sites and trade burned copies of new CDs with friends.

If the music industry hoped that Apple's model of selling digital music would stop the current slide, Bernoff's report appears to be a cold splash of water in the face.

His research shows that people who buy an iPod go on to purchase only about 20 to 23 songs at Apple's online music store. Bernoff's conclusions came from credit card transactions, Apple press releases and Forrester consumer surveys.

At iTunes, "it's mostly people buying one, two or three songs at a time," he said. "It's different than what people thought was going to happen when the iTunes store opened."

Bob Merlis, a long-time executive with Warner Bros. Records and now a Los Angeles-based music industry consultant, said the iTunes phenomenon of purchasing individual songs "is not healthy for the music industry."

"It doesn't address something that albums and full CDs did, which is having a body of work from an artist," he said.

"It's so fragmented now. You get the song you like but you don't get to know the artist anymore. It encourages this rapid turnover," he added, pointing out that a band like U2 achieved its popularity because fans came to know them through a substantial body of work.

"If U2 came along right now, would they have the staying power? It would be very difficult to maintain that ongoing interest," Merlis said.

Nonetheless, despite overall declines in sales, digital music is a bright spot.

"This is a marketplace that went from nothing three years ago to already this year surpassing a billion dollars in retail value revenue," Jonathan Lamy, senior vice president of communications at the RIAA, said in an e-mail. "That's encouraging and will only continue to grow in the future."

At EMI Group, digital music sales grew by 68 percent for the first half of 2006, according to company figures. Digital revenues accounted for 8.5 percent of all sales, up from 5.4 percent a year ago.

Furthermore, 10 percent of sales for Coldplay's X&Y album have been in the digital format. Of those sales, 35 percent have been by track and 65 percent were in album format. EMI called it good evidence that people do want full albums in digital formats.

On the other hand, 70 percent of digital sales for Gorillaz--another popular EMI artist--have been in track format and 30 percent in the album format. The information didn't mention specific Gorillaz albums or songs.

Merlis said one way to get more from digital downloads is to offer more value for the consumer.

"In the album era, and with CDs, you get lyrics and nice packaging," he said. "More value equals more consciousness by the audience that this is good. If it's just a song, it's not that compelling."

To that end, he noted that many downloads will start coming with lyrics, thanks to new agreements with record labels.

Gracenotes, which provides data such as song titles to digital download services including iTunes, will launch its lyric service early next year. The company has agreements with each major record label.

Roger Faxon, co-CEO of EMI Music Publishing, which agreed to work with Gracenotes last week, called it a "landmark deal" to open new digital opportunities.

How CLULESS is the record business? If they continue 2 push a POOR products the sales will continue 2 plummet. If they spent more time making Quality cd's with TALENTED artist, people would be inclined 2 purchase more cd's.

A look at the Billboard top 200 at ANY given time is a look at an industry in DECLINE. 200 acts with less than 5% actual MUSICIANS.

What a joke.

This shouldnt be a shock, lets be serious, Digital may be the big thing and the iPod's and downloading but why would anyone think it would help the industry? The sales should be falling because their are others emerging to compete with iTunes and now artists are doing the downloads from their own sites and from their myspace sites. Also there are people that still want the "phsyical" cd in their hands, though i have had an iPod for over 2 years i have not to this day downloaded an album from iTunes, here and there i have gotten a bonus track not available or a single before a cd was out, but sorry i want the physical thing and i know alot of people want the artwork and the lyrics, and sure people will say download it, does the industry think people can be bothered to do all that? so with the decline in stores actually having music its all a domino effect, but its time this whole thing crashed anyway, and lose the charts and soundscan and labels

Cingular should get together with Apple and release an I-pod phone.

asg said:

What he fails to mention is that the labels don't ALLOW bands to develop like they did with U2 in the early 80's. If U2 released their first couple singles and albums today, and they sold like they did then, they'd never get a chance to make it to The Joshua Tree or Achtung Baby, they'd have been dropped long before then.

NorthernLad said:

exactly. and i hope Bob Merlis gets indigestion from his suggestion. comparing u2's artistry to the shit that gets spoonfed to audiences is just criminal. maybe if cds had more than one or two good tracks people would buy the whole record and not opt for single tracks.

pkidwell said:

They already did that I believe...

ABeautifulOne said:

My cell phone can play music but what a WASTE. The ONLY thing I need my phone 2 do is make and receive PHONE calls.

ABeautifulOne said:

yep, they did...the blackjack, the cingular sync, etc. Actually, I think it is a great idea. I bought my son a cingular sync for christmas with the wireless jabra headset, you can control your music through the headset, as well as manage your calls. i personally like this idea because i use my ipod ALOT, and am constantly having to take off the headphones to answer a call....or sometimes can't hear the phone ring because of the ipod playing...this is a win win situation. the music automatically stops when a call comes in, and then restarts when you end (or reject) the call.

sallysassalot said:

That rhymes!!

pkidwell said:

ABeautifulOne is also correct. The Cingular RAZR has iTunes support.

NorthernLad said:

Co-sign
The recording industry, now just want to make disposable albums, that can have temporary success, quick cash, and go right into the next one.
There might be legendaryy bands out now, but we'd never know cause labels don't give the freedom they use to, they nix all tracks that they deem arent "Pop Friendly". Which is really sad cause alot of the times the tracks you think won't be successful are, super hits. Record companies are scared to take a loss, and sometimees you have too when pushing a talented artist, in the right direction. They don't look for the long term prosper, which is having a super talented artist loyal to your company. They look to the right now golden parachute term. Which iis throw money at your client and use them for a quick buck then throw them away.

EmbattledWarrior said:

AMEN!!! Every single word of Truth about this industry that is now complaining about its decline. And like a drug addict it doesnt blame itself for its problems, you never hear them say, "we should invest in artists instead of HYPE". There is no investment in artists, no one is working to get "van hunt, ryan adams, kindred, Res, Rashaan patterson, etc...played, theres really no angle that these artists can be sold on, the label doesnt really care about their talents, they want the NEXT BIG THING, that opening week at Number 1. All those years people calling PRINCE bitter and crazy about his issues with labels, now the writing is on the wall, and its getting ready to crash, and like George Carlin said about the world ending "Good, we had our shot and fucked it up".

Talented artist or not, people r not going 2 pay 4 something that is available 2 them 4 free. Quality of content (which is subjective) has nothing 2 do with it.

I blame this entirely on the music business. Greed is going 2 b the iceberg that sinks this ship. Raising the prices of CDs, discontinuing the production of singles, it goes on and on. 4 years record executives were already getting the biggest piece of the profit pie. A decade ago, they decided they wanted more, and now here we r. Once file sharing came about, it was game over.

Stax said:

I always thought the Rokr was the first phone to have iTunes support...

npgmaverick said:

True but pricing still isnt the issue, at this point any chain that had to charge higher prices to break even has been run out of business by Best Buy and Target, and now those chains are feeling the crunch and are going to start downsizing. Albums were just as pricey back in the vinyl days, i remember paying 6-8 dollars for new albums, but back then bootlegging was non existant because technology didnt exist the way it does now. Back in the 80's i didnt walk in NYC and see bootleg vinyl on every street corner for 3 bucks, now it takes about 5 minutes or less to copy a cd, xerox a copy of the cover and boom there you go. Technology is the real killer in the corner of the room, the easier it gets to produce music, the easier it gets to steal it. If you want to see a drastic change in climate, look at the years top 50 albums, Rap albums, which have been the "cash cow" for labels charted 5 out of 50, and one of them were BEP which really is a Pop group and one was a soundtrack and one was a "best of". The artists to a certain extent have to be the blame, along with labels. And i dont buy the argument "Theres good music out there, you have to look for it" then why does Radio/Music Tv and labels exist, arent they supposed to mediate and sift through the shit, thats their job.

ABeautifulOne said:

I think you are right. On top of that, its not the RAZR, but the SLVR that has iTunes support.
[Edited 12/14/06 15:36pm]

Graycap23 said:

So by your own definition, you don't have a stereo in your car, because you only want to DRIVE?

npgmaverick said:

true and not true
believe it or not loyal fans will buy the album if the album is worth it...
meaning 3 or 4 quality singles on there
no one wants to buy anything they're not going to listen to

npgmaverick said:

I don't agree. I still buy cd's on a regular basis and most everyone I know do as well. The stuff that I download is stuff that I wuold NEVER buy anyway. Plus, the quality of downloads, the potential viruses, the LACK of actual media in my hand all play a role 4 me.

That's not 2 say the a lot of people don't fall into what u are saying because they do. Its interesting, the record companies want u to think they are losing money but they are NOT. Because of the explosion of the digital age, these same companies are now making MONEY on the blank DVD/CD media, harddrives, flashdrives, burners and other technologies. Don't be fooled by the hype of them CLAIMING that they are losing money.

Aren't the sales of vinyl get higher and higher?

SquirrelMeat said:

WTF does that have 2 do with a PHONE?

lastdecember said:

Hey they want you to buy what they want you to buy.

um, what's surprising about this?


first of all, sales are always down in the first 6 months of the year.

second, they're just realizing that people are more interested in singles than albums? um, they always have been. that's why rock & roll and soul / r&b were singles-driven genres in the 50's & 60's (and pretty much all other genres of popular music prior to that). are they aliens that just came to earth and realized this? the difference in the last 10 years is that there were fewer and fewer singles to buy. so now that there's an outlet to buy singles again, people are buying singles again.

it's no mystery or the end of the music industry.